UNITED STATES OF AMERICA, PETITIONER V. A & B HEATING AND AIR CONDITIONING, INC. No. 87-1243 In the Supreme Court of the United States October Term, 1987 The Solicitor General, on behalf of the United States of America, petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Eleventh Circuit in this case. Petition for a Writ of Certiorari to the United States Court of Appeals for the Eleventh Circuit TABLE OF CONTENTS Question Presented Opinions below Statutes involved Statement Reasons for granting the petition Conclusion OPINIONS BELOW The opinion of the court of appeals (App., infra, 1a-9a) is reported at 823 F.2d 462. The order of the district court (App., infra, 13a-15a) is not yet reported. The opinion of the bankruptcy court (App., infra, 16a-21a) is reported at 53 Bankr. 54. JURISDICTION The judgment of the court of appeals (App., infra, 10a-11a) was entered on August 4, 1987. A petition for rehearing was denied on September 10, 1987 (App., infra, 12a). On November 27, 1987, Justice O'Connor extended the time for filing a petition for a writ of certiorari to and including January 23, 1988. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). STATUTES INVOLVED Section 507 of the Bankruptcy Code, 11 U.S.C. (& Supp. IV) 507, provides in pertinent part: Priorities (a) The following expenses and claims have priority in the following order: * * * * * (7) Seventh, allowed unsecured claims of governmental units, only to the extent that such claims are for -- * * * * * (C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity; * * * * * Section 1129 of the Bankruptcy Code, 11 U.S.C. (& Supp. IV) 1129, provides in pertinent part: Confirmation of plan (a) The court shall confirm a plan only if all of the following requirements are met: * * * * * (9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that -- * * * * * (C) with respect to a claim of a kind specified in section 507(a)(7) of this title, the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim of a value, as of the effective date of the plan, equal to the allowed amount of such claim. * * * * * Section 6672 of the Internal Revenue Code, 26 U.S.C. 6672, provides in pertinent part: Failure to collect and pay over tax, or attempt to evade or defeat tax (a) General rule Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, 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 equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable. * * * * * QUESTION PRESENTED Whether payments of priority taxes required as a condition of confirmation of the corporate debtor's Chapter 11 plan of reorganization are voluntary payments that the debtor may designate for application first to the trust fund portion of the taxes, thereby relieving the corporation's responsible persons of their separate liability for those taxes. STATEMENT 1. On February 17, 1984, the Internal Revenue Service (IRS) levied upon and seized certain of respondent's assets to satisfy its assessed and delinquent federal tax liabilities. The assessed taxes consisted of both "trust fund" taxes, i.e., social security and income taxes withheld from the pay of employees and held in trust for the United States pursuant to Section 7501(a) of the Internal Revenue Code (26 U.S.C.), and taxes imposed upon respondent as employer. Respondent thereafter filed a petition for reorganization under Chapter 11 of the Bankruptcy Code (11 U.S.C.). The bankruptcy court granted respondent's emergency complaint for a turnover, ordering the IRS to return the seized property to the bankruptcy estate. App., infra, 1a-2a, 14a. The government filed a proof of claim to collect the taxes in the bankruptcy proceeding, asserting their status as a priority claim. /1/ Respondent ultimately proposed a plan of reorganization providing for payment of its priority tax liabilities over a period not to exceed six years, which is a statutory requirement for confirmation of a Chapter 11 reorganization plan (11 U.S.C. (& Supp. IV) 1129(a)(9)(C)). The proposed plan contained a provision stating that all payments to the IRS "shall be credited first to the trust fund portion of the claim until it is paid in full" (App., infra, 16a). The government objected, inter alia, to the feature of the proposed plan that designated how the IRS should apply the priority tax payments. The government argued that payments of priority taxes under a Chapter 11 reorganization plan are involuntary and therefore that the debtor has no right to specify how the payments are to be applied. App., infra, 2a. The motivation for the government's objection was the concern that, in the event the taxes were not fully paid under the Chapter 11 plan, the designation would operate to reduce the government's total tax recovery. Under Section 6672 of the Code, corporate officers or other persons who are responsible for remitting withheld taxes to the government are personally liable in the amount of unpaid trust fund taxes that they willfully failed to remit. To the extent the