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Shore v. Brown

October 9, 2009

WILMA SHORE, PLAINTIFF,
v.
KEVIN M. BROWN, ACTING COMMISSIONER OF INTERNAL REVENUE SERVICE OF UNITED STATES OF AMERICA, AND DOES 1 THROUGH 10 INCLUSIVE DEFENDANT.
UNITED STATES OF AMERICA, COUNTERCLAIMANT,
v.
WILMA SHORE, COUNTERCLAIM DEFENDANT. AND GREGORY SHORE AND BRENDA O. REYNOLDS ADDITIONAL COUNTERCLAIM DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

MEMORANDUM DECISION RE DEFENDANT UNITED STATES OF JUDGMENT AGAINST ADDITIONAL AMERICA'S MOTION FOR SUMMARY COUNTERCLAIM DEFENDANTS GREGORY SHORE AND BRENDA REYNOLDS

(Doc. 52.)

I. INTRODUCTION

Before the court for decision is the United States' Motion For Summary Judgment to reduce to judgment the outstanding federal income tax liabilities assessed against Counterclaim-Defendants Gregory Shore and Brenda Reynolds. (Doc. 52.) The motion is unopposed.*fn1

II. FACTUAL BACKGROUND

This case arises out of tax liabilities assessed by the Internal Revenue Service ("IRS") against Gregory Shore and Brenda Reynolds because it deemed them to be responsible persons for three separate corporations, Dean's Materials, Inc., Dean R. Shore, Inc., and Cybergate, Inc. The government seeks to collect unpaid payroll taxes from Dean's Materials, Inc. and Dean R. Shore, Inc., for eleven tax periods from April 1, 1997 through December 31, 1999. The government seeks recovery of payroll taxes from Cybergate.com, Inc., for seven tax periods from March 31, 1998 through September 30, 1999.

CMS and INCON evolved out of a small acoustical tile business started by Dean R. Shore, Gregory Shore's deceased father, in 1960. (Defendant United States' Statement of Disputed Facts ("DSUF") 1.) Dean's Materials, Inc. sold building supplies in Central California under the trade name Construction Materials Suppliers ("CMS"). (DSUF 3.) Dean R. Shore, Inc. was a large commercial acoustical tile, plaster and commercial drywall subcontractor that did business under the name Interior Contractors ("INCON"). (DSUF 4.) Throughout the relevant tax periods at issue in this case, CMS was the parent company and sole shareholder of INCON.*fn2 (DSUF 7.)

During the relevant tax periods at issue in this litigation, Gregory Shore and Brenda Reynolds were employees of CMS and INCON. (DSUF 14, 56.) Gregory shore managed the daily operations of CMS and INCON, as well as serving as a director and officer for each company. (DSUF 9, 14, 56, 69, 72-74.) Brenda Reynolds was the controller for both companies, managing financial operations and the accounts payable. (DSUF 56-58.) It is undisputed that both Shore and Reynolds signed checks, controlled employees (i.e., ability to hire and fire), knew of CMS and INCON's poor financial condition as early as 1997, and paid other creditors with full knowledge of the federal tax indebtedness.*fn3 (DSUF 14, 56-82.) It was on this basis that the IRS assessed penalties against Gregory Shore and Brenda Reynolds. (DSUF 117-19.)

Gregory Shore acquired Cybergate in the mid-1990's and, during the relevant tax periods, was its majority owner, President, and Director. (DSUF 74.) Mrs. Reynolds was Cybergate's Secretary and Treasurer, as well as serving on its Board of Directors. (DSUF 69.) Pursuant to their corporate positions, Shore and Reynolds had significant control over Cybergate's financial operations, including signing checks, hiring and firing employees, and negotiating contracts. (DSUF 69-71, 75.) It is undisputed that Shore and Reynolds knew Cybergate was in poor financial condition as early as 1997, yet continued paying creditors other than the IRS during the relevant time period in this case. (Id.)

Following an investigation into the delinquent taxes, the IRS assessed trust fund recovery penalties against Gregory Shore and Brenda Reynolds relating to CMS, INCON, and Cybergate's outstanding payroll liabilities. (DSUF 117-19.)

A. Assessments Against Gregory Shore

The IRS assessed penalties against Gregory Shore as to CMS and INCON's unpaid tax liabilities for eleven tax periods from April 1, 1997 through December 31, 1999. (DSUF 117-18.) The IRS assessed penalties against Gregory Shore as to Cybergate.com's unpaid tax liabilities for seven tax periods from March 31, 1998 through September 30, 1999. (Id.)

The IRS assessed penalties against Gregory Shore concerning CMS' unpaid tax liabilities in the amount of $38,867.58 for the second quarter of 1997, $36,346.66 for the third quarter of 1997, $39,647.46 for the fourth quarter of 1997, $25,287.07 for the first quarter of 1998, $25,665.25 for the second quarter of 1998, $26,193.58 for the third quarter of 1998, $23,540.84 for the fourth quarter of 1998, $17,642.23 for the first quarter of 1999, $18,670.89 for the second quarter of 1999, $18,519.88 for the third quarter of 1999, and $19,336.95 for the fourth quarter of 1999.*fn4 (DSUF 118.)

