1960 U.S. Tax Ct. LEXIS 66">*66
In 1955, petitioner paid an amount assessed against him by respondent as a "100 per cent penalty" under
34 T.C. 1100">*1101 Respondent determined a deficiency in petitioners' income tax for 1955 in the amount of $ 4,423.51. The question for decision is whether the amount paid by petitioner in 1955 to discharge the liability asserted against him under
FINDINGS OF FACT.
Petitioners, husband and wife residing in Tampa, Florida, filed a joint income tax return for the calendar year 1955 with the district director of internal revenue at Jacksonville, Florida. Benjamin T. Smith will hereinafter be referred to as petitioner.
In 1948, petitioner was president, a director, and a stockholder of Pratt's Fresh Frozen Foods, Inc., a New York corporation. His principal business was the management and operation of that corporation as its president.
On April 13, 1948, a petition for reorganization under chapter X of the Bankruptcy Act was filed by the corporation in the United States District Court for the District of New Jersey. On April 14, 1948, the court entered an order approving the petition as properly filed and appointing David T. Wilentz as1960 U.S. Tax Ct. LEXIS 66">*69 trustee and petitioner as cotrustee. On June 28, 1948, the court ordered that Wilentz be continued as sole trustee.
On January 24, 1949, an order was entered adjudicating the corporation a bankrupt, and on February 9, 1949, the court approved the appointment of Richard G. Rapp as the trustee in bankruptcy. On March 23, 1950, the court entered an order discharging the trustee in bankruptcy, approving his supplemental report, and closing the bankruptcy case.
During the quarters ended March 31, 1948, and June 30, 1948, the corporation withheld income taxes and social security taxes from the wages paid to its employees, and also incurred liability to the United States for F.U.T.A. (Federal Unemployment Tax Act) and F.I.C.A. (Federal Insurance Contributions Act) taxes. The taxes so withheld and the tax liability so incurred were not paid to the United States by the corporation or by its trustees. The liability of the corporation for unpaid withholding, F.I.C.A., and F.U.T.A. taxes was in the amount of $ 9,338.14.
On September 11, 1953, respondent, through his duly authorized representative, timely assessed against petitioner the amount of $ 9,338.14 as a "100 per cent penalty" for 1960 U.S. Tax Ct. LEXIS 66">*70 which petitioner, as responsible officer of the corporation, was allegedly liable under
On December 27, 1954, the district director of internal revenue for the district of Florida issued and mailed to petitioner a Notice of Federal Tax Lien in the amount of $ 9,338.14, which notice, on January 5, 1955, was filed with the clerk of the Circuit Court of Hillsborough County, Florida, where petitioner resides.
On March 21, 1955, after seeking the advice of counsel concerning the Federal tax lien filed against him, petitioner paid to the United States the amount of $ 10,602.52 which included the following items:
$ 9,338.14 | "100 per cent penalty" assessed pursuant to sec. 2707(a), |
I.R.C. 1939. | |
466.85 | "5 per cent delinquency penalty" assessed pursuant to sec. |
3655(b), I.R.C. 1939. | |
795.28 | Assessed interest. |
2.25 | Lien filing and release fee. |
10,602.52 | Total |
The pecuniary loss which petitioner suffered by reason of the aforementioned payment was not compensated for by insurance or otherwise. The1960 U.S. Tax Ct. LEXIS 66">*71 corporation did not engage in business after the close of the bankruptcy case and has not acquired property or assets of any kind since that date, nor has any payment, dividend, or other distribution been made to petitioner from the assets of the corporation.
Petitioner has not filed a claim for refund of the amount paid by him. On his income tax return for 1955, petitioner claimed deductions covering the entire amount of his payment. That portion of the payment representing interest ($ 795.28) was deducted as "Interest on assessment by U.S. Government" and was allowed by respondent. The remaining portion of the payment, in the amount of $ 9,807.25, was claimed as "a fully deductible loss" and was disallowed by respondent.
OPINION.
The question propounded by petitioner is whether he is entitled to deduct, either as a "loss" under
1960 U.S. Tax Ct. LEXIS 66">*73 The corporation of which petitioner was president incurred liability to the United States for unpaid taxes due under the F.I.C.A., F.U.T.A., and withholding provisions of the 1939 Code. The term "F.I.C.A." refers to the Federal Insurance Contributions Act incorporated in sections 1400-1432 of the 1939 Code. The term "F.U.T.A." refers to the Federal Unemployment Tax Act incorporated in sections 1600-1611 of the 1939 Code. The term "withholding" refers to the Current Tax Payment Act of 1943 incorporated in sections 1621-1627 of the 1939 Code.
