545 B.R. 447
Bankr. D.P.R.2016Background
- Debtor (Rosa A. Montalvo / Rosa Amelia Morillo Serrano) filed Chapter 13 on Sept. 19, 2013; she was President of Jet Center, Inc., a corporation that became administratively cancelled.
- Puerto Rico Treasury filed Claim #12-1 for $62,633.38: $42,094.70 asserted as priority under 11 U.S.C. § 507(a)(8)(C) (withholding/trust-fund taxes and two NSF checks) and $20,538.68 as general unsecured (corporate taxes and penalties).
- Debtor objected, arguing she is not personally liable because (a) the taxes were corporate liabilities of Jet Center, Inc., (b) the 1994 Puerto Rico Code (applicable to years 2000–2010) did not impose personal liability on officers for withheld taxes, and (c) 2011 Code provisions imposing officer liability are inapplicable retroactively.
- Treasury argued the Debtor, as corporate president/officer, was responsible for withholding and remitting trust-fund taxes under 11 U.S.C. § 507(a)(8)(C) and Puerto Rico law (1994 Code § 6180 and related provisions), making them priority claims.
- Parties filed cross motions for summary judgment after discovery; the undisputed material facts included Debtor’s officer role, the tax years in dispute, and the character of the claimed taxes (withholding, employer, corporate, and NSF checks).
Issues
| Issue | Debtor's Argument | Treasury's Argument | Held |
|---|---|---|---|
| Whether the claimed withholding taxes are "trust fund" taxes under 11 U.S.C. § 507(a)(8)(C) | Taxes were corporate obligations of Jet Center, Inc., not trust-fund liabilities of Debtor | Withheld income and 7% source-withholding qualify as trust-fund taxes; all statutory elements satisfied | The income-withholding and 7% source-withholding meet the five-factor test and are trust-fund taxes |
| Whether Debtor (as corporate president) is personally liable under Puerto Rico law (1994 Code) for trust-fund taxes withheld but not remitted | 1994 Code § 6180 does not impose personal liability on officers; officer liability is only explicit in 2011 Code | 1994 Code (sections 6057, 6141/1141, 1143 and regulations) defines "person" to include officers/employees and imposes liability to remit withheld taxes | Debtor is personally liable for the trust-fund withholding taxes under the 1994 Code interpretations; corporate veil does not shield officer |
| Scope/amount of allowable priority claim under § 507(a)(8)(C) | All amounts in Claim #12-1 are priority trust-fund taxes | Priority should attach only to trust-fund components; corporate taxes and NSF checks are not trust-fund taxes | Treasury’s priority claim is limited to $30,856.06 (trust-fund withholding portion); remaining amounts (corporate taxes, NSF checks) are not priority |
| Appropriateness of summary judgment | Debtor argued no genuine issue of material fact; entitled to judgment as a matter of law | Treasury argued facts and law support its priority claim and officer liability | Court denied Debtor’s summary judgment; granted Treasury’s cross-motion in part and denied in part (triable issues resolved in Treasury’s favor as to trust-fund taxes and officer liability; amount limited) |
Key Cases Cited
- In re Calabrese, 689 F.3d 312 (3d Cir.) (trust-fund taxes are nondischargeable and not time-limited under § 507(a)(8)(C))
- Ill. Dep’t of Revenue v. Hayslett/Judy Oil, Inc., 426 F.3d 899 (7th Cir.) (framework for identifying trust-fund taxes collected from third parties)
- Rosenow v. Ill. Dep’t of Revenue, 715 F.2d 277 (7th Cir.) (sales/use taxes can qualify as trust-fund obligations)
- United States v. Sotelo, 436 U.S. 268 (U.S.) (officer liability analog under federal trust-fund penalty provisions)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S.) (summary judgment legal standard)