United States v. Energy Resources Co. Inc.
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.
WHITE, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, MARSHALL, STEVENS, O'CONNOR, SCALIA, and KENNEDY, JJ., joined. BLACKMUN, J., dissented.
Alan I. Horowitz, Washington, D.C., for petitioner.
Guy B. Moss, Boston, Mass., for respondents.
Justice WHITE delivered the opinion of the Court.