were not designated to af ticular quarter of liabili Mr. Pinto

argues that, because Pinto Construction was an S-corporation, in

which tax liability “passes through” the corporation Lo the

individual, the paymenls by Pinto Construction were “in effect, the

equivalent of a payment directly from Richard Pinto personally.”

s Mem, at 8, However, even if the thirty-seven monthly payments
by Pinto Construction effectively came out of Mr. Pinto’s pocket,
Lhey were not clearly directed to his personal liability. Mr. Pinto
admits that the endorsement on each check trom Pinto Construction
directed that the “funds be applied Lo Lhe Lrusl fund tax Liability
of Pinto Bros. Construction, Inc., FEIN #36-3641446.” Vhe payments
did not bear Mr. Pinto’s individual Secial Security number, which

was the number for his personal civil liability account. Compare

Gov't Ex. 2 (Mr. Pinto’s civil liability account, identified by

Social Sequrity Number 332-60-0645) with Gov’t Ex. 3 and 4 (trust

fund liability of Pinto Brothers, identified by Federal kmployer

Identiticalion Number %36-3641446). Regardless of who made Lhe

thirty-seven monthly payments, they were indisputably directed at

the liability of Pinlo Brothers, not of Mr. Pinto personally.

Although Lhe government admits that the balance Mr. Pinto’s

onal account was reduced to zero, his personal liability was

because the payments by Pinto Construction were

not designated to satisly his personal liability.

13



U.S. 545, 546-47 (1990). If an employer fails to pay trust fund
taxes, § 6672 of the Internal Revenue Code, known as the
“responsible person penally provision,” see Suffalow v. United
States, 109 F.3d 570, S73 (9th Cir. 1997), allows Lhe government to

collect a sum equal to the amount owed “directly from the officers

or employees of the employer who are responsible for collec

tax. Nnergy Resources, 495 U.s at 547; 26 U.S.C. § 6672(a).

Richard Pinto was the president and 100 percent owner of Pinto
Brothers. Pinto Brothers failed to pay trust fund Laxes for, inter

aiia, the second quarter of 1991 and all four quarters of 1994

When Pinto Brothers went out of | ness, ita

igned its assets
for the benefit of its credilors. Eight days before the scheduled
sale of assets in June 1994, Mr, Pinto formed a new business, Pinto
Construction, of which he is a 60 percent owner and his wile, Doris
Pinto, is a 40 percenl owner. The government says that the assets
of PinLo Brothers were assigned to Pinto Construction, based on a

to Mrs. Pinto in an JRS

tement of intent to

ign the ass

report. Mr. Pinto denies that Pinte Construction is the assignee of

Pinto Brothers (though he provides no evidence to support the

denial),! but any dispute immaterial for reasons I explain

below.

On August 6, 1995, Mr. Pinto was assessed porsonal liability

‘ The failure to point to evidence in the record to support a

2; Local Rule $6.1{b) (3) (A).

4



now. The reallocation thua has nol increased his penalty beyond
that for which he was eligible in the first instance.” Id. Finally,

court held that Davis could not demonslrate detrimental

ryeliance because he waived any interest in how the payments were

allo

ed by failing to designate them. fd. In a similar case,

another court has held that the IRS may subsequently reallocate

gnated payments to a ditferent quarter even though it has the
effect of increasing Lhe individual trust fund liability of a §
6672 “responsible person.” See Thomas v. United States, No. 96-
1488, 1998 WL 892617, at “4-*6 (C.D. T1ll. Sept. 16, 1998) (Mihm,

C.d.). In Thomas, a third pe made payments against a

ate te which

yon’s trust fund liability, but did not desi

the payments should apply. Id. at *6. The court held that

“the solvency of the debtors and the total tax liability

i

changed in the present case, the IRS should have been free to alter
its initial allocation to maximize its revenues and increase the

collectibility of [the § 6672 responsible person’s} debls.” Id.