corporation satisfies the outstanding trust fund tax liability first, the responsible officers' liability is immediately and permanently reduced. See U.S. Dep't of Treasury, Policy Statement P-5-60, Policies of the Internal Revenue Service Handbook (May 30, 1984), reprinted in (1 Admin.) Internal Revenue Manual (CCH), 1305-15 (1986). Thus, payment of only the trust fund portion of the tax liability by the corporate debtor would eliminate the responsible officers' potential liability, but still leave the government unable to collect the remaining tax liability. Such a partial payment under the Chapter 11 plan accordingly would not ultimately benefit the public fisc. /2/ 2. The bankruptcy court overruled the government's objection (App., infra, 16a-21a). The court recognized that the IRS may allocate delinquent tax payments "as it sees fit" when those payments are "involuntary" (id. at 17a). Distinguishing on their facts other cases that had held that tax payments made in a judicial proceedinig are involuntary, the bankruptcy court held that the Chapter 11 payments are voluntary and thus subject to designation by the corporate debtor. The court stated that, subject to the statutory requirement that the reorganization plan provide for the payment of priority taxes within six years, "(t)he debtor propounding a plan has a number of options with respect to treatment of a claim by the IRS and it is the freedom afforded by these options which dictates the conclusion that payments to the IRS pursuant to a confirmed Chapter 11 plan of reorganization are voluntary" (id. at 20a). The district court affirmed (App., infra, 13a-15a). The district court noted that it was "undisputed that the taxpayer's right to direct the application of payments made to the Internal Revenue Service is dependent upon whether such payments are voluntary" (id. at 14a). The court recognized the existence of contrary authority, but concluded that "the better view is that payments made by a debtor pursuant to Chapter 11 reorganization are voluntary" (id. at 14a-15a). 3. The court of appeals also rejected the government's position (App., infra, 1a-9a). The court first acknowledged the general rule that, "(w)hen * * * a payment is involuntary, the government is free to allocate the payment as it chooses" (id. at 2a). The court also quoted the recognized definition of involuntary in this context (ibid., quoting Amos v. Commissioner, 47 T.C. 65, 69 (1966)): "'An involuntary payment of Federal taxes means any payment received by agents of the United States as a result of distraint or levy or from a legal proceeding in which the Government is seeking to collect its delinquent taxes or file a claim therefor.'" And the court noted that the courts are divided on the question whether tax payments made pursuant to a reorganization plan are voluntary (id. at 2a-5a). The court of appeals regarded the disparity of views on this issue as a "result of the conflicting policies behind the Bankruptcy Code and the Internal Revenue Code" (App., infra, 5a (footnote omitted)). The court referred, on the one hand, to the general policy in favor of collection of all taxes due and to the specific policy embodied in Section 6672 of the Internal Revenue Code to impose personal liability on corporate officers who fail to turn over trust fund taxes to the government (App., infra, 5a-6a). On the other hand, the court noted the Bankruptcy Code's policy to provide for the rehabilitation of bankrupts and, specifically, the court stated that the Bankruptcy Code has a "preference toward reorganization rather than liquidation" (id. at 6a-7a). The court expressed concern that this policy would be undermined if the responsible corporate officers could not use a Chapter 11 designation to shield themselves from Section 6672 liability, because that would reduce the incentive for the officers to make efforts on behalf of the Chapter 11 reorganization (App., infra, 7a). The court therefore concluded (ibid.): "In the absence of an express congressional statement that the Internal Revenue Code is to take priority over the Bankruptcy Code with regard to the allocation of tax payments, we decline to accept the argument of the IRS that all payments made under a Chapter 11 reorganization are involuntary and thus properly allocated by the IRS." The court of appeals held that the designation question should be decided by the bankruptcy court on a case-by-case basis by considering the "'equitable reasons warranting such allocations.'" App., infra, 8a (quoting In re B & P Enterprises, Inc., 67 Bankr. 