SUCCESSOR CORPORATION IS LIABLE FOR BACK EMPLOYMENT TAXES.

                 IN THE UNITED STATES DISTRICT COURT

FINDINGS OF FACT AND CONCLUSIONS OF LAW

[1] This is a case in which plaintiff seeks a return of $18,152.56 from the United States government, claiming wrongful levy under 26 U.S.C. section 7426. The United States asserts that plaintiff, as the alter ego or successor in interest to the taxpayer, was correctly assessed the tax. After a bench trial of this case on February 19, 1998, and after considering all the evidence of record and the arguments of counsel, the Court makes the following findings of fact and conclusions of law.

I. FINDINGS OF FACT ¹

     1. On October 20, 1988, an entity entitled Wee Care Academy For

[2] This is, for the most part, a factually uncontested case, as demonstrated by plaintiff's stipulation to all but three of the government's proposed findings of fact. The discrete issue before the Court is whether successor liability should be imposed on plaintiff, Today's Child, as the continuation, successor in interest, or alter ego of Wee Care Academy for federal tax purposes. The legality of the government's seizure by levy, pursuant to 26 U.S.C. section 6331, of Today's Child's accounts to satisfy Wee Care Academy's tax liability turns on this determination. As previously stated, the facts were, in essence, uncontested in this case. Trial elicited a few more facts. For instance, plaintiff spent most its litigation efforts in attempting to show its non-tax motivation for closing down Wee Care Academy and incorporating Today's Child, that is, to oust shareholder Andrew Rota who was harassing and disrupting the running of the day care. Given the facts stipulated to and elicited at trial, the Court turns to the law that controls this determination. ²

A. CONTINUATION/DE FACTO MERGER/SUCCESSOR IN INTEREST

[3] Where a taxpayer ceases to do business, a second or successor corporation may become liable for the taxes of the taxpayer if the second corporation is the mere continuation of the taxpayer. See Ross Controls, Inc. v. United States, 527, 532 (E.D. Pa. 1993); Ross controls, Inc. v. United States, 160 B.R. 164 B.R. 721, 726 (E.D. Pa. 1994). "It is well settled that a successor corporation may be held liable for the debts and liabilities of its predecessors 'where (1) the purchaser of assets expressly or impliedly agrees to assume obligations of the transferor; (2) the transaction amounts to a consolidation or de facto merger; (3) the purchasing corporation is merely a continuation of the transferor corporation; or (4) the transaction is fraudulently entered into to escape liability.' "If Ross Controls, 160 B.R. at 532 (quoting Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303, 308 (3d cir.), cert. denied, 474 U.S. 980 (1985)). These instances constitute exceptions to the general rule that a transferee or successor company is not liable for the debts and liabilities of its predecessor. Philadelphia Electric Co., 762 F.2d at 308. Factors such as continuity of management, personnel, location, assets, and operations, are weighed when considering the interrelated concepts of de facto merger and mere continuation. Ross Controls, 160 B.R. at 532; see also Atlas Tool Co., Inc. v. Commissioner of Internal Revenue, 614 F.2d 860, 870-71 (3d Cir.) ("In de facto situations, the factors considered have included: (1) continuation of the same shareholder control particularly in the instance of a sole shareholder, (2) intention to dissolve the selling company, (3) retention of executive and operating personnel of the vendor by the transferee, (4) transfer of assets and shares, (5) assumption of vendor's liabilities, [and] (6) a 'pooling of interests.'"), cert., denied, 449 U.S. 836 (1980). Not every factor set forth above is required for a court to find a continuation or a de facto merger. See Atlas Tool, 614 F.2d at 870.

[4] Even where the relationship between the predecessor and successor corporations does not fit neatly into the traditional continuation or de facto model, courts will apply the continuity of enterprise theory to impose corporate successor liability. Mozingo v. Correct Mfg. Corp., 752 F.2d 168, 175 (5th Cir. 1985) (noting eight elements of continuity of enterprise theory, including whether successor corporation held itself out as a continuation of the predecessor company); accord United States v. Carolina Transformer Co., 978 F.2d 832, 838 (4th Cir. 1992) (holding that the district court did not err in applying eight factors of continuity of enterprise theory to impose liability on successor corporation). Indeed, successor liability can be imposed under federal common law, which is broader than the state law exceptions, "in order to protect federal rights or effectuate federal policies, [and] this theory allows law suits against even a genuinely distinct purchaser of a business if (1) the successor had notice of the claim before acquisition; and (2) there was 'substantial continuity in the operation of the business before and after the sale.'" Chicago Truck Drivers v. Tasemkin, Inc., 59 F.3d 48, 49 (7th Cir. 1995) (quoting EEOC v. G-K-G, Inc., 39 F.3d 740, 748 (7th Cir. 1994)); see also Atlas Tool, 614 F.2d at 871 (stating the Court's belief, in applying New Jersey law, that New Jersey courts would not regard the favored public policy of the collection of the federal revenue any less highly than public policy considerations which favor compensating tort victims or appraisal rights to minority shareholders).

