Mazzeo, In re

• Decision Date: 03 December 1997
• Docket Number: Nos. 96-5141,94,D,Nos. 93,s. 93,s. 96-5141
• Citation: 131 F.3d 295
• Parties: 32 Collier Bankr.Cas.2d 38, Bankr. L. Rep. P 77,567 In re Salvatore J. MAZZEO, Debtor. Salvatore J. MAZZEO, Plaintiff-Appellant, v. UNITED STATES of America and New York State, Defendants-Appellees. New York State Department of Taxation and Finance, Creditor, Marianne De Rosa, Trustee. ocket(L), 96-5149.
• Court: U.S. Court of Appeals — Second Circuit

Page 295

131 F.3d 295

32 Collier Bankr.Cas.2d 38, Bankr. L. Rep. P 77,567

In re Salvatore J. MAZZEO, Debtor.

Salvatore J. MAZZEO, Plaintiff-Appellant, v. UNITED STATES of America and New York State, Defendants-Appellees.

New York State Department of Taxation and Finance, Creditor,

Marianne De Rosa, Trustee.

Nos. 93, 94, Docket Nos. 96-5141(L), 96-5149.

United States Court of Appeals, Second Circuit.

Argued Aug. 26, 1997.

Decided Dec. 3, 1997.

Joseph J. Haspel, New City, NY (Stein Riso Haspel & Jacobs, New City, NY, on the brief), for Plaintiff-Appellant.

Michelle B. O'Connor, Attorney, Tax Division, Department of Justice, Washington, DC (Loretta C. Argrett, Assistant Attorney General, Gary D. Gray, Attorney, Tax Division, Washington DC, Zachary W. Carter, United States Attorney, Brooklyn, NY, on the brief), for Defendant-Appellee United States.

Steven U. Teitelbaum, Deputy Commissioner of Taxation & Finance, Kew Gardens, NY (Elizabeth Rosenblum, of counsel), filed a brief for Defendant-Appellee New York State.

Before: KEARSE, McLAUGHLIN, and GODBOLD ^*, Circuit Judges.

KEARSE, Circuit Judge.

Plaintiff Salvatore J. Mazzeo appeals from an order of the United States District Court for the Eastern District of New York, Thomas C. Platt, Judge, affirming an order of the United States Bankruptcy Court for the Eastern District of New York, Dorothy Eisenberg, Judge, which dismissed his petition filed under Chapter 13 of the Bankruptcy Code ("Code"), 11 U.S.C. § 1301 et seq. (1994). The district court ruled that Mazzeo's noncontingent, liquidated, unsecured debts included sums Mazzeo owed defendant United States with respect to his own income taxes and sums that Mazzeo's corporate employer had not paid defendant State of New York ("State") for employee withholding taxes, for which Mazzeo may be held responsible, and that the amount of those debts exceeded the statutory limit set forth in 11 U.S.C. § 109(e) (1994) for eligibility to proceed under Chapter 13. On appeal, Mazzeo contends that his debts to the defendant governments for withholding taxes are contingent and unliquidated, and that his noncontingent liquidated debts do not exceed the limit set by § 109(e). Finding no merit in his contentions, we affirm.

I. BACKGROUND

Most of the pertinent facts are undisputed. During 1993 and 1994, Mazzeo was president of Westfield Financial Corporation ("Westfield" or the "company"); he was also, in the words of his attorney, a "significant" minority shareholder. During that period, Westfield filed quarterly returns with the Internal Revenue Service ("IRS") and the State's Department of Finance. On those returns, an employer is to report the amounts it has withheld from its employees' wages pursuant to its statutory obligations, see 26 U.S.C. § 3402 (requiring withholding for federal income tax); id. § 3102 (requiring withholding of tax imposed by Federal Insurance Contributions Act ("FICA")); N.Y. Tax Law § 671(a) (McKinney Supp.1997) (requiring withholding for State income tax). The employer is also required to state the extent, if any, to which it has remitted the withheld funds to the relevant federal or state taxing authority. The forms state that the signer, to the best of his knowledge and belief, certifies that the information shown on the return is "true, correct and complete."

Quarterly returns filed by Westfield with the State for 1993 and part of 1994 showed that the company had withheld various amounts for State income tax. For the four quarters of 1993 and for the first and third quarters of 1994, the total withheld was $404,492.88. (The record is silent with respect to the other two quarters of 1994.) Each return showed that there were no payments or credits toward the indebtedness, and it is undisputed that these moneys were never paid. The returns were signed by Mazzeo, who thereby certified their correctness.

Westfield also filed quarterly tax returns with the IRS. Its federal return for the first quarter of 1994, signed by Mazzeo under oath, showed the total taxes the company owed the federal government for that period, of which $340,724.93 constituted amounts withheld from employees' wages for federal income tax and FICA. It is undisputed that the withheld amounts were never paid to the United States.