179, 183 (Bankr. W.D. Tenn. 1986)). /3/ The court stated that the most important factor is "whether the proposed plan is merely a stop gap scheme to hold the taxing authority at bay with little chance that the debtor will fulfill its obligation under the plan" (App., infra, 8a). Accordingly, the court remanded the case to the district court "with directions that the bankruptcy court weigh the impact the proposed allocation would have upon the debtor, Internal Revenue Service, and other creditors" (id. at 8a-9a). The court added (id. at 9a): "Should the bankruptcy court conclude that the interests of all parties would be best served by allowing the debtor to allocate the payment of taxes, then that determination should stand in the absence of abuse of discretion." REASONS FOR GRANTING THE PETITION The court of appeals has erroneously decided an important and frequently recurring question of federal law, in direct conflict with the decision of another court of appeals. The court has held that bankruptcy courts have discretion to allow a corporate debtor's Chapter 11 reorganization plan to contain a provision designating priority federal tax payments under the plan for application first to trust fund tax liability. The decision thus inexplicably holds that payments required by the Bankruptcy Code as a condition of the confirmation of a reorganization plan -- and enforceable by the bankruptcy court -- may be characterized as "voluntary" in some cases (and "involuntary" in other cases) in the discretion of the court. The effect of the court's holding is to sanction the use of Chapter 11 by corporate officers to eliminate their potential liability for delinquent trust fund taxes and thereby undermine the separate source of collection of those taxes that has been established by Congress. As a result, tax payments under Chapter 11 plans would, as a practical matter, first redound to the benefit of the corporate officers, not the government. If the plan were not successfully completed, the government would still be left with an uncollectible non-trust-fund tax claim, while the corporate officers would have been relieved of their trust fund liability to the extent payments have been made. In light of the frequency with which this issue recurs, it is essential that the conflict in the circuits be resolved and a uniform rule established to guide the conduct of Chapter 11 proceedings. 1. The decision below directly conflicts with the decision of the Third Circuit in In re Ribs-R-Us, Inc., 828 F.2d 199 (1987). In that case, as in this one, the government objected to a proposed Chapter 11 plan that provided that payments of priority taxes were to be applied first to the trust fund portion of the outstanding tax liability. The debtor acknowledged that the validity of such a provision turns on whether the priority tax payments are "voluntary" (see 828 F.2d at 201), and the court of appeals categorically held that such payments made pursuant to a Chapter 11 plan are not voluntary. The court emphasized that the payment of priority tax claims within six years is required by statute (11 U.S.C. (& Supp. IV) 1129(a)(9)(C)) as a condition of the confirmation of a Chapter 11 reorganization plan (828 F.2d at 202-203). The court explained that the obligation to pay the taxes is therefore compelled by a court in the bankruptcy proceeding initiated by the filing of a Chapter 11 petition; "following confirmation, the debtor is subject to an express judicial order in a proceeding concerning the obligation in which both the debtor and the United States are parties" (id. at 203). The court further noted that "(t)o interpret payments pursuant to a plan of reorganization as voluntary is inconsistent with the realities of bankruptcy" (ibid.). The Third Circuit therefore concluded that "payments of taxes by a debtor undergoing Chapter 11 reorganization are most realistically classified as involuntary for purposes of the debtor's ability to designate to which taxes the payments should be allocated" (ibid.). The court added that permitting such a designation would be "in derogation of Congress' strong policy, reflected in section 6672, to protect the government's tax revenues by insuring an additional source from which trust fund taxes can be collected" (id. at 204). The Third Circuit in Ribs-R-Us specifically noted the decision of the Eleventh Circuit in this case, and stated that it "respectfully disagree(d)" with it (828 F.2d at 202). The court explained that "whether a payment of taxes made by a debtor in a Chapter 11 reorganization is to be construed as voluntary for purposes of the debtor's ability to designate to which taxes the payment is to be applied is a question of law rather than an issue for the exercise of discretion" (ibid.). And the court also noted the desirability of a uniform rule in these cases so that debtors, creditors, and the government can plan their actions accordingly (ibid.). The Ninth Circuit's recent decision in a slightly different context in In re Technical Knockout Graphics, Inc., 833 F.2d 797 (1987), is also irreconcilable with the decision below. In that case, a debtor that had filed a petition for reorganization under Chapter 11 attempted to designate its tax payments first for application to trust fund taxes, even before the confirmation of its Chapter 11 plan. The court of appeals held that these payments are involuntary and that