Source: https://law.justia.com/codes/us/2012/title-11/chapter-5/subchapter-i/section-507/
Timestamp: 2019-09-16 04:51:47
Document Index: 49651906

Matched Legal Cases: ['§ 507', '§ 501', '§ 501', '§ 507', '§507', '§507', '§507', '§212', '§212', '§1401', '§212', '§212', '§212', '§1401', '§212', '§1502', '§212', '§212', '§705', '§705', '§705', '§705', '§706', '§1502', '§1502', '§1502', '§207', '§108', '§108', '§108', '§304', '§304', '§501', '§449', '§449', '§449', '§350', '§350', '§449']

CREDITORS AND CLAIMS - 11 U.S.C. § 507 (2012) Priorities :: Title 11 - Bankruptcy :: 2012 US Code :: US Codes and Statutes :: US Law :: Justia
Justia US Law US Codes and Statutes US Code 2012 US Code Title 11 - Bankruptcy Chapter 5 - CREDITORS, THE DEBTOR, AND THE ESTATE (§§ 501 - 562) Subchapter I - CREDITORS AND CLAIMS (§§ 501 - 511) Section 507 - Priorities
CREDITORS AND CLAIMS - 11 U.S.C. § 507 (2012)
First. Administration expenses: The amendment generally follows the Senate amendment in providing expressly that taxes incurred during the administration of the estate share the first priority given to administrative expenses generally. Among the taxes which receives first priority, as defined in section 503, are the employees’ and the employer's shares of employment taxes on wages earned and paid after the petition is filed. Section 503(b)(1) also includes in administration expenses a tax liability arising from an excessive allowance by a tax authority of a “quickie refund” to the estate. (In the case of Federal taxes, such refunds are allowed under special rules based on net operating loss carrybacks (sec. 6411 of the Internal Revenue Code [title 26]).
Second. “Involuntary gap” claims: “Involuntary gap” creditors are granted second priority by paragraph (2) of section 507(a). This priority includes tax claims arising in the ordinary course of the debtor's business or financial affairs after he has been placed involuntarily in bankruptcy but before a trustee is appointed or before the order for relief.
Third. Certain taxes on prepetition wages: Wage claims entitled to third priority are for compensation which does not exceed $2,000 and was earned during the 90 days before the filing of the bankruptcy petition or the cessation of the debtor's business. Certain employment taxes receive third priority in payment from the estate along with the payment of wages to which the taxes relate. In the case of wages earned before the filing of the petition, but paid by the trustee (rather than by the debtor) after the filing of the petition, claims or the employees’ share of the employment taxes (withheld income taxes and the employees’ share of the social security or railroad retirement tax) receive third priority to the extent the wage claims themselves are entitled to this priority.
In addition, this category includes the liability of a responsible officer under the Internal Revenue Code (sec. 6672) [title 26] for income taxes or for the employees’ share of social security taxes which that officer was responsible for withholding from the wages of employees and paying to the Treasury, although he was not himself the employer. This priority will operate when a person found to be a responsible officer has himself filed in title 11, and the priority will cover the debtor's responsible officer liability regardless of the age of the tax year to which the tax relates. The U.S. Supreme Court has interpreted present law to require the same result as will be reached under this rule. U.S. v. Sotelo, 436 U.S. 268 (1978) [98 S.Ct. 1795, 56 L.Ed.2d 275, rehearing denied 98 S.Ct. 3126, 438 U.S. 907, 57 L.Ed.2d 1150].
Sixth. The employer's share of employment taxes on wages paid before the petition and on third-priority wages paid postpetition by the estate. The priority rules under the House amendment governing employment taxes can thus be summarized as follows: Claims for the employees’ shares of employment taxes attributable to wages both earned and paid before the filing of the petition are to receive sixth priority. In the case of employee wages earned, but not paid, before the filing of the bankruptcy petition, claims for the employees’ share of employment taxes receive third priority to the extent the wages themselves receive third priority. Claims which relate to wages earned before the petition, but not paid before the petition (and which are not entitled to the third priority under the rule set out above), will be paid as general claims. Since the related wages will receive no priority, the related employment taxes would also be paid as nonpriority general claims.
