Court Opinion

ID: 3155940
Source: CourtListenerOpinion
Date Created: 2015-11-19 02:01:11.132374+00
Date Added: 2024-06-11T12:02:16.224948
License: Public Domain

FILED
                                                            NOV 18 2015
 1                         ORDERED PUBLISHED
                                                        SUSAN M. SPRAUL, CLERK
 2                                                        U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                         )     BAP No.      MT-14-1499-KlPaJu
                                    )
 7   DANIEL BRUCE CARPENTER and     )     Bk. No.      2:13-bk-61192-RBK
     MARY ESTHER CARPENTER,         )
 8                                  )
                    Debtors.        )
 9   _______________________________)
                                    )
10   DANIEL BRUCE CARPENTER; MARY   )
     ESTHER CARPENTER,              )
11                                  )
                    Appellants,     )
12                                  )
     v.                             )     O P I N I O N
13                                  )
     MONTANA DEPARTMENT OF LABOR    )
14   AND INDUSTRY UNEMPLOYMENT      )
     INSURANCE CONTRIBUTIONS BUREAU,)
15                                  )
                    Appellee.       )
16   _______________________________)
17                         Argued by Video Conference
                         and Submitted on July 23, 2015
18
                           Filed – November 18, 2015
19
               Appeal from the United States Bankruptcy Court
20                       for the District of Montana
21    Honorable Ralph B. Kirscher, Chief Bankruptcy Judge, Presiding
                         _________________________
22
     Appearances:     Harold V. Dye, Dye & Moe, PLLP, argued for
23                    appellants; Joseph Richard Nevin argued for
                      appellee.
24                               _____________
25   Before:   KLEIN,1 PAPPAS, and JURY, Bankruptcy Judges.
26
27
          1
           Hon. Christopher M. Klein, U.S. Bankruptcy Judge, Eastern
28   District of California, sitting by designation.
 1   KLEIN, Bankruptcy Judge:
 2
 3        This appeal involves the interplay between priority tax
 4   status under 11 U.S.C. § 507(a)(8) and Montana’s statute imposing
 5   individual liability on “responsible officers” of corporations
 6   that do not pay their taxes.
 7        The joint debtors owned and managed a corporation that did
 8   not pay its state unemployment taxes within three years before
 9   they filed their personal chapter 11 case.    The bankruptcy court
10   held that Montana’s tax claim for unpaid corporate taxes is a
11   § 507(a)(8)(E) excise tax priority claim in their personal case.
12        The court rejected the debtors’ argument that, by negative
13   inference from language in § 507(a)(8)(C), the § 507(a)(8)(E)
14   excise tax priority cannot apply to responsible officers.   In
15   their view, the tax debt would be a § 507(a)(8)(E) priority tax
16   as to the corporate taxpayer but merely a non-priority tax claim
17   as to them as vicariously-liable individuals.    This theory would
18   enable them to confirm a chapter 11 plan without paying the tax
19   debt in full and to escape the incidental consequence of
20   nondischargeable status under § 523(a)(1) for any unpaid portion.
21        The debtors’ negative-implication argument, while plausible,
22   runs counter to too much precedent.    We AFFIRM.
23
24                                  FACTS
25        The debtors Daniel and Mary Carpenter were officers and
26   owners of Big Sky Fire Protection, Inc., which sold and serviced
27   fire protection equipment.   They were officers responsible for
28   filing Big Sky tax returns and paying its taxes.

