United States v. Sotelo

PETITIONER:United States
LOCATION:University Medical Center

DOCKET NO.: 76-1800
DECIDED BY: Burger Court (1975-1981)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 436 US 268 (1978)
ARGUED: Feb 22, 1978
DECIDED: May 22, 1978

Bruce L. Balch – for respondents
Stuart A. Smith – for petitioner

Facts of the case


Media for United States v. Sotelo

Audio Transcription for Opinion Announcement – May 22, 1978 in United States v. Sotelo

William J. Brennan, Jr.:

The opinion of the Court in number 76-1800, United States v. Sotelo will be announced by Mr. Justice Marshall.

Thurgood Marshall:

This case comes to us from the United States Court of Appeals for the Seventh Circuit.

The question here is whether a corporate officer’s liability to the Government for taxes with help from corporate employees is dischargable in bankruptcy.

The Internal Revenue Service filed a bankruptcy claim for taxes that respondent had collected from his corporation’s employees, but had not paid over to the Government.

The Bankruptcy Court held that, respondent was liable for these taxes under the Internal Revenue Code and that this liability was made non-dischargeable by the Bankruptcy Act.

The District Court affirmed, but the Court of Appeals reversed.

It did so largely on the ground that respondent’s liability is termed a penalty by the Internal Revenue Code whereas the Bankruptcy Act’s non-dischargeability provision refers to taxes.

By an opinion filed today with the clerk, we reverse the Court of Appeals.

The penalty language of the court is not dispositive because of funds were unquestionably taxes when collected from the employees.

Congress was particularly concerned about situations in which corporations and their officer’s would be relieved the liability in bankruptcy, while unincorporated small businessman will remain liable for the same type of debt.

Thus both the statutory language and the legislative history support our holding that respondent’s liability is not dischargeable in bankruptcy.

Mr. Justice Rehnquist is probably dissenting opinion in which Mr. Justice Brennan, Mr. Justice Stewart and Mr. Justice Stevens joined.

William J. Brennan, Jr.:

Thank you, Mr. Justice Marshall.