Arriondo v. United States

196 F. Supp. 3d 708, 118 A.F.T.R.2d (RIA) 5205, 2016 U.S. Dist. LEXIS 96304, 2016 WL 3982526
CourtDistrict Court, S.D. Texas
DecidedJuly 22, 2016
DocketCIVIL ACTION NO. H-14-2734
StatusPublished
Cited by2 cases

This text of 196 F. Supp. 3d 708 (Arriondo v. United States) is published on Counsel Stack Legal Research, covering District Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Arriondo v. United States, 196 F. Supp. 3d 708, 118 A.F.T.R.2d (RIA) 5205, 2016 U.S. Dist. LEXIS 96304, 2016 WL 3982526 (S.D. Tex. 2016).

Opinion

MEMORANDUM OPINION AND ORDER

SIM LAKE, UNITED STATES DISTRICT JUDGE

Plaintiff W. Raul Arriondo (“Plaintiff’ or “Arriondo”) was assessed a trust fund recovery penalty under Internal Revenue Code § 6672 for the fourth quarter of 2008 and the first quarter of 2009 (the “period in question”). Arriondo sued defendant the United States of America (“Defendant” or “United States”), seeking a refund for overpayment of taxes and to be found not liable as a responsible person under I.R.C. § 6672.1 Pending before the court is United States of America’s Motion for Summary Judgment Against W. Raul Arriondo and Brief (“Motion for Summary Judgment”) (Docket Entry No. 14). For the reasons stated below, the Motion for Summary Judgment will be granted, and this action will be dismissed.

I. Background

Arriondo began working for American Steel Building Company, Inc. (“American Steel”) in early 2007 and served as CEO, president, treasurer, and a director.2 He remained at American Steel until after the company filed for bankruptcy on June 5, 2009.3 American Steel was the wholly owned subsidiary of American Industrial [711]*711Investment Corporation, an Employee Stock Ownership Plan Company.4 Arriondo received an annual salary but was not an owner of American Steel or American Industrial Investment Corporation.5

Arriondo ran the business along with other employees and was part of the group that handled the day-to-day operations of the company, but he was focused on increasing sales.6 Arriondo met with company executives weekly and was informed about operations.7 At these weekly meetings, Arriondo always asked the financial director or controller if there was enough money to buy steel and to cover employee salaries.8

Arriondo had authority to hire and fire employees, the authority to enter into contracts on behalf of American Steel, and input into employee salary amounts.9 Ar-riondo was always an authorized check signer at American Steel.10 Arriondo had [712]*712access to the company’s books and records.11 American Steel received monthly bank statements, and “[Arriondo] could therefore see how much money American Steel was receiving and spending after he knew of the unpaid taxes.”12 Arriondo also had the authority to purchase and sell assets for American Steel during the period in question.13

American Steel faced financial challenges due to the economic downturn in 2008.14 Arriondo was aware of that American Steel’s finances were in trouble and that the company “always had a challenge” financially and “struggled] with cash.”15 Additionally, the prior CEO of American Steel, John Garland, had cashed out his ownership upon departure, leaving American Steel with a large debt secured by company assets.16

In April of 2009 the State of Texas sent American Steel a notice of levy for unpaid excise tax.17 Arriondo was aware of the “issues with the state controllers” towards the end of 2008.18

Q: So at the end of ’08, you were aware that the corporation was having difficulty paying taxes owed to the State of Texas?
A: The sales taxes had not been paid which I remember when I had found out, I was furious and I said well, why isn’t this — is this not being paid, you need to take care of this right away. And the — and I think [Latiolais] said well, we don’t have the funds. And I said I don’t care if we don’t have the funds. You need to go over there and make a payment arrangement because we can’t be — I said they’re going to shut us down. We can’t do that. That was— that’s how adamant I was about getting this thing taken care of. But other than that, I had no other knowledge of anything else not having been paid.19

[713]*713Latiolais, a certified public account and American Steel’s director of finance, assured him that the state tax issue was a timing issue related to a tax return, and she was able to work out a payment schedule fairly easily.20 Arriondo did not investigate further or inquire about other potential tax issues.21

Arriondo signed documents borrowing hundreds of thousands of dollars for American Steel on June 2, 2008, shortly before the period in question began.22 At one point (Arriondo thought it was March or April of 2009), Arriondo also advanced the company money to cover payroll, but he denies that he knew the financial situation was so bleak that American Steel could not survive.23

Throughout the period in question Ar-riondo was aware of the requirements to withhold and pay payroll taxes and to pay taxes quarterly.24 American Steel paid payroll taxes without incident for over a year after Arriondo began working there.25 However, American Steel’s quarterly federal tax return forms (the “Forms .941”) for the fourth quarter of 2008 and the first quarter of 2009 show taxes were still due when the returns were filed, with partial tax deposits for the fourth quarter of 2008 and no tax deposits for the first quarter of 2009.26

Latiolais served as American Steel’s director of finance from early 2008 until abruptly leaving in early 2009.27 Latiolais prepared, signed, and filed the tax return for the fourth quarter of 2008.28 She prepared the return for the first quarter of 2009, but left the company before filing it.29 Latiolais did not present Arriondo with the returns for his review, and had not done so in the past.30 Arriondo agreed [714]*714that it was ultimately his responsibility to ensure payroll taxes owed were paid, that he did not follow up with Latiolais regarding payment of employment taxes, did not ask to see payroll tax deposits, and did not ask to see any evidence that the taxes were being paid, although he could have.31 Arriondo relied on Latiolais and the “sufficient, sophisticated” procedures that had been in place and effective since before he began working at American Steel, even after learning of the delinquent state excise taxes.32

On May 18, 2009, Steve Dawson (“Dawson”), who began acting as controller after Latiolais’s departure, informed Arriondo that Latiolais had been using employee payroll tax trust fund money to pay creditors rather than the IRS and had been writing checks but not releasing them.33 That was the first time Arriondo learned of the unpaid taxes.34 On the same day, Dawson told Arriondo that American Steel did not have enough money to pay the taxes owed to the IRS.35 Latiolais had lied to Arriondo about American Steel’s finances and ceased paying tax withholdings and child-support withholdings while assuring Arriondo that the company had enough money to pay employees.36

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196 F. Supp. 3d 708, 118 A.F.T.R.2d (RIA) 5205, 2016 U.S. Dist. LEXIS 96304, 2016 WL 3982526, Counsel Stack Legal Research, https://law.counselstack.com/opinion/arriondo-v-united-states-txsd-2016.