Document: 56 L.Ed.2d 275 98 S.Ct. 1795 436 U.S. 268 UNITED STATES, Petitioner,v.Onofre J. SOTELO and Naomi Sotelo. No. 76-1800. Argued Feb. 22, 1978. Decided May 978. Rehearing Denied June 26, See 438 907, 3126. Syllabus Section 6672 of the Internal Revenue Code 1954 provides that "[a]ny person required to collect, truthfully account for, pay over" federal taxes who "willfully fails" do so, shall be liable a "penalty" equal amount in question. 17a(1)(e) Bankruptcy Act makes nondischargeable bankruptcy "taxes . which bankrupt has collected or withheld from others but not paid over." Respondents, husband wife, were adjudicated bankrupt, as was corporation he principal officer majority stockholder. The court found respondent (hereafter respondent) personally Government under § for his failure over employees corporation. Subsequently, proceedings by collect on liability, judge, rejecting respondent's contention such liability had been discharged, reasoned although denominated "penalty," it substance tax, thus 17a(1), more particularly 17a(1)(e). District Court affirmed. Appeals reversed. Though recognizing held inapplicable because himself obligated withhold taxes, any event money involved constituted whereas renders only "taxes" nondischargeable. Held : Respondent's is Pp. 273-282. (a) That necessarily means "required withholding willfully failed meet one these obligations. P. 274. (b) Since question "collected withheld" corporation's have "paid Government, imposed both over, therefore within meaning 275. (c) language dispositive status debt 17a(1)(e), since funds unquestionably at time they others," this period with its modification phrase withheld," treats relevant one. due are referred when later seeks recover them does alter their essential character purposes Act, least where, here, predicated rather than initially taxes. (d) legislative history indicates Congress intended make tax obligations persons situation, also meant ensure post-bankruptcy corporate situations (where liabilities rendered uncollectable dissolution). 275-279. (e) overall policy giving "fresh start" cannot override Congre s' specific intent like nondischargeable, especially contrary result would create an inequity between officers individual entrepreneurs. 279-281. 551 F.2d 1090, reversed remanded. Stuart A. Smith, Washington, D. C., petitioner. Bruce L. Balch, Rock Island, Ill., respondents. Mr. Justice MARSHALL delivered opinion Court. 1 This case involves interaction sections Act. Respondent Onofre Sotelo officer. presented whether dischargeable bankruptcy. 2 * In mid-1973, respondents bankrupts, corporation, O. Sons Masonry, Inc. two Sotelos consolidated. November 1973, Service filed against respondents' estate claim $40,751.16 "for internal revenue taxes" Government. Respondents alleged 6672, 26 U.S.C. duty "to fail[ed]" requisite payments.1 objected Government's claim, arguing should corporation." Memorandum Opinion (Nov. 29, 1974). 3 upholding extent $32,840.71, formerly operated masonry business sole proprietorship that, formation president, director, stockholder, chief executive Sotelo, other hand, though named secretary, "did take active part business." Id. 1. concluded "was charged responsibility see [withheld] paid." Opinion, supra, 3.2 record reflect appeal ruling. 4 October 1975 seeking owed served notice levy trustee regard $10,000 belonged available general distribution creditors bankruptcy.3 levy, ground described i itself discharged bankruptcy.4 argued contrary, "taxes," 17a(1) 30 Stat. 550, amended, 11 35(a)(1) (1976 ed.), judge agreed reasoning "[t]hough 'penalty,' [the liability] tax." 76-1 USTC ¶ 9435, p. 84,157 (SD Ill. 1976). noted, ibid., subdivision specifically 35(a)(1)(e) ed.). appealed United States Southern Illinois, affirmed court. 5 Seventh Circuit re 1090 (1977). It first noted "Sotelo challenge [but] argues personal petition." Id., 1091. then finding persuasive fact terms argument respect referring F.2d, 1092.5 recognized ruling conflict "an uncontroverted line cases." 1091.6 6 We granted certiorari, 434 816, 54, 54 72 (1977), we now reverse. II 7 17a 80 270, pertinent part: 8 "A discharge release all provable debts, except 9 "(1) became legally owing State three years preceding bankruptcy: Provided, however, laws ." 