Becaus

a third partly made the payments, the court held thal it was

reasonable to reallocate them to quarters in which the third party
did not share liability with the § 6672 responsible person. Td.
Mr. Pinto attempls Lo distinguish Davis and Thomas by claiming

that Pinte Construction was not an assignee of Pinto Brothers. He

does not support t m with any evidence, but any dispute on

this question is immaterial. lhe issue in both thomas and Davis was



to the third and fourth quarters of 1993, Dot. Ex. 5, 14.

Mr. Pinto also made payments personally, both voluntarily and
in response toa levy, against his civil liability in the amount of
$143,238.66, Deft. Bx. 5, 7 10. The government does not say whether
Mc. Pinto specifically designated any of his individual payments,
but all of them were allocaled to the trust fund tax liability for

Lhe fourth quarter of 1993, and Mr. Pinto does not object Lo this

allocation.

As a result of the individual payments by Mr. Pinto and the

cross-referenced payments by Pinto Conskruction, the balance of Mr.

Pinto’s individual civil liability was reduced to zero. Id. 4 15.
Mr. Pinto claims Lhat he has overpaid his personal civil liability
and seeks a refund. The government admits Lhat, when the IRS

assed the $214,702.77) penalty on Mr. Pinto on April 6, 1995, it

failed to account for $32,000 of paymenks toward the liability for

the third and fourth f 1993 made by Pinto Construction

beLore the individual ‘Thus the government says that the

assessment of personal liability on April 6, 1985, ought to have

been for $182,702.71.’ ‘the total payments by Mr. Pinlo (his
individual payments and Lhe cross-referenced payments as originally

allocated) amount to $267,738.66—-353,035.89 more than the original

2.77,

“Actually, the assessment ought to have heen for $182,
or $32,000 less than $214,702./7, which was the original amount
ed. Because I draw inferences against the government on its
tion, lL give Mr. Pinto the benefit of the $.06 discrepancy.

6


in the amount of $214,702.77" for the trust Lund Lax penalties of
Pinto Brothers from Lhe third and fourth quarters of 1993 as a

“responsible person” under § 6672. Beginning in August 1994, Pinto
Construction made monthly payments ol $5,000 toward the trusl Lund
tax liability of Pinto Brothers. Each check from Pinto Construction
bore the following endorsement:

We hereby tender payment of $5,000.00 and specifically demand

that such funds be applied to the trust {tax Liability otf
Pinto Bros. Construction, Tne., FEIN #36-3641466.

bef. Ex. 5. None of the $5,000 payments was designated for a
particular quarter of trust fund tax liability. Pinto Construction
made a total of thirty-seven monthly payments of $5,000.° The IRS

allocaled these paymenLs among all four quarters of tax liability

for 1993. Mr. Pinto’s civil penalty account, for his pe nal
liability, received cross-reference credit for Lhe lwenly-nine

monthly payments made after his assessment on April 6, 1995. A

total of $124,500 of the monthly payments were originally allocated

2 The original notice of proposed assessment was tor
$223,539.58 -$8,836.81 for the second quarter of 1991, $137,043.18
lor the third quarter of 994, and $77,659.53 (the government
mistakenly transcribes th amounk a8 $77,959.59 in its statement
of facts, 71) for Lhe fourth quarter of 1994—-but the 1991 penalty
was immediately ahated because it had been paid in full. See Gov't
Ex. 1.

> The chart attached to the government’s motion for summary
judgment. showed only thirty-six payments, but that appears to have
been the result of a photocopying error that cul off Lhe last line
of the page and omitted check ff 11152. In reply, @ government
submits mplete copy of the chart, which shows thirt
payments and accounts for check # 11152.

seven

5
2



not designate the particular liability, the IRS may allocate the

payment as it sees fit, id.; Schroeder, 900 F.2d at 1149; Sotir v.
United States, 978 F.2d 29, 30 (lst Cir. 1992).