                                      2
 1        Unemployment tax contributions owed by Big Sky pursuant to
 2   Montana Code Annotated § 39-51-1103(1)2 were not paid from
 3   October 2011 through June 2013.
 4        The Montana Department of Labor and Industry, Unemployment
 5   Insurance Contributions Bureau, filed a proof of claim asserting
 6   § 507(a)(8) priority status for $78,757.29, including $125.00 in
 7   penalties.     Attached was a statement of account addressed to “Big
 8   Sky Fire Protection Inc Attn Daniel Carpenter.”
 9        The debtors objected to the claim, asserting that Big Sky’s
10   tax debt was not a priority claim as to them despite Montana’s
11   responsible persons statute, which makes officers personally
12   liable for unpaid corporate taxes.     MONT. CODE ANN. § 39-51-1105.3
13
          2
           Montana’s unemployment tax “contributions” accrue and are
14   payable as follows:
15
          (1) Contributions accrue and become payable by each employer
16        for each calendar year in which the employer is subject to
          this chapter with respect to wages, as defined in 39-51-201,
17        paid for employment, as defined in this chapter, occurring
          during the calendar year.
18
19   MONT. CODE ANN. § 38-51-1103(1).
          3
20            Montana’s responsible person liability statute provides:

21   (1) The officer of a corporation whose responsibility is to pay
          the taxes, penalties, and interest, as provided by 39-51-
22
          404, 39-51-1103(1) and (2), 39-51-1125(1), and 39-51-1301,
23        is liable for the taxes, penalties, and interest due.

24   (2)(a) The department shall consider the officer of the
          corporation individually liable with the corporation for
25        filing reports and unpaid taxes, penalties, and interest
26        upon a determination that the corporate officer:

27                (i) possessed the responsibility to file reports and
                       pay taxes on behalf of the corporation; and
28                                                         (continued...)

                                        3
 1        The debtors conceded that unemployment taxes are an “excise
 2   tax” on employers under § 507(a)(8)(E).     But, they contended that
 3   as to them as the employer’s vicariously-liable officers, the tax
 4   debt is entitled to priority status only to the extent provided
 5   by § 507(a)(8)(C), which applies to so-called “trust fund” taxes
 6   “required to be collected or withheld” and for which the debtors
 7   are “liable in whatever capacity.”     11 U.S.C. § 507(a)(8)(C).
 8        The debtors relied on our 2012 Hansen decision, holding that
 9   unemployment insurance contributions were not taxes “to be
10
          3
              (...continued)
11
                  (ii) possessed the responsibility on behalf of the
12                     corporation to direct the filing of reports or
                       payment of other corporate obligations and
13                     exercised the responsibility that resulted in
                       failure to file reports or pay taxes due.
14
15        (b) The department is not limited to considering the
          elements set forth in subsection (2)(a) to establish
16        individual liability and may consider other available
          information.
17
     (3) The liability imposed upon an individual by this section
18        remains unaffected by the bankruptcy of a business entity to
19        which a discharge cannot be granted under 11 U.S.C. 727.
          The individual is liable for the unpaid amount of taxes,
20        penalties, and interest.

21   (4) In the case of a limited liability company treated as a
          partnership pursuant to 39-51-207, the liability for
22
          unemployment insurance taxes, penalties, and interest owed
23        extends jointly and severally to each member and to each
          manager, if any.
24
     (5) In the case of a limited liability company that is not
25        treated as a partnership pursuant to 39-51-207, liability
26        for unemployment insurance taxes, penalties, and interest
          owed extends jointly and severally to the managers and
27        members of the limited liability company.

28   MONT. CODE ANN. § 39-51-1105.

                                        4
 1   collected,” i.e. trust fund taxes, hence not entitled to
 2   § 507(a)(8)(C) priority.    Cal. Employment Dev. Dep’t v. Hansen
 3   (In re Hansen), 470 B.R. 535 (9th Cir. BAP 2012).
 4          The state clarified that its basis for claiming priority tax
 5   status was a § 507(a)(8)(E) excise tax for which it asserted the
 6   debtors are individually liable, not a § 507(a)(8)(C) trust fund
 7   tax.    It urged that its unemployment tax qualifies as an excise
 8   tax under the Ninth Circuit Lorber test.     Cal. Self-Ins. Sec.
 9   Fund v. Lorber Indus. of Cal. (In re Lorber Indus. of Cal.), 564
10 F.3d 1098, 1101 (9th Cir. 2009) (“Lorber”).
11          Following an evidentiary hearing to establish the facts, the
12   bankruptcy court overruled the objection and allowed the Montana
13   claim as a priority claim to the extent of $78,632.29 and as a
14   general unsecured claim to the extent of the $125.00 penalty.      In
15   re Carpenter, 519 B.R. 811, 818 (Bankr. D. Mont. 2014).
16          The debtors timely appealed.
17
18                               JURISDICTION
19          Federal subject matter jurisdiction is founded on 28 U.S.C.
20   § 1334.    A bankruptcy judge may hear and determine an objection
21   to claim.    11 U.S.C. § 157(b)(2)(B).   We have appellate
22   jurisdiction under 28 U.S.C. § 158(a)(1).
23
24                              ISSUE ON APPEAL
25          Whether the claim for a corporation’s unpaid Montana
26   unemployment insurance taxes is an 11 U.S.C. § 507(a)(8)(E)
27   priority claim against vicariously-liable individuals.
28   ///

