Opinion ID: 4208813
Heading Depth: 2
Heading Rank: 2

Heading: Hardegger’s Contribution Claim

Text: ¶24 The Internal Revenue Code imposes joint and several liability on each person who is responsible for collecting, accounting for, and paying over taxes and who willfully fails to do so, and the Code further provides that each such “responsible person” can be held liable for the total amount of taxes not paid. Quattrone Accountants, Inc. v. IRS, 895 F.2d 921, 926 (3d Cir. 1990). 2We also note that the parties in this case had a pre-petition relationship. We express no opinion, however, as to whether such a relationship is always required to establish a “claim” under the Bankruptcy Code. 11 ¶25 Specifically, 26 U.S.C. § 6672(a) provides, as pertinent here: Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. ¶26 When more than one person is liable for the penalty due under § 6672(a), 26 U.S.C. § 6672(d) provides a right of contribution to each responsible person who pays more than his or her proportionate share of that penalty: If more than 1 person is liable for the penalty under subsection (a) with respect to any tax, each person who paid such penalty shall be entitled to recover from other persons who are liable for such penalty an amount equal to the excess of the amount paid by such person over such person’s proportionate share of the penalty. ¶27 By this provision’s plain language, a cause of action under § 6672(d) accrues only after payment in excess of one’s proportionate share of the penalty due. Id.; see also Happy v. McNeil, No. SA-14-CA-201, 2015 WL 502312, at  (W.D. Tex. Feb. 5, 2015) (“A responsible person who is liable for the penalty cannot seek contribution until he has paid his proportionate share of the penalty.”). Indeed, the parties do not appear to dispute that Hardegger’s right to sue for contribution arose in 2014 when she paid the entire penalty. As noted above, however, the conduct test dictates that a claim arises for bankruptcy purposes not when it accrues or becomes actionable for non-bankruptcy purposes but rather when the debtor’s conduct giving rise to the alleged liability occurs. The question thus becomes: what conduct gave rise to Hardegger’s § 6672(d) claim? 12 ¶28 On this point, we deem Ford v. Cicoletti, No. C-09-00573 RMW, 2010 WL 1838966 (N.D. Cal. May 4, 2010), instructive. In Ford, the IRS made a tax assessment against the parties after their jointly owned company did not collect and pay over certain taxes. Id. at . The plaintiff paid some of the taxes due, and the parties then entered into an indemnity agreement whereby the defendant agreed to indemnify and hold the plaintiff harmless from any liability in excess of his one-half share. Id. The defendant subsequently filed for Chapter 7 bankruptcy protection and received a discharge. Id. Years later, the plaintiff paid the entire amount of unpaid taxes due plus all penalties and interest and then sued the defendant for contribution pursuant to § 6672(d). Id. ¶29 In considering when this claim arose under the pre-petition relationship test, the court observed that a claim arises for bankruptcy purposes when the contingent liability is established (i.e., when a joint obligation arises, rather than when a co-obligor’s right of contribution ripens or matures into an actionable claim). Id. at . Applying this principle to the case before it, the court concluded that the plaintiff’s contribution claim was a contingent claim that arose when the tax debts arose and [the parties] were jointly and severally liable to the applicable taxing authorities. At the time of [the defendant’s] bankruptcy, [the plaintiff] possessed a contingent claim that would ripen into an actionable claim against [the defendant] in the event that [the plaintiff] paid more than his fair share of the debt. [The plaintiff’s] claims against [the defendant] arose for bankruptcy purposes when the tax debt arose, not when [the plaintiff] later paid more than his fair share of the debts. Id. 13 ¶30 The court further observed that the fact that the plaintiff did not necessarily know that the defendant would file bankruptcy proceedings—or that, after the defendant had obtained a discharge, the plaintiff would be required to pay the defendant’s share of the unpaid taxes—did not remove his contribution claim from the realm of the parties’ fair contemplation. Id. To