Court Opinion

ID: 9456014
Source: CourtListenerOpinion
Date Created: 2023-08-04 19:40:01.38824+00
Date Added: 2024-06-11T17:34:49.590770
License: Public Domain

ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC
PER CURIAM:
On petition for rehearing Newsome’s attorneys state: “On these facts, the Court’s opinion, reversing the district court, imposes personal liability on New-some for the payroll taxes withheld for the fourth quarter of 1961 in the amount of approximately $31,000.” That is not accurate. The amount of the judgment was left to be determined on remand. (See footnote 16 at close of original opinion.)
As their first point, petitioner’s attorneys urge: “The Court has patently erred in construing Section 7501 [of Title 26, U.S.C.] to create a trust fund of withheld taxes.” They argue in support as follows:
“Section 7501 provides, as was provided in the original enactment in 1934, that withheld taxes ‘shall be held to be a special fund in trust for the United States.’ It is crucial to note that the statute says such taxes ‘shall be held to be a special fund in trust’ not ‘shall be held as a special fund in trust.’ The difference in language was intentional, for the predecessor of Section 7501 was enacted for the explicit purpose of providing the United States with a priority in an insolvency proceeding, the language being explicitly directed to courts involved in those insolvency proceedings, i.e., cash in an amount equal to the withheld taxes shall ‘be held [by the courts] to be a special fund in trust,’ and, upon that basis the United States would have a prior claim.” (Emphasis is that of petitioner’s attorneys.)
This argument is startling. We had not thought that Congress either would or could direct the courts what to hold, and we remain far from convinced. The normal way for Congress to accomplish any such purpose would be actually to impress the withheld taxes with a trust in favor of the United States. The legislative history of Section 7501(a) confirms that this was precisely what the Congress intended to do. That history was well stated by Judge Hastings for *750the Seventh Circuit in In re Halo Metal Products, Inc., 1969, 419 F.2d 1068, 1072:
“The Senate Committee Report, S.Rep. No. 558, 73d Cong., 2d Sess., p. 53, noted:
“ ‘Under existing law the liability of the person collecting and withholding the taxes to pay over the amount is merely a debt, and he cannot be treated as a trustee or proceeded against by distraint. Section [7501(a)] * * * impresses the amount of taxes withheld or collected with a trust and makes applicable for the enforcement of the Government’s claim the administrative provisions for assessment and collection of taxes.’
The Conference Report, H.Conf.Rep. No. 1385, 73d Cong., 2d Sess., p. 32, reflected' the same purpose:
“ ‘This amendment impresses taxes collected or withheld with a trust in favor of the United States and makes applicable for the enforcement of the Government’s claim the administrative provisions applying to the assessment, collection, and payment of taxes.’ ”
Our original opinion (footnote 6) pointed out that the legislative history (and Treasury Regulations) also made clear “that ‘person’ as used in section 7501 is the corporation (or other employer) collecting or withholding the taxes-— not its officers. S.Rep.No. 558, 73d Cong., 2d sess., p. 53, 1939 1 Cum.Bull. (Part 2) 586, 626; Treasury Reg. 301.-6672-1.” at 745. As to the “willfulness” requirement, we held that the responsible officer “subjects himself to liability under 6672 when he voluntarily and consciously ‘risks’ the withheld taxes in the operation of the corporation, and subsequently the corporation is unable to remit the withheld taxes.” at 746.
In their point 2, petitioner’s attorneys attack that holding as follows:
“Restated, until the instant decision, all courts of appeals have consistently held that there can be no willful failure to pay over payroll taxes to the Government unless (1) the corporate officer knows he is put to a choice of paying either general creditors or the Government in circumstances where he knows the corporation cannot pay both and (2) that officer then decides to pay general creditors.”
Similarly in their point 3, petitioner’s attorneys urge: “The prior decisions of this Court, heretofore cited, with clarity and uniformity established that a willful failure under Section 6672 involves a conscious preference of another creditor over the Government.”
The attorneys are simply mistaken. It is true that a conscious preference of another creditor over the United States is the usual way by which a “person” becomes liable for the penalty prescribed by Section 6672. In such cases only the third and final step described in the statute, failure “to pay over the tax,” is necessarily involved. The statute covers also the failure (1) “to collect such tax” and (2) “to truthfully account for” the tax so collected. If a “person” willfully fails to perform either (1) or (2), then there is no money to pay over. Hence, if Section 6672 is so construed as to limit liability for the penalty to a willful failure to pay the tax, the result in cases where there had been a failure to perform either (1) or (2) would be like locking the door of an empty garage.
Contrary to the argument of petitioner’s attorneys, this is not the first decision in which the trust fund theory of Section 7501 has resulted in liability under Section 6672. E.g., see United States v. Hill, 368 F.2d 617, 621 (5 Cir. 1966); Monday v. United States, 421 F.2d 1210, 1211, 1214 (7 Cir. 1970).
We find no merit in Newsome’s petition for rehearing. The Petition for Rehearing is denied and the Court having been polled at the request of one of the members of the Court and a majority of the Circuit Judges who are in regular active service not having voted in favor of it (Rule 35, Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12), the Petition for Rehearing En Banc is also denied.