The opinion of the court was delivered by: COSTANTINO
MEMORANDUM OF DECISION AND ORDER
Plaintiff, Marvin Gold, ("Gold") seeks a refund of token payments made by him for his alleged violation of 26 United States Code § 6672.
The one hundred percent penalty assessment represents plaintiff's failure to account for and pay over taxes imposed upon the employees of Combined Property Services, Inc. ("Combined") for the third and fourth quarters of 1972. Gold paid part of the assessment made against him and then filed a timely claim for refund. The United States filed a counterclaim for the unpaid portion of the penalty assessment.
The gravamen of the dispute is whether plaintiff is liable for the penalty assessed against him pursuant to Section 6672 of the Internal Revenue Code. Specifically, the court must decide two discrete issues, to wit, (1) whether Gold is a person required to collect, account for and pay over income and Social Security taxes and (2) whether Gold wilfully failed to collect, account for and pay over such taxes.
The court conducted a nonjury trial to resolve these issues. After reviewing the transcripts and briefs submitted by counsel, the court finds that Gold was a responsible person within the meaning of the statute and that he wilfully failed to collect, truthfully account for and pay over the payroll taxes during the third and fourth quarters of 1972. Plaintiff therefore is liable for the penalties assessed against him pursuant to Section 6672.
In 1965, plaintiff, Marvin Gold, joined A & S Management Corporation ("A & S"), a corporation which was engaged in the real estate management business of cooperative apartments. Gold, as Treasurer, and part owner of A & S, supervised the financial operations of the corporation. In that capacity, he handled the disbursements, the bills, the payroll taxes; he maintained the fiduciary and cooperative accounts; and controlled the financial information for both the management aspects of A & S and the individual cooperative apartments.
During the period prior to December, 1970, Gold prepared the taxes from the Brooklyn office and signed the payroll tax returns. All of the corporate records were maintained in the Brooklyn office and Gold regularly received financial reports and data. Gold had authority to incur expenses and to sign the corporation's checking account.
In May of 1969, Stephen Sarnoff ("Sarnoff") purchased an interest in A & S. Thereafter, Sarnoff, Gold and Quint each owned a one-third interest in A & S.
Gold, however, maintained control over the financial sector of the corporation. While Gold testified to the contrary, documentary evidence indicated that A & S experienced serious financial problems. Indeed, this court, after hearing the testimony in court and after examining the documentary proof, finds that much of Gold's testimony is contradictory and cannot be deemed credible.
As early as October of 1970, A & S had overdrafted its bank account. In short, the expenses of A & S consistently were paid by drawing on insufficient funds. Balance sheets prepared in mid-October of 1970 indicated that the company's net worth included a deficit of more than $ 300,000. Indeed, at one point during the course of the trial, Gold testified that he had been aware of a cash flow problem. In light of Gold's capacity within the A & S corporate hierarchy, this court finds that Gold was cognizant of the fact that financial problems beset the corporation.
In December of 1970, Alexander Wolf, together with those affiliated with A & S, formed Combined Property Services ("CPS"). In essence, A & S, with a few facial adjustments, became CPS. According to the formation agreement, Sarnoff became the titular head of CPS and was the Chief Executive Officer; Gold became the Secretary-Treasurer and was a member of the Executive Committee. Gold was in charge of bookkeeping, coordinated the activities of the cooperative buildings and prepared their budgets. However, his former pre-eminent power over the corporation's financial affairs was curtailed to a degree. Wolf became Chairman of the Board, and specifically acted for the corporation to solicit new business. Quint was placed in charge of the Florida cooperative operation.
According to this Agreement dated December 1, 1970 the Officers had power to sign the corporate checks. Further, both the Management Study conducted by Crest, McCormack and Paigat
and the salary scale granted to each officer, belie Gold's claim of ignorance and impotence in the affairs of the corporation. Testimony indicated that Gold ran the Brooklyn office, while Sarnoff operated from the East 52d Street Manhattan office. Indeed, as late as 1972, the Brooklyn office employed the largest number of people and most of the property owned by CPS was located in Brooklyn.
The exact location of the payroll records after the signing of the Agreement and Merger of December 1, 1970 ("Agreement"), however, was clouded by contradictory testimony. What is clear is that the Brooklyn office was not a lonely, forgotten outpost. Information of the financial condition of CPS could be garnered by Gold at the Brooklyn office and at the Executive meetings. Indeed, the Internal Revenue Service ("IRS") used both the Brooklyn address and the A & S name for a time period subsequent to the Merger Agreement. As late as August of 1972, IRS forwarded a notice regarding the untimely payment of taxes for the first quarter of 1972 to the Brooklyn address. Bank checks for CPS dated as late as August, 1973 were embossed with the Brooklyn address. Gold had the power, and invoked such power, to sign the corporate checks.
According to both Gold's deposition and the testimony of the bookkeeper at the Manhattan office, the payroll records for CPS were maintained by Automatic Data Processing Service ("ADP"). Beyond that fact, the bookkeeper had little knowledge of the connection between the Manhattan and Brooklyn offices. The record indicates that the payroll sheets and checks, for a time subsequent to the Agreement of 1970, were being forwarded to the Manhattan office from the Brooklyn office. Further, the Brooklyn office was in command of the time sheets for the Brooklyn employees. Yet, as early as the first quarter of 1972, CPS displayed extreme neglect in its prompt filing and payment of taxes. For the quarter ending December, 1971, the tax return was filed six months late; for the quarter ending March, 1972, the return was filed ten months late. The record belies a covert plan for delinquent payment of taxes. In point of fact, the IRS assessment of CPS indicates a consistent pattern of neglect at an early stage in the company's history.
It is evident from the record that a portion of the corporate expenses of CPS were incurred by Gold at the Brooklyn office. Throughout the time period in question, goods were delivered to the Brooklyn office and were examined by Gold. Upon Gold's approval of the order, the bills were forwarded to Manhattan for payment. According to both Gold and Wolf, the Executive Committee members were aware of the cash flow problems of CPS. Specifically, creditors contacted the Brooklyn office and complained because they had not been paid. Gold testified that he was aware of the corporation's financial problems and knew that Sarnoff had obtained unnecessary loans. Further, Gold admitted that he had acquiesced to the hiring of the accountant for CPS. Gold advised the court that by late 1972, he knew that CPS had failed to promptly file and pay ...