The opinion of the court was delivered by: BRIEANT
By his complaint filed October 13, 1975, plaintiff David Koegel seeks a refund of a tax penalty of $24,872.35, which he paid on April 4, 1973. This penalty was timely assessed on November 24, 1971 for the unpaid federal employee withholding taxes and the Social Security ("FICA") taxes of Auburn Toys, Inc. ("Auburn Toys"). The assessment included $12,462.98 for the first quarter of 1969 and $10,562.12 for the second quarter of 1969, together with interest of $1,838.25 and a lien fee of $6.00, all of which Auburn Toys had failed to pay when due, although withheld to the extent chargeable to its employees.
Plaintiff contends that this assessment, made pursuant to Sections 6671 and 6672 of the Internal Revenue Code ("IRC"), was illegal and erroneous in that he was not a "person" responsible for the collection and payment of these FICA and payroll withholding taxes, and that he did not "willfully" fail to collect, account for and pay over these taxes.
On April 3, 1975, plaintiff filed a timely Claim for Refund on Internal Revenue Service ("IRS") Form 843. This claim was denied by the IRS on May 23, 1975. This action was timely brought, and the Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1346(a)(1). A non-jury trial was held before me on December 22 and 23, 1976. Post-trial briefs have been submitted and considered.
Familiarity is assumed with the uncontested facts which have been stipulated to in the Pre-Trial Order, signed December 22, 1976. Since 1965, plaintiff was the president and chief executive officer of the Flora Mir Candy Corporation ("Flora Mir") located in New York, which manufactured chocolates and other candies. Beginning in April, 1968, Flora Mir embarked on a program to acquire smaller candy companies in order to create a single large candy company. During the ensuing four months, Flora Mir acquired eleven subsidiaries, owning 100% of the capital stock of each.
Following these acquisitions, Koegel testified that he concentrated on "financing, acquisitions and developing some new ideas such as combining candy with toys and bringing in a larger income. . . ." (Tr. p. 8).
In middle or late 1968, Mr. R. J. Hodson, then president of Auburn Rubber, a toy manufacturing company, approached plaintiff regarding the possible acquisition of the business of his company by Flora Mir. Plaintiff did not acquire the company on behalf of Flora Mir, since, as he testified:
"[The] toy company has been burdened with heavy longterm loans, and as such it would have ruined Flora Mir Candy's financial statements and financial position. . . ." (Tr. p. 11).
He did, however, agree to acquire the company himself, with a view to packaging Flora Mir candies inside of or together with toys produced by Auburn Rubber.
To execute this plan, in December 1968 plaintiff arranged for the incorporation of Auburn Toys as a New Mexico corporation, located in Deming, New Mexico. Plaintiff, together with his wife, owned over 60% of the outstanding stock of this corporation. The balance of the stock of Auburn Toys was held by James M. Martin (33%), who executed a voting proxy to Koegel (JX-2), Zia Investment Co. (2%) and Shirley M. Henschel (1.66%). Auburn Toys immediately acquired all of the outstanding common stock of Auburn Rubber, paying no consideration whatsoever to the former owners of that stock. In short, plaintiff, through Auburn Toys, acquired the ongoing business of Auburn Rubber without anybody paying any money. (Tr. p. 13). Instead, plaintiff acquired the company with the promise of an infusion of capital to insure its continued solvency and, of course, continued employment for its employees.
At the time of its acquisition, Auburn Rubber was burdened with over $200,000.00 in debts. Plaintiff lent $100,000.00 of his own money for the purpose of settling these old debts, thus hoping to reopen credit lines for the business. Approximately $86,000.00 of this fund was spent in settling Auburn Rubber's debts. Plaintiff contends that he did not take part in the actual settlement of these debts, but rather, authorized that this be carried out by two of his subordinates at Flora Mir, Messrs. Stanley Goldman (Assistant to the President of Flora Mir) and Harvey Kaplan (Vice President and Accountant of Flora Mir).
Plaintiff was never an officer, director or employee of Auburn Toys (Stipulation, para. 43). During the relevant time period (January 1, 1969 - June 30, 1969), plaintiff was the president and chief operating officer of Flora Mir, and the manager and vice president of the Hotel Kenmore in New York City where Flora Mir maintained its offices. The officers of Auburn Toys included Frieda Howe, president (a desk clerk at the Hotel Kenmore); John Amiento, secretary (Frieda Howe's husband and a former employee of the Hotel Kenmore); Shirley M. Henschel, assistant secretary (vice president and a director of Flora Mir with offices in the Hotel Kenmore); Albert Zodda (a vice president of Flora Mir); and J. Thomas Hodson (a former officer of ...