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Begier v. IRS

Supreme Court of the United States

March 27, 1990, Argued ; June 4, 1990, Decided

No. 89-393


 [*55]  [***54]  [**2261]     This case presents the question whether a trustee in bankruptcy may "avoid" (i. e., recover) from the International Revenue Service payments of certain withholding and excise taxes that the debtor made before it filed for bankruptcy. We hold that the funds paid here were not the property of the debtor prior to payment; instead, they were held in trust by the debtor for the IRS. We accordingly conclude that the trustee may not recover the funds.

American International Airways, Inc., was a commercial airline. As an employer, AIA was required to withhold federal income taxes and to collect Federal Insurance Contributions Act taxes from its employees' wages. 26 U.S.C. § 3402(a) (income taxes); § 3102(a) (FICA taxes). As an airline, it was required to collect excise taxes from its customers for payment to the IRS. § 4291. Because the amount of these taxes is "held to be a special fund in trust for the United States," § 7501, they are often called "trust-fund [*56]  taxes." See, e. g., Slodov v. United States, 436 U.S. 238, 241 (1978). By early 1984, AIA had fallen behind in its  [****10] payments of its trust-fund taxes to the Government. In February of that year, the IRS ordered AIA to deposit all trust-fund taxes it collected thereafter into a separate bank account. AIA established the account, but did not deposit funds sufficient to cover the entire amount of its trust-fund tax obligations. It nonetheless remained current on these obligations through June 1984, paying the IRS $ 695,000 from the separate bank account and $ 946,434 from its general operating funds. AIA and the IRS agreed that all of  [***55]  these payments would be allocated to specific trust-fund tax obligations.

 On July 19, 1984, AIA petitioned for relief from its creditors under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq. (1982 ed.). AIA unsuccessfully operated as a debtor in possession for three months. Accordingly, on September 19, the Bankruptcy  [**2262]  Court appointed petitioner Harry P. Begier trustee and converted the case to a Chapter 7 liquidation. 11 U.S.C. § 701 et seq. (1982 ed.). ] Among the powers of a Chapter 7 trustee is the power under § 547(b) 1 to avoid certain payments made by the [*57]  debtor that would "enable a creditor to receive payment of a greater percentage of his  [****11] claim against the debtor than he would have received if the transfer had not been made and he had participated in the distribution of the assets of the bankrupt estate." H. R. Rep. No. 95-595, p. 177 (1977). Seeking to exercise his avoidance power, Begier filed an adversary action against the Government to recover the entire amount that AIA had paid the IRS for trust-fund taxes during the 90 days before the bankruptcy filing.

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496 U.S. 53 *; 110 S. Ct. 2258 **; 110 L. Ed. 2d 46 ***; 1990 U.S. LEXIS 2925 ****; 58 U.S.L.W. 4674; 90-1 U.S. Tax Cas. (CCH) P50,294; 65 A.F.T.R.2d (RIA) 90-1095; 22 Collier Bankr. Cas. 2d (MB) 1080; Bankr. L. Rep. (CCH) P73,403; 20 Bankr. Ct. Dec. 940


Prior History:  [****1]  On Writ of Certiorari to the United States Court of Appeals For the Third Circuit.

Disposition:  878 F.2d 762, affirmed.


taxes, trust-fund, funds, property of the debtor, tracing, property of the estate, withholding tax, withheld, withholding, segregated, collected, held in trust, transferred, legislative history, equitable interest, floor, reasonable assumption, transfer of property, tax obligation, amount of tax, common-law, amounts, remarks, Trusts, courts, wages, special fund, excise tax, funds paid, income tax

Bankruptcy Law, Preferential Transfers, Elements, Preference Periods, Tax Law, Tax Accounting, Retirement Plans, Tax Sheltered Annuities, Case Administration, General Overview, Avoidance, Prepetition Transfers, Preferential Transfers, Bankruptcy, Estate Property, Contents of Estate, Real Property Law, Ownership & Transfer, Equitable Interests, Federal Tax Administration & Procedures, Fiduciaries & Transferees, Tax Credits & Liabilities, Collection of Tax, Federal Excise Taxes, Estimates & Withholding, FICA Deductions, Estate, Gift & Trust Law, Trusts, State & Local Taxes, Estate & Gift Taxes