United States of America v. David D. Patton & Associates, P.C. et al
DEFAULT JUDGMENT of Permanent Injunction against David D. Patton, David D. Patton & Associates, P.C. Signed by District Judge Sean F. Cox. (JMcC)
UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF MICHIGAN
UNITED STATES OF AMERICA,
DAVID D. PATTON & ASSOCIATES,
P.C. and DAVID D. PATTON,
Civil No. 2:12-cv-10583
Honorable Sean F. Cox
Default Judgment of Permanent Injunction
For good cause shown and for the reasons set forth in Fed. R. Civ. P. 55, the
United States’ motion for entry of default judgment of permanent injunction is granted.
Findings of Fact
David D. Patton (hereinafter, "Patton") is a business owner and real estate
developer and has been a practicing attorney in the State of Michigan since
1969 and resides within the jurisdiction of this Court.
Patton established defendant David D. Patton & Associates, P.C.
(hereinafter, "DDPA") in 1988, which is located at 100 W. Big Beaver
Road, Suite 200, Troy, MI 48084, and is within the jurisdiction of this
DDPA employs four attorneys and a small clerical staff and specializes in
the following areas of law: adoption, medical malpractice, personal injury,
corporate, employment, and product liability.
Patton has been the president/authorized officer or agent of DDPA from the
date of its incorporation in 1988 to present.
DDPA began its payroll activity in the third quarter of 1991 and complied
with its employment tax obligations until the fourth quarter of 2007.
Since the fourth quarter of 2007, DDPA has failed to comply with its
federal tax obligations as established by the Internal Revenue Code
(hereinafter, "I.R.C.") and has been engaging in an activity known as
"pyramiding" by which a business withholds taxes from its employees but
intentionally fails to remit them to the Internal Revenue Service as
mandated by law. Such activity has been and continues to be a drain on the
United States Treasury.
At all times relevant to this action, DDPA has had employees and, as an
employer, the law firm has been subject to the payroll tax obligations
imposed by the I.R.C., including the duties to: withhold, account for, and
pay over the employee portion of the tax imposed upon wages by the
Federal Insurance Contributions Act ("FICA") from each employee's
paycheck; withhold, account for, and pay over an estimated amount of
income tax for each employee from each paycheck; pay the employer
portion of the tax imposed upon employee wages by the FICA; and submit
Form 941 (Employer's Quarterly Federal Tax Return) to the United States,
along with any withheld employee income tax, withheld employee FICA,
and the employer FICA not already deposited on or before the legal due
date (approximately 30 days after the close of each calendar quarter), and
make federal tax deposits of a frequency required by the I.R.C. and
Since 2008, the IRS has been attempting to bring DDPA into compliance
with its I.R.C. payroll tax obligations and to collect past due payroll taxes
from the law firm.
Although Patton submitted several late, lump sum payments roughly equal
to the federal tax deposits (not including penalties and interest that have
accrued) for the fourth quarter of 2007, first quarter of 2008, and the first
and second quarters of 2010, DDPA nevertheless remains in noncompliance
for its failure to make timely federal tax deposits as required by law. Such
noncompliance has resulted in an amount due totaling $212,446.16 (as of
November 21, 2011, with statutory additions continuing to accrue from that
date) for the second and third quarters of 2008, the first, second, and fourth
quarters of 2009, the third and fourth quarters of 2010, and the first and
second quarters of 2011. DDPA continues to incur liabilities with each
passing quarter and has not demonstrated a willingness or ability to comply
with its obligations under the I.R.C.
The IRS's collection efforts have not prompted DDPA to comply with
I.R.C. payroll tax obligations, as indicated by the amount due and owing
above. In fact, DDPA continues its pattern of non-compliance without any
evidence to suggest that it has taken the necessary efforts to return to
The foregoing indicates that DDPA has and continues to engage in
"pyramiding" that thwarts the United States' efforts to collect delinquent
payroll taxes from the law firm.
Defendants’ pyramiding undermines the traditional tools available to the
United States for collecting delinquent taxes, as indicated by the substantial
liabilities above obligations of a taxpayer for legal services, since it first
may require compelling an attorney to produce records of client billings.
Conclusions of Law
Under 26 U.S.C. § 7402(a), the federal district courts have broad authority
to issue injunctions and other orders necessary and appropriate to enforce
provisions of the I.R.C.
An injunction against the defendants by this Court to comply with the
payroll tax provisions of the I.R.C. is necessary and appropriate because
traditional collection methods have not and will not convince DDPA and/or
Patton to stop pyramiding payroll tax liabilities.
If DDPA and/or Patton is allowed to continue to ignore payroll tax
requirements, it will likely continue to accrue approximately $20,000.00 in
Form 941 taxes per quarter, which the United States will be unable to
collect. The withheld employee income taxes must nevertheless be credited
to the individual taxpayers whose taxes are withheld from their wages.
Similarly, the FICA taxes (withheld portion and employer's portion) must in
any event be credited to the employees for purposes of eligibility for social
security benefits when they retire. In essence, DDPA and/or Patton is
effectively stealing trust funds from the government.
An injunction will not injure DDPA and/or Patton as it will merely compel
it to conduct business like every other tax-paying business in the United
An injunction will protect the public's interest in fair competition by halting
the defendants' unfair practices and effectively leveling the playing field.
Based on the findings of fact and conclusions of law set forth above, it is hereby
ordered as follows:
David D. Patton & Associates, P.C. and David D. Patton, and their
representatives, agents, servants, employees, and anyone in active concert
or participation with them, are prohibited from failing to withhold and pay
over to the IRS all employment taxes, including federal income, FICA, and
FUTA taxes, required by law.
David D. Patton & Associates, P.C. and David D. Patton shall deposit
withheld FICA taxes, as well as David D. Patton & Associates, P.C.’s share
of FICA taxes, in an appropriate federal depository bank in accordance with
federal deposit regulations.
David D. Patton & Associates, P.C. and David D. Patton shall deposit
FUTA taxes in an appropriate federal depository bank each quarter in
accordance with the federal deposit regulations.
David D. Patton & Associates, P.C. and David D. Patton shall timely file all
employment tax returns with the IRS, or at such other location as the IRS
may deem appropriate.
David D. Patton & Associates, P.C. and David D. Patton shall timely pay all
required outstanding liabilities due on each return required to be filed
David D. Patton & Associates, P.C. and David D. Patton shall be prohibited
from assigning any property or making any disbursements after the date of
this injunction until amounts required to be withheld from wages after the
date of this injunction are, in fact, deposited or paid to the IRS, in
accordance with this Order.
David D. Patton & Associates, P.C. and David D. Patton shall notify the
IRS of their future employment tax conduct with respect to any new or
presently unknown company, and there is imposed an affirmative duty upon
the principal officer, David Patton, the affirmative duty to notify the
revenue officer, or in the alternative, the Government’s counsel, in the
future of any new company he may come to own, manage, or work for.
SO ORDERED this 1st day of November, 2012.
S/ Sean F. Cox
Sean F. Cox
United States District Judge
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