The employer's share of the employment taxes on wages earned and paid before the bankruptcy petition will receive sixth priority to the extent the return for these taxes was last due (including extensions of time) within 3 years before the filing of the petition, or was due after the petition was filed. Older tax claims of this nature will be payable as general claims. In the case of wages earned by employees before the petition, but actually paid by the trustee (as claims against the estate) after the title 11 case commenced, the employer's share of the employment taxes on third priority wages will be payable as sixth priority claims and the employer's taxes on prepetition wages which are treated only as general claims will be payable only as general claims. In calculating the amounts payable as general wage claims, the trustee must pay the employer's share of employment taxes on such wages. The House amendment thus deletes the provision of the Senate amendment that certain employer taxes receive third priority and are to be paid immediately after payment of third priority wages and the employees’ shares of employment taxes on those wages.
In the case of employment taxes relating to wages earned and paid after the petition, both the employees’ shares and the employer's share will receive first priority as administration expenses of the estate.
“Involuntary gap” creditors, granted first priority under current law, are granted second priority by paragraph (2). This priority, covering claims arising in the ordinary course of the debtor's business or financial affairs after a title 11 case has begun but before a trustee is appointed or before the order for relief, includes taxes incurred during the conduct of such activities.
Paragraph (3) expands and increases the wage priority found in current section 64a(2) [section 104(a)(2) of former title 11]. The amount entitled to priority is raised from $600 to $1,800. The former figure was last adjusted in 1926. Inflation has made it nearly meaningless, and the bill brings it more than up to date. The three month limit of current law is retained, but is modified to run from the earlier of the date of the filing of the petition or the date of the cessation of the debtor's business. The priority is expanded to cover vacation, severance, and sick leave pay. The bill adds to the third priority so-called “trust fund” taxes, that is, withheld income taxes and the employees’ share of the social security or railroad retirement taxes, but only to the extent that the wages on which taxes are imposed are themselves entitled to third priority.
Taxes (not covered by the third priority) which the debtor was required by law to withhold or collect from others and for which he is liable in any capacity, regardless of the age of the tax claims (§507(a)(6)(D)) are included. This category covers the so-called “trust fund” taxes, that is, income taxes which an employer is required to withhold from the pay of his employees, the employees’ shares of social security and railroad retirement taxes, and also Federal unemployment insurance. This category also includes excise taxes which a seller of goods or services is required to collect from a buyer and pay over to a taxing authority.
This category also covers the liability of a responsible corporate officer under the Internal Revenue Code [title 26] for income taxes or for the employees’ share of employment taxes which, under the tax law, the employer was required to withhold from the wages of employees. This priority will operate where a person found to be a responsible officer has himself filed a petition under title 11, and the priority covers the debtor's liability as an officer under the Internal Revenue Code, regardless of the age of the tax year to which the tax relates.
The priority rules under the bill governing employment taxes can be summarized as follows: In the case of wages earned and actually paid before the petition under title 11 was filed, the liability for the employees’ share of the employment taxes, regardless of the prepetition year in which the wages were earned and paid. The employer's share of the employment taxes on all wages earned and paid before the petition receive sixth priority; generally, these taxes will be those for which a return was due within three years before the petition. With respect to wages earned by employees before the petition but actually paid by the trustee after the title 11 case commenced, taxes required to be withheld receives the same priority as the wages themselves. Thus, the employees’ share of taxes on third priority wages also receives third priority. Taxes on the balance of such wages receive no priority and are collectible only as general claims because the wages themselves are payable only as general claims and liability for the taxes arises only to the extent the wages are actually paid. The employer's share of employment taxes on third priority wages earned before the petition but paid after the petition was filed receives third priority, but only if the wages in this category have first been paid in full. Assuming there are sufficient funds to pay third priority wages and the related employer taxes in full, the employer's share of taxes on the balance of wage payments becomes a general claim (because the wages themselves are payable as general claims). Both the employees’ and the employer's share of employment taxes on wages earned and paid after the petition was filed receive first priority as administrative expenses.
