United States v. Energy Resources Co Inc
| Citation | 495 U.S. 545,109 L.Ed.2d 580,110 S.Ct. 2139 |
| Decision Date | 29 May 1990 |
| Docket Number | No. 89-255,89-255 |
| Parties | UNITED STATES, Petitioner v. ENERGY RESOURCES CO., INC., et al |
| Court | United States Supreme Court |
The Internal Revenue Code requires employers to withhold from their employees' paychecks money representing the employees' personal income and Social Security taxes. 26 U.S.C. §§ 3102(a), 3402(a). Because employers must hold these funds in "trust for the United States," § 7501(a), the taxes are commonly called "trust fund" taxes. Should an employer fail to pay such taxes, § 6672 authorizes the Government to collect an equivalent sum directly from the employer's officers or employees who are responsible for collecting the tax and are thus commonly referred to as "responsible" individuals. Newport Offshore, Ltd., and Energy Resources Co., Inc., filed separate petitions for reorganization under Chapter 11 of the Bankruptcy Code. In conjunction with reorganization plans which they had approved, both Bankruptcy Courts authorized payments on the federal tax liabilities of the reorganized corporations to be applied to extinguish their trust fund debts before paying off the nontrust fund portions of the liabilities. The Internal Revenue Service (IRS) appealed both cases to the appropriate Federal District Courts, which, respectively, reversed as to Newport Offshore and affirmed as to Energy Resources. Consolidating the two cases, the Court of Appeals in turn reversed the former but affirmed the latter.
Held: A bankruptcy court has the authority to order the IRS to treat tax payments made by Chapter 11 debtor corporations as trust fund payments where the court determines that this designation is necessary for the success of a reorganization plan. Although the Bankruptcy Code does not explicitly authorize such a court to approve reorganization plans designating tax payments as either trust fund or nontrust fund, the orders at issue are wholly consistent with the court's broad authority under the Code to approve plans including "any appropriate provision not inconsistent with . . . this title," 11 U.S.C. § 1123(b)(5), and to "issue any order . . . necessary or appropriate to carry out the [Code's] provisions," § 105. Other Bankruptcy Code provisions protecting the Government's ability to collect delinquent taxes do not preclude the court from issuing such orders, since those restrictions do not address the court's ability to designate whether tax payments are to be applied to trust fund or non-trust-fund liabilities or assure the Government that its taxes will be paid even if the court is incorrect in its judgment that the reorganization plan will succeed. Nor do the orders at issue contravene § 6672 of the Internal Revenue Code—the "responsible" individuals provision—which remains both during and after the corporate Chapter 11 filing as an alternative source for collecting trust fund taxes. By its terms, that section does not protect against the eventuality that, if the IRS cannot designate a debtor corporation's tax payments as nontrust fund, the debtor might be able to pay only the trust fund debt, leaving the Government at risk for non-trust-fund taxes. Pp. 549-551.
871 F.2d 223 (CA1 1989), affirmed.
Alan I. Horowitz, Washington, D.C., for petitioner.
Guy B. Moss, Boston, Mass., for respondents.
In this case, we decide that a bankruptcy court has the authority to order the Internal Revenue Service (IRS) to treat tax payments made by Chapter 11 debtor corporations as trust fund payments where the bankruptcy court determines that this designation is necessary for the success of a reorganization plan.
The Internal Revenue Code requires employers to withhold from their employees' paychecks money representing employees' personal income taxes and Social Security taxes. 26 U.S.C. §§ 3102(a), 3402(a). Because federal law requires employers to hold these funds in "trust for the United States," 26 U.S.C. § 7501(a), these taxes are commonly referred to as "trust fund" taxes. Slodov v. United States, 436 U.S. 238, 242-243, 98 S.Ct. 1778, 1782-1783, 56 L.Ed.2d 251 (1978). Should employers fail to pay trust fund taxes, the Government may collect an equivalent sum directly from the officers or employees of the employer who are responsible for collecting the tax. 26 U.S.C. § 6672. These individuals are commonly referred to as "responsible" individuals. Slodov, supra, at 244-245, 98 S.Ct., at 1783-1784.