the bankruptcy court's equitable powers do not permit it to enforce the designation sought by the corporate debtor. The court explained that, once a debtor invokes the protection of the bankruptcy court by filing a Chapter 11 petition, it can no longer claim that its tax payments are voluntary. At that time, "(t)he debtor-in-possession is not free to pay whomever it chooses before the plan is confirmed" (833 F.2d at 803). And, after invoking the assistance of the court to keep its creditors at bay, the debtor "is not free to abuse this system by designating its payments in a way that benefits only its responsible persons, and possibly harms other creditors, including the IRS, without the scrutiny of the court or other creditors" (ibid.). The court's reasoning applies with equal or greater force when the payments are made pursuant to a plan of reorganization confirmed by the bankruptcy court, and therefore there can be little doubt that, contrary to the decision below, the Ninth Circuit would not allow a debtor to designate payments made pursuant to a confirmed Chapter 11 plan. In addition to these court of appeals decisions, the question presented here has been addressed with varying results by numerous lower courts, with appeals currently pending in three courts of appeals. /4/ Thus, there exists a clear conflict in the circuits and considerable disarray in the lower courts on an important and persistently recurring issue. It is therefore essential for this Court to resolve the conflict and provide a uniform rule to guide the lower courts in dealing with attempts by Chapter 11 corporate debtors to protect their officers by designating priority tax payments for application first to trust fund tax liability. 2. The court of appeals below erred in rejecting the government's contention that the corporate debtor may not include in its Chapter 11 reorganization plan a provision requiring the IRS to apply priority tax payments first to the portion of delinquent taxes attributable to trust fund liability. The IRS has long had a policy of permitting taxpayers to designate the application of tax payments that are voluntarily made. See Rev. Rul. 79-284, 1979-2 C.B. 83, modifying Rev. Rul. 73-305, 1973-2 C.B. 43, superseding Rev. Rul. 58-239, 1958-1 C.B. 94. On the other hand, a taxpayer has no right to designate the application of an involuntary payment, which has traditionally been defined as "any payment received by agents of the United States as a result of distraint or levy or from a legal proceeding in which the Government is seeking to collect its delinquent taxes or file a claim therefor" (Amos v. Commissioner, 47 T.C. 65, 69 (1966)). This policy encourages taxpayers to make voluntary payments. See, e.g., Muntwyler v. United States, 703 F.2d 1030, 1032 (7th Cir. 1983). In the specific context involved here, this policy encourages responsible officers prior to bankruptcy to resist the temptation to borrow money from the government's trust fund, i.e., to use taxes that have been withheld from employees' wages to pay other business expenses; instead they are motivated to turn those withheld funds over to the government in a timely fashion. Such voluntary compliance with the trust fund structure avoids the expenditure of government resources on collection by means of administrative levy or judicial proceedings, which, of course, would be involuntary collection that would not permit the taxpayer to make a designation. See, e.g., In re Ribs-R-Us, Inc., 828 F.2d at 201-202; In re Avildsen Tools & Machines, Inc., 794 F.2d 1248, 1251 (7th Cir. 1986). As the Third Circuit concluded in Ribs-R-Us, the statutory scheme governing reorganization proceedings compels the conclusion that priority tax payments under a Chapter 11 reorganization plan are not voluntary, and therefore, under the universally recognized principles summarized above, the debtor cannot direct the IRS how to apply those payments. A Chapter 11 debtor is specifically required by statute to pay all of its priority taxes as a condition of confirmation of its reorganization plan (11 U.S.C. (& Supp. IV) 1129(a)(9)(C)). Once the bankruptcy court confirms the plan, it has the power to compel compliance (11 U.S.C. (& Supp. IV) 105(a), 1112(b), 1142(b)). Thus, while the corporate debtor may have some "latitude" (App., infra, 20a) in some of the details of how it structures its repayment plan, it cannot reorganize its business at all unless it undertakes to pay priority taxes in full within six years. In short, once a debtor decides to avail itself of the protections of Chapter 11, it has no choice but to pay its priority tax obligations; a characterization of such payments as "voluntary" simply cannot be squared with the statutory limitations. Moreover, as the court below recognized (see App., infra, 5a-6a), permitting a corporate debtor to designate its priority tax payments would seriously undermine the strong congressional policy to assure collection of trust fund taxes. Taxes