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Green v. United States

United States District Court, D. Arizona

March 11, 2019

Randy S Green, Plaintiff,
United States of America, Defendant.



         Plaintiff and Counterclaim Defendant Randy Green and Counterclaim Defendant Joseph Guerra owned Consolidated Group Services, LLC, and Consolidated Group Services, SA, LLC. The two companies failed to pay withheld income taxes to the Internal Revenue Service and the United States assessed trust fund recovery penalties under 26 U.S.C. § 6672 against Green and Guerra. Green sued the United States for refunds of penalties previously paid and the abatement of remaining penalties. The United States brought counterclaims against Green and Guerra for the unpaid balance of the assessed trust fund recovery penalties. Before the Court are the United States' Motion for Summary Judgment, (Doc. 62), Green's Cross-Motion for Summary Judgment, (Doc. 69), and the United States' Motion for Default Judgment Against Guerra, (Doc. 66). For the following reasons, the United States' Motion for Summary Judgment, (Doc. 62), is granted and Green's Cross-Motion for Summary Judgment, (Doc. 69), is denied.[1] The United States' Motion for Default Judgment, (Doc. 66), is granted in part and denied in part.


         Plaintiff and Counterclaim Defendant Randy Green (“Green”) has worked in the staffing industry for over twenty years.[2] (Doc. 70-1 at 2.) Green has known Counterclaim Defendant Joseph Guerra (“Guerra”) for about the same period of time. (Doc. 70-1 at 2.) On October 4, 2011, Green and Guerra became owners of Consolidated Group Services, LLC (“CGS”), an Arizona limited liability company. (Doc. 70-3 at 3.) Each owned 50 percent of the company. (Doc. 70-3 at 4.) In December 2012, Green and Guerra became owners of Consolidated Group Services, SA, LLC (“SA”), a Texas limited liability company. (Doc. 70-4 at 1.) As with CGS, Green and Guerra each owned 50 percent of SA. (Doc. 70 at 3.)

         CGS and SA both provided temporary staffing services to the construction industry. (Doc. 70 at 3.) CGS serviced clients in Arizona and SA serviced clients in other states. (Doc. 70-1 at 2.) The two companies had approximately 100 to 200 employees combined. (Doc. 64-40 at 10.) CGS and SA were “identical in respect to ownership, management and operation.” (Doc. 1 at 1.) Although the two companies were formally distinct, Green testified he “didn't differentiate . . . too terribly much” between the companies and was “not too sure how much [he] distinguished SA and CGS.” (Doc. 64-40 at 16, 29.) The listed address of both companies was 2717 W Southern Avenue, Suite 4; Tempe, Arizona. (Doc. 63 at 3-4.) The companies had separate bank accounts but on at least one occasion, money was transferred from one company to another for payroll. (Doc. 64-21 at 4.) Green and Guerra were signatories on Chase checking accounts for CGS and SA. (Doc. 63 at 2- 3.)

         At both CGS and SA, Green used the title of “President.” (Doc. 70 at 4.) Green states he was not technically president because the companies were not corporations and had no corporate officers, but he used the title because he was “the face of the business” and believed the title would help with acquiring new business. (Doc. 70 at 4.) Green and Guerra did not formally discuss their individual duties at the companies. (Doc. 70-2 at 6.) Nonetheless, both understood Green's role was primarily sales while Guerra's role was operations, including running the accounting and tax departments. (Doc. 63 at 4.) Green testified that although Guerra had no formal education in accounting and tax, Green was comfortable with Guerra's duties because Guerra had “real life experience” in those fields. (Doc. 64-40 at 7-8.)