35(a) 10 Relying statutory language, presents what views independent grounds holding (hereinafter primary based relating 17a(1)(e); alternatively, called IRC "tax" term used 17a(1).7 Regardless independent,8 leaves no doubt nondischargeability viewed provision here reasons: first, "it himself, employer-corporation, law taxes"; second, "renders 'taxes' nondischargeable." 1092. believe reason inconsistent Appeals' recognition undisputed second 12 6672; n. 1, supra.9 "require[ment]" collection presumably derives state law, difficult understand how below could 272, nonetheless "obligated taxes," moreover, collected, clear h over. Under circumstances, most natural reading leads conclusion 13 agree others." §§ 3102(a), 3402(a). which, III 14 additional support view A purpose legislation, enacted 1966 after several congressional consideration, establish three-year limitation bankruptcy; former there temporal limitation. H.R.Rep.No. 372, 88th Cong., 1st Sess., 1-3 (1963) 372); S.Rep.No. 114, 89th 2-3 (1965) 114). new section ensured "which owing" With unpaid made addition today 15 added bill respond Treasury Department's position undesirable. expressed letter Chairman House Judiciary Committee Assistant Secretary Stanley S. Surrey, indicated employer-bankrupts included scope 16 "concer[n] granting taxpayer payment trust fund public general. Department equitable administratively desirable permit employers third parties relieved obligation an[d] Quoted (emphasis added). 17 Treasury's further explained same official Senate Committee; emphasized "most undesirable paying Federal moneys converted own use." 10. 18 response concern, amendment According Report, "the objection so-called taxes." 5. agreeing amendment, "o position" bill, responsible "relieved obligations" eliminated pp. 6, 19 There did intend concerns entirety. While may focused left "persons persons." Letter Surrey Committee, supra. without person, point essentially conceded virtue 274-275, 9. Because contemplated those withholding-tax-payment remain "conver[sion]" private use, 10,10 must conclude 20 Even indications Congress' perception consequences unlikely legislature apply Both reports floor debates contain repeated references "normally ceases exist upon bankruptcy," 2; 2, thereby rendering "uncollectable" liabilities, 112 Cong.Rec. 13818 (1966) (statement Sen. Ervin). As bill's sponsors observed, dissolution practical effect discharging debts including regardless declarations nondischargeability. 13821 (remarks Hruska).11 assumption, interpretation adopted untenable, combination bankruptcies leave Such directly met concern about ensuring IV 21 light history, little remains consider instead relied factors. observed "inequit[y]" arise "liable corporation" cases "[t]he vastly exceed[s] individual's present future resources," "entire earnings confiscated compensate liability." result, court's view, "would contravene Act's basic settling bankrupt's past providing fresh economic start." 1092-1093. 22 However considerations might forum, judges judgments enacting provisions concerned. decision hold corporation," even if wide disparity resources, passed, imposes ability pay.12 And while true prevents getting entirely start," observation assistance construing expressly designed some concerned entire policy, (e). discussed Parts III, demonstrate intention nondischargeable.13 23 approach, allowing escape 278-279, leaving individuals partnership, corporate, form.14 passing operation prior "unfairly discriminatory unincorporated small businessman." 2-3. above, "dissolves goes out business," 13817 Ervin), avoiding IRS claims; thought inequitable proprietor type claims. generally sources cited 278, 11,supra. entrepreneur, whom similar frequently turn nothing "sophisticated" enough "to, effect, incorporate himself." Ervin).15 Were adopt instituting precisely kind "arbitrary discrimination" alleviate. Ervin).16 24 judgment f is, accordingly, 25 Reversed REHNQUIST, BRENNAN, STEWART, STEVENS join, dissenting. 