ABL & Associates Plumbing, LLC v. United States

          ORDER

          JAMES C. DEVER III, UNITED STATES DISTRICT JUDGE

         On January 26, 2017, ABL & Associates Plumbing, Inc. ("ABL" or "plaintiff) filed a corrected complaint against the United States of America ("United States" or "defendant") seeking refunds of penalties that it paid pursuant to 26 U.S.C. § § 6651 and 6656 for failure to timely deposit and pay its federal employment taxes for the fourth quarter of 2011 and the first quarter of 2012 [D.E. 8]. On August 8, 2017, the United States answered the corrected complaint [D.E. 15]. On September 24, 2018, the United States moved for summary judgment [D.E. 25] and filed a memorandum [D.E. 25-1] and exhibits [D.E. 25-2-25-12] in support On November 26, 2018, ABL responded in opposition [D.E. 31] and filed a statement of material facts [D.E. 32] and supporting documents [D.E. 33]. On February 11, 2019, the United States replied [D.E. 42]. As explained below, the court grants the United States' motion for summary judgment.

         I.

         ABL is a family-owned plumbing, fire protection, and HVAC contractor in Raleigh, North Carolina. See [D.E. 25-1] ¶ 1. ABL has four principal owners ("owners" or "principals"): Salvatore Lampuri, Concetto Lampuri, Anthony Lampuri, and Anthony Joseph Lampuri. Id. ABL primarily performs construction work for municipalities. See Id. ¶ 2. ABL "procures most of its work through bidding on contracts." Id.; see Ex. A [D.E. 25-3] 6-7.

         ABL began to experience financial hardship in 2010 as a result of the economic downturn and housing market collapse. See [D.E. 25-1] ¶ 3; Ex. A [D.E. 25-3] 8-9. Because of "the failure of the housing market[, ]" residential and light commercial contracting firms began to compete with ABL for bids on the kinds of projects that ABL typically completed. [D.E. 25-1] ¶ 3. Although ABL continued to win bids in 2010, its profit "margins" on those bids had decreased. Ex. A [D.E. 25-3] 9; see [D.E. 25-1] ¶ 3. Many of the contracts that ABL won in 2010 were for work to be performed in 2011 and thus were unprofitable. See [D.E. 25-1] ¶ 3.

         In 2011, ABL completed two contracts that it won in 2010 at a substantial loss. See [D.E. 25-1] ¶ 5. On the first project, which ABL completed for the North Carolina Department of Environmental and Natural Resources, ABL lost approximately $400, 000. See id.; Ex. A [D.E. 25-3] 25-26. On the second project, which ABL completed for Western Carolina University, ABL lost approximately $300, 000. See [D.E. 25-1] ¶ 6; Ex. A [D.E. 25-3] 15-16. Additionally, general contractors struggled to pay ABL on time, further worsening ABL's cash flow problem. See Ex. A [D.E. 25-3] 9; [D.E. 31] 4; cf [D.E. 25-1] ¶ 9.

         In response to these financial difficulties, ABL reduced its staff from approximately 145 employees to 105 employees. See [D.E. 25-1] ¶ 7; Ex. A [D.E. 25-3] 12. ABL also eliminated vehicle allowances for its principals (approximately $1, 000 per month per principal) and eliminated their salaries for approximately three or four months. See [D.E. 25-1] ¶ 7; Ex. A [D.E. 25-3] 17-18. In addition, ABL's principals loaned $1, 080, 581.47 to ABL between February 3, 2011, and September 22, 2011. See[D.E.25-l] ¶8; Ex. B [D.E.25-4]. However, ABL "only produced three promissory notes executed between Salvatore Lampuri and ABL for $200, 000, $60, 000, and $29, 000." [D.E. 25-1] ¶ 8; see Ex. A [D.E. 25-3] 20; Ex. C [D.E. 25-5] (promissory installment notes executed by ABL for $200, 000.00, $60, 000.00, and $29, 600.00). Salvatore Lampuri testified that the principals did not execute promissory notes because ABL is a "family business." Ex. A [D.E. 25-3] 20. ABL sought a Small Business Administration ("SBA") loan in August 2012, after it had failed to deposit and file its federal employment taxes, but the SBA denied the loan. See [D.E. 25-1] ¶ 14; see Ex. A [D.E. 25-3] 21-22. ABL "did not apply for loans with other financial institutions." [D.E. 25-1] ¶ 14; see Ex. A [D.E. 25-3] 22.