Concerning INCON, the IRS assessed penalties against Gregory Shore in the amount of $106,345.58 for the second quarter of 1997, $155,671.18 for the third quarter of 1997, $124,821.18 for the fourth quarter of 1997, $218,437.67 for the first quarter of 1998, $144,667.76 for the second quarter of 1998, $91,513.87 for the third quarter of 1998, $183,554.25 for the fourth quarter of 1998, $171,853.43 for the first quarter of 1999, $217,007.41 for the second quarter of 1999, $143,344.31 for the third quarter of 1999, and $122,304.55 for the fourth quarter of 1999. (DSUF 118.)

The IRS assessed trust fund recovery penalties against Gregory Shore relating to Cybergate's outstanding payroll liabilities for seven tax periods running from April 1, 1997 through December 31, 1999. (DSUF 118.) The IRS assessed penalties against Mr. Shore in the amount of $4,861.38 for the first quarter of 1998, $5,178.26 for the second quarter of 1998, $4,619.19 for the third quarter of 1998, $4,523.20 for the fourth quarter of 1998, $4,625.13 for the first quarter of 1998, $5,723.50 for the second quarter of 1998, and $5,836.08 for the third quarter of 1998. (DSUF 118.)

As of July 19, 2009, the total assessed penalties against Brenda Reynolds for CMS, INCON, and Cybergate's federal tax liabilities for all tax periods at issue, including interest, is $3,160,230.95. (DSUF 118.)

B. Assessments Against Brenda Reynolds

The IRS assessed penalties against Brenda Reynolds as to CMS and INCON's unpaid tax liabilities for eight tax periods, from March 31, 1998 through December 31, 1999. (DSUF 119.) The IRS assessed penalties against Brenda Reynolds as to Cybergate.com's unpaid tax liabilities for seven tax periods from March 31, 1998 through September 30, 1999. (Id.)

The IRS assessed penalties against Brenda Reynolds concerning CMS' unpaid tax liabilities in the amount of $25,287.07 for the first quarter of 1998, $25,665.25 for the second quarter of 1998, $26,193.58 for the third quarter of 1998, $23,540.84 for the fourth quarter of 1998, $17,642.23 for the first quarter of 1999, $18,670.89 for the second quarter of 1999, $18,519.88 for the third quarter of 1999, and $19,336.95 for the fourth quarter of 1999.*fn5 (DSUF 119.)

Concerning INCON, the IRS assessed penalties against Brenda Reynolds in the amount of $218,437.67 for the first quarter of 1998, $144,667.76 for the second quarter of 1998, $91,513.87 for the third quarter of 1998, $183,554.25 for the fourth quarter of 1998, $171,853.43 for the first quarter of 1999, $217,007.41 for the second quarter of 1999, $143,344.31 for the third quarter of 1999, and $122,304.55 for the fourth quarter of 1999. (DSUF 119.)

The IRS assessed trust fund recovery penalties against Brenda Reynolds relating to Cybergate's outstanding payroll liabilities for seven tax periods running from April 1, 1997 through December 31, 1999. The IRS assessed penalties against Mr. Shore in the amount of $4,861.38 for the first quarter of 1998, $5,178.26 for the second quarter of 1998, $4,619.19 for the third quarter of 1998, $4,523.20 for the fourth quarter of 1998, $4,625.13 for the first quarter of 1998, $5,723.50 for the second quarter of 1998, and $5,836.08 for the third quarter of 1998. (DSUF 119.)

As of July 19, 2009, the total assessed penalties against Brenda Reynolds for CMS, INCON, and Cybergate's federal tax liabilities for all tax periods at issue, including interest, is 2,290,843.92. (DSUF 119.)

III. PROCEDURAL BACKGROUND.

On August 8, 2008, Mrs. Wilma Shore, Gregory Shore's mother and an officer, director, and majority shareholder of CMS and INCON, brought suit against the United States pursuant to 28 U.S.C. § 1346, seeking a refund of trust fund liabilities assessed personally against her by the IRS.

On December 17, 2007, the United States filed its Answer to Shore's Complaint and asserted a counterclaim against Plaintiff Wilma Shore seeking to collect the balance of the assessed penalties. (Doc. 8.) The United States also raised counterclaims against Gregory Shore and Brenda Reynolds, seeking to reduce to judgment certain trust fund recovery penalties assessed against them pursuant to 26 U.S.C. § 6672.

On June 23, 2008, the United States requested the Clerk of Court to enter default against Gregory Shore and Brenda Reynolds. (Docs. 20 & 21.) The Clerk entered default against both parties on June 24, 2008. (Docs. 24 & 25.)

On July 20, 2009, the United States filed a Motion For Summary Judgment to reduce to judgment the outstanding federal income tax liabilities assessed against Plaintiff and Counterclaim-Defendant Wilma Shore and Additional Counterclaim-Defendants Gregory Shore and Brenda Reynolds. (Doc. 52.) As to Counterclaim-Defendants Gregory Shore and Brenda Reynolds, the United States seeks to reduce trust fund penalties to judgment because they are responsible persons under 26 U.S.C. § 6672 for the unpaid tax liabilities of Dean's Materials, Inc. and Dean R. Shore, Inc., and Cybergate, Inc.

To date, neither Gregory Shore nor Brenda Reynolds have moved to set aside the default or opposed the government's summary judgment motion.

IV. LEGAL STANDARD

Summary judgment is appropriate when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The movant "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted).

Where the movant will have the burden of proof on an issue at trial, it must "affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). With respect to an issue as to which the non-moving party will have the burden of proof, the movant "can prevail merely by pointing out that ...


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