27 undoubtedly needs revenues receives great need I join Court's thrice-twisted analysis particular statute gratify it. issue dischargeability officer's order turns source indeed: apparent ameliorate lot infra, 284-285, proceeds slog way illogical proviso obviously limit so expand category debts. attempts bolster inexplicable legislation unnaturally opposing expansion tax-related liabilities. net perverse approach well before stepped alleviate hardships resulting making background remarkable "person title." 6672. Perhaps seriously undermines it, surprisingly keep background, addressing obliquely footnote where summarily concludes, again tour de force linguistics logic, penalty mean thing tax. underlying another. want far clearer can reach person. dissent. 28 initial matter, fall latter appropriate falls former. "discharge excepts through 17a(8) eight different categories thereof bankruptcy." But exception qualified 17a(1)(e): "Provided, Thus, normal bankruptcy, subsections read certain will old; time. Normal construction suggest inquiry bankrupt. Only become necessary 29 correct buttressed history. All Committees reported stressed central enable bankrupts nearly achieve start promised Finance, example, discussing proposed "that denying substantial deterrent fundamental Act—effective rehabilitation bankrupt." S.Rep. 999, 2d (1966). went slightly methods advanced goal, others, favorable limiting, few specified exceptions, years. avowed heightens incongruity interpretation. statute's major yet holds enactment results totally passage 17a(1)(e)—that slightest attention 17a(1). basically beneficent purpose, has, according Court, potentially run into hundreds thousands dollars worsened, bettered, bankrupt.1 31 Finally, less clear, hesitate depart our longstanding tradition eye purpose—the bankrupts. always led until today, construe narrowly exceptions provisions. See, e. g., Gleason v. Thaw, 236 558, 562, 35 287, 289, 59 L.Ed. 717 (1915). Admittedly "a compassionate debtors," Bruning States, 376 358, 361, 84 906, 908, 772 (1964), consistently doctrine Gleason, simply anything justifies departing straining clearly very benevolent, perspective. 32 addressed amounts If not, entirety arise. persuades me him. Neither nor points employee employer employees' paychecks. Sections 3102, 3402, 3403 certainly unmistakable impose "employer," employee, rank hierarchy, not. 33 serve purpose. therein and, absent indication presumed know words uses, highly complex intricate schemes. Indeed, another sent considering eventually following brought Committee's attention: 34 "It believed penalties interest. However, reference connection, 10th Mighell (C.A. 10th, 1959) 273 682, word (11 35) include inference, ambiguity cause litigation." H.R.Rep. 687, (1965). modify penalties. (I normally accord weight, practice seems rigueur. Ante, 276-277.) 36 bears notion considered "tax." For 1004 War 1917, early predecessor provided anyone return otherwise evaded subject double evaded" penalties, $1,000 fine imprisonment. 40 325. subchapter heading titled "Assessable Penalties." 37 Finally existence testimony collecting "taxes." section, unnecessary. absence my opinion.2 38 Instead adopting course compelled structure chosen course. give nod satisfy reaching dismisses desultory fashion footnote, noting "there 17a(1)." 274 8. interpret limiting provision, around, compels admiration agreement. critical, indeed only, becomes "required" Finding IRC, concludes end matter. 39 justifications engaging unorthodox method supposedly threefold, are, opinion, satisfactory. First, asserts encompassed plain above ignore proceed satisfied. next relies Committee. No partially letter. contained indicate adding extend concept 100% encompass official's (presumably charter law) emphasizes "and persons" observes "[t]here entirety." 277. emphasizing exclusion rest places weight bear. much parts letter, 41 (Emphasis supplied.) (1963). 42 recognizes importantly, interpreting general, goal rehabilitating particular, furthering entitled presumption does. Rather, expression every employee's employer. 43 corporations often dissolve form. 278. reasons Ibid. Congress, really problem refers, hopefully suited incongruous impute just likely cases. scheme odds abut, i. e., limited crushing officials—a virtually perpetuity. directive. 