Legal Document

384 U.S. 678 86 Supreme Court Reporter 1674 16 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 853 John NICHOLAS, Trustee of the Estate Beachcomber Motel, Inc., Bankrupt, Petitioner,v.UNITED STATES. Number 650. Argued April 19, 1966. Decided June 13, or Haw. Hawai‘i KFH45 A2 Gunn, Miami, Fla., for petitioner. C. Moxley Featherston, Washington, D.C., respondent. Mr. Justice STEWART delivered opinion Court. 1 The question presented in this case is whether a superseding trustee bankruptcy liable interest and penalties on federal taxes incurred by debtor possession during an arrangement proceeding under Chapter XI Bankruptcy Act. facts are not dispute. 2 On August 6, 1958, Florida corporation operating motel Miami Beach, filed original petition with its unsecured creditors XI. Act § 322, 11 Code KF62 722 (1964 ed.). During pendency proceeding, was permitted to operate business as authority court. In course operations, withheld income taxes1 social security taxes2 from wages paid employees collected excise receipts cabaret.3 Subsequently, dispossessed property premises were closed. 3 Unable proceed plan creditors, September 17, adjudged bankrupt same date. 376(2), 776(2) bankruptcy, petitioner case, appointed. October 31, withheld, well cabaret taxes, due be paid. January 1959, payroll tax imposed employers Federal Unemployment Tax due.4 neither these nor any returns required respect them. 11, 1963, submitted administrative expense statement claiming expenses principal due, assessed trustee's failure file taxes,5 that had accumulated would continue accumulate until they paid.6 4 referee allowed Government's claim but disallowed claims interest.7 referee's order affirmed all respects District Appeals Fifth Circuit reversed judgment taxes. 5 Cir., 346 Reporter, 2nd 32. Shortly after decision, Eighth reached opposite result similar Government proceeding,8 we granted certiorari resolve conflict. 382 971, 541, 15 464. I. It well-settled principle American law cases ordinary accumulation against estate suspended date filed. Sexton versus Dreyfus, 219 339, 31 256, 55 L.Ed. 244.9 That rule, grounded historical considerations equity convenience, specifically made applicable decision City New York Saper, 336 328, 69 554, 93 710.10 6 debts Sexton, like regular operations taxpayer, prior invocation procedures Act, whereas present invoking been basis distinction, contends here entitled bear throughout period. We draw no such conclusion distinction. 7 believe decisions reflect broad equitable should disadvantaged vis-a -vis one another legal delays attributable solely time-consuming inherent administration laws.11 context interest-bearing debts, enunciated Saper rests at bottom awareness inequity if, through continuing subsequent proceedings, obligations bearing relatively high rates absorb assets whose funds already inadequate pay owed estate.12 8 To sure, amount accumulates debt depends upon duration takes place direction §§ 342, 343, 742, 743 But claimed does arise 'delay' meaningful sense. underlying obligation part judicial process rehabilitation designed facilitate. Interest current therefore different kind period before From vantage point pre-arrangement panorama intimately bound up intrusion into previously untrammelled relationship between his creditors. For filing may legitimately regarded introducing very sort delay courts, denying interest, have traditionally characterized inequitable. other hand, creditor credit arose itself, it marks intervention delays. rationale our fully which superseded liquidating bankruptcy.13 9 past thus establish must once enterprise enters beyond incurred. there two relevant periods considered—the pre-petition period, filed, post-petition liquidation. upheld period; rejected only By contrast, circumstances commend division three periods—the A within think, until, beyond, close Thus, concerning first period—that is, arrangement—the has summarily holding filed.14 Where, application permits accrue proceeding; requires 10 allowance promotes availability capital enhances likelihood achieving goal ultimate debtor.15 Disallowance might seriously hinder many foreclose prospect debtor's recovery.16 No significant detriment viability suspension since potential can readily adjust their accommodate prognosis particular chances rehabilitation. proceedings separate defining permissible supported threefold hierachy priorities Taxes content fourth priority 64a(4) Act.17 technically 64a(1).18 final sentence section, however, subordinates administration. fact junior proceedings. corresponds when Moreover, extricates serious dilemma he otherwise face, subordinated prematurely forestall accrual increase burden allowing accumulate.19 12 Aside means law's delay, confinement itself also convenience. As recognized Vanston Bondholders Protective Committee Green, 329 156, 164, 67 237, 240, 91 162 'Accrual simple prohibited inconvenience continuous recomputation causing could avoided.' accepting cutoff avoids potentially laborious procedure