                                       5
 1                           STANDARD OF REVIEW
 2        As no findings of fact are questioned, the issues are
 3   questions of law reviewed de novo.   Litton Loan Serv’g, LP v.
 4   Garvida (In re Garvida), 347 B.R. 697, 703 (9th Cir. BAP 2006).
 5
 6                                DISCUSSION
 7        The battle over § 507(a)(8) priority tax status matters for
 8   two main reasons in chapter 11 cases.     First, a confirmable plan
 9   must provide for full payment of priority taxes within five years
10   after the order for relief (unless the taxing entity agrees
11   otherwise).   11 U.S.C. § 1129(a)(9)(C).   Second, as to the
12   individual chapter 11 debtors, unpaid § 507(a)(8) priority taxes
13   are excepted from discharge.   11 U.S.C. § 523(a)(1)(A).
14
15                                    I
16        The debtors argue from a negative inference based on
17   comparison of the language of various § 507(a)(8) subsections.
18
19                                    A
20        The foundation for the debtors’ argument lies in the
21   structure of § 507(a)(8).
22        Subsections (A) through (F) identify six tax categories that
23   qualify as priority debts:
24        (1) taxes measured by income or gross receipts, 11 U.S.C.
               § 507(a)(8)(A);
25        (2) property taxes, 11 U.S.C. § 507(a)(8)(B);
          (3) trust fund taxes (i.e., taxes “required to be collected
26             or withheld”), 11 U.S.C. § 507(a)(8)(C);
          (4) employment taxes on § 507(a)(4) priority wage claims, 11
27             U.S.C. § 507(a)(8)(D);
          (5) excise taxes, 11 U.S.C. § 507(a)(8)(E); and
28        (6) customs duties, 11 U.S.C. § 507(a)(8)(F).

                                      6
 1        Each of these 11 U.S.C. § 507(a)(8) priority tax categories,
 2   except trust fund taxes, is temporary and measured by specified
 3   lookback periods ranging from 240 days to three years.   Taxes
 4   older than the lookback periods are non-priority claims that do
 5   not necessarily have to be paid in full in a chapter 11 case and
 6   that do not automatically give rise to nondischargeable debts.
 7        The § 507(a)(8)(C) trust fund provision is unique in three
 8   respects.   First, there is no lookback limitation.   Thus, trust
 9   fund taxes are perpetually § 507(a)(8) priority taxes and, hence,
10   are always nondischargeable under § 523(a)(1).   Second, it is the
11   only provision in § 507(a)(8) that refers to who is liable for
12   the taxes; it contains the phrase “for which the debtor is liable
13   in whatever capacity.”   Third, it is focused on a method of
14   collection, rather than describing a separate type of tax.
15        In other words, there really are only five categories of
16   impositions that can be described as taxes or customs duties, all
17   of which are entitled to priority status and potential exception
18   from discharge only if not stale.    The sixth, the trust fund tax,
19   category does not constitute a separate type of tax, but rather
20   prescribes circumstances of collection for which priority status
21   and accompanying nondischargeable status is perpetual.
22
23                                    B
24        The debtors seize on the phrase “for which the debtor is
25   liable in whatever capacity” in § 507(a)(8)(C) to argue that the
26   absence of such a reference in the other § 507(a)(8) subsections
27   is significant.
28        The argument is that Congress knows how to provide that

