Source: https://openjurist.org/561/f2d/1382/armadillo-corporation-united-states-v-w-ennis-c
Timestamp: 2017-08-19 21:08:55
Document Index: 586406425

Matched Legal Cases: ['§ 104', '§ 3111', '§ 3402', '§ 3111', '§ 3402', '§ 64', '§ 3401', '§ 64', '§ 3402', '§ 3401', '§ 39', '§ 67', '§ 47', '§ 75', '§ 3401', '§ 3402', '§ 3402']

561 F2d 1382 Armadillo Corporation United States v. W Ennis C | OpenJurist
561 F. 2d 1382 - Armadillo Corporation United States v. W Ennis C
561 F2d 1382 Armadillo Corporation United States v. W Ennis C
561 F.2d 1382
In the Matter of ARMADILLO CORPORATION, Bankrupt, and
Two unrelated companies fell into bankruptcy in early 1970. In each instance the trustee's final report queried the trustee's liability for the aforementioned taxes. The bankruptcy judge thereafter categorized the wage claims as priority wage claims1 under Section 64(a)(2) of the Bankruptcy Act (Act) (11 U.S.C.A. § 104(a)(2) ) or as general unsecured wage claims. After doing so, the bankruptcy judge ruled in each case that the trustees were: not liable for the F.I.C.A. and F.U.T.A. taxes imposed on the employer by §§ 3111 and 3301, respectively, for the priority wage claims; not liable for the same F.I.C.A. and F.U.T.A. taxes imposed on the employer for general unsecured wage claims because the United States had failed to file a proof of claim for such taxes; not liable for withholding the employees portion of the withheld income and F.I.C.A. taxes imposed by §§ 3402 and 3101, respectively, for general unsecured wage claims; but that trustees were liable for withholding the employee's portions of the withheld income and F.I.C.A. taxes for priority wage claims.
On appeal, the district court initially observed that the bankruptcy court had correctly determined that the trustee was liable for the employees' portion of the withheld income and F.I.C.A. taxes for priority wage claims in accordance with the mandate of Otte v. United States, 419 U.S. 43, 95 S.Ct. 247, 42 L.Ed.2d 212 (1974), and that, accordingly, those taxes were not in issue on appeal. The district court then proceeded to consider each of the four taxes in issue relative to (a) the trustee's liability, (b) the priority to be afforded the claim if liability was present, and (c) whether the United her the United States must file a formal proof of claim.
After considering the four taxes in the above-mentioned manner, the district court held that the trustees were liable for the F.I.C.A. and F.U.T.A.2 taxes imposed on the employer by §§ 3111 and 3101, respectively, for both priority wage claims and general unsecured wage claims, and that the trustees were also liable for the employees' portion of the withheld and F.I.C.A. taxes imposed by §§ 3402 and 3101 for general unsecured claims. In addition to finding the trustees liable for all the taxes in question relative to wages accrued prior to but paid after the commencement of bankruptcy, regardless of their classification as priority or general unsecured wage claims, the district court held that the United States need not file a proof of claim for the taxes. The court further held that the taxes would not be afforded a priority under the Act and should be "accorded the same priority as all other general unsecured claims pursuant to the proviso of § 64(a)(4)" of the Act.
It is important to note first what is not at issue here. The bankruptcy court held that the trustee in each case was liable for the taxes ordinarily withheld by an employer from the employee's wages i. e., the employee's income tax on his wages and his share of FICA. This holding was required by the Supreme Court's recent opinion in Otte v. United States, 419 U.S. 43, (95 S.Ct. 247, 42 L.Ed.2d 212) (1974) and is not challenged here. In Otte the Court held that either the bankruptcy judge or the trustee was an "employer" under §§ 3401 and 3101 of the Internal Revenue Code and was responsible for withholding those taxes on the § 64(a)(2) priority wage claims. Id. at 51, (95 S.Ct. 247). There, as in these two cases, the wages had been earned prior to the filing of the bankruptcy petition but had not been paid prior to that time. The Government did not need, according to Otte, to file a proof of claim for these taxes since "(l)iability came into being only during bankruptcy." Id. at 55 (95 S.Ct. 247).
Every Court of Appeals which has faced the issue, including the Second Circuit in the present case, has held, contrary to the ruling of the referee, that the withholding provisions of the Internal Revenue Code, and of state or municipal tax statutes, require that a trustee in bankruptcy withhold income and social security taxes from payments of wage claims, and that he prepare and submit to the wage claimants, and to the taxing authorities the reports and returns statutorily required of employers. United States v. Fogarty, 164 F.2d 26, 30-33 (CA8 1947); United States v. Curtis, 178 F.2d 268, 269 (CA6 1949), cert. denied, 339 U.S. 965, 70 S.Ct. 1001, 94 L.Ed. 1374 (1950); Lines v. California Dept. of Employment, (9 Cir.) 242 F.2d 201, 202, reh. den., 246 F.2d 70 (CA9), cert. denied, 355 U.S. 857, 78 S.Ct. 86, 2 L.Ed.2d 64 (1957); In re Connecticut Motor Lines, Inc., 336 F.2d 96 (CA3 1964). To the same effect is In re Daigle, 111 F.Supp. 109, 111 (Me.1953). (Emphasis supplied.) 419 U.S., at p. 48, 95 S.Ct., at p. 252.
The fact that in bankruptcy payment of wage claims is effected by one other than the bankrupt former employer does not defeat any withholding requirement. Although § 3402(a) refers to the "employer making payment of wages," § 3401(d)(1), as also has been noted, provides that if the person for whom the services were performed "does not have control of the payment of the wages for such services," the term "employer" then means "the person having control of the payment of such wages." This obviously was intended to place responsibility for withholding at the point of control. The petitioner trustee suggests that control rests in the referee rather than in the trustee, because of the former's duty, under § 39a(5) of the Act, 11 U.S.C. § 67(a)(5), to "declare dividends." We need not determine whether it is the trustee, with his responsibility, under §§ 47a(8) and (11) of the Act, 11 U.S.C. §§ 75(a)(8) and (11), for making recommendations and actual payments, or the referee, with his supervision over the general administration of the bankrupt estate, or the estate itself, that has "control of the payment of such wages," within the meaning of § 3401(d)(1) of the Internal Revenue Code. One of them is the "employer" and, as such, has the duty to withhold or to order that withholding, as the case may be. An "employer," under § 3402(a), is thus present. (Emphasis supplied.)
The Otte opinion further observed not only that " 'employer' then means the person having control of the payment of such wages" under § 3402 for the purpose of withholding employees' income tax but that "The fact that the FICA withholding provisions of the Code do not define 'employer' is of no significance, for that term is not to be given a narrower construction for FICA withholding than for income tax withholding." 419 U.S., at p. 51, 95 S.Ct. at p. 253.