If an employer does not pay withheld taxes as required, both federal and State law impose responsibility for payment on individuals who could have caused the employer to pay those taxes ("responsible-person" liability). The Internal Revenue Code imposes personal liability for such unremitted withholding taxes upon "[a]ny person required to collect, truthfully account for, and pay" the tax, who "willfully fails" to pay it. 26 U.S.C. § 6672(a). Under this section, the responsible individuals include all persons who are "connected closely enough with the business to prevent the [tax] default from occurring," Fiataruolo v. United States, 8 On September 22, 1995, the State sent Mazzeo a notice of deficiency in the amount of $381,451.99 for Westfield's unpaid withholding taxes with respect to 1993 and the first and third quarters of 1994, asserting that Mazzeo, Westfield's president, was a responsible person with respect to those taxes. The State apparently arrived at that amount "by taking the amount of tax due on each of the withholding tax returns signed and filed by Mazzeo and adding these amounts together to arrive at a total tax due of $381,451.99." (State brief on appeal at 11.) Under New York law, the notice of deficiency, unless contested by the filing of a petition for redetermination, was to become an assessment after 90 days. See N.Y. Tax Law §§ 681(b), 689(b) (McKinney 1987). No payment need be made in order to file a petition for redetermination. See generally id. § 689(b). After the notice ripens into an assessment, the State is permitted, on 10-days' notice, to levy on and sell property of the taxpayer to satisfy the tax debt. See id. §§ 681(b), 692 (McKinney 1987). The last day of the 90-day period following the State's mailing of its September 1995 notice of deficiency to Mazzeo was December 21, 1995. On December 21, 1995, rather than filing an objection to the notice of deficiency, Mazzeo filed for protection under Chapter 13 of the Bankruptcy Code.

F.3d 930, 939 (2d Cir.1993) (internal quotation marks omitted); see Hochstein v. United States, 900 F.2d 543, 546 (2d Cir.1990) (all who "have the authority to direct the payment of corporate funds"), cert. denied, 504 U.S. 985, 112 S.Ct. 2967, 119 L.Ed.2d 587 (1992); and "[w]illfully" means simply that the nonpayment of the withheld funds to the government was "voluntary, conscious and intentional--as opposed to accidental," Kalb v. United States, 505 F.2d 506, 511 (2d Cir.1974) (internal quotation marks omitted), cert. denied, 421 U.S. 979, 95 S.Ct. 1981, 44 L.Ed.2d 471 (1975). The State imposes similar individual liability for a company's failure to pay the withheld sums due the State. See N.Y. Tax Law § 685(g) (McKinney 1987) (imposing responsible-person liability); id. § 607(a) (McKinney 1987) (generally adopting federal income-tax-law interpretations for State income-tax-law provisions); Levin v. Gallman, 42 N.Y.2d 32, 33-34, 396 N.Y.S.2d 623, 624, 364 N.E.2d 1316 (1977) (federal definition of "willfully," as used in 26 U.S.C. § 6672, adopted with respect to N.Y. Tax Law § 685(g)).

In his Chapter 13 petition, Mazzeo listed his total assets as $4,800 and his total liabilities as $237,000. As part of the latter sum, the petition indicated that Mazzeo had 66 unsecured creditors, including 63 nonpriority creditors, to whom liability totaling $137,000 was acknowledged, and three priority creditors, including the United States and the State. The petition listed the priority claims of the United States and the State at $50,000 each (numbers Mazzeo's attorney later stated had been "picked ... out of the hat"), and it characterized those claims as "disputed, contingent and unliquidated." The petition did not mention the State's claim for $381,451.99 or the notice of deficiency sent by the State three months earlier.

Defendants eventually filed their respective proofs of claim in bankruptcy court. The State asserted its claim of $381,451.99 as Mazzeo's responsible-person liability under § 685(g) with respect to the employee withholding taxes that Westfield had failed to pay the State. The United States initially asserted a secured claim of $118,657.28 for interest and penalties owed by Mazzeo for the late payment of his own 1984 income tax, the IRS having filed liens with respect to those debts in 1988 and 1993. In light of the representation in Mazzeo's petition that he had only $4,800 in assets, however, that claim was secured only to the extent of $4,800, leaving the United States with an unsecured claim for $113,857.28 with respect to Mazzeo's 1984 tax debt. The United States later amended its proof of claim to add a claim for a total of $989,491.22 in "estimated liability" based on Mazzeo's responsible-person liability under § 6672 for the amount of withheld federal taxes not paid by Westfield. Other claimants also filed proofs of claim that are not pertinent to this appeal.

Mazzeo commenced the present adversary proceeding pursuant to 11 U.S.C. §§ 505(a)(1) and 523(a)(1)(A) (1994) for a determination of, inter alia, the existence and The United States, joined eventually by the State, moved to dismiss Mazzeo's Chapter 13 petition and the adversary proceeding on the ground that his noncontingent, liquidated, unsecured debts exceeded $250,000, and therefore were above the ceiling provided by § 109(e) of the Code for a proceeding under Chapter 13. The United States argued that its claim for a total of more than $1 million was noncontingent and liquidated because all of the events giving rise to Mazzeo's liability had occurred prior to the filing of his bankruptcy petition, and the amount was ascertainable by a simple computation...