                                      7
 1   persons other than the primary tax debtor are exposed to priority
 2   tax status, which it has done in the “trust-fund” portion of
 3   § 507(a)(8) with the “liable-in-whatever-capacity” language.
 4         The debtors, relying on the canon of statutory construction
 5   that effect must be given to each word, argue that it follows, by
 6   negative implication, that the absence of “liable-in-whatever-
 7   capacity” language in the other subsections means that persons
 8   who are not the primary taxpayers are not required to bear the
 9   burden of priority claim status.       Since the “liable-in-whatever-
10   capacity” provision is not part of the § 507(a)(8)(E) excise tax
11   provision, it is argued that tax claims against persons who are
12   vicariously liable as “responsible officers” for the excise tax
13   debt of a corporation are not entitled to priority status.
14         Extra traction for the debtors’ argument comes from the
15   proposition that priorities are narrowly construed because they
16   derogate from the principle of equality of distribution among
17   unsecured creditors.   Howard Delivery Serv., Inc. v. Zurich Am.
18   Ins. Co., 547 U.S. 651, 667 (2006); Lorber, 564 F.3d at 1100.
19         Underlying premises of the argument are that the subsections
20   of § 507(a)(8) are mutually exclusive and that a trust fund tax
21   is a separate type of tax.   The difficulty is that key precedents
22   treat the categories as overlapping and not necessarily separate.
23
24                                   II
25         In order to assess the debtors’ argument, a review of the
26   history of the priority tax provisions and of judicial
27   constructions is in order.
28   ///

                                        8
 1                                    A
 2        The phrase “for which the debtor is liable in whatever
 3   capacity” is a legacy of the Supreme Court’s 1978 interpretation
 4   of the 1966 amendments to the former Bankruptcy Act in which
 5   Congress permitted, for the first time, discharge of most taxes
 6   due and owing more than three years before bankruptcy and
 7   prescribed a distribution priority for taxes that were not
 8   discharged.   Act of July 5, 1966, Pub. L. 89-496, 80 Stat. 270.4
 9        One exception to discharge was for trust fund taxes.    Those
10   were defined as taxes “which the bankrupt has collected or
11
          4
12         The 1966 tax discharge provision in the Bankruptcy Act made
     dischargeable all taxes except those that:
13
             (1) are taxes which became legally due and owing by the
14        bankrupt to the United States or to any State or any
15        subdivision thereof within three years preceding bankruptcy:
          Provided, however, That a discharge in bankruptcy shall not
16        release a bankrupt from any taxes (a) which were not
          assessed in any case in which the bankrupt failed to make a
17        return required by law, (b) which were assessed within one
          year preceding bankruptcy in any case in which the bankrupt
18        failed to make a return required by law, (c) which were not
19        reported on a return made by the bankrupt and which were not
          assessed prior to bankruptcy by reason of a prohibition on
20        assessment pending the exhaustion of administrative or
          judicial remedies available to the bankrupt, (d) with
21        respect to which the bankrupt made a false or fraudulent
          return, or willfully attempted in any manner to evade or
22
          defeat, or (e) which the bankrupt has collected or withheld
23        from others as required by the laws of the United States or
          any State or political subdivision thereof, but has not paid
24        over; but a discharge shall not be a bar to any remedies
          available under applicable law to the United States or to
25        any State or any subdivision thereof, against the exemption
26        of the bankrupt allowed by law and duly set apart to him
          under this Act: And provided further, That a discharge in
27        bankruptcy shall not release or affect any tax lien.

