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Girard Trust Corn Exchange Bank v. U.S., 259 F.Supp. 214, 18 A.F.T.R.2d 6147, 67-1 USTC P 9134

Facts

Art McLaughlin, Inc. was a New Jersey corporation operating an automobile agency and had obtained loans from Girard Trust Corn Exchange Bank. Due to a series of violations, the bank began supervising McLaughlin's operations, including financial management and payment of expenses. The government contended that during this period, the bank was the employer responsible for withholding taxes, while the bank argued it was merely acting in a supervisory capacity to protect its investment.

Art McLaughlin, Inc. (hereinafter referred to as ‘McLaughlin’) in March 1958 to the latter part of December 1959 was a New Jersey corporation which owned and operated an automobile agency at Pennsgrove, New Jersey.

Issue

Whether Girard Trust Corn Exchange Bank was the 'employer' responsible for the payment of withholding taxes during the period in question.

The legal issue obviously was whether or not Girard was in fact the ‘employer’ during the period in question and therefore a ‘person’ responsible for the payment of the taxes and subject to penalty assessment for failure so to do.

Rule

The court applied the definitions of 'employer' and 'person' under Sections 3102, 3402, 6671, and 6672 of the Internal Revenue Code to determine liability for withholding taxes.

Section 3102 as amended provides, inter alia, that ‘The tax imposed by section 3101 shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid.’

Analysis

The court found that the jury had sufficient evidence to conclude that while the bank had control over the financial operations of McLaughlin, it did not constitute the employer as defined by the statute. The jury was tasked with determining the actual employer based on control over hiring, payment of wages, and overall business operations, leading to the conclusion that McLaughlin remained the employer.

Aside from clear and uncontradicted proof that the bank had unlimited control of the financial operation of the business, there was no evidence that the bank participated in decisions involving buying and selling cars, receiving trade-ins, setting allowances, insurance, operation of the service department, preparation of tax forms, hiring or firing of employees or similar matters.

Conclusion

The court denied the government's motion for judgment n.o.v. and upheld the jury's verdict in favor of the bank, concluding that the question of the bank's employer status was appropriately decided by the jury.

Accordingly, we enter the following: ORDER And now, this 20 day of September, 1966, it is ordered that the defendant's motion for judgment n.o.v. is denied and defendant's motion in the alternative for a new trial is denied.

Who won?

Girard Trust Corn Exchange Bank prevailed in the case because the jury found that the bank was not the employer responsible for the withholding taxes, which was a factual determination supported by the evidence presented.

The jury in finding in favor of the bank could well have concluded that the government suffered no actual loss during the period from September 1958 to December 1959.

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