         Green and Guerra spoke approximately three or four times a day, even when Green traveled out of state. (Doc. 64-40 at 6.) Green testified he often spoke with Guerra about the companies' finances, including “how much we were billing on a given week [and] what our costs were that week, ” as well as whether expenses were paid. (Doc. 64-40 at 6.) In addition, Green stated he “[a]bsolutely” knew “how much money was in the bank.” (Doc. 64-40 at 6.) Green reviewed bank statements and accessed the checking accounts online. (Docs. 64-40 at 8; 70 at 4.) Green also had and exercised check signing authority, although he did not use it as often as Guerra did. (Doc. 70 at 4.) Green states during the first quarter of 2013, he signed 58 CGS checks while Guerra signed 1, 642. (Doc. 70 at 4.) In the fourth quarter of 2013, Green signed 72 SA checks while Guerra signed 888. (Doc. 70 at 4.) Green testified he had the authority to hire and fire employees both in sales and in the office, and has hired sales employees. (Doc. 64-40 at 6.)

         For the payroll tax quarter ended March 31, 2013, CGS filed a Form 941 that set forth a balance due and owing of $244, 809.01. (Doc. 63 at 5.) In April 2013, Guerra informed Green of a “significant tax issue, ” involving CGS, that followed a client default on a $250, 000 payment obligation. (Doc. 70-1 at 3.) Guerra told Green that CGS was “not making the necessary payroll payments or tax payments.” (Doc. 64-40 at 11.) Prior to this conversation, Green had “assumed” Guerra was properly withholding income taxes from employees' wages and “taking care of the necessary items” regarding taxes. (Doc. 64-40 at 10.) Green further testified he was not aware of IRS-related issues until his conversation with Guerra. (Doc. 64-40 at 10.) On April 23, 2013, after learning of CGS's tax issues, Green called the IRS 1-800 number. (Doc. 64-40 at 11.) Green left a message stating he was trying to “get some information” on the tax issue and “figure out how [they] can get it . . . squared up.” (Doc. 64-40 at 11.) The IRS never returned Green's phone call. (Doc. 63 at 6.)

         After Green's phone call to the IRS, Green remained concerned about the tax issue and spoke to Guerra about it at least once a week. (Doc. 64-40 at 11-12.) Green testified he believed Guerra was “squarely on” the payroll tax issue. (Doc. 64-40 at 12.) Green further testified Guerra hired an accountant-although Green does not remember the accountant's name-and Green “assumed that it was being taken care of.” (Doc. 64-40 at 12.) From April to June of 2013, Green continued to take his salary and car allowance at CGS and kept charging expenses against the checking account. (Doc. 64-40 at 12.) Green also continued to sign CGS checks to himself and other non-IRS creditors. (Doc. 63 at 6.) During this time, Green never asked Guerra whether SA also had tax issues. (Doc. 64-40 at 15-16.)

         In May 2013, Green received notice from the IRS that he was a potentially responsible person for the delinquent payroll taxes of CGS. (Doc. 64-2 at 5.) On August 20, 2013, IRS Revenue Officer Valerie Pichette (“RO Pichette”) met in person with Green and Guerra to discuss CGS's delinquent federal payroll tax liabilities for the third and fourth quarters of 2012 and the first quarter of 2013. (Doc. 62-7 at 2-3.) Green testified he believed this meeting was required “in order to get the installment agreement approved for the issues of 2012 and '13.” (Doc. 70-2 at 15.) At the meeting, RO Pichette told Green and Guerra that she “would be assessing them the Trust Fund Recovery Penalty (‘TFRP') to collect the federal payroll taxes that were withheld from the employees of CGS but not paid over the IRS.” (Doc. 62-7 at 3.) RO Pichette completed two Forms 4180 during the meeting and recorded information by hand. (Doc. 62-7 at 3.) Guerra and Green signed the forms after the interview. (Doc. 64-40 at 18.)

