Source: http://supreme.justia.com/cases/federal/us/436/268/case.html
Timestamp: 2014-04-19 23:06:15
Document Index: 191519738

Matched Legal Cases: ['§ 6672', '§ 17', '§ 6672', '§ 6672', '§ 6672', '§ 17', '§ 35', '§ 6672', '§ 17', '§ 35', '§ 6672', '§ 17', '§ 35', '§ 6672', '§ 17', '§ 6672', '§ 17']

United States v. Sotelo - 436 U.S. 268 (1978) :: Justia US Supreme Court Center
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United States v. Sotelo - 436 U.S. 268 (1978)
Case	U.S. Supreme CourtUnited States v. Sotelo, 436 U.S. 268 (1978)United States v. SoteloNo. 76-1800Argued February 22, 1978Decided May 22, 1978436 U.S. 268CERTIORARI TO THE UNITED STATES COURT OF APPEALS
(b) Since the taxes in question were "collected or withheld" from the corporation's employees and have not been "paid over" to the Government, respondent's § 6672 liability was imposed not for his failure to collect taxes, but for his failure to pay over taxes that he was required both to collect and to pay over, and therefore he "collected or withheld" the taxes within the meaning of § 17a(1)(e). P. 436 U. S. 275. Page 436 U. S. 269
MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, BLACKMUN, and POWELL, JJ., joined. REHNQUIST, J., filed a dissenting opinion, in which BRENNAN, STEWART, and STEVENS, JJ., joined, post, p. 436 U. S. 282.
This case involves the interaction of sections of the Internal Revenue Code of 1954 and the Bankruptcy Act. Respondent Onofre J. Sotelo was found personally liable to the Government Page 436 U. S. 270 for his failure to pay over taxes withheld from employees of the corporation in which he was the principal officer. The question presented is whether this liability is dischargeable in bankruptcy.
In upholding the Government's claim to the extent of $32,840.71, the bankruptcy court found that Onofre Sotelo Page 436 U. S. 271 had formerly operated the masonry business as a sole proprietorship and that, since the formation of the corporation, he had been its president, director, majority stockholder, and chief executive officer. Naomi Sotelo, on the other hand, though named the corporation's secretary, "did not take an active part in the business." Id. at 1. The court concluded that Onofre Sotelo was personally liable to the Government under Internal Revenue Code § 6672, since he "was charged with the duty and responsibility to see that the [withheld] taxes were paid." Memorandum Opinion, supra at 3. [Footnote 2] The record does not reflect any appeal of this ruling.
In October, 1975, the Government, seeking to collect part of the money owed by Onofre Sotelo under § 6672, served a notice of levy on respondents' trustee with regard to $10,000 that belonged to respondents and was not available for general distribution to creditors in bankruptcy. [Footnote 3] Respondents objected to the levy, in part on the ground that the liability is described in § 6672 itself as a "penalty," and, as such, had been discharged in bankruptcy. [Footnote 4] The Government argued that, to Page 436 U. S. 272 the contrary, the liability was for "taxes," which § 17a(1) of the Bankruptcy Act, 30 Stat. 550, as amended, 11 U.S.C. § 35(a)(1) (1976 ed.), makes nondischargeable. The bankruptcy judge agreed with the Government, reasoning that, "[t]hough denominated a penalty,' [the § 6672 liability] is, in substance, a tax." 76-1 USTC 9435, p. 84, 157 (SD Ill.1976). The judge also noted, ibid., that subdivision (e) of Bankruptcy Act § 17a(1) makes specifically nondischargeable "taxes . . . which the bankrupt has collected or withheld from others . . . but has not paid over." 11 U.S.C. § 35(a)(1)(e) (1976 ed.). Respondents appealed to the United States District Court for the Southern District of Illinois, which affirmed on the opinion of the bankruptcy court.
Id. at 1091. The court then held that the liability had been discharged, finding persuasive the fact that § 6672 terms the liability a "penalty" and rejecting the Government's argument with respect to the specific language referring to withholding taxes in Bankruptcy Act § 17a(1)(e). 551 F.2d at 1092. [Footnote 5] Page 436 U. S. 273 The court recognized that its ruling was in conflict with "an uncontroverted line of cases." Id. at 1091. [Footnote 6]
11 U.S.C. § 35(a) (1976 ed.). Relying on this statutory language, the Government presents what it views as two independent grounds for holding the § 6672 liability of Onofre Sotelo (hereinafter respondent) to be nondischargeable. The Government's primary argument is based on the specific language relating to withholding in § 17a(1)(e); alternatively, it argues that respondent's liability, although called a "penalty," IRC § 6672, is in fact a "tax" as that term is used in § 17a(1). [Footnote 7] Page 436 U. S. 274
The Court of Appeals viewed this provision as inapplicable here for two reasons: first, because "it was not Sotelo himself, but his employer-corporation, that was obligated by law to collect and withhold the taxes"; and second, because, in any event, the money involved consti