Harold E. Harrington v. United States

504 F.2d 1306, 34 A.F.T.R.2d (RIA) 6082, 1974 U.S. App. LEXIS 6345
CourtCourt of Appeals for the First Circuit
DecidedOctober 24, 1974
Docket74-1163
StatusPublished
Cited by112 cases

This text of 504 F.2d 1306 (Harold E. Harrington v. United States) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Harold E. Harrington v. United States, 504 F.2d 1306, 34 A.F.T.R.2d (RIA) 6082, 1974 U.S. App. LEXIS 6345 (1st Cir. 1974).

Opinion

CLARY, Senior District Judge.

This appeal has been taken by plaintiffs , Harold Harrington and Francis Davis, from the entry of judgment against them in favor of the United States and from the denial of their motion for a new trial. These two civil actions were consolidated and tried before The Honorable Edward W. Day and a six-person jury resulting in verdicts against the plaintiffs on their claims for refunds and in favor of the United States on its counterclaims. For the reasons set forth in this opinion, we affirm.

The relevant facts require some exposition. On November 4, 1966, the Commissioner of Internal Revenue made an assessment of $22,585.84 against both plaintiffs under authority of Section 6672 of the Internal Revenue Code of 1954. The assessments were based on plaintiffs’ asserted liability for unpaid federal income and social security taxes withheld from employees and due and owing from D & H Building Wreckers, Inc. (hereinafter D & H) for the first and second quarters of 1963. On December 16, 1966, the Commissioner, again under Section 6672, assessed the amount of $21,311.63 against Davis. This assessment was based on Davis’ asserted liability for unpaid federal income and social security taxes withheld from employees and due and owing from Sixth Wrecking, Inc. (hereinafter Sixth Wrecking) for the third and fourth quarters of 1963.

*1310 Davis subsequently paid $1,627.71 of the assessment against D & H and $103.-59 of the amount attributable to Sixth Wrecking. Harrington paid $49.91 of the amount attributable to D & H. Both plaintiffs filed claims for refunds, and filed suit for the amounts paid when the claims were disallowed. The United States filed counterclaims totalling $31,-723.05, plus interest, this amount representing the unpaid assessments; $10,-515.01 attributable to D & H and $21,-208.24 attributable to Sixth Wrecking.

D & H was a Rhode Island Corporation arid had been in business since 1955. Davis was president, treasurer and 85'%- stockholder in the company. Harrington was vice-president, secretary and 15% stockholder. During the relevant time period, the first two quarters of 1963, the company was engaged in unrelated projects in Pittsburgh, Pennsylvania, and Providence, Rhode Island. It is only the Providence operation of D & H which is of concern here in this action.

Pursuant to a May 1962 contract, D & H was demolishing buildings for the Providence Redevelopment Agency. Payment under the contract was made following the submission of monthly requisitions by D & H for work completed. The Agency would pay the requisition, less 10% held back against completion of the entire contract. The requisition for work done in May 1963 was not paid since D &. H’s insurance on the job was cancelled. When satisfactory arrangements for reinsurance could not be made, the Agency terminated its contract with D & H.

Harrington alone supervised the D & H demolition operations in Providence, although Davis would usually fly back to Providence on weekends to discuss business matters with him. Both Davis and Harrington had authority to sign checks on behalf of D & H for the Providence operation, as did Davis’ sister, Peg Paquette, who signed checks on behalf of Davis. The Employer’s Quarterly Federal Tax Returns, Form 941, submitted by D & H were signed by Davis as president of the company.

D & H was petitioned into receivership in July of 1963, and tax liens which the Internal Revenue Service filed against D & H went unsatisfied. In answer to interrogatories, both Harrington and Davis stated that D & H had sufficient funds to pay the withholding and F.I.C.A. taxes, although they offered clarifications of these answers at trial. In any event, the taxes were not paid.

While Harrington was in Providence, Davis was supervising the demolition of the Rosenbaum Building in Pittsburgh pursuant to a contract with Tenny Realty Corporation. Due to unforeseen difficulties and labor problems, D & H fell behind in its demolition schedule. Because of financing pressures, Tenney and D & H entered into a new agreement whereby Tenney would pay all expenses of demolition using D & H’s employees and equipment. To oversee the work, Tenney hired the consulting firm of Paul Channin Company of New York. Thereafter, Gilbert Cutler, a Channin employee, was present at the job site from Thursday afternoon until Friday evening each week. When D & H went into receivership in Rhode Island, work stopped immediately at the Pittsburgh site. A new corporation, Sixth Wrecking, was formed by Davis, Carmine Dis-tante, a D & H supervisor, and Davis’ father-in-law, George Piacitelli, apparently at the direction of Cutler and Tenney’s attorneys. Davis served as president of the new company which continued the demolition work.

Checks used to pay employees and creditors of D & H, and later of Sixth Wrecking, were prepared by Joseph Stanionis, a bookkeeper, at the direction of Davis. Davis was the only one who signed the checks. Davis directed Stan-ionis as to the order in which creditors were to be paid, and Davis testified that while other creditors were paid he was aware that the taxes in question remained unpaid. On October 4, 1963, Tenney and Sixth Wrecking terminated their contract.

*1311 At the close of the taxpayers’ case, the Government’s motion for a directed verdict was denied. Davis moved for a directed verdict as to his liability for the Providence taxes at the close of all the evidence, and the Government renewed its earlier motion for a directed verdict. Both motions were denied and the jury returned verdicts against the plaintiffs and in favor of the Government.

Plaintiffs advance several contentions which they feel necessitates reversal as to one or both of them. We shall consider these contentions in order.

Initially, Davis argues that the trial court erred in denying his motion for a directed verdict as to his liability for the taxes arising from the D & H activities in Providence. Before addressing this point directly, we must consider the substantive law involved. Section 6672 1 provides that any person required to collect, account for and pay over the requisite taxes, 2 but who willfully fails to do so, shall be liable for a penalty equal to the amount of the taxes in default. As it applies to this case, “person” is defined to include a corporate officer or employee under a duty to collect, account for and pay over the taxes. 3 The tax money required to be collected or withheld constitutes a special fund in trust for the United States. 4 The penalty imposed by Section 6672 is civil in nature, United States v. Industrial Crane & Mfg. Co., 492 F.2d 772 (5th Cir. 1974), and designed to insure the protection of government revenue by assuring that taxes will be collected. Spivak v. United States, 370 F.2d 612 (2nd Cir.), cert. denied, 387 U.S. 908, 87 S.Ct. 1690, 18 L.Ed.2d 625 (1967); Botta v. Scanlon, 314 F.2d 392 (2nd Cir. 1963).

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504 F.2d 1306, 34 A.F.T.R.2d (RIA) 6082, 1974 U.S. App. LEXIS 6345, Counsel Stack Legal Research, https://law.counselstack.com/opinion/harold-e-harrington-v-united-states-ca1-1974.