In Davis, the plaintiff was the president and major
shareholder of a company that owed both trust fund taxes and non-
trust Cund taxes. The company began to pay the delinquent taxes on

an installment basis, but did not d

signate to which quarter of
liability the payments should apply. 961 F.2d at 870. Davis was

assessed an individual civil penalty for the trust fund Laxes, but

prior to the ment, the IRS discovered that the company lacked

any assets to satisfy the non-trust fund liability. Id. he IRS

reallocated funds that were originally applied to the trust Lund

taxes to cover the company’s non-trust fund liabilily. Id. The

effect of the reallocation was to ine se the amount of the trust

fund civil penalty assessed againsl Davis from $3,000 to nearly
$19,000. td. at 871.
Whe Ninth Circuit held Lhal Lhe reallocation was permissible,

holding that “straitjacketing the IRS into its initial allocation

decisions would be inconsistent with the goal of maximizing tax

revenues. . . . Adjustments of allo ions should be permitted as
new information comes to the IRS.” 961 F.2d at 879. The court noted
that Davis could not show that he was injured by the re-allocation

because, “had Lhe IRS originally allocated the payments along their

current lines, his penalty would have been identical to what it is



Minter Fon 6897)

r United States District Court, Northern District of Illinois

Elaine E. Bucklo

Sitting Judge if Other
than Assigned Judge

“| CASE NUMBER

01 C5308

DATE 10/16/2002

CASE Pinto vs. United States of America
TITLE
[In the following box (a) indicate the party filing the motion, c.g., plaintitf, defendant, 3rd party plaintiff, and (b) state briefly the nature
MOTION: of the motion being presented.

DOCKET ENTRY:

is terminated as moot.

(il)

(th) Oo Filed motion of [ use listing in “Motion” box above.]

(2) oa Brief in support of motion due

G) oO Answer brief to motion due. . Reply to answer brief due

@ Ruling/Hearing on setfor at

() Oo Status hearing|held/continued to] [set forfre-set for]en set fora

(6) Oo Pretrial conferencefheld/continued to] [set for/re-set for] on setfor at

(7) Oo Trial{set for/re-set forfon at

(8) Oo [Bench/Jury trial] [Ilearing] held/continued to at

(9) im This case is dismissed [with/without] prejudice and without costs|by/agreemenU/ pursuant to}
C]FRCP40n) (C) Local Rule 41.1 CU FRCP41 (a(t) 0 FRCP41(a)(2).

ao) [Other docket entry] Enter Memorandum Opinion and Order granting government's motion for

summary judgment and denying plaintiff s motion for summary judgment. Judgmentis ,therefore, entered
in favor of defendant and against plaintiff in the amount of $39,464.05. Any pending motion in this case

[For further detail sce order attached to the original minute order.)

No notices required, advised in open court

No notices requived

ra Notices mailed by judges statf.

Notified counsel by telephane,

Docketing to mait notices.

vf Mail AO 450 form

Copy to judge/magistrate judge.

courtroom
deputy’s
initials

MPy

number of notices

OCT.1.7,7002
Con.

ocketing deraty bial

J

hovts/2002

die mated wot

urs

Date/lime received in
ventral Clerk's Office

iting deputy wings



if Lhere had been such an allocation, there is no support for
mandatory pro-rata apportionment. Cf. Neier v. United States, 127

d that

agre

B.R. 669, 673 (BD. Kan. 1991) (noting thal the parti
payroli Lax deposits should be allocated proporlionally to trust
fund and non-trust fund taxes); Notaro v. United

0429, 1992 Wr 396444, at *2 (N.D. Ill. Dec, 23,

(“[Plrovisions of the IRM [Internal Revenue Manual] are not
enforceable against the government.”). Finally, Mr. Pinto provides

no documentation to support his claim that his assessmenl would

have been lower by $30,000. Nonetheless, the government admits that

,

its original esesment of $214,702.77 was off by $32,000 b

AUSe

it failed to account for payments by Pinto Constru

tion prior to

Lhe date of the assessment against Mr. Pinto. Mr. Pinto admits Lhat
$182,702.71 is the proper adjusted calculation. See P1l's Reply at