         By 2011, despite ABL's obligations to collect, account for, and pay federal employment taxes, ABL's principals decided to cease paying the company's payroll taxes to reduce expenses. See [D.E. 25-1] ¶¶ 9, 16; Ex. A [D.E. 25-3] 10-11, 18-19. ABL "contacted ADP, its payroll processor, and instructed ADP to cease paying over the trust fund portion of the federal employment taxes due." [D.E. 25-1] ¶ 9. ABL failed to timely deposit and pay all of its federal employment taxes for me quarterly tax period ending on December 31, 2011 (the 'Tourth quarter of 2011") and for the quarterly tax period ending on March 31, 2012(me''first quarter of 2012''). See[D.E.25-1] ¶¶10, 17-20. For the fourth quarter of 2011, ABL's tax liability was $169, 820.20, and the Internal Revenue Service ("IRS") assessed ABL a federal tax deposit penalty of $25, 473.01 and a failure to pay tax penalty of $13, 585.61. See [D.E. 25-1] ¶¶ 17-18; Ex. H [D.E. 25-10]. For the first quarter of 2012, ABL's tax liability was $231, 384.97. See [D.E. 25-1] ¶ 19; Ex. I [D.E. 25-11] 2. ABL timely paid $106, 792.00 of its tax liability for the first quarter of 2012, and the IRS assessed a federal tax deposit penalty of $18, 688.92, a failure to pay tax penalty of $6, 229.64, and a late filing penalty of $5, 606.68. See [D.E. 25-1] ¶ 20; Ex. I [D.E. 25-11]. ABL "paid all assessed federal employment taxes, penalties, and interest for both the fourth quarter of 2011 and the first quarter of 2012 by November 27, 2012." [D.E. 25-1] ¶21; see Ex. H [D.E. 25-10]; Ex. I [D.E. 25-11].

         Although ABL "hoped to pay [its] employment taxes on a quarterly basis... each time the taxes came due, events intervened to compel ABL to pay a creditor other than the IRS." [D.E. 25-1] ¶ 10. In the fourth quarter of 2011, ABL had 127 employees and paid $883, 782.43 in wages, including $12, 806.82 to one of its principals. See [D.E. 25-1] ¶ 12; Ex. E [D.E. 25-7]. Between January 1, 2012, and March 31, 2012, ABL "paid at least $1, 759, 430 to its various vendors and suppliers," $25, 000 to its lawyers, and $47, 100 to its accountants. [D.E. 25-1] ¶ 11; Ex. D [D.E. 25-6]. In the second quarter of 2012, ABL had 117 employees and paid $1, 024, 655.00 in wages, including approximately $200, 000 to its four principal owners. See [D.E. 25-1] ¶ 13; Ex. F [D.E. 25-8]. Despite its cash flow problems, ABL "has not been sued by any of its vendors of subcontractors for nonpayment" [D.E. 25-1] ¶ 15; Ex. A [D.E. 25-3] 23.^[1] Additionally, ABL did not begin repaying the loans from its principals until 2014. See Ex. A [D.E. 25-3] 20-21.

         On October 15, 2014, ABL filed an administrative claim "for an abatement of penalties for both tax periods with the IRS." [D.E. 25-1] ¶ 22; see [D.E. 8-2]. On December 15, 2014, the IRS denied ABL's request "citing alack of substantiation and documentation to support ABL's claims." [D.E. 25-1] ¶ 23; see [D.E. 8-3]. On February 11, 2015, ABL timely appealed the IRS's denial. See [D.E. 25-1] ¶ 24; [D.E. 8-4]. On July 26, 2016, the IRS denied ABL's appeal "again citing a lack of substantiation and documentation." [D.E. 25-1] ¶ 25; see [D.E. 8-5]. On November 23, 2016, ABL filed its complaint, and, on January 26, 2017, ABL filed its corrected complaint. See [D.E. 1]; [D.E. 8]; [D.E. 25-1] ¶ 26. On February 7, 2018, the United States sent interrogatories to ABL, but ABL "provided no formal response to these [i]nterrogatories and provided the United States with only limited documentation of its claims inresponse." [D.E. 25-1] ¶ 27; Ex. J [D.E. 25-12];[D.E.32] ¶27.

         II.

         Summary judgment is appropriate when, after reviewing the record as a whole, the court determines that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 247-48 (1986). The party seeking summary judgment must initially demonstrate the absence of a genuine issue of material fact or the absence of evidence to support the nonmoving party's case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has met its burden, the nonmoving party may not rest on the allegations or denials in its pleading, see Anderson, 477 U.S. at 248-49, but "must come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis and quotation omitted). A trial court reviewing a motion for summary judgment should determine whether a genuine issue of material fact exists for trial. See Anderson, 477 U.S. at 249. In making this determination, the court must view the evidence and the inferences drawn therefrom in the light most favorable to the nonmoving party. See Scott v. Harris, 550 U.S. 372, 378 (2007).

         A genuine issue of material fact exists if there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. See Anderson, 477 U.S. at 249. "The mere existence of a scintilla of evidence in support of plaintiffs position [is] insufficient" Id. at 252; see Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985) ("The nonmoving party, however, cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another."). Only ...