In re Vallis

• Citation: 97 BR 124
• Decision Date: 15 February 1989
• Docket Number: Bankruptcy No. 87-10264-CJK.
• Parties: In re Michael VALLIS, Debtor.
• Court: United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts

97 B.R. 124 (1989)

In re Michael VALLIS, Debtor.

Bankruptcy No. 87-10264-CJK.

United States District Court, D. Massachusetts.

February 15, 1989.

Bernard P. Rome, Boston, Mass., for debtor.

Jeffrey Ogilvie, Com. of Massachusetts, Dept. of Revenue, Legal Bureau, Cambridge, Mass., for the Com.

ORDER

MAZZONE, District Judge.

After review of the careful and thoughtful analysis contained in the Memorandum, September 8, 1988, I adopt the report and recommendation and ALLOW the motion to abstain.

MEMORANDUM

JAMES M. GABRIEL, Chief Judge.

The matter before the Court is the Debtor's objection to the proof of claim of the Commonwealth of Massachusetts, Department of Revenue (the "Commonwealth"). The Debtor filed a Chapter 13 petition on February 23, 1987. On May 26, 1987, the Commonwealth filed a proof of claim in the amount of $142,884.83. The Debtor by letter date stamped by the Court on August 28, 1987 objected to the Commonwealth's proof of claim on the grounds that the Commonwealth had not assessed any tax liability against the Debtor individually and that most of the Commonwealth's claims were barred by the six year statute of limitations set forth in Mass.Gen.Laws Ann. ch. 260, § 2.

On January 29, 1988, the Commonwealth moved for summary judgment on its claim. In its pleading, which was coupled with the affidavit of John Giamattei, a Senior Tax Examiner for the Department of Revenue, it set forth a claim for $214,564.47 against the Debtor as a responsible officer of Aegean Fare, Inc., a corporation that filed for protection under Chapter 11 of the Bankruptcy Code on October 4, 1983. In its memorandum in support of its motion for summary judgment filed on May 24, 1988, the Commonwealth waived its claim for interest and penalties. It now seeks $116,076.23.

DISCUSSION

Michael Vallis formerly held the offices of clerk and treasurer of Aegean Fare, Inc. He also was a 50% shareholder. The Commonwealth seeks to collect from him taxes on the sale of food imposed upon vendors pursuant to Mass.Gen.Laws Ann. ch. 64H, § 6(f) (the "meals tax") and taxes on wages paid to employees which the employer is required to deduct and pay over to the Department of Revenue pursuant to Mass. Gen.Laws Ann. ch. 62B, § 2 (the "withholding tax"). The liability that the Commonwealth seeks to impose on the Debtor as "a responsible person" is based upon tax returns filed by Aegean Fare, Inc. without payment of the taxes due on the return. Additionally, as a result of a tax audit of Aegean Fare, Inc., the Commonwealth also seeks to collect from the Debtor additional meals tax that it assessed against Aegean Fare, Inc. in April and May of 1981.

Massachusetts statutes imposing personal liability for unpaid corporate withholding and meals taxes define who is a "responsible person." Section 5 of ch. 62B provides:

Every employer who fails to withhold or pay to the commissioner any sums required by this chapter to be withheld or paid shall be personally and individually liable therefor to the commonwealth. The term "employer", as used in this paragraph and in section eleven, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to withhold and pay over taxes in accordance with this section and section two. Any sum or sums withheld in accordance with the provisions of section two shall be deemed to be held in trust for the commonwealth.

Mass.Gen.Laws Ann. ch. 62B, § 5.

Likewise, section 16 of ch. 64H provides: Every person who fails to pay to the commissioner any sums required by this chapter shall be personally and individually liable therefor to the commonwealth. The term "person", as used in this section, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee or member is under a duty to pay over the taxes imposed by this chapter.

Mass.Gen.Laws Ann. ch. 64H, § 16.

However, the Commonwealth has never made an assessment against Michael Vallis personally, and no tax lien has ever been created against him personally on account of Aegean Fare's unpaid meals and withholding taxes. The assessment against Aegean Fare, Inc. is not equivalent to an assessment against the Debtor because the corporation and the "responsible person" are separate legal entities. Heritage Bank for Savings v. Doran, 399 Mass. 855, 507 N.E.2d 690 (1987). Absent an assessment against the responsible party, the tax liability cannot rise to lien status. Id.