9

Mr, Finto acknowledges that the government has broad po

reallocate wundesignated payments, and he admi that the monthly

$6,000 payments by Pinto Conslruction were undesignaled, He argues,

allocate payments after Mr. Pinto

however, that the IRS could nol

had paid his personal liability in full and the tax lien against

him had been released. In a footnote in Davis, the Ninth Cireuil

ted that it “need not decid whether limits on the IRS's

reallocation authority would be appropriate where the taxpayer’s

voluntary payment completely satisfies an existing tux liability,

LL



Lhe reallocation of undesignated payments made against a company’s

liability generally to increase the amount that could he collected

from a § 6672 responsible person; Lhe identity of the payor was
irrelevant. Mr. Pinto also argues that there was no new information

as in Thomas and Davis.

about collectibility here, as Lhere

HNowever, Pinto ConstrucLion stopped making monthly payments against

the trust Lund liability of Pinto Brothers once Mr. Pinto believed
that his personal liability was extinguished; even construing this
fact most faverably to Mr. Finto, this is new information about the

ability to collect on Pinto Broth

liability for the first two

quarters of 1993, for which Mr. Pinto did not sha § 6672

individual liability.

Relying in part on a provision of the Internal Revenue Manual,
Mr. Pinto argues thal Lhe IRS ought to have allocated Pinto
Brothers’ federal tax deposils “pre rata” between trust fund tax

liability and non-trust fund tax liability, and that he would have

n asse

approximately $30,000 less in trusl fund liability if

the IRS had done so. There is no evidence in the record that any

payments or federal tax deposils wore applied to any non-trust fund

liability. In fact, there is no evidence of federal Lax deposits at

all, and Mr. Pinto admits that all thirty-seven undesignated

monthly payments were allocated to the trust fund iiabili

Pinto Brothers. See Gov’t Ex. 5, J 16 (Pinto Brothers’ first and

was trust fund liab

second quarter Liability for 1 ity). Hven

10



essment of $214,702.77 and $85,035.95 more than the cor

assessment of $182,702.71.

Pinto Construction stopped making the $5,000 monthly paym

onts

after Mr. Pinto’s individual ¢

l liability was reduced to zero.

The government claims that it is entitled now to reallocate the

undesignated monthly payments to Pinto Brothers’ trust

liability to the L two quarters of 1993, for which Mr. Pinto

was not sssed a civil penalty, to maxi

ize the collectibility of

the trust fund tax liability. By the government’s calculations,

then, if the $124,500 originally allocated to the third and fourth

quarters of 1993 is reallocated to the first and second quarters of

1993, the total payments against Mr. Pinto’s individual civil

ability are $143,239.66, leaving a $39,464.05° shortfall in Mr.

Pinte’s civil liability for the third and fourth quarters of 1995.
III.

Section 6672 ex a congressional intent to allow

collection of trust fund taxes, and the IRS has a judicially

sanctioned policy of maximizing collection. See United States v.

roeder, 900 F.2d 1144, 1146 n.1 (7th Cir. 1990). When a taxpayer
submits a voluntary paymenl, he may designate Lhe particular
liability to which the payment should be applied, Davis v. United

States, 961 P.2d $67, 878 (9th Cir. 1992), but when a taxpayer does

The government claims that the shortfall is $39,464.11, but
as | noted above, I give Mr. Pinto the benefit of Lhe government’ s
error in calculation.

~



Me

merely a “harmless technicality,” but can be a “iatal” mistake. See

Waldridge v. American Hoechst Corp., 24 F.3d 918, 924 (7th Cir.
1994). he Seventh Circuit has repeatedly upheld the strict
application of Local Rule 56.1. See Servin v. GATX Logistics, in¢.,

187 F.R.0. S61, 562-63 (N.D. Tll. 1999) (Gettleman, J.) (citing

2s).