         The Form 4180 signed by Green stated the business used the Electronic Federal Tax Payment System (“EFTPS”) to make tax deposits and the PINS or passwords were assigned to Guerra. (Doc. 62-8 at 2.) It also stated Green determined “financial policy for the business, ” and had “knowledge withheld taxes were not paid.” (Doc. 62-8 at 1.) In answer to the question: “Who files the returns electronically[?], ” Pichette wrote “Joe Guerra / Green Shades.[3]” (Doc. 62-8 at 2.) The form stated both Guerra and Green authorized the payment of other financial obligations-including rent, utilities, and payroll- during the time the delinquent taxes were increasing. (Doc. 62-8 at 2.) Following the interview, RO Pichette recorded an “ICS History Transcript” summarizing the interview. (Doc. 70-8 at 5.) Green understood CGS's tax problems to be a serious issue after meeting with RO Pichette. (Doc. 64-40 at 21.) Nevertheless, Green continued to sign CGS checks payable to non-IRS payees, use his CGS debit card to charge purchases against CGS's checking account, take his CGS car allowance, and receive his CGS salary in the amount of $125, 000 per year. (Doc. 63 at 8.)

         On September 30, 2013, RO Pichette sent Green a letter informing him the IRS was proposing to assess him under 26 U.S.C. § 6672 as a personally liable individual who was “required to collect, account for, and pay over [taxes] for the business.” (Doc. 62-10 at 4.) The letter informed Green the proposed personal liability was the “Trust Fund Recovery Penalty, ” which is “equal to the unpaid trust fund taxes which the business still owes the government.” (Doc. 62-10 at 4.) On January 13, 2014, the IRS assessed the trust fund recovery penalty against Green for CGS's quarter ended March 31, 2013, in the amount of $158, 042.84. (Doc. 64-13 at 2.) Assessments were also made against Guerra. (Doc. 11 at 17.) Guerra continued his discussions with RO Pichette and the IRS approved an Installment Agreement; the parties dispute whether the Installment Agreement was approved in October or December 2013. (Docs. 63 at 9; 70 at 7.) At the time the Installment Agreement was approved, CGS owed $336, 639.53 in federal payroll taxes. CGS was required to make approximately twenty-four monthly payments of $13, 860.00, beginning on January 15, 2014, until the total liability was paid. (Doc. 63 at 9.) CGS paid four of the payments required by the Installment Agreement, with the last payment made in June 2014. (Doc. 63 at 9.) In July 2014, CGS attempted to make a fifth payment but it was dishonored. (Doc. 63 at 9.) Green testified that after the meeting with RO Pichette, he personally did not do anything in particular to address the tax problem because he believed the “meeting was going to facilitate the problem” and CGS was “going to be able to make payments to get the problem resolved.” (Doc. 64-40 at 21.) Green asked Guerra whether he was making payments on a monthly basis and checked “periodically” to make sure the installment plans were being made. (Doc. 64-40 at 21.) Green testified CGS made payments “[u]p until legal counsel was hired” because Guerra told him “a tax attorney could secure better terms” for CGS. (Doc. 64-40 at 22.)

         Throughout 2013, Green assumed SA was properly filing and paying its payroll tax returns. (Doc. 63 at 10.) After the August 2013 meeting with Pichette, Green did not ask Guerra whether SA was also having issues with its taxes. (Doc. 64-40 at 30.) Green states CGS's tax troubles were the result of a client default and he had no “cause to question” whether Guerra was properly taking care of SA's taxes. (Doc. 64-40 at 30.) For the payroll tax quarter ended December 31, 2013, SA filed its Form 941 that set forth a balance due and owing of $347, 104.48. (Doc. 63 at 10.) During this quarter, Green signed SA's checks to non-IRS creditors. (Doc. 63 at 11.) Green also made debit card purchases against SA's checking account each month from October 2013 through February 2014. (Doc. 63 at 11.)

         On December 19, 2013, Green and Guerra formed 2G Staffing Services (“2G”), of which they both owned 50 percent.[4] (Doc. 63 at 11.) Green's title at 2G was “President.” (Doc. 63 at 11.) 2G's listed address was the same Tempe, Arizona address that CGS and SA used. (Doc. 63 at 11.) 2G had some of the same clients and provided similar services as CGS and SA. (Doc. 64-2 at 10.) In January 2014, CGS transferred $48, 000 to 2G and SA wired $200, ...

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