703 F.2d 1030 (7th Cir. 1983), 82-1882, Muntwyler v. United States

Docket Nº:82-1882.
Citation:703 F.2d 1030
Party Name:Fredric C. MUNTWYLER, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
Case Date:March 31, 1983
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 1030

703 F.2d 1030 (7th Cir. 1983)

Fredric C. MUNTWYLER, Plaintiff-Appellee,

v.

UNITED STATES of America, Defendant-Appellant.

No. 82-1882.

United States Court of Appeals, Seventh Circuit

March 31, 1983

Argued Dec. 6, 1982.

Page 1031

William A. Whitledge, Dept. of Justice, Tax Div., Washington, D.C., for defendant-appellant.

Paul Horowitz, Chicago, Ill., for plaintiff-appellee.

Before CUMMINGS, Chief Judge, PELL, Circuit Judge, and HOFFMAN, Senior District Judge. [*]

PELL, Circuit Judge.

The United States appeals from a decision of the district court awarding appellee Fredric C. Muntwyler (taxpayer) a refund of $1288.30 plus interest for overpayment of taxes. The court ruled that the assignee of the assets of the taxpayer's corporation was entitled to direct that the tax payments he made to the Internal Revenue Service (IRS) be applied to trust fund tax liabilities because the payments were voluntary. The Government contends that the payments were involuntary and thus that the IRS was not bound by the assignee's directions and could apply the payments to non-trust fund tax liabilities.

I. FACTS

Fredric C. Muntwyler was the president, treasurer, director, and majority shareholder of Air Mid-America Airlines for the period relevant to this case. Air Mid-America was an Illinois corporation formed in 1968. Beginning in late 1972, the company suffered financial losses and ceased doing business in May 1973. Because of these problems, the company failed to pay certain employees' withholding taxes (trust fund taxes) and excise taxes (non-trust fund taxes).

On June 13, 1973, the company assigned all of its assets to Bernard C. Chaitman, who served as a trustee for the benefit of Air Mid-America's creditors. Chaitman was authorized to collect debts payable to the company, sell the company's interests in the assigned assets, and pay the claims of the company's creditors.

In August 1973, the IRS filed a claim with Chaitman for unpaid corporate taxes totalling $32,242.47, representing both trust fund and non-trust fund liabilities. On August 25, 1973, Chaitman presented three checks to the IRS, totalling $12,132.93, all of which directed that they be applied to the trust fund portion of the tax liabilities. The Service accepted the checks but refused to honor the directions for application of the money to the trust fund liability; instead, it allocated the entire amount to the non-trust fund liability.

On November 3, 1976, the IRS assessed the taxpayer $18,633.21 in trust fund taxes and, on November 15, $1,030.02 in non-trust

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fund taxes. On April 15, 1977, the IRS credited the taxpayer's $13,526 unrelated 1976 overpayment to the withholding liabilities. On May 5, 1977, the taxpayer paid $1288.30 toward the tax liabilities, and then filed a claim for a refund. On June 6, 1980, after the IRS rejected his claim for refund of the $1288.30, the taxpayer brought this action for refund in the United States District Court for the Northern District of Illinois. On December 22, 1980, the taxpayer filed a second claim for refund with the IRS, seeking to collect the...

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