28   Act of July 5, 1966, § 2, 80 Stat. at 270.

                                      9
 1   withheld from others as required by the laws of the United States
 2   or any State or political subdivision thereof, but has not paid
 3   over.”     Bankruptcy Act of 1898, § 17a(1)(e), codified at 11
 4   U.S.C. § 35(a)(1)(e) (1976 ed.).       Those taxes were never stale.
 5        A fourth distribution priority was created for all taxes not
 6   released by discharge, with the restrictive proviso that “no
 7   priority over general unsecured claims shall pertain to taxes not
 8   included in the foregoing priority.”      Bankruptcy Act of 1898,
 9   § 64a(4), codified at 11 U.S.C. § 104(a)(4) (1976 ed.).5      In
10   short, all claims for stale taxes were general unsecured claims
11   and dischargeable, while taxes within the lookback periods and
12   other exceptions were priority taxes and not discharged.
13        In 1978, the Supreme Court construed the trust fund
14   provision of the 1966 amendment in the context of federal tax
15   liability of responsible parties for withholding taxes.      United
16   States v. Sotelo, 436 U.S. 268 (1978).      Under Internal Revenue
17   Code § 6672, 26 U.S.C. § 6672, responsible parties are assessed a
18
          5
19            The new priority section was:

20           Sec. 3. Clause (4) of subdivision a of section 64 of such
          [Bankruptcy] Act, as amended (11 U.S.C. 104), is amended to
21        read as follows:
             “(4) taxes which became legally due and owing by the
22
          bankrupt to the United States or to any State or any
23        subdivision thereof which are not released by a discharge in
          bankruptcy: Provided, however, That no priority over general
24        unsecured claims shall pertain to taxes not included in the
          foregoing priority: And provided further, That no order
25        shall be made for the payment of a tax assessed against any
26        property of the bankrupt in excess of the value of the
          interest of the bankrupt estate therein as determined by the
27        court;”

28   Act of July 5, 1966, § 3, 80 Stat. at 271.

                                       10
 1   “penalty” equal to the amount of the tax not paid over.     The
 2   bankrupt responsible persons objected that they should not be
 3   liable for the taxes of the corporation and that the designation
 4   of the obligation as a “penalty” made it dischargeable.
 5        Although the statute made no reference to responsible
 6   officers, the Court held that, despite the designation as
 7   “penalty,” the essential nature of the debt was a tax for
 8   purposes of the Bankruptcy Act, which tax debt is not discharged.
 9   Sotelo, 436 U.S. at 274-75 & 280-81.
10
11                                      B
12        Five months after Sotelo was decided, Congress enacted the
13   Bankruptcy Code of 1978, with the phrase “for which the debtor is
14   liable in any capacity” included in § 507(a)(8)(C).6
15        The legislative history explained that the priority section
16   reached the same result as Sotelo.7
17
          6
           What is now § 507(a)(8) was originally § 507(a)(6). In
18
     1984, it became § 507(a)(7). Bankruptcy Amendments & Federal
19   Judgeship Act of 1984, Pub. L. No. 98-353, § 350(2), 98 Stat.
     333, 358. In 1994, it became § 507(a)(8). Bankruptcy Reform Act
20   of 1994, Pub. L. No. 103-394, § 304(c)(2), 108 Stat. 4106, 4132.
21        7
              The House and Senate floor leader statements are identical:
22
             Taxes which the debtor was required by law to withhold or
23        collect from others and for which he is liable in any
          capacity, regardless of the age of the tax claims. This
24        category covers the so-called “trust fund” taxes, that is,
          income taxes which an employer is required to withhold from
25        the pay of his employees, and the employees’ share of social
26        security taxes.
             In addition, this category includes the liability of a
27        responsible officer under the Internal Revenue Code (sec.
          6672) for income taxes or for the employees’ share of social
28                                                      (continued...)