the contrary, in the court’s view, the parties incurred joint and several liability to the taxing authorities prior to the defendant’s bankruptcy, and based on their presumed knowledge of the tax laws and their entry into an indemnity agreement, “the possibility that one of them would fail to pay his taxes was fairly within their contemplation.” Id. Accordingly, the court held that the plaintiff’s contribution claim had been discharged in the defendant’s bankruptcy. Id. ¶31 Here, although we acknowledge the factual distinctions between Ford and the present case, similar legal reasoning compels the conclusion that Hardegger’s contribution claim arose when C2H2 and its responsible officers (i.e., Hardegger and Cheryl Clark) did not pay the federal withholding taxes at issue between 2007 and 2009. ¶32 Specifically, once C2H2 failed to remit its payroll taxes, by operation of law, Hardegger and Clark incurred joint and several liability under § 6672. See id.; accord Quattrone Accountants, 895 F.2d at 926; see also United States v. Edwards, 572 F. Supp. 1527, 1534 (D. Conn. 1983) (“The company’s liability for withholding taxes arises at the moment the taxes are withheld from employee salaries; a contingent liability is immediately created for the amount withheld. The person responsible for paying the company’s withholding taxes is also contingently liable from that moment.”) (citation 14 omitted); cf. In re Serignese, 214 F. Supp. 917, 920 (D. Conn. 1963) (rejecting the view that assessment of a penalty on the responsible person was a prerequisite to tax liability), aff’d sub nom. Goring v. United States, 330 F.3d 960 (2d Cir. 1964). ¶33 And at the moment that Hardegger and Clark incurred such liability, Hardegger held a contribution claim against Clark, contingent on whether Hardegger would ultimately elect to pay more than her fair share of the tax debt. See Ford, 2010 WL 1838966, at ; cf. Rainbows United, 547 B.R. at 438–39 (“From the moment [the debtor-corporation] failed to remit the payroll taxes, [the claimant-officer] was in jeopardy of being assessed a [tax penalty]. Whatever indemnification right she may have had arose then, too. Even though the IRS did not assess the [penalty] against her until after [the corporation’s] plan had been confirmed, she was in peril of it as early as 2007 and though her claim against [the corporation] may not have matured until she learned of the assessment, that debt was certainly contingent from the moment [the corporation] failed to pay the trust fund deposit, well before confirmation.”). ¶34 Accordingly, we conclude that Hardegger’s contribution claim arose for bankruptcy purposes when C2H2 and its responsible officers incurred tax liability for which Hardegger and Clark were jointly and severally responsible and that, therefore, Hardegger’s contribution claim was a pre-petition claim. ¶35 For two reasons, we are not persuaded otherwise by Hardegger’s contention that because an individual’s tax penalty liability is “separate and distinct” from a corporate debtor’s liability, the conduct giving rise to Hardegger’s claim was the IRS’s penalty assessment under § 6672(a). 15 ¶36 First, Hardegger cites no authority, and we are aware of none, demarcating § 6672 liability in this way under the Bankruptcy Code. To the contrary, Hardegger’s position appears to ignore longstanding precedent recognizing that § 6672 liabilities become debts for bankruptcy purposes when the taxes are withheld and not remitted to the IRS—not when a tax penalty is assessed. See IRS v. Lee, 184 B.R. 257, 262 (W.D. Va. 1995); Serignese, 214 F. Supp. at 920. ¶37 Second, as noted above, the conduct test focuses solely on the conduct of the debtor. See Huffy, 424 B.R. at 304. Here, the Clarks’ only material conduct was their failure to pay the taxes that were owed on behalf of C2H2, and it is this conduct that underlies the parties’ joint and several liability and, ultimately, Hardegger’s contribution claim. See 26 U.S.C. § 6672(a), (d); Quattrone Accountants, 895 F.2d at 926. ¶38 Because the Clarks’ pertinent conduct occurred prior to October 2010, we agree with the division that Hardegger’s contribution claim arose pre-petition and, consequently, was a “claim” that was subject to discharge in the Clarks’ bankruptcy proceedings. We thus turn to the scope-of-review question raised by Hardegger.