540 B.R. 691
9th Cir. BAP2015Background
- Daniel and Mary Carpenter were officers and owners of Big Sky Fire Protection, Inc., responsible for filing and paying the company’s Montana unemployment insurance taxes.
- Big Sky failed to pay unemployment taxes from Oct. 2011 through June 2013; Montana filed a proof of claim for $78,757.29 asserting § 507(a)(8) priority status (excise tax) against the Carpenters individually under Montana’s "responsible officer" statute (Mont. Code Ann. § 39-51-1105).
- The debtors conceded the corporate unemployment obligation is an excise tax but argued that, as vicariously liable officers, any claim against them is not a § 507(a)(8)(E) excise priority and instead could at best be treated under § 507(a)(8)(C) (trust-fund) language — which they contended does not extend priority to vicarious liability absent the specific "liable in whatever capacity" phrasing.
- The bankruptcy court held the Montana responsible-officer liability is a tax with the same priority as the underlying corporate tax — here an § 507(a)(8)(E) excise tax within the three-year lookback — and allowed the claim as a priority tax claim (except a $125 penalty as general unsecured).
- The debtors appealed, arguing the absence of the "liable in whatever capacity" language in § 507(a)(8)(E) indicates Congress did not intend excise-tax priority to reach vicariously liable individuals.
Issues
| Issue | Carpenter's Argument | Montana's Argument | Held |
|---|---|---|---|
| Whether a corporation’s unpaid unemployment excise tax, enforced against corporate officers under state "responsible officer" law, is a § 507(a)(8)(E) priority claim against those individuals | § 507(a)(8)(E) lacks the § 507(a)(8)(C) "liable in whatever capacity" language; by negative implication vicariously liable officers cannot be subject to excise-tax priority, so claim should be non-priority/stale | Responsible-officer liability is itself a tax that takes the same § 507(a)(8) category as the underlying corporate tax (substance over form); Sotelo and Ninth Circuit precedent allow priority to reach responsible officers | Affirmed: responsible-officer liability is an § 507(a)(8)(E) excise tax entitled to priority for the applicable three-year lookback; not a trust-fund tax |
Key Cases Cited
- United States v. Sotelo, 436 U.S. 268 (Sup. Ct. 1978) (responsible-officer liability treated as tax for bankruptcy purposes)
- Cal. Self-Ins. Sec. Fund v. Lorber Indus. of Cal., 564 F.3d 1098 (9th Cir. 2009) (five-factor test for § 507(a)(8)(E) excise taxes)
- Ilko v. California Bd. of Equalization (In re Ilko), 651 F.3d 1049 (9th Cir. 2011) (§ 507(a)(8) categories are overlapping; priority may reach responsible officers)
- Cal. Emp. Dev. Dep’t v. Hansen (In re Hansen), 470 B.R. 535 (9th Cir. BAP 2012) (unemployment contributions not trust-fund taxes because not "required to be collected or withheld")
- George v. Uninsured Employers Fund (In re George), 361 F.3d 1157 (9th Cir. 2004) (responsible-officer liability can be treated as excise tax priority)
- Shank v. Washington Dep’t of Revenue (In re Shank), 792 F.2d 829 (9th Cir. 1986) (priority analysis should focus on substance; responsible-officer liabilities enforceable across priority categories)