Although Mr. Pinto includes a statement of facts in his motion
that consists of numbered paragraphs, and he attaches evidence to
it, he does not provide any citations to the record in the
statement ot facts. The Rule 56.1(a) statement is a “roadmap” to
these facts, without which f “should not have to proceed iurther,
regardless of how readily [1] might be able to distill the relevant

iniformation from the record on [my] own.”

Waldridge, 24 F.3d at
923. Mr. Pinto’s statement of Facts does not comply with Rule 56.1
so fils motion is denied. See Servin, 187 F.R.D. at 563; see also

Prudential Ins. Co. of America v. Tomaszek, No. 90 C 6892, 1992 WL

26734, at *2 (N.D. Ill. Feb. 7, 1992) (Shadur, J.) (noting that

p sor to Rule 56.](a) “expressly permits the denial of a
summary judgment motion for non-compliance with its terms”).
Il.
Employers are required to withhold federal taxes from employee
wages in trust tor the United States government. 26 U.S.C. §§

3102(a), 3402{a). These taxes are commonly referred to as “trust

fund taxes.” See United States v. Hnergy Resources Co., Inc., 495


Second, as in Davis and Thomas, Lhe reallocation does not

affect Mr. Pinto’s Lolal personal liability. Because the go

ernment

could originally have allocated the undesignated payments to the

firsk and se

trond quarters of 1993, for which Mr. Pinto was not

liable, Mr. Pinto is net injured by a tillocation now. See Davis,

961 F.2d al 879. The total ass

sment against him is $182,702.71,
and he is liable for the entire amount. See 26 U.S.C. § 6672

(allowing for penalty against individual for 100% of omployer’s

trust fund liability). his is true regard Mr. Pinto’s

belief th

he had salislied his pe Ly with a

combin, and cross

on of personal payme it for the
undesignated payments by Pinto Construction.
Mr, Pinte raises for Lhe first time in ceply the argument that

he relied detrimentally on the government's representation that he

had satisfied his personal liabi

Arguments raised for the

first time in reply are waived. See United States v. Matchopetow,

259 F.3d 847, 851 (7th ¢ 2001). Even if I considered the
argument, however, Mr. Pinto comes forward with no evidence that he

actually relied to his detriment on the notion that he had paid his

personal liability in full. Mr. Pinto waived any interest in the

ecation of Lhe monthly payments by Pinto Construction when he

failed to designate them for the quarters on which he owed

personally. See Davis, 961 #.

2d at 879.

e reallocation is proper.



Both the government and Mr. Pinto move for summary judgment ,

which is proper only when the

“show[s] that there is no

genuine issue

3s to any material fact and Lhat the moving party is
entitled to a judgment as a matter of law.” Fed. R, Civ. P. 56(c).
In determining whether a genuine issue of material fact exists, 1

must cons

all facts in the light most favorable to the
non-moving party and draw all reasonable and justifiable inferences

in its favor. Anderson v. Liberty Lobby, In 477 U.S. 242, 255

(1986). On cross-motions for summary judgment, 1 give separate

to

consideration to the evidence of each party and the inferen
be drawn from it. See Hondricks-Robinsen v. Sxcel Corp., 154 F.3d
685, 692 (7th Cir, 1998).

However, I dispose of Mr. Pinto’s motion without reaching its
merits. Local General Rule 56.1(a) requires any party moving for

summary judgment Lo submit “a statement of material facts as to

which the moving party cont 8 no genuine issue and that
entitle the moving party to 4a judgment as a matter of law.” The
sLatement of material facts “shall consist of short numbered
paragraphs, inciuding within each paragraph specific references to
the affidavits, pacts of the record, and other supporting malcrials
relied upon to support the facts set forth in that paragraph.