The Commonwealth argues that immediately before the Debtor's Chapter 13 filing, it had the right pursuant to Mass.Gen. Laws Ann. ch. 62C, § 31A to make an assessment against the Debtor for all unpaid Aegean Fare meals and withholding taxes, the collection of which was not barred by the statute of limitations. Section 31A provides:

If a person fails to pay to the commissioner any required tax of a corporation or partnership and such person is personally and individually liable therefor to the commonwealth under section five of chapter sixty-two B, section seven B of chapter sixty-four G, section sixteen of chapter sixty-four H or section seventeen of chapter sixty-four I, the commissioner shall so notify such person in writing at any time during the period of time that such assessment against the corporation or partnership remains in existence and unpaid. Such person or his representative may confer with the commissioner or his duly authorized representative as to the assessment of the tax or the proposed determination that he is personally and individually liable therefor within thirty days from the date of such notification. After the expiration of thirty days from the date of such notification, such person shall be personally and individually liable for the tax of the corporation or partnership, which shall be deemed to be assessed against such person, and a lien under section fifty upon all property and rights of property, whether real or personal, belonging to such person shall arise in favor of the commonwealth.

If such person is aggrieved by the assessment of the tax or the determination that he is personally and individually liable therefor, he may apply, in writing to the commissioner, on a form approved by him, for an abatement thereof at any time within the dates provided in section thirty-seven or within sixty days from the date of the notice under this section, whichever is later. All provisions of sections thirty-seven to thirty-nine, inclusive, shall apply to such application for abatement.

Mass.Gen.Laws Ann. ch. 62C, § 31A (added by 1985 Mass.Acts ch. 593, § 17) (emphasis supplied).

Section 31A became effective on December 18, 1985. See Heritage Bank for Savings v. Doran, 399 Mass. 855, 861 n. 9, 507 N.E.2d 690 (1987). Section 48 of chapter 593 of the Acts and Resolves of the 1985 legislative session made it applicable "to all state taxes due on or after its effective date." 1985 Mass.Acts ch. 593, § 48. See also 1986 Mass.Acts ch. 488, § 65 ("Section 17 section 31A shall apply to all state taxes remaining unpaid on or after its effective date").

Parenthetically, section 50 provides in relevant part:

(a) If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount, including any interest, additional amount, addition to tax, assessable penalty or forfeiture, together with any costs that may accrue in addition thereto, shall be a lien in favor of the commonwealth upon all property and rights to property, whether real or personal, belonging to such person. The lien shall arise at the time the assessment is made or deemed to be made and shall continue until the liability for the amount assessed or deemed to be assessed is satisfied. Said lien shall in any event terminate not later than six years from the date it was created.

Mass.Gen.Laws Ann. ch. 62C, § 50.

In short, section 31A authorizes the Commonwealth to notify the alleged responsible person in writing at any time during the period of time that an assessment against a corporation remains in existence and unpaid. The assessment against the responsible party arises 30 days after written notice unless the individual demonstrates that he was not under a duty to act for the corporation in filing its tax returns and paying its taxes.

According to the Commonwealth, the only collection mechanism available to it after it was stayed by the Debtor's bankruptcy filing, see 11 U.S.C. § 362(a), was the filing of a proof of claim. In its view, the filing of its proof of claim satisfied the "written notice" requirement of section 31A without violating the automatic stay. The Commonwealth asserts that although the Debtor may raise defenses to the tax claim in the Bankruptcy Court its failure to assess the claim prior to bankruptcy is not a valid defense in view of the Code's broad definition of claims. See 11 U.S.C. § 101(4).

A critical issue in the case is the applicable statute of limitations. The Debtor, on the one hand, relies on the six year limitation for commencing civil actions in contract, Mass.Gen.Laws Ann. ch. 260, § 2, and the six year limitation for a tax lien, Mass.Gen.Laws Ann. ch. 62C, § 50. Under the Massachusetts tax lien statute, a lien arises at the time of assessment and has a life of six years from the date of assessment. The Commonwealth asserts that any reliance by the Debtor on that statute of limitations is irrelevant because there was never an assessment against the Debtor so there was no lien. The Court agrees.

With respect to the six year statute of limitations for contracts, the Superior Court in Mayo v. Commissioner, CA No. 62769 slip op. (Massachusetts Superior Court, July 28, 1983), determined that the Commissioner acted improperly in unilaterally adjudicating the tax payer's liability as a responsible party and levying on his bank accounts. The Court stated:

Whether a specific individual officer or employee of a corporation is,

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