The opinion of the court was delivered by: BARRINGTON D. PARKER, JR.
This Memorandum constitutes the findings of fact and conclusions of law of the Court after a bench trial on February 14, 15 and 21, 1995 in which the claims of the United States were tried against Edward Weiss.
1. On February 4, 1991, the Internal Revenue Service (the "IRS"), made an assessment against Richard Katz ("Katz") for a 100-percent penalty pursuant to 26 U.S.C. § 6672 (the "100-percent penalty") in the amount of $ 36,993.08 for unpaid Federal Insurance Contribution Act ("FICA"), and federal withholding taxes (also known as trust fund taxes) for the employees of Promo-Net, Inc. ("Promo-Net") for the first, second and third quarters of 1986 (the "Tax Period").
2. On February 4, 1991, the IRS made an assessment against Dennis Rizzuto ("Rizzuto") for a 100-percent penalty pursuant to 26 U.S.C. § 6672 in the amount of $ 36,993.08, for unpaid FICA and federal withholding taxes for employees of Promo-Net for the Tax Period.
3. On February 11, 1991, the IRS made an assessment against Edward Weiss ("Weiss") for a 100-percent penalty pursuant to 26 U.S.C. § 6672 in the amount of $ 36,993.06 for unpaid FICA and federal withholding taxes for employees of Promo-Net for the Tax Period.
5. On September 18, 1989, the IRS made an assessment against John Treglia ("Treglia") for a 100-percent penalty pursuant to the 26 U.S.C. § 6672 in the amount of $ 36,993.08 for unpaid FICA and federal withholding taxes for employees of Promo-Net for the Tax Period.
6. Katz and Rizzuto filed this action on February 18, 1992, seeking a refund of the taxes collected and an abatement of the assessments pursuant to 26 U.S.C. § 6672.
7. On July 6, 1992, the Government filed a counterclaim against Katz and Rizzuto for collection for the unpaid portion of the 100-penalty that had been assessed against them. On the same date, the Government filed a third-party complaint against Weiss and Treglia for collection of the 100-percent penalty that had been assessed against them.
8. On September 3, 1993, the Government filed an amended third-party complaint against Weiss and Treglia for collection of the 100-percent penalty that had been assessed against them. On October 29, 1993, the Government filed an amended counterclaim and a motion for summary judgment.
9. In a Memorandum Decision dated January 24, 1994, the Court granted the Government's motion for summary judgment against Treglia and denied its motion against Katz, Rizzuto and Weiss. On February 14, 1995 Rizzuto and Katz entered into a stipulation of settlement and dismissal with the Government. Weiss proceeded to trial.
10. Promovision Video Displays Corp. ("Promovision") was formed in August 1983 by Weiss, Treglia and Gerald P. Broder ("Broder"). From the time of its inception, Weiss was Promovision's President and Chairman of its Board of Directors. Treglia was its Executive Vice President and a member of the Board of Directors.
11. Promovision was in the advertising business, placing monitors with scrolling advertisements for local advertisers and coupons dispersing machines in stores.
12. Weiss, Treglia, Katz, Rizzuto and others had discussions that led to the formation of Promo-Net as a wholly owned subsidiary of Promovision.
13. Before Promo-Net was formed, Rizzuto and Katz were principals and shareholders of Metrotech. Alvin Grubman ("Grubman") was its accountant. Because Metrotech's capabilities appeared to complement Promovision's needs, Weiss and Treglia sought to acquire Metrotech. After attempts to acquire Metrotech failed, Promo-Net was formed by Weiss and Treglia as a wholly-owned subsidiary of Promovision in December 1985. At that time Weiss appointed Katz to be President of Promo-Net and Grubman to be Vice President. He stated specifically that he did not want Rizzuto to be an officer at that time.
14. Katz, as President, Rizzuto, as Vice President, and Weiss, as Secretary, signed the bank certificate and signature cards for Promo-Net's bank account at Manufacturers Hanover Trust Co. in Whitestone, New York. The bank certificate includes a certification that: "the persons herein designated as officers of this corporation [Promo-Net] have been duly elected to and now hold the offices in this corporation set opposite their respective names, and that the following are the authentic, official signatures of said officers."
15. Promo-Net's operations were designed to provide technical support, including graphics and electronic work for Promovision. During the Tax Period, Weiss and Treglia comprised the executive, finance and auditing committee of the Promovision Board of Directors.
16. Weiss was instrumental in establishing Promo-Net. Weiss both hired Rizzuto and Katz and instructed them not to hire Metrotech employees. He also hired Grubman who served as its comptroller until he was fired by Weiss in February 1986. Promo-Net had 6 or 7 other employees.
18. Weiss, through his control of Promovision, exercised, indirectly, significant control over Promo-Net. Promo-Net had no sources of income or credit independent of Promovision. Promo-Net never had its own billing system in place. When Promo-Net needed cash for operations, Rizzuto would prepare a list of payables and forward it to Promovision for review and approval by Treglia. Rizzuto and Katz understood that Weiss and Treglia's approval was needed for all expenditures. Although Rizzuto and Katz theoretically had check signing authority, in practice, pre-approval by Promovision of all checks, except net payroll checks was required. Rizzuto, for ...