RESPONDENT: United States
LOCATION: New York Times Office
DOCKET NO.: 423
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Ninth Circuit
CITATION: 376 US 358 (1964)
ARGUED: Mar 03, 1964
DECIDED: Mar 23, 1964
Facts of the case
Media for Bruning v. United States
Audio Transcription for Oral Argument - March 03, 1964 in Bruning v. United States
Number 423, Paul F. Bruning, Petitioner, versus United States.
Ernest R. Mortenson:
Mr. Chief Justice, Associate Justices, may it please the Court.
The matter before us started out as a tax case and then got involved in bankruptcy but it ends up here as a matter involving interest.
The issue is whether or not the Government on a tax deficiency can collect interest after a petition in bankruptcy is filed from the debtor's assets.
This is not a case in which the Government seeks interest on a tax deficiency from the bankruptcy estate.
The Government concedes that it cannot do that because this Court, in City of New York versus Saper, has held that the Government may not collect interest on a tax deficiency accruing after bankruptcy out of the bankruptcy estate.
The case arose in this manner.
Bruning, the petitioner, was doing business as Bruning Construction Company.
During the fourth quarter of 1951, he became in arrears in withholding tax and social security tax in the approximate amount of $4000.
A delinquent tax return was filed and the Government assessed the tax in 1952.
It issued a notice and demand in a formal manner in 1952.
In June of 1953, Bruning filed a voluntary petition in bankruptcy.
Three years later, there were assets in the amount of $700 applied to this tax deficiency.
There was no interest applied because the Saper case, decided by this Court, was in effect at that time.
Since, as I shall explain later, taxes have a priority, the $700 applied to the tax deficiency reduced that deficiency but the general creditors received no dividend.
Bruning, on his 1953 and 1954 income tax returns had overpaid his tax.
He had overpaid his tax on both returns.
And he was entitled to a refund of about $3700.
He filed the claim and the claim was allowed.
The Government then applied this $3700 refund against the withholding taxes and social security taxes that were owed for the fourth quarter of 1951.
There was no notice and demand filed.
The Government simply applied the money.
When the Government did that, it took $795 and applied it to interest on the $3700 deficiency accruing from the date of the bankruptcy in 1953 until the payment or the credit in 1958.
We do not have in question today interest on prebankruptcy tax deficiency.
Both the taxpayer, petitioner, and the Government concede that the Government is entitled to interest on a tax deficiency up to the filing of the petition in bankruptcy.
Now, I want to point out at this time the anomalous situation that the taxpayer is in.
Suppose the tax deficiency is a $100,000 and that is not too unusual in his bankruptcy cases.
In the Mighell case, which is in conflict with the Bruning case below, the tax deficiency was $78,000.
But if the tax is $100,000, in three years at 6% interest, the interest would be $18,000.