In re Frank
| Decision Date | 13 January 1939 |
| Parties | In re FRANK. |
| Court | U.S. District Court — Southern District of New York |
Krause, Hirsch & Levin, of New York City, for trustee.
Lamar Hardy, U. S. Atty., of New York City (Samuel Brodsky, Asst. U. S. Atty., of New York City, of counsel), for the United States.
The government filed claim against a bankrupt estate for $536.74 and interest, for tax liability under the Social Security Act, 42 U.S.C.A. § 301 et seq. The trustee in bankruptcy conceded that the claim was entitled to the priority given to taxes by section 64b of the Bankruptcy Act, 11 U.S.C.A. § 104(b). But the government demanded a better position for part of the claim. It asserted that to the extent of $96.23, the amount withheld by the bankrupt from her employees as their tax, there was a trust or lien attaching to the entire assets of the estate. The $96.23 admittedly could not be identified or traced into any specific property that came into the trustee's hands. The referee rejected the claim of a trust or lien against the entire estate.
The Social Security Act, in section 801, 42 U.S.C.A. § 1001, imposes a tax on employees of a percentage of their wages. By section 802, 42 U.S.C.A. § 1002, the tax . By section 807, 42 U.S.C.A. § 1007, certain provisions of the Revenue Act of 1934, among them section 607, are made applicable to the tax on employees. Section 607 of the Revenue Act of 1934, 26 U.S.C.A. § 1551, on which the government places its reliance, provides:
In this case the bankrupt withheld $96.23 from her employees for their tax. She did not place the money in a special account or deposit. She used it as her own in her business, and the money cannot now be traced or followed into any particular property or asset in the bankrupt estate.
The government's argument is that by force of section 607 of the Revenue Act of 1934 it has what in effect is a lien on the entire estate of one who is required by law to collect or withhold any tax from another person and who fails to make the required payment to the government. I find no merit in the argument. There are a number of instances in the tax law where the duty of collecting or withholding a tax in behalf of the government is cast upon a person. The courts had held that the collecting or withholding agent became a debtor to the taxing unit and that on his bankruptcy a claim for the taxes collected or withheld was not entitled to priority. See In re...
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