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United States of America v. Darrell Reed Individually and Dba Stationary Scaffold


April 15, 2011


The opinion of the court was delivered by: Richard Seeborg United States District Judge

*E-Filed 4/15/11*


United States District Court For the Northern District of California


Plaintiff United States of America filed suit against defendant Darrell Reed individually and 9 as the sole proprietor of Stationary Scaffold, a construction equipment rental business. The 20 government seeks to reduce to judgment taxes owned by Reed as an employer and as an individual.

After Reed failed to answer the complaint or otherwise make an appearance in the case, default was 22 entered by the Clerk of Court. The government subsequently filed this motion for entry of default 23 judgment. Although Reed was served with notice of the hearing held on March 31, 2011, he did not 24 respond to the motion or appear at the hearing. For the reasons stated below, the government's 25 motion for entry of judgment is granted.

As an employer, Reed is required to withhold federal income taxes and Federal Insurance Contributions Act (FICA) taxes from his employees' wages. See 26 U.S.C. §§ 3102, 3402. He 28 must also pay his own portion of FICA taxes and Federal Unemployment Tax Act (FUTA) taxes.

§§ 3111, 3301. Along with these obligations, Reed is required to file: (1) Employer's Quarterly 2 Federal Tax Returns (Form 941) reporting the income and FICA taxes withheld from his 3 employees' wages, as well as his own FICA taxes; and (2) Employer's Annual Federal 4

According to the complaint, Reed filed Forms 941 and Forms 940, but at times failed to pay the total amounts described within those returns. In particular, he owes payroll taxes for the tax 7 quarters ending September 30, 2001, June 30, 2004, September 30, 2004, December 31, 2004, and 8 2008 tax year. Additionally, Reed has not paid individual income tax on his self-employment 10 income for the past twelve years. In 2008 and 2009, Reed failed even to file his Individual Income Tax Returns Forms 1040.

As of the date of the complaint, the Internal Revenue Service has assessed FICA taxes owed by Reed through March 31, 2009, FUTA taxes for 2008, and income taxes for the tax years 1999 14 through 2007. The amount due as of September 27, 2010, with assessed interest and penalties, 15 includes $219,655.36 for FICA and FUTA taxes and $333,540.75 for income taxes. By declaration 16 filed with its motion for default judgment, the United States submitted evidence that the sum 17 outstanding as of February 28, 2011, including unassessed interest and penalties, now amounts to 18 $225,986.00 in payroll taxes and $338,891.61 in income taxes. Accordingly, the government seeks 19 entry of judgment in the total amount of $564,877.61. 20

Following entry of default, a district court may in its discretion grant default judgment. See Fed. R. Civ. P. 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising its 23 discretion, the court considers the following factors: (1) the possibility of prejudice to the plaintiff; 24 (2) the merits of the plaintiff's substantive claim; (3) the sufficiency of the complaint; (4) the sum of 25 money at stake in the action; (5) the possibility of dispute concerning material facts; (6) whether the 26 default was due to excusable neglect; and (7) the strong policy underlying the Federal Rules of Civil 27 1986). In determining whether to grant default judgment, all factual allegations in the plaintiff's

Unemployment Tax Returns (Form 940) reporting FUTA taxes. §§ 6011, 6071.

December 31, 2007 and for the full tax years of 2005, 2008, and 2009. He owes FUTA taxes for the


Procedure favoring decisions on the merits. See Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 28 complaint are taken as true, except for those related to damages. See TeleVideo Systems, Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987).

In this case, the Eitel factors strongly weigh in favor of entering default judgment. Reed has 4 failed to pay taxes, either fully or in part, over a span of years longer than a decade. As the United States is apparently otherwise unable to collect the taxes owed, denial of default judgment risks 6 continuing losses and thus prejudice to the plaintiff. The merits of the government's suit and the 7 adequacy of its complaint are well established, as the amounts presently assessed by the IRS are 8 based on tax forms filed by Reed. For the same reason, the material facts of the case do not appear 9 reasonably subject to dispute. Although a relatively large sum of money is involved, it represents 10 liabilities accrued by Reed both as an employer and as an individual over multiple tax years. With respect to the possibility of excusable neglect, the United States filed its complaint on January 2011 and Reed's answer was due on January 24, 2011. Although he was served with the motion for 13 entry of default judgment, Reed has made no appearance in the case. Finally, while resolution on 14 the merits is preferable, the length of this tax controversy and Reed's failure to appear in the case 15 suggest that resolution on the merits represents a highly unlikely outcome. In sum, the United 16

States has demonstrated that it is entitled to entry of default judgment.


The United States' motion for entry of default judgment against Reed in the amount of $564,877.61 is granted



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