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KORDOPATIS v. UNITED STATES

January 13, 1997

NICHOLAS G. KORDOPATIS, Plaintiff,
v.
UNITED STATES, Defendant.



The opinion of the court was delivered by: VAN ANTWERPEN

 Van Antwerpen, J.

 January 13, 1997

 I. INTRODUCTION

 On April 13, 1994 Plaintiff Nicholas G. Kordopatis filed this action for the refund of penalties assessed under 26 U.S.C. § 6672. This court has subject matter jurisdiction pursuant to 28 U.S.C. § 1346(a)(1). On July 19, 1994 the United States filed a third-party complaint against one Mary Jane Hall; *fn1" this claim settled before trial. (See Stipulation and Order filed September 20, 1996). In its Amended Answer filed on July 27, 1996, the United States counterclaimed against Nicholas G. Kordopatis. This court has subject matter jurisdiction over the counterclaim pursuant to 26 U.S.C. § 7401 and 26 U.S.C. § 1346(c). We conducted a two-day non-jury civil trial on September 25-26, 1996. Pursuant to Fed. R. Civ. P. 52(a) we make the findings of fact set forth below. *fn2"

 II. FINDINGS OF FACT

 1. The parties stipulated at trial that on May 4, 1992 a delegate of the Secretary of the Treasury assessed a penalty pursuant to Internal Revenue Code § 6672 (26 U.S.C.) against the Plaintiff in connection with the failure of Fashion Forward Ltd. ("Fashion Forward") to pay over to the United States the social security and income taxes withheld from the wages of its employees: for the taxable quarter ended June 30, 1990, $ 2,254.24; for the taxable quarter ended September 30, 1990, $ 5,151.04; for the taxable quarter ended December 31, 1990, $ 4,750.70; and for the taxable quarter ended March 31, 1991, $ 4,939.46 for the total amount of $ 17,095. The parties further stipulated that proper notice and demand were served on the plaintiff on the date of the tax assessment. Copies of Fashion Forward's form 1120S tax returns cannot be located. Plaintiff Nicholas G. Kordopatis ("Kordopatis") has made certain payments toward the tax assessment of at least $ 6,184.39. The United States also represented that any moneys which former third-party defendant Hall paid to the United States would be credited to any liability of Kordopatis and would result in a reduction in the amount he would owe if the United States prevailed in this suit. (Tr. 1/11-14). A stipulation and order of judgment for the United States and against Mary Jane Hall ("Hall") for $ 11,214.10 was entered September 20, 1996. This judgment was satisfied on December 13, 1996.

 2. John Lamont ("Lamont") and Kordopatis became friends sometime in 1960 and remained friends for thirty (30) plus years. Practically every Saturday, Lamont and Kordopatis would get together to go to breakfast and do errands. From 1987 through 1992, Kordopatis and Hall were involved in a romantic relationship. (Tr. 1/117:6-12; 2/77:15-21; 2/78:20-25; 2/79:1-10, 13-25; 2/80:1-15).

 3. Lamont purchased Juliette Fashions in February 1988 from the previous owners, Solomon and Julia Cotler, *fn3" utilizing the services of a business broker. Lamont purchased one hundred percent (100%) of the stock in the corporation. (Tr. 1/26-27, 29).

 3. Kordopatis was involved in the first general business conversations between Lamont and Solomon Cotler when the question of buying the business arose. (Tr. 1/117:3-118:4). Later when the owners' son Steve Cotler became involved with the negotiations, Kordopatis would accompany Lamont but Kordopatis did not negotiate. (Tr. 2/153:820).

 4. Hall invested money, was issued stock, and served as secretary in the corporation purchased by Lamont which became known as Fashion Forward. (Tr. 1/30). She eventually acquired a fifteen percent (15%) ownership interest in Fashion Forward. (Tr. 1/109:12-23).

 5. Lamont purchased the business without the receipt or use of any funds from or on behalf of Kordopatis. Kordopatis did introduce Lamont to a commercial banker for review of Fashion Forward's financial statements. (Tr. 1/28, 2/80:16-25; 2/81:1-4; 2/82:2-24). Kordopatis introduced Lamont to Hall as a potential business partner. (Tr. 1/107:12-24). Kordopatis also had several detailed discussions with Lamont surrounding the acquisition of the business. (Tr. 1/106:24-109:11).

 6. Likewise, in 1988, prior to Lamont's acquisition of Fashion Forward, Kordopatis assisted Lamont and Hall in valuing Juliette Fashions at its Pottsville, Pennsylvania location by conducting traffic counts of customers. *fn4" (Tr. 1/108:4-109:6; 2/82:4-15).

 7. Prior to Lamont's acquisition of Fashion Forward, Kordopatis entered into an agreement with Lamont to acquire one-third of "Fashion Forward, Incorporated" for $ 30,000. (Ex. D-4 dated February 16, 1988; Tr. 2/114:2-4). This agreement expired without taking effect. (Tr. 1/33-34).

 8. Upon the acquisition of the business by Lamont and Hall in March 1988, the Cotlers introduced Kordopatis as an owner in the form of a letter to suppliers and creditors. (1/120:6-24; 1/203:3-18; 1/215:22-216:22). The letter was incorrect. (1/216:7-14).

 9. At no point during the life of Fashion Forward did Kordopatis ever own any shares of stock. He was never an officer or director. He never hired or fired employees nor was he involved with the hiring and firing of employees. Kordopatis never signed a federal tax return nor did he have the authority to do so. (Tr. 1/30, 34, 39, 41; 1/88:19-25; 1/89:1-9, 13-17; 1/90:1-4; 1/212:13-15).