                                       11
 1        Since the basic reasoning of Sotelo was carried forward into
 2   the Bankruptcy Code, that decision retains vitality.
 3        One instructive thing about Sotelo is that the Supreme Court
 4   construed responsible officer liability as qualifying for
 5   priority status even though Bankruptcy Act § 17a(1)(e) did not
 6   mention responsible officers and notwithstanding the statutory
 7   proviso that “no priority over general unsecured claims shall
 8   pertain to taxes not included in the foregoing priority.”
 9        Since the Sotelos were held liable as responsible officers
10   on a bankruptcy tax priority that did not mention responsible
11   officers, Sotelo appears to stand for the proposition that a tax
12   priority applies against anyone who is liable for any priority
13   tax within the period specified by the particular priority.
14        There is no indication in the 1978 legislative history that
15   Congress intended to limit the Sotelo responsible-officer
16   analysis to trust fund taxes and no other category of tax when it
17   enacted the Bankruptcy Code.
18
19        7
           (...continued)
20        security taxes which that officer was responsible for
          withholding from the wages of employees and paying to the
21        Treasury, although he was not himself the employer. This
          priority will operate when a person found to be a
22
          responsible officer has himself filed in title 11, and the
23        priority will cover the debtor’s responsible officer
          liability regardless of the age of the tax year to which the
24        tax relates. The U.S. Supreme Court has interpreted present
          law to require the same result as will be reached under this
25        rule. U.S. v. Sotelo, 436 U.S. [268] (1978).
26
     Statement of Rep. Don Edwards, Sep. 28, 1978, 124 Cong. Rec.
27   32415-16 & Statement Sen. Dennis DeConcini, Oct. 6, 1978, 124
     Cong. Rec. 34015, reprinted at 1978 U.S.C.C.A.N. 6436, 6497 &
28   6505, 6566.

                                    12
 1        So viewed, there is nothing inconsistent with Sotelo about
 2   applying responsible officer liability under applicable
 3   nonbankruptcy law to any category of priority tax.   But a
 4   responsible officer for a tax in any category that is not a trust
 5   fund tax would enjoy the same protection from stale tax claims as
 6   the taxpayer for whom the officer is responsible.
 7
 8                                    C
 9        The new 1978 Bankruptcy Code remodeled the tax discharge and
10   priority tax provisions but did not make significant changes.
11        Under the Bankruptcy Act, the exceptions to discharge for
12   “taxes,” without specifying which types of taxes, were in the
13   § 17 discharge exception section, while the priority provisions
14   at § 64a merely afforded priority to any tax debt not discharged.
15   Compare Bankruptcy Act § 17, as amended in 1966, with id. § 64a.
16        The Bankruptcy Code introduced greater specificity by naming
17   categories of taxes and transferred the tax provisions to the
18   priorities section, § 507(a).   Now, the discharge exceptions
19   provide only that any priority tax is not discharged.   Compare 11
20   U.S.C. § 523(a)(1), with id. § 507(a)(8) (formerly § 507(a)(6)).
21        The exceptions relating to unfiled, late, and fraudulent
22   returns and willful attempts to evade or defeat taxes remained in
23   the discharge provisions.   Compare Bankruptcy Act §§ 17a(1)(a)-
24   (d), as amended in 1966, with 11 U.S.C. § 523(a)(1)(B)-(C).
25        As relevant here, the trust fund tax provision moved from
26   the discharge section to the priority tax section, with the
27   addition of the phrase “for which the debtor is liable in
28   whatever capacity.”   Compare Bankruptcy Act § 17a(1)(e), as

                                     13
 1   amended in 1966, with 11 U.S.C. § 507(a)(8)(C).8
 2
 3                                   III
 4        The decisional law interpreting the Bankruptcy Code’s
 5   priority tax provisions has focused on categorization because
 6   different categories become stale at different times and whether
 7   particular liabilities — especially workers’ compensation
 8   obligations — are taxes.
 9        One consistent theme in the Ninth Circuit decisions is that
10   the § 507(a)(8) priority categories are not mutually exclusive
11   and not applied mechanically.   Ilko v. Cal. Bd. of Equalization
12   (In re Ilko), 651 F.3d 1049, 1056-57 (9th Cir. 2011), adopting &
13   publishing, No. SC-09-1119 (9th Cir. BAP 2009); Shank v. Wash.
14   Dep’t of Revenue (In re Shank), 792 F.2d 829, 832 (9th Cir.
15   1986); accord, 4 COLLIER ON BANKRUPTCY ¶ 507.11[4] (Alan Resnick &
16   Henry Sommer eds., 16th ed. 2013) (“COLLIER”).
17        Another theme is that responsible officer taxes are
18
19        8
           The 1966 provision excepting trust fund taxes from
20   discharge (which were also entitled to priority) was:

21        which the bankrupt has collected or withheld from others as
          required by the laws of the United States or any State or
22
          political subdivision thereof, but has not paid over.
23
     Bankruptcy Act § 17a(1)(e), as amended in 1966.
24
          The 1978 provision affording priority to trust fund taxes
25   (which are also excepted from discharge) is:
26
          a tax required to be collected or withheld and for which the
27        debtor is liable in whatever capacity.

