164 F.2d 26 (8th Cir. 1947), 13590, United States v. Fogarty

Docket Nº13590
Citation164 F.2d 26
Party NameUNITED STATES v. FOGARTY.
Case DateNovember 04, 1947
CourtUnited States Courts of Appeals, Court of Appeals for the Eighth Circuit

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164 F.2d 26 (8th Cir. 1947)

UNITED STATES

v.

FOGARTY.

No. 13590

United States Court of Appeals, Eighth Circuit.

November 4, 1947

Page 27

John E. Garvey, Sp. Asst. to Atty. Gen. (Theron L. Caudle, Asst. Atty. Gen., Sewall Key, Lee H. Jackson, and Helen Goodner, Sp. Assts. to Atty. Gen., and Victor E. Anderson, U.S. Atty., both of St. Paul, Minn., on the brief), for appellant.

Arthur M. Clure, of Duluth, Minn. (E. L. Fogarty, and McCabe, Gruber, Clure, Donovan & Crassweller, all of Duluth, Minn., on the brief), for appellee.

Before GARDNER, WOODROUGH, and RIDDICK, Circuit Judges.

WOODROUGH, Circuit Judge.

This is an appeal by the United States from a judgment in the amount of $1, 491.34 with 6 per cent interest, rendered against it in bankruptcy proceedings in favor of the trustee in the bankruptcy. The judgment is intended to compel payment to the trustee of said sum of $1, 491.34, which the United States is withholding as a partial offset against taxes which the court found to be invalid. The facts were stipulated and we summarize them from our study of the record and the statements of facts made by opposing counsel (which are in conflict in some particulars) as follows:

Summary of Facts.

Inland Waterways, Inc., was a corporation engaged in the shipbuilding business at Duluth, Minnesota, in which it employed about 200 persons. On December 19, 1942, it filed a petition for reorganization under Chapter 10 of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., and Edward L. Fogarty was appointed trustee with authority to continue the operations of the bankrupt until a plan of reorganization was approved or until an adjudication of bankruptcy was made. It was soon ascertained that the continuation of the business was not justified and all the bankrupt's employees were discharged. On June 2, 1945, an adjudication of bankruptcy was made. The bankrupt owed its employees wages earned within ninety days prior to December 19, 1942, not exceeding $600 each, in a total amount of $44, 168.89. These wage claims were allowed by the District Court on May 10, 1946, and assigned first priority for payment under Section 64, sub. a, of the Bankruptcy Act.

At the time it filed its petition, the bankrupt was constructing vessels for the United States Navy. Subsequently, the trustee and the Navy Department agreed in a compromise settlement that there was due the bankrupt on account of uncompleted work the amount of $14, 505.38. On April 23, 1945, the trustee received a check for $10, 972.18, representing the amount of $14, 505.38 minus $3, 533.20 retained by the United States to pay employment taxes on wages paid in 1942 due the United States from the bankrupt in this amount.

Said sum of $3, 533.20 was made up of assessments of so-called 'Title VIII' taxes and so-called 'Title IX' taxes. Claims for these taxes had previously been filed with the trustee by the Collector of Internal Revenue and on May 10, 1946, they were allowed by the District court and assigned a priority for payment second only to the wage claims of $44, 168.89.

On June 2, 1945, when the adjudication of bankruptcy was made, the trustee was ordered to pay a 25 per cent dividend on the labor claims having priority under the bankruptcy law. In June, 1945, the trustee paid wage claimants the amount of $10, 530.38, in respect of wages earned by them as employees of the bankrupt prior to bankruptcy and having priority. The assets thereafter remaining in the trustee's hands will suffice only to provide an additional payment to the wage claimants of not to exceed 20 per cent.

The Collector of Internal Revenue demanded that the trustee file returns for, and pay employment and withholding taxes

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in respect of the $10, 530.38 payment, but he refused to do so. He did, however, supply to the Collector figures and information to assist the Collector to compute the amounts of such claimed taxes and no objection is made as to the methods of computation.

In October, 1945, employment taxes and interest of $209.33 were assessed on the $10, 530.38 payment and in November, 1945, withholding tax and interest of $1, 887.48 were assessed on the payment, the total being $2, 096.81. The Collector filed claims for these taxes as an administrative expense. On December 27, 1945, the Commissioner of Internal Revenue advised the trustee that the amount of $1, 491.34, representing part of the assessments for 1942 totaling $3, 533.20, had been abated and that the amount abated would be credited against any other like taxes which were due, or be refunded. No part of the assessment of 'Title VIII' taxes was abated.

