The opinion of the court was delivered by: SHAPIRO
Pending before this court is the motion of defendant American Bank & Trust Company of Pennsylvania ("American Bank") for summary judgment. This civil action was brought by the United States to recover a portion of unpaid employment taxes from a supplier of funds to the employer under § 3505(b) of the Internal Revenue Code (the "Code"). Jurisdiction over this action is conferred by § 7402 of the Code.
During the period July 1, 1978 through December 31, 1978, an employer, Eastern Asphalt Company ("Eastern"), failed to make timely payments of income and FICA taxes required to be deducted and withheld from the wages of its employees. Eastern was assessed by the Internal Revenue Service ("IRS") on two occasions for amounts representing income and employment taxes required to be withheld from Eastern's employees. In November, 1978, Eastern was assessed $142,426.24 for taxes for the third quarter of 1978 and in February, 1979, $21,117.46 for taxes for the fourth quarter of 1978. In an effort to recover this $160,000 in unpaid taxes, the IRS made assessments under § 6672 of the Code against two allegedly responsible Eastern officers, Harlan Conly ("Conly") and William Peckham ("Peckham"). Section 6672 provides in part:
Failure to collect and pay over tax, or attempt to evade or defeat tax
(a) General rule.-- Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable.
From July 1, 1978 through December 31, 1978, American Bank supplied funds to or for Eastern's account for the purpose of paying wages of Eastern employees. The Government claims that such funds were supplied by American Bank with actual notice and knowledge that Eastern did not intend to, or would not be able to, make timely payments of the amount of federal taxes required to be deducted and withheld from such wages. The Government claims that American Bank is, therefore, liable for a portion of the assessed amounts under § 3505(b) of the Code:
(b) Personal liability where funds are supplied.-- If a lender, surety, or other person supplies funds to or for the account of an employer for the specific purpose of paying wages of the employees of such employer, with actual notice or knowledge (within the meaning of section 6323(i)(1)) that such employer does not intend to or will not be able to make timely payment or deposit of the amounts of tax required by this subtitle to be deducted and withheld by such employer from such wages, such lender, surety, or other person shall be liable in his own person and estate to the United States in a sum equal to the taxes (together with interest) which are not paid over to the United States by such employer with respect to such wages. However, the liability of such lender, surety, or other person shall be limited to an amount equal to 25 percent of the amount so supplied to or for the account of such employer for such purpose.
The complaint in this action claiming $109,000 from American Bank was filed on November 15, 1984 and served by mail on or about November 29, 1984. American Bank contends that this was the first notice given to the Bank that the Government sought to hold it liable for taxes due from Eastern for the third and fourth quarters of 1978. American Bank also asserts that, prior to the commencement of this action, the Peckhams had guaranteed certain obligations owed to the Bank by Eastern and Granite Industries ("Granite"). In 1979, American Bank agreed to compromise and settle its claims and judgments against the Peckhams by a substantial compromise of its rights; American Bank assigned the judgments held by the Bank to the use of Peckhams' counsel in return for payment to the Bank of only $30,000. American Bank asserts that had it been notified of its possible liability for unpaid taxes of Eastern, for which Peckham as a responsible officer was primarily liable, it would not have released its other claims against Peckham.
American Bank claims that the Government may not maintain this action because it failed to provide the Bank with notice of the assessment of the unpaid withholding tax as required by § 6303(a):
§ 6303. Notice and demand for tax
(a) General rule.-- Where it is not otherwise provided by this title, the Secretary or his delegate shall, as soon as practicable, and within 60 days, after making of an assessment of a tax pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person's last known address.
(b) Assessment prior to last date for payment.-- Except where the Secretary or his delegate believes collection would be jeopardized by delay, if any tax is assessed prior to the last date prescribed for payment of such tax, payment of such tax shall not be demanded under ...