Taxes attributable to a tentative carryback adjustment received by the debtor before the petition was filed, such as a “quickie refund” received under section 6411 of the Internal Revenue Code [title 26] (§507(a)(6)(F)) are included. However, the tax claim against the debtor will rein a prepetition loss year for which the tax return was last due, including extensions, within 3 years before the petition was filed.
Also included are certain unpaid customs duties which have not grown unreasonably “stale” (§507(a)(6)(K)). These include duties on imports entered for consumption with 3 years before the filing of the petition if the duties are still unliquidated on the petition date. If an import entry has been liquidated (in general, liquidation is in an administrative determination of the value and tariff rate of the item) or reliquidated, within two years of the filing of the petition the customs liability is given priority. If the Secretary of the Treasury certifies that customs duties were not liquidated because of an investigation into possible assessment of antidumping or countervailing duties, or because of fraud penalties, duties not liquidated for this reason during the five years before the importer filed under title 11 also will receive priority.
Subsec. (a)(8)(A)(ii)(II). Pub. L. 111–327 substituted “; or” for period at end.
Subsec. (a)(2). Pub. L. 109–8, §212(2), (3), redesignated par. (1) as (2) and substituted “Second” for “First”. Former par. (2) redesignated (3).
Subsec. (a)(3). Pub. L. 109–8, §212(2), (4), redesignated par. (2) as (3) and substituted “Third” for “Second”. Former par. (3) redesignated (4).
Subsec. (a)(4). Pub. L. 109–8, §1401, which directed amendment of par. (4), “as amended by section 212”, by substituting “$10,000” for “$4,000” and “180” for “90” in introductory provisions, effective Apr. 20, 2005, was executed to this par., which was par. (3), to reflect the probable intent of Congress, notwithstanding that the redesignation of this par. as (4) by Pub. L. 109–8, §212(2), was effective 180 days after Apr. 20, 2005. See Effective Date of 2005 Amendment notes below.
Pub. L. 109–8, §212(2), (5), redesignated par. (3) as (4) and substituted “Fourth” for “Third” in introductory provisions and a period for semicolon at end. Former par. (4) redesignated (5).
Subsec. (a)(5). Pub. L. 109–8, §212(2), (6), redesignated par. (4) as (5) and substituted “Fifth” for “Fourth” in introductory provisions. Former par. (5) redesignated (6).
Subsec. (a)(5)(B)(i). Pub. L. 109–8, §1401(2), which directed amendment of par. (5), “as amended by section 212”, by substituting “$10,000” for “$4,000”, effective Apr. 20, 2005, was executed to this par., which was par. (4), to reflect the probable intent of Congress, notwithstanding that the redesignation of this par. as (5) by Pub. L. 109–8, §212(2), was effective 180 days after Apr. 20, 2005. See Effective Date of 2005 Amendment notes below.
Subsec. (a)(5)(B)(ii). Pub. L. 109–8, §1502(a)(1)(A)(i), substituted “paragraph (4)” for “paragraph (3)”.
Subsec. (a)(6). Pub. L. 109–8, §212(2), (7), redesignated par. (5) as (6) and substituted “Sixth” for “Fifth” in introductory provisions. Former par. (6) redesignated (7).
Subsec. (a)(7). Pub. L. 109–8, §212(1), (2), (8), redesignated par. (6) as (7), substituted “Seventh” for “Sixth”, and struck out former par. (7) which read as follows: “Seventh, allowed claims for debts to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that such debt—
Subsec. (a)(8). Pub. L. 109–8, §705(2), inserted at end “An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.”