28   11 U.S.C. § 507(a)(8)(C) (originally § 507(a)(6)).

                                      14
 1   enforceable for any category of priority tax.       Ilko, 651 F.3d at
 2   1057-59 (§ 507(a)(8)(A)(iii)); Shank, 792 F.2d at 832
 3   (§ 507(a)(8)(E)); George v. Cal. Bd. of Equalization (In re
 4   George), 95 B.R. 718, 720-21 (9th Cir. BAP 1989), aff’d mem., 905
 5 F.2d 1540 (9th Cir. 1990) (§ 507(a)(8)(E)); accord, 4 COLLIER
 6   ¶ 507.11[4].
 7          Similarly, not every responsible officer liability is a
 8   trust fund obligation.       Ilko, 651 F.3d at 1056-57; Hansen, 470
9 B.R. at 542-45.
10          Substance controls form.     Thus, a five-part test has emerged
11   for determining what constitutes a § 507(a)(8)(E) priority excise
12   tax.       Lorber, 564 F.3d at 1101-02; George v. Uninsured Employers
13   Fund (In re George), 361 F.3d 1157, 1162-63 (9th Cir. 2004);
14   County Sanitation Dist. No. 2 v. Lorber Indus. of Cal., Inc. (In
15   re Lorber Indus. of Cal., Inc.), 675 F.2d 1062, 1066 (9th Cir.
16   1982).9
17
18                                       IV
19          This brings us back to our decision in Hansen, which the
20   debtors contend is controlling.       It is not.
21
22          9
           The Ninth Circuit test for a § 507(a)(8)(E) excise tax is:
23   (1) involuntary pecuniary burden, regardless of name, laid upon
     individual or property; (2) imposed under authority of
24   legislature; (3) for public purposes, including purposes of
     defraying expense of government or undertakings authorized by it;
25   (4) under the police or taxing power of the state; (5) no private
26   creditor similarly situated to the government can be hypothesized
     under the relevant statute. Lorber, 564 F.3d at 1101-02. The
27   debtors conceded from the outset that the Montana tax is an
     excise tax. Our own review of Montana Code § 39-51-1105 confirms
28   that it is an excise tax under the Lorber test.

                                         15
 1                                     A
 2        Hansen was an unemployment insurance tax case in which a
 3   corporation’s responsible officer under California Unemployment
 4   Insurance Code § 1735 was assessed in March 2004 for underpaid
 5   unemployment insurance taxes.    Administrative litigation was
 6   settled in March 2009.    The responsible officer defaulted after
 7   making six of the eleven contractual installments and filed a
 8   chapter 7 bankruptcy case in January 2010 in which the taxing
 9   authority filed an adversary proceeding seeking determination
10   that the debt was excepted from discharge under § 523(a)(1)(A) as
11   a § 507(a)(8) priority tax.
12        But, the passage of nearly six years between the date of
13   assessment and the date of the Hansens’ bankruptcy posed a stale
14   tax problem.   Unable to persuade the court that the various
15   § 507(a)(8) lookback periods should be tolled during the period
16   of administrative litigation, the taxing authority was reduced to
17   arguing that the unemployment tax qualified as a § 507(a)(8)(C)
18   trust fund tax for which liability is perpetual.
19        The barrier was the “tax required to be collected” element
20   because California unemployment insurance taxes are payable
21   directly by the employer.
22        Our panel rejected the argument that the phrase “tax
23   required to be collected” in § 507(a)(8)(C) meant required to be
24   collected by the taxing authority.    That construction does not
25   square with the legislative history describing trust fund taxes
26   as taxes “which the debtor was required by law to withhold or
27   collect from others.”    Hansen, 470 B.R. at 544.   And, it proves
28   too much — all taxes are “required to be collected” by a taxing

