In re Connecticut Motor Lines, Inc.

• Citation: 223 F. Supp. 189
• Decision Date: 13 August 1963
• Docket Number: No. 25473.,25473.
• Parties: In the Matter of CONNECTICUT MOTOR LINES, INC., Bankrupt.
• Court: U.S. District Court — Eastern District of Pennsylvania

223 F. Supp. 189

In the Matter of CONNECTICUT MOTOR LINES, INC., Bankrupt.

No. 25473.

United States District Court E. D. Pennsylvania.

August 13, 1963.

Marvin Garfinkel, Philadelphia, Pa., for bankrupt.

Drew J. T. O'Keefe, U. S. Atty., Sidney Slakin, Asst. U. S. Atty., Philadelphia, Pa., Louis F. Oberdorfer, Asst. Atty. Gen., Fred B. Ugast, John M. Youngquist, Dept. of Justice, Washington, D. C., for the Government.

GRIM, District Judge.

The question in this petition for review in a liquidating bankruptcy is whether the trustee in making distributions to wage claimants must withhold from the distributions and pay to the government federal income and social security taxes on wages earned, but not paid prior to the adjudication of bankruptcy.

In an opinion filed April 29, 1963, 217 F.Supp. 330, this court decided that withholding taxes on wages earned but not paid at the time of the adjudication can properly be paid to the government in a bankruptcy distribution at the time of distribution of wages to the wage claimants. However, there was uncertainty as to the facts in the case and it was remanded to the Referee to make a finding as to whether the United States had filed a proof of claim for the above-mentioned withholding taxes and a determination of what the effect would be of a possible failure of the United States to file a proof of claim. The Referee now has filed a "Referee's Supplemental Certificate of Review" from which it appears that the United States had not filed a proof of claim for the withholding income and social security taxes involved in this case. The finding is not very clear, but it appears to be an accepted fact in the case that the United States did not file a proof of claim.

The case, therefore, involves the question as to what effect, if any, the failure of the United States to file a proof of claim will have.

In United States v. Fogarty, 164 F.2d 26 (8th Cir. 1947), it was stated that federal income and social security withholding taxes should be paid by the trustee as an administration expense. The question of whether the United States was required to file a proof of claim in order to collect these withholding taxes was not really before the court in the Fogarty case because the government had filed a proof of claim. However, the court's conclusion that this type of tax constitutes an administration expense and should be paid as such seems to be a reasonable one since Section 62, sub. a of the Bankruptcy Act dealing with administration expenses provides, 60 Stat. 329 (1946), 11 U.S.C.A. § 102, sub. a (1):

"The actual and necessary costs and expenses incurred by officers, trustees other than referees, in the administration of estates shall * * * be reported in detail under oath, and examined and approved or disapproved by the court. If approved, they shall be paid or allowed out of the estates in which they were incurred."

There is no time limit on the application of Section 62, sub. a and it would seem that so long as a bankruptcy proceeding is open and sufficient assets remain to pay federal withholding taxes, this section can be applied. The payment of the withholding taxes might well be regarded as "necessary expenses" in the administration of the bankruptcy. Since the withholding taxes become due only when the wages are...