recalculating pro rata share each whenever distribution supervening carried out.20 13 straightforward. Since those actual terminated became payable, and, therefore, possession. entire sought represents hold suspending clear seeks case. 14 way inconsistent provisions 28 960, states persons conducting court shall taxed if private business.21 officer court, subject operation arrangement. Nothing general language necessarily subjects additional Kalishman, 514; cf. 710; General Engineering & Mfg. Co., 188 80 (C.A.8th Cir.), aff'd, 342 912, 72 364, 96 686. absence explicit congressional direction, convenience established clearly support interpretation scope provision Judicial Code. find merit alternative suggestion question—those patrons cabaret—constitutes trust fund over absolute 7501(a) Internal Revenue Code.22 need determine whether, regard overrides strong policy 64a(1) establishes sharply defined places parity, including taxes.23 Cf. Guarantee Title Trust company Guaranty Surety 224 152, 32 457, 56 706; Davis Pringle, 268 315, 45 549, 974; Missouri Ross, 299 72, 57 60, 81 46. second provides collectible manner arose. determined accrues composed withholding taxes.24 reverse liability II. 17 validity presents completely issue. governed squarely Boteler Ingels, 308 57, 60 29, 84 78 sustained penalty who failed state automobile license while purpose held Congress, predecessor 960,25 'with vigor clarity declared appointees businesses do so State 'the business(es) conducted individual corporation." U.S., 61, stated Boteler, exempt penalty, 'State accorded theoretical privilege taxing operated trustees equal footing businesses, denied traditional almost universal method enforcing prompt payment.' Id., 61,26 18 equally conceded trustee, status representative successor possession, extent enjoyed Act.27 Once established, that, 6011(a) Code, even though themselves proceeding.28 follows where exact legitimate enforce returns. Although rule open some applied difficulty here. penalized actually fees time prescribed State, sufficient estate. because timely period.29 19 served permitting escape unburdensome responsibility merely thereby notifying due. affirm question.30 20 reasons stated, part, remanded further consistent opinion. 21 ordered. 22 Affirmed remanded. 23 HARLAN, concurring dissenting part. 24 Recognizing difficult, N Dec. Immigration Nationality Decisions Appeals' allow both expenses. points, think fair arguments mustered either result. balance, seems me starting carrying continuum See especially 378(2) 778(2) (1946 stopped succeeds court-appointed fall heir responsibilities court-supervised 25 WHITE, whom DOUGLAS FORTAS join, 26 agree Part II Court's dissent 27 issue withholding, payable out holds acts giving rise occurred assumption office. concedes obligated except limits provided nevertheless undertake sometimes difficult task assembling information necessary occurred. several agree. 1. laws favor saddling penalties. Section 57j 'Debts owing subdivision thereof forfeiture * *,' 57j, amended, 93(j) ed.), section secured lien. Simonson Granquist, 369 38, 82 537, 557. reaffirmed 'broad aim provide conservation estates insolvents end type involved. Enforcement bankrupts, serve punish delinquent taxpayers, rather entirely innocent creditors.' 40—41, 539. true deals alleged default. diluting charging estate—very rightly makes much case—requires least weighty persuasive imposing return relating prebankruptcy business. If fallen day bar penalty. see little sense bankruptcy. 29 2. Code—'any person title, collection thereof, make *.' 6151, putting matter way, imposes return. says obviously mean 'liable' typical intervened—the proprietorship example to, indeed authorized individual's Class priority. I.T. 3959, 1949—1 Cum.Bull. 90. salient claims, effect Any earlier gives 64a, mere envisaged 6011(a). were, following abortive announced today. 30 Accordingly, reliance supposed 'crucial fact' being acted continued business, 960 subjected default, 78. With disclaims arises ante, 693, n. 28, 694, disavow implication distinguished returns, accompanying text. Such disclaimers appropriate. truth bankrupt, accruing prearrangement classified escalated priority, although relegated inferior position hence instance duty regulated 64a constituting sum, treating person, error merging together distinct purposes assessing quite carefully, correctly, separated them determining interest. 3. There grounds rejecting performed critical function something more than empty formality. 58e 94(e) expressly notice Service meeting notices scheduled important stages proceeding. 6036 ed.) (notice qualification trustee). chance opportunity, lack notice, us now, scheduled, ample trouble whatsoever take advantage items arising 4. Nor impose adjudicated insubstantial burden. Trustees normally strangers estate, participated making schedules liabilities outset know nothing about affairs bankrupt. They employ accountants, times attorneys often forthwith work effort undertaking possible repercussions afford lightly discharge. attorney delve give consideration matter. require duties peril would, course, impossible short notice; few days appointment, court's untoward results.