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 1   authority.
 2        Concluding that the unemployment insurance taxes were not
 3   “required to be collected,” our panel held that the taxing
 4   authority had not established the initial essential element for a
 5   § 507(a)(8)(C) trust fund tax.
 6        There being no other basis for § 507(a)(8) status, the tax
 7   debt was discharged as stale.
 8
 9                                     B
10        The debtors contend that they are in the “exact situation”
11   as the debtor in Hansen.   Not so.
12        The debtor in Hansen was a responsible officer who was
13   vicariously liable with respect to non-trust fund unemployment
14   insurance taxes that were stale under § 507(a)(8)(E) because they
15   were more than three years old.
16        The debtors in this appeal are responsible officers who are
17   vicariously liable with respect to non-trust fund unemployment
18   insurance taxes that are not stale under § 507(a)(8)(E) because
19   they were less than three years old.   Therein lies all the
20   difference.
21        Since the Hansens’ unemployment tax debt was too stale for
22   the § 507(a)(8)(E) priority, the state’s only possible route to
23   priority status and the concomitant exception to discharge was
24   the § 507(a)(8)(C) trust fund theory that has no time limit.    The
25   insurmountable problem for the state was that the facts did not
26   satisfy the essential element for a trust fund tax that the tax
27   must have been withheld from or collected from third parties.
28   Hansen, 470 B.R. at 44-45.   Hence, the unemployment insurance tax

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 1   was not entitled to priority status and was dischargeable.
 2
 3                                     C
 4        The debtors’ negative inference argument assumes that the
 5   various § 507(a)(8) priorities are mutually exclusive.    But Ninth
 6   Circuit precedent teaches that the categories are not mutually
 7   exclusive.   Ilko, 651 F.3d at 1056-57; Shank, 792 F.2d at 832;
 8   accord, 4 COLLIER ¶ 507.11[4].
 9        This brings the analysis back to the Supreme Court’s Sotelo
10   decision.    The salient point is that the Court did not construe
11   the responsible officer “penalty” in the Internal Revenue Code as
12   being outside the priority tax provision.   Since there was no
13   mention of responsible officer liability in the Bankruptcy Act,
14   the Court could have applied a narrow construction to deny
15   priority status to responsible officer liability.    Instead,
16   preferring substance over form, it concluded that the responsible
17   officer liability that the tax statute termed a “penalty” was for
18   taxes for purposes of bankruptcy law.   Sotelo, 436 U.S. at 275.
19        It follows that the Montana statute imposing responsible
20   officer liability on the debtors is, itself, a tax.    Sotelo, 436
21 U.S. at 275; George, 95 B.R. at 720-21.
22        The question becomes, what category of tax?    The answer is
23   the same category as the underlying corporate tax — a
24   § 507(a)(8)(E) excise tax.
25        The rationale, which originates with Sotelo, is twofold.
26   First, it should not matter whether an individual operates as a
27   sole proprietorship or through a corporation.   Sotelo, 436 U.S.
28   at 281-82.   Second, to hold otherwise would function as an

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 1   incentive to cause a corporation to default on tax obligations.
 2   Sotelo, 436 U.S. at 280-81; Shank, 792 F.2d at 832; George, 95
3 B.R. at 720-21.   We cannot ignore those precedents.
 4
 5                               Conclusion
 6        The liability imposed upon corporate responsible officers by
 7   Montana Code § 39-51-1105 is a tax that has the same status as
 8   the underlying corporate tax for purposes of § 507(a)(8).    Here,
 9   it is an “excise” tax under § 507(a)(8)(E) entitled to priority
10   during the three-year period specified in that subsection.   As
11   the corporation was not required to collect or withhold the tax
12   from others, it is not a § 507(a)(8)(C) trust fund tax.
13        Accordingly, we AFFIRM the order of the bankruptcy court.
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