[5] Applying the factors above, this Court finds that Today's Child is the mere continuation and/or successor in interest of the taxpayer, Wee Care. The officers and shareholders of Today's Child, the successor corporation, were virtually identical with those of Wee Care. Control of the two corporations remained in the same hands: Today's Child was run by Patricia Rota, the same person who ran the operations of Wee Care. Today's Child was in the identical business as Wee Care, provided the same services at the same location to the same students of Wee Care without interruption. Wee Care's assets, such as its good will, faculty, furniture, equipment, and premises were used and assumed by Today's Child. Today's Child also acquired and used the same telephone and facsimile numbers used by Wee Care. Although plaintiff argues that its motivation for incorporating Today's Child was not tax-related, the subjective motivation of a party is not a necessary element according to the case law. Given the objective facts of this case, the Court is satisfied that Today's Child is the continuation of Wee Care, and that therefore the IRS levies were proper.

B. ALTER EGO

[6] "The IRS may seek to proceed against a nominee or alter ego of a taxpayer for the 'purpose of satisfying the taxpayer's obligations.'" Ross Controls, 164 B.R. at 727 (quoting Lemaster v. United States, 891 F.2d 115, 119 (6th Cir. 1989)). The critical factors in making a determination as to alter ego status include who has active or substantial control as well as the similarities that exist between the two businesses. See id. "Courts should consider whether the old and new employers share 'substantially identical management, business purpose, operation, equipment, customers and supervision, as well as ownership.'" Id. (quoting NLRB v. Omnitest Inspection Services, Inc., 937 F.2d 112, 117 (3d Cir. 1991)).

[7] The Court finds that Today's Child is the alter ego of Wee Care. Today's Child assumed the business of Wee Care at the same premises used by Wee Care by providing the same full time day care services. Today's Child used the same offices, the same classrooms, the same furniture and video equipment, as well as the same toys and play equipment used by Wee Care in providing day care services. Today's Child used the same telephone and facsimile number as Wee Care, as well as the same mailing address. Even more importantly, the same person exercised exclusive control over the operations of both Wee Care and Today's Child -- Patricia Rota -- who was also President of both entities. Furthermore, there is little evidence that Today's Child was adequately capitalized, that it actually issued stock, or that it observed corporate formalities aside from one board meeting. Wee Care checks were deposited into a Today's Child bank account, and Today's Child checks were deposited into Wee Care's bank account. On the two checking accounts at Commerce Bank, the names Wee Care and Today's Child appear on the same signature cards. Parents were led to believe that Wee Care and Today's Child were one and the same. The teachers' duties remained the same, the tuition remained the same, and the curriculum remained the same. Many of the children were transferred from Wee Care to Today's Child when Wee Care ceased operating as a going concern. Given these facts, the Court is satisfied that Today's Child is the alter ego of Wee Care.

IV. CONCLUSION

[8] The Court is not unsympathetic to plaintiff in this case. It appears that if Wee Care Academy had filed for bankruptcy, or if the principals thereof had decided not to continue in the day care business and had instead decided to pursue nonentrepreneurial careers, the outstanding tax liability could have been avoided. However, for better or for worse, our laws impose tax burdens on the industrious and profitable. And as this Court finds that Today's Child is the successor corporation and alter ego of Wee Care Academy, it must also find that the tax levy was legal. Accordingly, based on the foregoing, the Court enters judgment in favor of defendant and against plaintiff on the counts contained in plaintiff's Amended Complaint. ³

[9] An appropriate Order follows.

Clarence C. Newcomer, J.

² The Court notes that the burden of proof in a wrongful levy action is on the plaintiff. See, e.g., Century Hotels, Inc. v. United States, 952 F.2d 107, 109 (5th Cir. 1992). However, even if the burden of proof were on the government, the Court finds that the government would have carried its burden.

Furthermore, as both parties look to Pennsylvania law in arguing the issue of alter ego or successor in interest, the Court applies Pennsylvania law in making this determination. See, e.g., Towe Antique Ford Foundation v. Internal Revenue Service, 999 F.2d 1387, 1391 (9th Cir. 1993) ("We apply the law of the forum state in determining whether a corporation is an alter ego of the taxpayer.").

³ In its Amended Complaint, Today's Child alleges that the IRS violated 26 U.S.C. Sections 6331(a) and (d), and, as a result, that their due process rights were violated. However, plaintiff did not raise this issue and did not present any evidence thereto. Accordingly, such allegations are dismissed.