On December 18, 1998, Shotgun filed its complaint against the United
States seeking a refund of $18,000.00 paid to the IRS. The United States
answered and counter-claimed against Shotgun seeking judgment and full
payment of the assessed taxes, interest and penalties. Shotgun contends
that the IRS assessment was incorrect because its reimbursement system
constituted a valid accountable plan under § 62 of the Internal
Revenue Code ("IRC"). The United States counters that the IRS assessment
was correct and that Shotgun's reimbursement system did not in fact
constitute a valid accountable plan.
Now before the Court is the United States' Motion for Summary Judgment
on its counterclaim.
III. LEGAL STANDARD
Summary judgment is proper only when there is no genuine issue of
material fact and, when viewing the evidence in the light most favorable
to the nonmoving party, the movant is clearly entitled to prevail as a
matter of law. See Fed.R.Civ.P. 56(c); Cleary v. News Corp., 30 F.3d 1255,
1259 (9th Cir. 1994). Once a summary judgment motion is made and properly
supported, the nonmoving party may not rest on the mere allegations of
its pleadings, but must set forth specific facts showing that there is a
genuine issue for trial. See FedR. Civ.P. 56(e); Celotex Corp. v. Myrtle
Nell Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265(1986). In
addition, to withstand a proper motion for summary judgment, the
nonmoving party must show that there are "genuine factual issues that
properly can be resolved only by a finder of fact because they may
reasonably be resolved in favor of either party." Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
If the factual context makes the nonmoving party's claim implausible,
that party must come forward with more persuasive evidence than would
otherwise be necessary to show that there is a genuine issue for trial.
See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Moreover, if the nonmoving
party has the burden of proof on a given issue, the moving party can
prevail by demonstrating "that there is an absence of evidence to support
the nonmoving party's case." Celotex, 477 U.S. at 325, 106 S.Ct. 2548.
The issue before this Court is whether the amounts paid to Shotgun's
employee-drivers for automobile expense allowances constitute wages
subject to employment taxes. Plaintiff contends that the expense
reimbursements paid to its drivers were made pursuant to an accountable
plan. Pursuant to § 62(a)(2)(A) of the IRC, under certain
circumstances a taxpayer is permitted to deduct from his gross income
those reimbursements for business expenses paid or incurred by the
taxpayer "under a reimbursement or other expense allowance arrangement
with his employer." 26 U.S.C. § 62(a)(2)(A).
Section 62(c) provides that:
For purposes of subsection 62(a)(2)(A), an
arrangement shall in no event be treated as a
reimbursement or other expense, allowance arrangement
(1) such arrangement does not require the employee
to substantiate the expenses covered by the
arrangement to the person providing the
(2) such arrangement provides the employee the right
to retain any amount in excess of the substantiated
expenses covered under the arrangement.
26 U.S.C. § 62(c); see also 26 C.F.R. § 1.62-2(b).