* Absent showing special return, wooden needlessly proliferates trustee. 33 5. 78, found vehicles used own operations. Given activities, justified imposition payment limited proscribing bankrupt's defaults. tell follow likewise And admits not, relates matters, brings closer intended apply. 1954, 3402, 3402 3102, 3102 3111, 3111 4231(6), 4231(6) 3301, 3301 6651(a) provides: 'Addition tax. 'In therefor (determined extension filing), unless shown reasonable cause willful neglect, added percent month, month fraction continues, exceeding aggregate.' maximum 25% cabaret, 15% raised statutory requirement willfulness. 6601(a) 'General rule. 'If title (whether stamp method) last payment, rate per annum paid.' did representing portion accrued dates respective corporation. review anomalous aspect order, challenge Dayton Stanard, 241 588, 36 695, 1190; Michigan 286 334, 52 512, 76 1136; re Lambertville Rubber 111 (C.A.3d Cir.); Columbia Ribbon 117 999 McColgan Maier Brewing 134 385 (C.A.9th Collier 2088 (14th ed. 1964). 514. Thomas Western Car 149 95, 116—117, 824, 833, 37 663. quality suspended, extinguished, certain relevant, Bruning States, 376 358, 906, 772; 1858 et seq. Blackstone, Commentaries *488 (Cooley 1899). 710 reflected assimilation At 244, decided, highly preferred succeeding 1898, Statutes-at-Large 563, affirmative seek ascertain obtain payment. 333, 557, 710. concomitant Kallak, 147 KF105 F3 276 (D.C.D.N.D.); Childs, 266 304, 110, 299. 1938, Congress amended reducing 874, 104(a) requiring proved 867, 93(n) May 27, 1926, chapter 406, 15, 44 666; Wurzel, Taxation Liquidation, Harv.L.Rev. 1141, 1145—1146. light amendments, become sufficiently clothed characteristics justify suspend Holmes 344—345, 257, 244: 'The unreasonable closely considered. simply fixes moment wound up. If, known illustration Chief Shaw's, Parks Boston, Pick. 198, 208, whole settled pie-powder called sell valued spot, receive dividend footing, suffer injustice, complain.' Iron Steel Manufacturing Seaboard Air Line Railway, 233 261, 34 502, 58 949, receivership, barring based 'had lost enforced distribution, receiverships generally insufficient full. dignity bore receivership immaterial calculated alone combined. carry low rate, inequality incident collecting distributing funds. act law, gain loss. reasons, dignity, debt.' 266, 504. 162: 'Moreover, diverse loss caused delay.' This doctrine product compromise interests competing creditors; arguable 1855—1856 'shall conducted, far possible, voluntary adjudication decree entered (XI) filed,' collapse distinctions treat itself. 682. Commonwealth Massachusetts Thompson, 190 (C.A.1st cert. denied, 918, corporate reorganization X Edens, 189 876 (C.A.4th 357, 682, assignments benefit Matter Pavone Textile Corp., 302 N.Y. 206, 97 North Eastern 755, aff'd sub nom. Bloom, accord decisions, 10, (dissenting Judge Woodbury). 344 744 contemplates creation Weintraub Levin, Practical Guide Debtor Relief 185—186 (1964). statistics Brief appears numbers terminate example, fiscal year ending 30, 1964, 1,088 604 initiated 1964 years. 104(a), '(a) advance dividends full estates, (1) costs administration, preserving *. Where directing proceeded with, ensuing unpaid chapter, (4) legally note supra. 1952, 66 426, 571. restricting post-bankruptcy 63a(1) 103(a)(1) (interest judgments written instruments bankruptcy; rebate then interest), 63a(5), 103(a)(5) reduced bankruptcy). Compare Earhart, 992, 996—997 Cir.). Ex parte Bennet, Atk. 526, 527; 362, 908, 1857 'Any officers agents Federal, local corporation.' 'Whenever collect withhold internal revenue States. assessed, collected, limitations (including penalties) arose.' Rassner, 127 703 (C.A.2d Sampsell, 193 154 Hercules Parts Corporation 202 938 (C.A.6th Airline-Arista Printing 267 333 2066, record indicates fund. 7, occasion event derived accede 21, Chicago N.W.R. 119 971 (C.A.7th 6659(a)(1) taxes.' results succession who, supra, 21. Will-low Cafeterias, 429 965 Shapiro, Effects Bankruptcy, 1959 So.Calif.Tax Inst. 587, 588—591. general, himself 1752 6012(b)(3) (trustee operated). Unlike situation I, involves major inequities class. dominant here, continuity crucial concerned, said taken initiation 90 behalf individual). 'When regulations Secretary delegate accord- ing forms delegate. *' issue, 57(j) 381(3) 93(j), 781(3) ed.); 59—60, susceptibility activities conduct 631 Loehr, 98 F.Supp. 402 (D.C.E.D.Wis.); F.P. Newport Ltd., 144 507 (D.C.S.D.Cal.). 6151 obliges question, capacity 3467 Revised Statutes, 192 provision, personal distributes satisfying alter Kaplan, 74 664 King 379 329, 85 427, 315. 78; 45, 49—50 requirement, accompanied sanction 6651(a), sole amount. However, attaches Rev.Rul. 56—158, 1956—1 596 (penalty late assignment proceeding). involved Therefore, discussed pass recovered 22. Extensions days. Mim. 6157, 1947—2 64.

Classification Label: 11