Since the amount of $3, 533.20 had been retained by the United States from the amount owed by it to the bankrupt, the $1, 491.34 so abated was applied by the United States to pay in part its claims for employment and withholding taxes and interest for 1945 which had been assessed, as stated, in October and November, 1945, leaving a balance due the United States on these assessments of $900.44.

Upon these facts the District court concluded that the United States had a valid claim for employment taxes of $2, 041.86 (i.e., $3, 533.20 less $1, 491.34) on wages paid by the bankrupt in 1942 and that it was entitled to collect this amount by deducting it from the amount owed by it to the bankrupt; that the assessments of employment and withholding taxes totaling $2, 096.81 on the dividend payment in June, 1945, of wage claims by the trustee were invalid; and that the United States was not entitled to collect the amount of $1, 491.34 as a partial payment on these assessments. Accordingly, it entered judgment in favor of the trustee against the United States in the amount of $1, 491.34, with interest at 6 percent from April 23, 1945.

The memorandum opinion of the District court is reported at 71 F.Supp. 134. This court has jurisdiction of the appeal under Section 128(a) and (c) of the Judicial Code, as amended, 28 U.S.C.A. § 225(a, c).

Opinion.

The Government assigns error in the trial court's holding that the assessments of employment and withholding taxes in respect to the amounts paid by the trustee in bankruptcy under court order on account of wages earned by bankrupt's former employees prior to bankruptcy were not enforcible against the trustee and were invalid. 1

(1) The Employment Taxes of $209.33 involved here are those imposed by Sections 1400 and 1410 of the Internal Revenue Code, 26 U.S.C.A. They are the federal insurance contributions taxes, originally levied by Sections 801 and 804 of the Social Security Act of 1935, c. 531, 49 Stat. 620. They are referred to generally as 'Title VIII' taxes. The federal unemployment taxes, referred to as 'Title IX' taxes, imposed on employers of eight or more originally by Section 901 of the Social Security Act, and for 1939 and subsequent years by Section 1600 et seq., of the Internal Revenue Code, are not involved in this case. Section 1400 levies a one per cent income tax on wages received in the year 1945 with respect to employment, Section 1401(a) requires the tax to be collected by the employer by deducting the amount of the tax from the wages as and when paid, and Section 1401(b) makes the employer liable for the payment of the tax. 2 Section 1410 levies upon an employer an excise tax, with respect to having individuals in his employ, of one per cent of the amount of wages paid by him during 1945. For purposes of both the employees' and employer's tax, Section 1426(a) defines 'wages' as 'all remuneration

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for employment, ' with certain exceptions not applicable here, and Section 1426(b) defines 'employment' in part as 'any service, of whatever nature, performed after December 31, 1939, by an employee for the person employing him, ' with exceptions for various special types of service not applicable here. 3 The term 'employer' is not specifically defined for purposes of these taxes, and the only definition of 'employee' is that it includes an officer of a corporation. Section 1426(d).

The social security legislation established a broad assistance program for the aged and others and levied the Title VIII and Title IX taxes to supply additional general revenue which when appropriated would yield funds to carry out the program. The constitutionality of the legislation is settled, Helvering v. Davis, 301 U.S. 619, 672, 57 S.Ct. 904, 81 L.Ed. 1307, 109 A.L.R. 1319; Charles C. Steward Machine Co. v. Davis, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. 1279, 109 A.L.R. 1293; United States v. State of New York, 315 U.S. 510, 62 S.Ct. 712, 86 L.Ed. 998; Illinois v. United States, 328 U.S. 8, 66 S.Ct. 841, 90 L.Ed. 1049, and the function of the courts is to apply the provisions so as to effectuate the declared intent of Congress. No part of that intent is made more clearly manifest than that the basis for the administration of federal old age benefits is wages. 'Only those who earn wages are eligible for benefits. The periods of time during which wages were earned are important and may be crucial on eligibility under either the original act or the Amendments of 1939. * * * The benefits are financed by payments from employees and employers which are calculated on wages. The Act defines 'wages' for Old Age benefits as follows: 'Sec. 210. When used in this title- (a) the term 'wages' means all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash, * * * .' Employment is defined thus: '(b) The term 'employment' means any service, of whatever nature, performed within the United States by an employee for his employer, except-.'' Social Security Board v. Nierotko, 327 U.S. 358, 66 S.Ct. 637, 639, 90 L.Ed. 718, 162 A.L.R. 1445. Undoubtedly if the $44, 168.89 of wages here involved had been partially paid to the extent of the $10, 530.38 by the bankrupt itself, it would have been liable for the taxes claimed. Those receiving...