Failure to submit such a statement constitutes grounds for denial

of the motion.” Id. Failure to comply with the local rules Ls not



IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF rinworsQCKETED
EASTERN DIVISION
OCT 1 7 2002

RICHARD PINTO,
Plaintifl,
No. O01 © 5308

Vv.

UNITED STATES OF AMERICA,

Defendant.

MEMORANDUM OPINION AND ORDER

Richard Pinto was the owner of Pinto Brothers Construction,
Inc. (“Pinto Brothers”). Pinlo Brothers failed to pay employment

taxes out of money withheld from employee wages and was assessed

hundreds of thousands of dollars in trust fund tax penalties by the
internal Revenue Service (“IRS”). Richard Pinto was assessed

personal liability a “responsible person” for the trust fund tax

penalty under 26 U.S.C. § 6672 in the amount of $214, /02.77. Mr.
Pinto is also the 60 percent owner of a company called Pinto
Construction Group, Ine. (“Pinto Construction”), which has made
payments on the trust fund liability of Pinto Brothers. Believing
that he has overpaid on his individual trust fund liability, Mr.
Pinto sues the United Stales for an accounting and a refund of an
unspecified amount. The United States filed an answer and
counterclaim for a trusl fund liability balance of $39,464.11. The

United States moves for summary judgment, and Mr. Pinte filed a

cross-motion for summary judgment. I grant the government’s motion

and deny Mr, Pinto’s motion.



as oppose to simply reducing il.” Davis, 961 P.2d at 879 n,4

(citing Kelley v. United States, 30 F.2d 193 (9th Cir,

Brookhurst, Inc. v. United States, 931 F.2d 554 (9th Cir. 1991))°*.

Mr. Pinte argues that th

sh a case, and that 7 must d de

the limits of the IRS’s reallocation power lett open by the Ninth

Cireuit’s footnote. 1 need not reach the particular question pe d

by the Ninth Clreuit, however, because Mr. Pinto adr. Lhat Lhe

payments that he made personally against his civil liability were

both volunlary and involuntary, in response to a levy. See Cov’L

5, 9 10.

In any event, I do not find that it

beyond the Limits of
the government's authority to reallocate undesignated payments Lo
allow the reallocation here. First, it is the taxpayer’s
designation that extinguishes an assessment, not the government’ s
allocation. See homas, 1998 WL 892617, at *4; Buffaiow, 109 F.3d
at 574. Although Mr. Pinto may have designated the payments he made
personally, there is no question Lhal the payments made by Pinte

Construction thal were cross-refe

enced to his personal liability

© Neit

here. In #

elled by the Ninth Circuit is di
lley, t courk did that “[Lw]Jhen onc
gone, and a refund of Lhe money does not restore
193. The issue there was wheLher L €
equity Lor government recovery of an unauthovized refund;
held thal there was not, but held that there was a caus
at law. Id. at 193-194. In Brookhurst, the question
the government may re 5S a laxpayer’s tax Liability,
creaLing a new tax obligation,” in order to recover a wrongful
refund. 931 F.2d at 556 (emphasis in original).

was a cau

a



Mr. Pinto’s motion for summary judgment is Denimp, Even if I

had considered iL on its merits, I conclude that,

m viewing the

evidence in the light most favorable to Mr. Pinto, as I have done

on the government‘s motion, he cannot preva The goverment’ s

motien for summary judgment is Granrep. The original assessment

against Mr. Pinto is reduced Lrom $214.702.77 to $182, /02./1, and

the thirty-seven monthly yments by Pinto Construction have been

realloc t

ced to Pinto Brothers’ trust fund liability for the ft

dividual

and second guarters of 1993. Mr. Pinto’s remaining ir

liability Lor the third and fourth quarters of 1993 is $39,464.05,

id judgment is entered tor Lhe government in that amount. The

mokion to strike the affidavit of Cary R. Rosenthal DENTE as

moot.
ENTER Oyen: ?
Cate Buhl
Elaine E. Bucklo
United States Districl Judge
Dated: October /g , 2002