S. AMANDA MARSHALL, United States Attorney, Portland, OR, LAUREN MARIE CASTALDI, QUINN P. HARRINGTON, U.S. Department of Justice, Tax Division Civil Trial Section, Western Region Washington, DC, Attorneys for Plaintiff.
GARY K. KAHN, J. MICHAEL HARRIS, MARTIN W. REEVES, Reeves Kahn, Hennessy & Elkins, Portland, OR, Attorneys for Defendants.
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND VERDICT
ANNA J. BROWN, District Judge.
This matter comes before the Court to resolve the single remaining issue: whether Defendant Daniel Dent is personally liable for a 50% penalty pursuant to 26 U.S.C. § 6332(d)(2) for his failure to honor certain tax levies issued by the United States Internal Revenue Service (IRS) without having reasonable cause to do so. This question turns primarily on fact issues as to why Dent did not honor these levies. The matter was tried to the Court on November 26, 2013.
Having weighed and evaluated all of the evidence in the same manner that it would instruct a jury to do and having fully considered the legal arguments of counsel, the Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52(a). For the reasons that follow, the Court finds in favor of Dent on the 50% penalty issue.
When it commenced this action, the United States of America sued Defendants Dent and 911 Management, LLC, alleging Defendants violated 26 U.S.C. § 6332(d)(1) for failing to comply with IRS levies to collect the liabilities of Thomas Weathers and Kathy Weathers for unpaid federal income taxes for tax years 1996 and 1998 through 2006. The United States sought judgment against both Defendants for (a) the balance of the unpaid tax liabilities for which the levies were issued plus any statutory accruals and interest thereon and (b) a 50% penalty for failure to honor a levies without reasonable cause under 26 U.S.C. § 6332(d)(2).
On January 10, 2012, the Court entered Default Judgment (#64) against 911 Management in the amount of $129, 205.48 for its failure to honor the IRS levies plus any statutory accruals and interest from December 31, 2011, and the additional amount of $64, 602.74 for the 50% penalty plus any statutory accruals and interest. On June 27, 2013, the Court also issued an Order (#87) granting the United States' Motion (#46) for Summary Judgment against Dent with respect to Dent's failure to comply with the IRS levies in the first instance. As a result of that ruling, the Court has already determined Dent is personally liable for the same $129, 205.48 plus any statutory accruals and interest from December 31, 2011, that are the subject of the Default Judgment against 911 Management.
Thus, the only issue for trial was whether Dent is also personally liable for an additional 50% penalty under 26 U.S.C. § 6322(d)(2) for his failure to comply with the levies without "reasonable cause." As noted, this is primarily a question of fact as to why Dent did not honor the levies.
According to the United States, there was not any bona fide dispute over the amount of the Weathers's property that was under Dent's control and that was to be surrendered pursuant to the levies or as to the legal effectiveness of the levies. Accordingly, the United States contends there was not any reasonable cause for Dent to fail to honor the levies.
Dent disagrees and asserts he is not liable for the 50% penalty. In particular, Dent asserts the language of the levies was ambiguous, confusing, and contained contradictory instructions, and, therefore, there was a bona fide dispute over the legal effectiveness of the levies and over the property to be surrendered. Dent also contends he relied on the advice of attorney Marc K. Sellers, counsel for 911 Management, over the contrary instructions of IRS Revenue Officer Tonni Carpenter,  and, as a result, he had reasonable cause not to comply with the levies.
FINDINGS OF FACT
On November 26, 2013, the Court conducted a one-day bench trial upon the parties' agreement. Three witnesses testified: Dent; Revenue Officer Tonni Carpenter; and Marc K. Sellers, Attorney for 911 Management. Pursuant to Federal Rule of Civil Procedure 52(a), the Court finds the following facts by a preponderance of the evidence:
I. Stipulated Facts.
The parties stipulated to the following facts in their Pretrial Order (#131), and, therefore, the Court finds these facts as true:
A. Dent was the initial and only manager of 911 Management until it dissolved in 2010.
B. As the manager of 911 Management, Dent was the only person authorized to conduct business on behalf of 911 Management, and he had the sole authority to make payments on behalf of 911 Management.
C. 911 Management ceased doing business on April 30, 2010.
D. Kathy Weathers was a member of 911 Management and was allocated a 35% distribution of profits. As of 2006, 911 Management had a fixed and determinable obligation to pay at least $5, 000 per month to Kathy Weathers.
E. In 2006 Kathy Weathers's fixed and determinable payments were increased to $5, 700 per month. Kathy Weathers received $5, ...