In re Serignese

• Citation: 214 F. Supp. 917
• Decision Date: 05 March 1963
• Docket Number: No. H 2399.,H 2399.
• Court: U.S. District Court — District of Connecticut
• Parties: In the Matter of Michael SERIGNESE, Bankrupt.

214 F. Supp. 917

In the Matter of Michael SERIGNESE, Bankrupt.

No. H 2399.

United States District Court D. Connecticut.

March 5, 1963.

Irving H. Perlmutter, Asst. U. S. Atty., Hartford, Conn., Maurice Adelman, Jr., Atty., Dept. of Justice, Washington, D. C., for petitioner.

Vincent Giedraitis, Hartford, Conn., for trustee.

CLARIE, District Judge.

The United States of America has petitioned the Court for a review of an order entered by the Referee in Bankruptcy. The order complained of disallowed the claim of the United States for a penalty assessed against the bankrupt. The referee disallowed the Government's claim concluding that the bankrupt's liability was (1) a penalty excludable under § 57, sub. j of the Bankruptcy Act, 11 U.S.C.A. § 93, sub. j, and, (2) was not a provable debt existing at the date of adjudication, January 25, 1961, since the penalty was not assessed until July 28, 1961. The petition for review was brought under § 39, sub. c of the Bankruptcy Act, 11 U.S. C.A. § 67, sub. c.

Advance Caterers, Inc., a Connecticut corporation, filed a petition for arrangement under Chapter XI of the Bankruptcy Act on August 31, 1960. Michael Serignese, the bankrupt here, was an officer, stockholder, and manager of the corporation, and under the plan of arrangement, as debtor in possession, the business continued to operate under his supervision. During this period, withholding and social security taxes accrued against Advance Caterers, Inc., for the last two quarters of 1960 and the first quarter of 1961. These taxes were never paid.

At the oral argument before this Court, the Government's attorney stated it was only claiming the taxes for the third and fourth quarters of 1960. The Government did not claim and therefore this Court will not consider the amount of taxes not paid by Advance Caterers, Inc., for the first 25 days of 1961 as being a part of this case. Only the claims regarding the last two quarters of 1960 are in issue.

Michael Serignese, individually, was adjudicated a bankrupt on January 25, 1961. The Director of Internal Revenue, acting under 26 U.S.C.A. § 6672, assessed a penalty against him on July 28, 1961. This penalty equaled the taxes which Advance Caterers, Inc. had failed to pay for the last two quarters of 1960 during the period in which he supervised its activities. The assessment also included the amount of the unpaid taxes for the first quarter of 1961. But as noted above, the Government has abandoned this part of its claim. Hereafter, only the part of the claim for the third and fourth quarters of 1960 will be mentioned although the Government originally claimed the amount for the first quarter of 1961 too. Also on July 28, 1961, notice and demand was made. However, the Director of Internal Revenue did not file a proof of claim until August 3, 1961. This filing was timely since the Government is given six months from the date of the first meeting of creditors to file its proof of claim. Bankr.Act, § 57, sub. n, 11 U.S.C.A. § 93, sub. n. Under § 55, sub. e of the Bankruptcy Act, 11 U.S.C.A. § 91, sub. e, the first meeting of creditors cannot be held until at least ten days after the date of adjudication. Therefore, the filing of the proof of claim on August 3, 1961 was within the allowable statutory period.

The Government's claim is based upon § 6672 of the Internal Revenue Code of 1954 which reads in part:

"Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. * *".

The bankrupt, as the responsible officer of Advance Caterers, Inc., is within the definition of "person" as used in § 6672. See 26 U.S.C.A. § 6671(b).

The amount of the penalty assessed against the bankrupt under § 6672 is "equal to the total amount of the tax * * * not collected, or not accounted for and paid over" by Advance Caterers, Inc. The taxes not paid by Advance Caterers, Inc. for the two quarters in question constitute a pecuniary loss to the Government, because the statutory amounts required to be withheld are credited to and must be allowed as credits to the respective taxpayer-employees. 26 U.S.C.A. § 31.

Section 57, sub. j of the Bankruptcy Act provides:

"Debts owing to the United States or to any State or any subdivision thereof as a penalty or forfeiture shall not be allowed, except for the amount of the pecuniary loss sustained by the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby and such interest as may have accrued on the amount of such loss according to law."

In this instance, the non-payment of the withholding taxes by Advance Caterers, Inc. comprises the Government's actual pecuniary loss; and notwithstanding the fact that the claim were to be construed as a penalty, it is a collectible debt allowable under § 57, sub. j.

"The determination of whether the statute is imposing a penalty or provides for the collection of a pecuniary loss is not without its difficulties. The statute uses the word `penalty' and if accepted liberally, the contention of the trustee would prevail. In determining whether a claim is barred by the Bankruptcy Act because of its penal nature we think it is the duty of the court, where there is an ambiguity, to go back of the statute and determine the effect of the obligation imposed. United States v. Childs, 266 U.S. 304, 305, 45 S.Ct. 110, 69 L.Ed. 299; 50 Am. Jur. 290.

"The purpose of this statute is not to punish but to secure the collection of a fund that has passed into the hands of the employer, which is in the nature of a trust fund, the employer acting as a collecting agency for the United States. This statute would have been just as effective without the use of the word penalty and for this reason it should be construed as making the managing officer of the corporation personally liable if he willfully fails to remit the funds that comes into his hands as such officer. We do not think the statute imposes a penalty not collectible against the bankrupt's estate." In re Haynes, 88 F.Supp. 379, 384 (D.Kan.1949).

It was reasoned by the Referee in Bankruptcy that recent decisions of the Supreme Court of the United States and the District of Connecticut intimate that Haynes was erroneous. Simonson v. Granquist, 369 U.S. 38, 82 S.Ct. 537, 7 L.Ed.2d 557 (1962) and In the Matter of Tom's Villa Rosa, Inc., 198 F.Supp. 137 (D.C.1961) are said to be authority for the proposition that penalties are not in concert with the purpose of the Bankruptcy Act and are not allowed. However, in Simonson, the penalties involved were penalties "on unpaid federal taxes" (9 Cir., 287 F.2d 489), i. e. amounts over and above the unpaid tax. In that case the penalty was more than the loss sustained by the non-payment. Such a penalty punishes for delinquency. The penalty tax in the present matter is merely to recoup the losses due to nonpayment.

Similarly, in Tom's Villa Rosa, the controversy centered on a penalty over and above the amount of the unpaid taxes. The instant case is readily distinguishable. The penalty here does not exact an amount over that lost by the Government in unpaid taxes. It does not unjustly punish other creditors. Therefore, the Court finds that the Government's claim is...