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United States v. Kavanaugh

April 29, 2009

UNITED STATES
v.
JOHN C. KAVANAUGH



The opinion of the court was delivered by: McVerry, J.

MEMORANDUM OPINION AND ORDER OF COURT

Presently before the Court for disposition are the following:

* PARTIAL MOTION FOR SUMMARY JUDGMENT, with brief in support, filed by Plaintiff United States (Document Nos. 24 and 26, respectively) and the brief in opposition filed by Defendant John C. Kavanaugh (Document No. 30); and

* MOTION FOR SANCTIONS OR, IN THE ALTERNATIVE, MOTION TO DISMISS filed by the Defendant, John C. Kavanaugh (Document No. 29) and the brief in opposition filed by the United States (Document 32).

For the reasons that follow, the Motion for Partial Summary Judgment filed by the United States will be granted, and the Motion for Sanctions or, in the alternative, Motion to Dismiss filed by Defendant will be denied.

BACKGROUND*fn1

On April 2, 2007, the United States, on behalf of the Internal Revenue Service ("IRS"), commenced an action against Defendant John C. Kavanaugh ("Kavanaugh")*fn2 to collect unpaid federal employment taxes, statutory interest, and penalties. The assessments were made against Kavanaugh individually based upon his relationship with the following four companies involved in home nursing care: Alliance Home Health Care, Inc. ("Alliance"); Westwood Home Health Care, Inc. ("Westwood"); Dominion Health Care, Inc. ("Dominion"); and Community Nursing Network ("Community") (hereinafter collectively referred to as "The Companies).

Each of the Companies withheld income and employment taxes from the wages of their employees and each failed to pay that money to the United States, as follows:

* Alliance failed to pay the income and employment taxes withheld from its employees for the periods ending 9/30/93 - 6/30/94 and 9/30/97 - 3/31/98;

* Westwood failed to pay the income and employment taxes withheld from its employees for the periods ending 9/30/93 - 6/30/94 and 9/30/97 - 3/31/98;

* Dominion failed to pay the income and employment taxes withheld from its employees for the periods ending 9/30/93 - 12/31/93 and 6/30/94 - 3/31/98; and

* Community failed to pay the income and employment taxes withheld from its employees for the periods ending 9/30/93 - 6/30/94 and 3/31/97 - 3/31/98.

The Companies twice sought relief under Chapter 11 of the Bankruptcy Code: on April 5, 1994, and again on May 19, 1998.

On June 24, 1996, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $87,215.16, based on his failure to collect, truthfully account for, and pay over taxes that Alliance was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/93 - 6/30/94. Pl's Stmt of Undisputed Facts, at ¶ 19.

On June 17, 1996, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $133,686.29, based on his failure to collect, truthfully account for, and pay over taxes that Westwood was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/93 - 6/30/94. Id. at ¶ 20.

On July 1, 1996, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $37,357.43, based on his failure to collect, truthfully account for, and pay over taxes that Dominion was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/93 - 6/30/94. Id. at ¶ 21.

On July 8, 1996, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $58,968.78, based on his failure to collect, truthfully account for, and pay over taxes that Community was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/93 - 6/30/94. Id. at ¶ 22.

Interest and "other statutory additions" have accrued on the above assessments, resulting in an alleged balance of $633,178.92, as of December 3, 2007. Id. at ¶ 23.

In 1998, the IRS assessed additional tax liabilities against Kavanaugh as follows: On December 14, 1998, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $328,382.08, based on his failure to collect, truthfully account for, and pay over taxes that Alliance was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/97 - 3/31/98. Id. at ¶ 24.

On November 23, 1998, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $100,253.32, based on his failure to collect, truthfully account for, and pay over taxes that Westwood was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/97 - 3/31/98. Id. at ¶ 25.

On December 12, 1998, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $76,012.95, based on his failure to collect, truthfully account for, and pay over taxes that Dominion was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/97 - 3/31/98. Id. at ¶ 26.

On June 23, 1999, the IRS assessed against Kavanaugh a trust fund recovery penalty in the amount of $249,952.81, based on his failure to collect, truthfully account for, and pay over taxes that Community was required by law to withhold from the wages it paid its employees during the taxable periods ending 9/30/97 - 3/31/98. Id. at ¶ 27.

Interest and other statutory additions have accrued since the dates of the 1998 assessments, resulting in a balance due of $1,366,631.28, as ...


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