44 lifelong shoulders family business, unfortunately prevent surviving comptroller, accountant, bookkeeper reaped none fruits entrepreneurial success continued employment possibly 3, infra. So long zeal persuade comes Delphic denied enhance amendments Act.3 Before randomly sweep whereby discharge, another, insist seemed direction, opposite provides: "Any title fails manner evade defeat thereof, shall, total evaded, accounted 6671(b) 'person,' [§ 6672], includes perform act violation occurs." 6671(a) states "shall assessed liable, "immaterial" merger estates. derived trustee's sale real joint tenants, payable claim. set aside "homestead exemption" apparently pursuant Illinois law. contention, stated: "[T]he established wife property tenants reside together PREMISES THE HUSBAND alone homestead Exemption." 84,156 upheld rule constitutional attack. 84,157-84,158. Respondents' theory compensatory nature. dispute dischargeable. Brief 26-27, 16. 57j, 93(j); H. Remington, Treatise Law 3304 (6th ed. Henderson 1955). raised exemption argument, Appeals, dischargeable, 1093 3. contends reached holding, irrelevant right "against allowed duly apart him," 33-34, 23. address contention. On remand, course, belongs cases, conflicting Fifth Murphy U. rvice, 533 940 (1976). followed Fourth Lackey 538 592 contends, disagree, bar case. 25-26, 15. modifies aimed 4. Marsh, Triumph Tragedy? Amendments 1966, Wash.L.Rev. 681, 694 (1967): common phenomenon 'honest' businessman, attempting salvage appears headed insolvency, 'borrow' people consent get hands almost able lay currently Government." recent statement Comptroller General States: "IRS considers delinquencies serious problem. 1976 [congressional] , officials use low interest loans B-137762 (May 1977), reprinted CCH 1977 Stand. Fed. Tax Rep. 6614, 71,438. also, Ervin); id., (letter Senators Sens. Ervin Hruska); 13822 Commerce Edward Gudeman, 114 12; memorandum W. Randolph Montgomery, National Conference, 16; 1134, (1964); 735, 86th (1959). Rather predicating pay, premise follow responsibility. 13, survey practices wrote: uses 100-percent securing delinquent exhausted. gone [I]t once. After satisfied, action taken remaining penalties." B-137762, 10, Our dissenting Brethren appear uncomfortable choice, expressing "lifelong liability" being success." Post, 290, 291. sympathy concern. officer, title, unless sufficiently important case, exercising actual authority day-to-day affairs, despite she secretary. 270-271, 2. concedes, said reap "none success," dependent "continued employment." 291 added); post, 291-292, employment" benefit considerable significance enterprise. Hence stake success" shareholder, tempted illegally divert purposes. they, employers, [did] pa[y] September 1970. 270-271; recognizes, 285 unquestioned eliminating corporations' "unfair" advantage Elsewhere Brother REHNQUIST concede lot" "some bankrupts" passed 282; 285. officers, employees. attempted explain "discriminat[ion] businessman," 2-3, relieve dissent's do, owners "small business[es]," 291—those happen operate noncorporate entities—subject liability. "concerned 'discriminat[ion] businessman,' 2-3," ante, 282 reducing supposed discrimination, entities. find absolutely reduce discrimination affirmatively worsening still search vain justification albeit class lower contrary. 6. traced Botta Scanlon, 314 392 (CA2 1963), plaintiff sought injunction restrain Anti-Injunction "[N]o suit restraining maintained 7421(a). applied "[A]ny 'tax' deemed refer subchapter." 6671(a). treating administering Code, specify strongly suggests inadvertent omission. lack nowhere evident 280 notes "[n]o 'required over' 'willfully fail[ed]' obligations." observation, allay fear variety salaried enjoy enterpreneurial employment. Reporter replete Adams 504 73 (CA7 1974) (the lending institution, placed charge institution loaned money, employees, stock corporation); Mueller Nixon, 470 1348 (CA6 1972) (same); Turner 423 448 (CA9 1970) (employee bank, company condition loan company, company's employees). Courts shareholder accountable Anderson 561 162, 165 (CA8 1977); Hartman 1336, 1340 1976); Haffa 516 931, 935-936 1975).

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