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31 practice notes
  • 242 B.R. 574 (Bkrtcy.E.D.Pa. 1999), 96, In re Main, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Third Circuit
    • December 7, 1999
    ...to the wage claimants, and to the taxing authorities the reports and returns statutorily required of employers. United States v. Fogarty, 164 F.2d 26, 30-33 (C.A.8 1947); United States v. Curtis, 178 F.2d 268, 269 (C.A.6 1949), cert. denied, 339 U.S. 965, 70 S.Ct. 1001, 94 L.Ed. 1374 (1950)......
  • 290 F.Supp. 470 (E.D.N.Y. 1968), 63-C-631, Regan & Co. v. United States
    • United States
    • Federal Cases United States District Courts 2nd Circuit Eastern District of New York
    • June 27, 1968
    ...he has paid for services rendered to the bankrupt. See United States v. Curtis, 178 F.2d 268 (6th Cir. 1949); United States v. Fogarty, 164 F.2d 26, 174 A.L.R. 1284 (8th Cir. 1947). See also Federal Tax Regulations, section 31.3401(d)-1(f) (1968). Section 3401 of the 1954 Code is derived fr......
  • 147 F.Supp. 93 (N.D.Cal. 1956), 42807, In re Blackwood
    • United States
    • Federal Cases United States District Courts 9th Circuit Northern District of California
    • December 26, 1956
    ...did not become payable. A similar problem was before the Court of Appeals for the Eighth Circuit in United States v. Fogarty, 8 Cir., 164 F.2d 26, 174 A.L.R. 1284, where the Trustee's liability for unemployment taxes under the Federal Social Security Act, 26 U.S.C.A. § 1400 et seq. was exam......
  • 371 F.Supp. 224 (N.D.Tex. 1973), Civ. A. 3-3398, Rochelle v. United States
    • United States
    • Federal Cases United States District Courts 5th Circuit Northern District of Texas
    • November 15, 1973
    ...for tax purposes. [9] This holding was not affected in the reversal, on the Government's appeal, of the case. United States v. Fogarty, 164 F.2d 26 (8th Cir. [10] "Sec. 5. Partners .... "(g). The net proceeds of the partnership property shall be appropriated to the payment of the ......
  • Request a trial to view additional results
31 cases
  • 242 B.R. 574 (Bkrtcy.E.D.Pa. 1999), 96, In re Main, Inc.
    • United States
    • Federal Cases United States Bankruptcy Courts Third Circuit
    • December 7, 1999
    ...to the wage claimants, and to the taxing authorities the reports and returns statutorily required of employers. United States v. Fogarty, 164 F.2d 26, 30-33 (C.A.8 1947); United States v. Curtis, 178 F.2d 268, 269 (C.A.6 1949), cert. denied, 339 U.S. 965, 70 S.Ct. 1001, 94 L.Ed. 1374 (1950)......
  • 290 F.Supp. 470 (E.D.N.Y. 1968), 63-C-631, Regan & Co. v. United States
    • United States
    • Federal Cases United States District Courts 2nd Circuit Eastern District of New York
    • June 27, 1968
    ...he has paid for services rendered to the bankrupt. See United States v. Curtis, 178 F.2d 268 (6th Cir. 1949); United States v. Fogarty, 164 F.2d 26, 174 A.L.R. 1284 (8th Cir. 1947). See also Federal Tax Regulations, section 31.3401(d)-1(f) (1968). Section 3401 of the 1954 Code is derived fr......
  • 147 F.Supp. 93 (N.D.Cal. 1956), 42807, In re Blackwood
    • United States
    • Federal Cases United States District Courts 9th Circuit Northern District of California
    • December 26, 1956
    ...did not become payable. A similar problem was before the Court of Appeals for the Eighth Circuit in United States v. Fogarty, 8 Cir., 164 F.2d 26, 174 A.L.R. 1284, where the Trustee's liability for unemployment taxes under the Federal Social Security Act, 26 U.S.C.A. § 1400 et seq. was exam......
  • 371 F.Supp. 224 (N.D.Tex. 1973), Civ. A. 3-3398, Rochelle v. United States
    • United States
    • Federal Cases United States District Courts 5th Circuit Northern District of Texas
    • November 15, 1973
    ...for tax purposes. [9] This holding was not affected in the reversal, on the Government's appeal, of the case. United States v. Fogarty, 164 F.2d 26 (8th Cir. [10] "Sec. 5. Partners .... "(g). The net proceeds of the partnership property shall be appropriated to the payment of the ......
  • Request a trial to view additional results