Section 1400 (F.I.C.A.) provides, in substance, that a tax shall be "levied, collected and paid upon the income of every individual" equal to a percentage of the wages received by him. Sections 1401 (a) and (b) require that the "tax imposed by section 1400 shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid" and that "Every employer required so to deduct the tax shall be liable for the payment of such tax * * *." Section 1410 provides that an additional tax shall be levied as an "excise tax" directly upon "Every employer, with respect to having individuals in his employ," equal1960 U.S. Tax Ct. LEXIS 66">*74 to a percentage of the wages paid by him during the year. Section 1430 makes applicable to F.I.C.A. taxes "All provisions of law, including penalties, applicable with respect to any tax imposed by section 2700 * * *."
Section 1622 (withholding) requires that "Every employer making payment of wages shall deduct and withhold upon such wages a tax" equal to a percentage of the wages paid. Section 1623 provides that "The employer shall be liable for the payment of the tax required to be deducted and withheld under this subchapter * * *." Section 1627 makes applicable to withholding taxes "All provisions of law, including penalties, applicable to the tax imposed by section 1400 * * *."
Section 1600 (F.U.T.A.) provides that "Every employer shall pay * * * an excise tax, with respect to having individuals in his employ," equal to a percentage of the total wages paid by him during the year. Section 1610 makes applicable to F.U.T.A. taxes "All provisions of law (including penalties) applicable in respect of the taxes imposed by section 2700 * * *."
(a) Any person who willfully fails to pay, collect, or truthfully account for and pay over the tax imposed by section 2700(a), or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected, or accounted for and paid over, to be assessed and collected in the same manner as taxes are assessed and collected. No penalty shall be assessed under this subsection for any offense for which a penalty may be assessed under authority of section 3612.
(b) Any person required under this subchapter to pay any tax, or required by law or regulations made under authority thereof to make a return, keep any records, or supply any information, for the purposes of the computation, assessment, or collection of any tax imposed by this subchapter who willfully fails to pay such tax, make such1960 U.S. Tax Ct. LEXIS 66">*76 returns, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $ 10,000, or imprisoned for not more than one year, or both, together with the costs of prosecution.
(c) Any person required under this subchapter to collect, account for and pay over any tax imposed by this subchapter, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this subchapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $ 10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution.
(d) The term "person" as used in this section includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.
Petitioner concedes that
It is true, as petitioner points out, that there is no magic in labels, and that the use of the word "penalty" in
This subdivision corresponds to section 1017(b) of the House bill, except that * * *
1960 U.S. Tax Ct. LEXIS 66">*80 Moreover, the liability imposed by
To permit a taxpayer to deduct a personal liability which specifically attaches to his willful violation of the F.I.C.A., F.U.T.A., and withholding1960 U.S. Tax Ct. LEXIS 66">*81 provisions of the 1939 Code would undoubtedly undermine the effectiveness of those provisions. 3 Such allowance would in effect reduce the amount of that liability by the amount of the tax benefit resulting from the deduction. To that extent, the impact of
1960 U.S. Tax Ct. LEXIS 66">*82 The case of
For the reasons set forth above,
1. Petitioner has made no argument on brief regarding the deductibility of either the "5 per cent delinquency penalty" imposed upon him pursuant to
2. In
3. Congress' continuing concern with the enforcement of the collection and withholding requirements of the revenue laws is evidenced by its enactment in 1958 of Public Law 85-321, sec. 2, 85th Cong., 2d Sess., which added This bill is designed to secure greater compliance with present law on the part of employers and others in paying over to the Government trust fund moneys withheld from employees, or collected from customers. * * * Although the great majority of employers fully comply with the withholding and collection requirements of the internal-revenue laws, the Government has been faced with the problem of a relatively few employers and collection agents who fail to collect and pay over trust-fund moneys representing withheld income and social security taxes and excise taxes on facilities and services. As of December 31, 1956, the delinquent withheld income and social-security taxes alone amounted to $ 279 million. * * * Present law in section 6672 A criminal penalty is also provided by section 7202 of present law
It is anticipated that the passage of this bill will substantially improve revenue collections, but the extent of this improvement is difficult to forecast in advance of experience under these provisions.↩