 10. Kordopatis was never a partner nor was he an owner of Fashion Forward. At no time was Kordopatis provided with a partnership agreement nor was a partnership formed, nor did he ever receive partnership profits or partnership perquisites. Kordopatis had heard Lamont say on various occasions that he considered Kordopatis a partner but Kordopatis disagreed with such statements and corrected him on occasion. (Tr. 2/90:3-22).

 11. Kordopatis was never an employee of the corporation and never received a salary. (Tr. 1/34, 41).

 12. Fashion Forward's Pottsville store was located one block away from the Pennsylvania National Bank office where Kordopatis worked as a banker. Kordopatis would visit the Pottsville store on his lunch break from time to time. (Tr. 2/118:12-18).

 13. Lamont was President of the corporation Fashion Forward until March 1991. In his capacity as President throughout the life of the corporation Lamont had authority to sign payroll checks as well as tax returns. Lamont signed all federal tax returns for the corporation. Lamont had access to the Pottsville location until the foreclosure in April of 1991. (Tr. 1/30, 34, 39, 41; 1/88:19-25; 1/89:1-9, 13-17; 1/90:1-4; 1/212:13-15).

 14. At all times the corporation was in existence, Lamont and Hall were the only persons who had signatory authority on any Fashion Forward bank account. At no time, even after March 1991, did Kordopatis have signatory authority on any Fashion Forward account. Lamont's signature, either written by hand or by a rubber stamp facsimile, appeared on paychecks to himself, paychecks for other employees, as well as on payments to vendors or creditors of Fashion Forward for the entire life of the corporation including periods after December 1990. From 1988 until February 1991, Lamont signed payroll checks as well as checks to the internal revenue service and other taxing authorities for taxes to be paid by Fashion Forward. Hall also signed payroll checks after February of 1991. Kordopatis never signed any checks for the corporation. (Tr. 1/40, 41, 1/67:11-25; 1/88:19-25; 1/89:1-9; 1/127:22-1/130:12; 1/205:22-24).

 15. At all times the corporate bookkeeper was Jean Krammes ("Krammes"). Krammes, in her capacity as bookkeeper, was in charge of handling in-coming mail, opening bills, and reviewing the bills. She was also required to set up a file for vendors and actually drafted checks. (Tr. 1/41; 1/49:16-21;1/50: 5-8, 17-25).

 16. At some point during the operation of the corporation, payroll records for the Emmaus store would be sent by Hall to the Pottsville store so that Krammes could prepare payroll and payroll checks. Those records would either be sent by Hall to Krammes directly or picked up by Lamont. (Tr. 1/200:25-201:14). For the life of the corporation Lamont would make pickups of accounts receivable and merchandise from the Emmaus location of Fashion Forward and transfer them to the Pottsville location. The accounts receivable for the Emmaus location were submitted to Krammes. (1/208:4-15).

 17. The actual checks for Fashion Forward's checking accounts were kept in a locked file cabinet. A signature stamp bearing Lamont's signature was also kept under lock and key. Krammes was present at the Pottsville location on a daily basis. Checkbooks for Fashion Forward were kept in Krammes's or Lamont's desk. The stamp bearing Lamont's signature was kept in Krammes's locked desk. At no time did Kordopatis have a key to the desk utilized by Krammes. (Tr. 1/51:8-14; 1/199:8-25; 1/200:3-19; Krammes Dep. 35:10-15; Krammes Dep. 39:1-8).

 18. Lamont visited James Gibisser ("Gibisser") at his office sometime in the fall of 1988 and retained him as the accountant for Fashion Forward. Gibisser, as the accountant for Fashion Forward, prepared federal and state corporate tax returns on a yearly and a quarterly basis, as well as local tax returns. After Krammes prepared payroll taxes and withholding paperwork, Gibisser reviewed it. Only Krammes compiled the cash disbursements, journals and sales journals used by Gibisser to create a financial statement done on a monthly basis. Gibisser also reconciled canceled checks with balance statements. In order to prepare monthly statements and tax returns, Gibisser would contact either Krammes or Lamont. (Tr. 2/6:4-24; 2/8:1-21; 2/9:1-4, 16-25; 2/10:1-15; 2/11:5-8; 2/14:1-4). Gibisser prepared the personal federal, state and local returns for Lamont. (Tr. 1/52:14-25; 1/53:1-9; 1/54:17-23.)

 19. Lamont carried Fashion Forward as a long term capital loss starting on April 12, 1987 and continuing until June 4, 1991 on his Schedule D of his 1991 amended tax return. (Tr. 1/55:5-25; 1/56:1-8). Lamont indicated in his 1991 personal tax return that his occupation was the manager/owner of Fashion Forward and that at no time was he managing or owning another business during those same years. (Tr. 2/13:1-14).

 20. Kordopatis has never been trained or employed as an economist, certified public accountant, professional accountant, lawyer, financial planner, stockbroker or stock market analyst. Kordopatis graduated from high school in 1954 and did not attend college. He did take some college level courses at Penn State University and Ohio State University pertaining to his banking career. Throughout the vast majority of Kordopatis's working life spanning thirty years, he was a banker involved in consumer credit. At no time was Kordopatis ever a commercial banker as had been stated by Lamont. In addition, Kordopatis at one time helped form a mortgage banking company. (Tr. 1/57:1-25; 1/58:1-2; 2/67:17-25; 2/68:1-8; 2/69-75; 2/70:12-19; 2/75:19-25; 2/77:1-8).

 21. Kordopatis provided loans and collateralized a loan on behalf of Fashion Forward due to his long term friendship with Lamont as well as his personal involvement with Hall. (Tr. 2/89:11-25).

 22. In particular, on November 28, 1989 and April 6, 1990 Kordopatis pledged collateral totaling at least $ 50,000 to secure a loan from Pennsylvania National Bank to Fashion ...


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