Subsec. (a)(8)(A). Pub. L. 109–8, §705(1)(A), inserted “for a taxable year ending on or before the date of the filing of the petition” after “gross receipts” in introductory provisions.
Subsec. (a)(8)(A)(i). Pub. L. 109–8, §705(1)(B), struck out “for a taxable year ending on or before the date of the filing of the petition” before “for which a return”.
Subsec. (a)(8)(A)(ii). Pub. L. 109–8, §705(1)(C), added cl. (ii) and struck out former cl. (ii) which read as follows: “assessed within 240 days, plus any time plus 30 days during which an offer in compromise with respect to such tax that was made within 240 days after such assessment was pending, before the date of the filing of the petition; or”.
Subsec. (a)(8)(B). Pub. L. 109–8, §706, substituted “incurred” for “assessed”.
Subsec. (a)(8)(D). Pub. L. 109–8, §1502(a)(1)(A)(ii), substituted “paragraph (4)” for “paragraph (3)”.
Subsec. (b). Pub. L. 109–8, §1502(a)(1)(B), substituted “subsection (a)(2)” for “subsection (a)(1)”.
Subsec. (d). Pub. L. 109–8, §1502(a)(1)(C), substituted “subsection (a)(1)” for “subsection (a)(3)”.
1994—Subsec. (a)(3). Pub. L. 103–394, §207, amended par. (3) generally. Prior to amendment, par. (3) read as follows: “Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay—
“(A) earned by an individual within 90 days before the date of the filing of the petition or the date of the cessation of the debtor's business, whichever occurs first; but only
Subsec. (a)(4)(B)(i). Pub. L. 103–394, §108(c)(1), substituted “$4,000” for “$2,000”.
Subsec. (a)(5). Pub. L. 103–394, §§108(c)(2), 501(b)(3), substituted “section 557(b)” for “section 557(b)(1)” after “grain, as defined in” and “section 557(b)” for “section 557(b)(2)” after “facility, as defined in” in subpar. (A) and “$4,000” for “$2,000” in concluding provisions.
Subsec. (a)(6). Pub. L. 103–394, §108(c)(3), substituted “$1,800” for “$900”.
Subsec. (a)(8). Pub. L. 103–394, §304(c)(2), redesignated par. (7) as (8) and substituted “Eighth” for “Seventh”. Former par. (8) redesignated (9).
Subsec. (a)(9). Pub. L. 103–394, §§304(c)(1), 501(d)(11)(A), redesignated par. (8) as (9) and substituted “Ninth” for “Eighth” and “a Federal depository institutions regulatory agency (or predecessor to such agency)” for “the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Director of the Office of Thrift Supervision, the Comptroller of the Currency, or the Board of Governors of the Federal Reserve System, or their predecessors or successors,”.
Subsec. (d). Pub. L. 103–394, §501(d)(11)(B), substituted “(a)(6), (a)(7), (a)(8), or (a)(9)” for “or (a)(6)”.
1984—Subsec. (a)(3). Pub. L. 98–353, §449(a)(1), inserted a comma after “severance”.
Subsec. (a)(4). Pub. L. 98–353, §449(a)(2), substituted “an employee benefit plan” for “employee benefit plans” in provisions preceding subpar. (A).
Subsec. (a)(4)(B)(i). Pub. L. 98–353, §449(a)(3), inserted “each” after “covered by”.
Subsec. (a)(6). Pub. L. 98–353, §350(1), redesignated former par. (5) as (6) and substituted “Sixth” for “Fifth”. Former par. (6) redesignated (7).
Subsec. (a)(7). Pub. L. 98–353, §§350(2), 449(a)(4), redesignated former par. (6) as (7), substituted “Seventh” for “Sixth”, and inserted “only” after “units,”.
Subsec. (c). Pub. L. 98–353, §449(b), substituted “has the same priority” for “shall be treated the same”.