United States v. Metro Construction Company, Inc.

The Internal Revenue Service assessed Metro Construction Co. (Metro) for payroll taxes owed by its subcontractor, Triple A Estimating & Construction Service (Triple A), for the first two quarters of 1972. In an action for a refund, the district court held that because Metro advanced money for its subcontractor’s payroll, and Metro knew or should have known that Triple A would not withhold or pay its federal payroll taxes, Metro was vicariously liable for the taxes and interest under section 3505(b) of the Internal Revenue Code.

Metro does not contest its liability for the assessed amount of Triple A’s payroll taxes; it disputes only a part of the judgment allowing the government to collect “interest as provided by law”. Metro does not argue that the imposition of interest charges was in itself erroneous. It asserts, however, that section 3505(b) imposes a ceiling on the amount Metro will have to pay. This ceiling, Metro argues, is 25 per cent of the amount it advanced to Triple A.

The amount Triple A should have withheld in the first two quarters of 1972 came to $21,028.98: $5,210.30 in the first quarter and $15,818.68 in the second quarter. The district court tacked onto these…