Lawyers Blaming Lawyers: A Trust Fund Tax Tale

Spizz-v.-United-StatesEmployers serve as tax collectors under the Internal Revenue Code: In addition to paying its own FICA and FUTA obligations, an employer must withhold FICA and income tax from its employees’ pay. See I.R.C. §§ 3102 (FICA “shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid”); 3402 (“every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with tables or computational procedures prescribed by the Secretary”).

For good measure, Congress included a mechanism to ensure compliance; if an employer fails to withhold and pay over the tax, responsible parties affiliated with the employer can be assessed with the trust fund recovery penalty under section 6672 of the Code, which makes these individuals liable if they willfully fail to assure that the taxes are paid.… Read More

Trust Fund Taxes: Trust Fund Tax Payments Are Not Preferences Under the Bankruptcy Code.

When a company files a bankruptcy petition, a variety of potential claims against its creditors arise under the Bankruptcy Code. Preferential transfers are an example; under the Bankruptcy Code, transfers made within ninety days of the bankruptcy filing can be recovered if a creditor received an interest in a debtor’s property on account of a pre-existing debt while the debtor was insolvent, and the transfer of property puts the creditor in a better position than it would have had in a Chapter 7 liquidation. 11 U.S.C. § 547(b). There are some additional nuances, including a longer preference period for insiders and a variety of potential defenses.… Read More