This case involves corporations that have filed petitions for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1174. Newport Offshore, Ltd., filed a petition for reorganization on November 13, 1985; the Bankruptcy Court approved a reorganization plan in June 1986, creating Newport Oil Offshore, Inc. Over the IRS' objection, that plan included a provision stating that the reorganized Newport Offshore would pay its tax debts (totaling about $300,000) over a period of about six years and that the payments would be applied to extinguish all trust fund tax debts " 'prior to the commencement of payment of the non-trust fund portion' " of the tax debts owed. In re Energy Resources Co., 871 F.2d 223, 226 (CA1 1989). The IRS appealed to the United States District Court for the District of Rhode Island, which reversed in an unpublished opinion. The debtor then sought review in the Court of Appeals for the First Circuit.
Energy Resources Co., Inc., petitioned for reorganization under Chapter 11 in January 1983. In September 1984, the Bankruptcy Court confirmed a reorganization plan that created a special trust which, among other things, was to pay Energy Resources' federal tax debt of approximately $1 million over roughly five years. In November 1985, the trustee of the special trust sent approximately $358,000 in payment to the IRS. The trustee asked the IRS to apply the money to Energy Resources' trust fund tax debt. After the IRS refused to do so, the trustee successfully petitioned the Bankruptcy Court to order the IRS to apply the money to the trust fund tax liabilities. Id., at 226-227. The IRS appealed this order to the United States District Court for the District of Massachusetts, which affirmed the Bankruptcy Court in an oral opinion. The Government then appealed to the First Circuit.
Consolidating the two cases, the First Circuit reversed in In re Newport Offshore Ltd. and affirmed in In re Energy Resources Co. Id., at 234. The court first considered whether a tax payment made pursuant to a Chapter 11 reorganization plan is "voluntary" or "involuntary" as those terms are used in the IRS' own rules. IRS policy permits taxpayers who "voluntarily" submit payments to the IRS to designate the tax liability to which the payment will apply. See id., at 227, citing Rev.Rul. 79-284, 1979-2 Cum.Bull. 83, modifying Rev.Rul. 73-305, 1973-2 Cum.Bull. 43, superseding Rev.Rul. 58-239, 1958-1 Cum.Bull. 94. The taxpayer corporations argued that tax payments within a Chapter 11 reorganization are best characterized as "voluntary" and therefore that the IRS' own rules bind the agency to respect the debtors' designation of the tax payments. Granting deference to the agency's interpretation of its own rules, the First Circuit accepted the IRS' view that payments made pursuant to the Chapter 11 plan are involuntary for purposes of the IRS' rules. 871 F.2d, at 230. The First Circuit concluded, however, that even if the payments were properly characterized as involuntary under the IRS's regulations, the Bankruptcy Courts nevertheless had the authority to order the IRS to apply an "involuntary" payment made by a Chapter 11 debtor to trust fund tax liabilities if the Bankruptcy Court concluded that this designation was necessary to ensure the success of the reorganization. Id., at 230-234.
We granted certiorari because the First Circuit's conclusion on this issue conflicts with decisions in other Circuits. 493 U.S. 963, 110 S.Ct. 402, 107 L.Ed.2d 369 (1989); see, e.g., In re Ribs-R-Us, Inc., 828 F.2d 199 (CA3 1987). We affirm the judgment below, for whether or not the payments at issue are rightfully consid ered to be involuntary, a bankruptcy court has the authority to order the IRS to apply the payments to trust fund liabilities if the bankruptcy court determines that this designation is necessary to the success of a reorganization plan.
The Bankruptcy Code does not explicitly authorize the bankruptcy courts to approve reorganization plans designating tax payments as either trust...
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