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December 9, 1994


The opinion of the court was delivered by: ANTHONY J. BATTAGLIA

 This matter was called for trial on November 2, 1994. George N. Harris, Jr., represented defendant/cross-claimant the United States of America. Patricia A. Isaacs represented plaintiff/cross-defendant Martin L. Springfield dba Douglas Motors. On July 25, 1994, in accordance with the provisions of 28 U.S.C. § 636(c), the parties consented to have a United States Magistrate Judge conduct all further proceedings in this case.


 1. Whether the statute of limitations bars the collection by the Internal Revenue Service of assessments for (a) Social Security Taxes, (b) unemployment taxes, (c) civil penalties, (d) failure to file penalties and interest, four years prior to 1988, 26 U.S.C. § 6501(a).

 2. Whether the assessment of civil penalties under 26 U.S.C. § 6652, § 6676 and § 6722 were improper in this case.

 3. Whether the salespeople were common law employees from 1983 through 1987 for federal employment tax purposes under applicable law.

 4. Whether plaintiff is entitled to relief from liability for the tax assessment under the safe harbor provisions of § 530 of the Revenue Act of 1978, as amended and extended through the Tax Equity and Fiscal Responsibility Act of 1982, 1982-2 C.B. 462, 536.20, 26 U.S.C. § 3401.

 5. Whether plaintiff's rights were violated by asking for and reviewing his business records and personal tax returns prior to an audit being opened.

 6. Whether the doctrine of equitable estoppel should be applied under the circumstances of this case.

 7. Whether the California Vehicle Code sections 285, 286, 675, 11700-11727, and 11800-11809, are applicable and relevant regarding the salespersons' status as employees and/or applicable to the analysis of relief under § 530.

 After hearing the testimony, reviewing the documentary evidence and the agreed facts as set forth in the amended Pre-trial Order, and considering the arguments of counsel, the Court now makes the following findings based on the credible evidence and their reasonable inferences to be drawn therefrom. These findings were made based upon a preponderance of the credible evidence.


 1. This is a civil suit in which the plaintiff, Martin L. Springfield dba Douglas Motors, sought to recover withholding taxes, FICA taxes, FUTA taxes, penalties, and interest which he paid for the tax period ending September 30, 1986 in the total amount of § 2,206.72. Springfield operated Douglas Motors, a used automobile business, and hired several individuals to sell vehicles from Douglas Motors' inventory.

 2. Defendant, the United States of America, counterclaimed for the total balance of the assessments of tax, interest and penalties the IRS had made against the plaintiff. Specifically, the Government's counterclaim included FICA tax assessments for each of the taxable quarters ending during the years 1983, 1984, 1985, 1986, 1987 and 1988. In addition, the counterclaim included FUTA and certain civil penalty assessments for the same years. At trial, the total amount of the Government's counterclaim was $ 70,555.13, *fn1" plus interest and penalties from August 1, 1994.

 4. The plaintiff purchased Douglas Motors, an established used car business, in 1981. Douglas Motors was operated by Mr. Springfield as a sole proprietorship.

 5. The business was operated out of a warehouse in Santee, California, until February of 1988. The warehouse location included both indoor and outdoor space for displaying the vehicles to the public.

 6. Between 1981 and 1983, Douglas Motors' business primarily consisted of purchasing automobiles at wholesale prices in the San Diego area, transporting many of the vehicles to the Los Angeles area, and reselling them at wholesale auctions. The difference in the prices which could be obtained in the wholesale markets provided the business with most of its operating profit.

 7. After he purchased the business, Springfield entered into agreements with several persons whom he allowed to sell automobiles from Douglas Motors' inventory to retail customers and provided "Douglas Motors" business cards to at least one of these salespersons.

 8. The nature of the relationship between the plaintiff and the salespersons did not change substantially between 1983 and 1989 and were typically long term relationships.

 9. Plaintiff gave his salespeople keys to the Santee warehouse and allowed them to sell used cars from his business inventory.

 10. All of the salespeople whom Springfield hired had extensive experience in the used automobile sales industry.

 11. Potential retail customers would view Douglas Motors' automobiles at the Santee warehouse location and the salespersons would conduct the sales transaction on behalf of the business and under Douglas Motors' Dealers License. Mr. Springfield attracted retail customers by offering the vehicles for sale in a weekly used car magazine, the "Auto Trader."

 12. Mr. Springfield spent very little time himself at the warehouse. His time and attention was devoted to wholesale activity and vehicle purchasing.

 13. Douglas Motors' salespeople were paid on a commission-only basis, receiving no fixed salary. The plaintiff set and recorded a "cost" for each vehicle kept at the warehouse location. This was based on his cost purchasing the vehicle, detailing and repair as well as a "pack" to cover overhead. The plaintiff also noted the price he expected to receive at auction for the vehicle.

 14. The commissions were paid on the difference between the actual sales price obtained by the salesperson and the "cost" set by Mr. Springfield. The salespeople were paid 30% of the net proceeds with 70% going to the dealership. Retail customers made their checks payable to Douglas Motors, not the individual salespeople.

 15. The salespeople had no investment in the used vehicles in the Douglas Motors inventory. Mr. Springfield and/or Douglas Motors purchased the vehicles, expended the money for any detailing, repairs or re-conditioning, and determined which vehicles would be sold at a wholesale auction and which vehicles would be sold at retail.

 16. Mr. Springfield knew that at least one of the salespersons would be on the business premises during normal business hours to provide service to potential retail customers.

 17. While the salespeople negotiated trade-in values with customers, trade-ins were subject to re-appraisal and approval by Mr. Springfield. He had the final decision.

 18. The salespeople would handle customer complaints, but if a major problem rose after the sale of a vehicle, it was handled by Mr. Springfield.

 19. Mr. Springfield carried a beeper so that the salespeople could call him if they needed to clear something concerning the business activity.

 20. Mr. Springfield benefited financially from the presence of the salesmen on the premises on a daily basis by the virtue of the sales of the inventory to the retail public.

 21. As opposed to per transaction, the plaintiff paid the salespeople the total amount of the commissions they had earned at various intervals averaging once every two weeks.

 22. Mr. Springfield provided worker's compensation insurance for the salespeople.

 23. Mr. Springfield maintained the right to terminate the relationship of any or all of the salespeople at any time as well as the right to take the keys to the warehouse from them.

 24. In February of 1988, Mr. Springfield moved Douglas Motors' operations to a location in La Mesa, California. The nature of the business continued to involve both ...

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