United States v. Energy Resources Company, Inc.

PETITIONER: United States
RESPONDENT: Energy Resources Company, Inc.
LOCATION: San Jose, California

DOCKET NO.: 89-255
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the First Circuit

CITATION: 495 US 545 (1990)
ARGUED: Mar 19, 1990
DECIDED: May 29, 1990

Alan I. Horowitz - on behalf of the Petitioner
Guy B. Moss - on behalf of the Respondent

Facts of the case


Media for United States v. Energy Resources Company, Inc.

Audio Transcription for Oral Argument - March 19, 1990 in United States v. Energy Resources Company, Inc.

William H. Rehnquist:

We'll hear first this morning in Number 89-255, United States against Energy Resources Co.--

Mr. Horowitz.

Alan I. Horowitz:

Thank you, Mr. Chief Justice, and may it please the Court:

This case involves two different bankruptcy court disputes that were consolidated on appeal in the First Circuit.

They present a single issue: whether the bankruptcy courts erred in ordering the IRS to apply the periodic payments of priority taxes that are required under a Chapter 11 reorganization plan, applying those payments first to satisfy the debtor corporation's trust fund tax liability.

That is, the withholding tax liability for which the corporation's responsible officers are separately and personally liable.

This order prevents the IRS from applying any of these periodic payments to the corporation's other, nontrust fund tax liabilities, for which there is no other source of collection, until the trust fund liability is completely satisfied.

In the absence of this court order, the IRS would apply the periodic payments in the reverse manner, in accordance with its usual practice.

As the court of appeals frankly acknowledged--

Byron R. White:

Is there some basis in law for the IRS allocation?

They say they have the right to allocate it... they permit the taxpayer to do it with voluntary payments.

Alan I. Horowitz:

--That's... the IRS has a policy of permitting the taxpayers to designate--

Byron R. White:

Well, is there some basis in law for that?

Alan I. Horowitz:

--There is no, there is no legal provision that directs the IRS how to allocate, either voluntary or involuntary or any other kind of payment.

So this policy pretty much comes out of common sense.

It is pretty much the same way--

Antonin Scalia:

The IRS is just big hearted on voluntary payments?

I find that hard to believe.

You really think that you're--

Alan I. Horowitz:

--It's not a question of being--

Antonin Scalia:

--that you're complying with some common law rule?

Alan I. Horowitz:

--It's not a question of being big hearted, I don't think, Justice Scalia.

In a normal commercial setting, when a debtor makes a payment to a creditor and attaches a condition to it, the creditor normally is forced to accept that condition, because if he doesn't do that the debtor can pull back the payment and say look, if you're not going to accept that condition, then I am not going to pay you.

Now, the IRS is not quite in the same position, because it has administrative remedies.

It can assess the tax and go out and levy on it.

But the IRS prefers not to do that.

It prefers to get voluntary payments.

It saves a lot of costs of collection and what not.

So the IRS has a matter of policy of encouraging taxpayers to pay voluntarily, rather than requiring the IRS to go to court or to seize onerous designations of voluntary payments.

Antonin Scalia:

It seems to me there are other penalties for forcing the IRS to go to court.