In re Pierce, Bankruptcy No. 588-50514-7
Decision Date | 22 June 1990 |
Docket Number | Adv. No. 590-5010.,Bankruptcy No. 588-50514-7 |
Parties | In re Richard A. PIERCE, Debtor. Richard A. PIERCE, Plaintiff, v. The STATE OF TEXAS and the Texas State Employment Commission, Defendants. |
Court | U.S. Bankruptcy Court — Northern District of Texas |
Hollis Webb, Jr., Baker, Clifford, Krier & Webb, Lubbock, Tex., for debtor.
John Mark Stern, Asst. Atty. Gen., Austin, Tex., for Commission.
Richard A. Pierce (Debtor) seeks to discharge employment taxes owed to the State of Texas for the benefit of the Texas Employment Commission (Commission). The decision involves the interplay of §§ 507(a)(3) and 507(a)(7)(D) of the Bankruptcy Code.1 The court determines that the taxes are discharged.
The Debtor operated a business known as Regal Building Systems. He filed for relief under Chapter 7 of the Bankruptcy Code on September 13, 1988, and has received his discharge. When he filed his bankruptcy petition, the Debtor owed employment taxes of $5,319.48 arising from wages earned by individuals from the Debtor more than 90 days before the filing of the bankruptcy petition and more than 90 days before the date of cessation of the Debtor's business. The returns on these taxes were all due within three years before the Debtor filed bankruptcy.
Section 523(a) provides that a discharge under § 727 does not discharge an individual debtor from any debt:
Section 507 states the priorities for distribution in a bankruptcy case. The pertinent portions of § 507(a)(7) read as follows:
Section 507(a)(3) reads as follows:
The Debtor asserted that the reference in § 507(a)(7)(D) to paragraph (3) means that the non-dischargeable taxes are only those with respect to wages earned within the appropriate 90 day period. The Commission asserted that the reference to paragraph (3) is simply descriptive of the type of wage, salary or commission and that non-dischargeability extends to all such taxes upon which a return was due within three years prior to the filing of the petition. In effect, the Commission's position is that the reference to paragraph (3) would serve only to add "including vacation, severance, and sick leave pay" to the definition of "wage, salary or commission" while the Debtor's position is that all of the limitations in paragraph (3) including (3)(A) and (B) are applicable.3
This appears to be a case of first impression because neither party has cited an applicable case nor has the court been able to find one.
The reason for the reference to paragraph (3) in § 507(a)(7)(D) is not readily apparent, nor does the legislative history offer any help. The Debtor asserted that the purpose of that language is to limit the non-dischargeable employment taxes to those wages which are entitled to priority. If the court adopts such a reading, however, what is the need for the phrase "for which a return is last due . . . after three years before the date of the filing of the petition?" The Debtor asserted that this language would apply where priority wages are due for a business terminated by the Debtor up to three years before the date the petition is filed.
Phrases similar to "for which a return is last due . . . after three years before the date of the filing of the petition" appear in § 507(a)(7)(A)(i) with respect to income taxes and in § 507(a)(7)(E)(i) with respect to excise taxes. A one year limitation with respect to property taxes is contained in § 507(a)(7)(B) and there is no limit on taxes collected or withheld under § 507(a)(7)(C). There is a one year limit on customs duties in (F).
The statement by Representative Edwards and Senator DeConcini in the Congressional record concerning the Bankruptcy Reform Act of 1978 support the three year limitation:
The employer\'s share of the employment taxes on wages earned before the bankruptcy petition will receive sixth priority to the extent the return for those taxes was last due (including extensions of time) within 3 years before the filing of the petition, or was due after the petition was filed. Older tax claims of this nature will be payable as general claims. In the case of wages earned by employees before the petition, but actually paid by the trustee (as claims against the estate) after the title 11 case commenced, the employer\'s share of the employment taxes on third priority wages will be payable as sixth priority claims and the employer\'s taxes on prepetition wages which are treated only as general claims will be payable only as general claims. In calculating the amounts...
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