that are withheld by an employer from his employee's wages are credited by the government to that employee's account as paid, whether or not the withheld funds are actually paid over to the government by the employer; accordingly, the loss from the employer's failure to turn over these trust fund taxes is suffered directly by the Treasury. See 26 U.S.C. 31(a); Slodov v. United States, 436 U.S. 238, 243 (1978). To prevent such losses, Section 6672 of the Internal Revenue Code provides that the government may collect the amount of delinquent withholding taxes from the persons responsible for not turning them over to the government. This provision establishes both an alternative means of collection and a strong disincentive to corporate officers to draw upon withheld taxes to alleviate a corporation's financial difficulties. The decision below, however, allows corporate officers to use Chapter 11 proceedings as a shield to protect themselves from Section 6672; as the court below acknowledged (App., infra, 4a), the designation sought here "solely benefits the responsible officers of the corporation (by reducing their Section 6672 liability) without benefitting the corporation or Internal Revenue Service." Corporate tax payments that would otherwise be applied to reduce the corporation's other tax liabilities for which there is no alternative means of collection will instead be applied to reduce the potential exposure of the corporate officers for the delinquent trust fund liability. Thus, in the event that the delinquent taxes are only partially paid the Treasury will still suffer a loss, while the corporate officers responsible for the failure to pay over the trust fund taxes will escape liability to the extent the trust fund delinquency has been reduced. Most importantly, the knowledge that such a designation eventually will be available in Chapter 11 proceedings may well operate to eliminate the disincentive for corporate officers to use the trust fund to try to alleviate the corporation's pre-bankruptcy financial difficulties. The specter of Section 6672 liability is removed as a deterrent to the conversion of trust funds if the responsible officers believe that they can ultimately escape liability under cover of Chapter 11 if the corporation's financial difficulties prove insurmountable. The court of appeals clearly erred in holding that the principles underlying Section 6672 must be subordinated in this context because of a supposed conflict with the general policies of the Bankruptcy Code to rehabilitate debtors. There is no basis for believing that Congress created any such conflict. To the contrary, Congress has recognized that failing corporations often intentionally amass large tax debts, rather than becoming indebted to other creditors, because "detection of nonpayment is more difficult for the taxing authority than it is for a supplier or lender, and * * * an unpaid taxing authority is usually unable to take collection action for months" (H.R. Rep. 95-595, 95th Cong., 1st Sess. 193 (1977)). See also United States v. Sotelo, 436 U.S. 268, 277 n.10 (1978). For this reason, the rules governing bankruptcy proceedings are designed to facilitate the full payment of tax liabilities. As we have noted, withholding and certain other tax liabilities are accorded priority status in bankruptcy proceedings (11 U.S.C. (Supp. IV) 507(a)(7)), and the plan of reorganization must provide that those taxes will be paid in full. With respect to the particular type of liability involved here, the bankruptcy system is specifically designed to preserve the availability of Section 6672's alternative method of collecting delinquent trust fund taxes. When a responsible person files for personal bankruptcy, his Section 6672 liability is also a priority claim (11 U.S.C. (Supp. IV) 507(a)(7)(C)), and that liability is not dischargeable and hence remains collectible after bankruptcy (11 U.S.C. (& Supp. IV) 523(a)(1)(a)). Thus, there is no basis for believing that Congress intended to sacrifice in any way the collection of unpaid withholding taxes in order to accommodate reorganizations by bankrupt debtors. /5/ In addition, the court of appeals erred as a practical matter in finding that allowance of the debtor's proposed designation would advance the goal of achieving a successful reorganization. The concern expressed by the court of appeals was that corporate officers, whose best efforts are critical to a successful reorganization, will lose their incentive to continue with a corporate reorganization if they know that they will still be pressured to pay the delinquent trust fund taxes out of their own pockets (App., infra, 7a). This conclusion is quite mistaken. Permitting the designation sought by the corporate debtor here would not necessarily alleviate the officers' concern over personal liability. A designation by itself does not prevent the IRS from collecting the unpaid balance of trust fund taxes from a responsible person. /6/ What it does is require that payments actually made by the corporate debtor be applied to reduce the outstanding trust fund liability and hence the potential liability of responsible officers. Thus, if designations like that proposed here are approved, it would be in the interest of the IRS to commence immediately efforts to collect the trust fund taxes from the responsible officers before the outstanding liability is reduced by the corporate funds being paid under the reorganization. By contrast, if, as we contend, the IRS is entitled to apply those Chapter 11 payments as it sees fit, this incentive to rush to institute collection actions against the responsible officers is removed; instead, if the statute of limitations does not present a problem, the IRS can await the outcome of the reorganization, which, of course, will satisfy the trust fund tax delinquency and eliminate the responsible officers' potential liability if it is successful. Finally, the court of appeals seriously erred in holding that the validity of a corporate debtor's designation should be determined on a case-by-case basis in the discretion of the bankruptcy court. As the Third Circuit stated in Ribs-R-Us, whether a corporate debtor is permitted to include a designation provision in its Chapter 11 reorganization plan "is a question of law rather than an issue for the exercise of discretion" (828 F.2d at 202). Surely, whether a priority tax payment under a Chapter 11 plan is "voluntary" or "involuntary," which the court below recognized as the controlling inquiry (App., infra, 2a, 7a), cannot vary from case to case depending on a discretionary analysis of a vague list of "equitable" factors (see note 3, supra). The bankruptcy courts do not have "a roving commission to do equity" (United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986)); their "equitable powers may only be exercised in a manner which is consistent with the provisions of the Code" (Johnson v. First Nat'l Bank, 719 F.2d 270, 273 (8th Cir. 1983), cert. denied, 465 U.S. 1012 (1984)). No provision of the Bankruptcy Code authorizes the bankruptcy courts to make decisions based on equitable factors concerning the manner in which the Internal Revenue Service should apply payments of priority taxes; indeed, the exercise of such power "would subvert the Bankruptcy Code" to the extent the Code protects the government's ability to collect Section 6672 liability (In re Technical Knockout Graphics, Inc., 833 F.2d at 803). Rather, the validity of a debtor's designation of how to apply such payments is a question of law to which there should be one answer applicable to all Chapter 11 cases. 3. Resolution of the question presented here is of considerable importance to the administration of the tax laws. As we have noted (see note 4, supra), the issue of the validity of a corporate designation in a Chapter 11 plan is one that frequently recurs because most corporate bankruptcies involve withholding tax liability, and the lower courts are in considerable disarray on this issue. Thus, resolution of the conflict will eliminate disparate results among taxpayers depending upon the jurisdiction in which they file their Chapter 11 petition and will provide a uniform rule upon which debtors and creditors can rely in planning. Moreover, the issue has a significant fiscal impact upon the government. When a Chapter 11 reorganization fails after a few payments are made, as most of them do, /7/ the effect of the designation is to reduce the amount of the outstanding tax liability that is collected by the government because of the reduction in the responsible officers' preexisting Section 6672 liability. /8/ Allowing such a designation thus shifts the risk of failure of the plan from the responsible officers, whose improper conduct created the delinquency in the first place, to the government. At all events, resolution by this Court of the conflict in the courts of appeals is required if there is to be even-handed administration of the tax and bankruptcy laws. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted. CHARLES FRIED Solicitor General WILLIAM S. ROSE, JR. Assistant Attorney General ALAN I. HOROWITZ Assistant to the Solicitor General WYNETTE J. HEWETT GARY D. GRAY Attorneys JANUARY 1988 /1/ The taxes involved were entitled at the time to "sixth priority" under 11 U.S.C. 507(a)(6). In the wake of a 1984 amendment that added a new category of priority claims, these federal tax claims are now seventh priority claims. See 11 U.S.C. (Supp. IV) 507(a)(7). /2/ On the other hand, the designation makes no difference to the corporate debtor (as opposed to its responsible officers) because 11 U.S.C. (& Supp. IV) 1129(a)(9)(C) requires the debtor to pay all of its priority taxes, with interest, within six years. /3/ The court of appeals quoted a lengthy list of factors to which, in its view, the bankruptcy court typically should look in making this case-by-case determination (App., infra, 8a (quoting In re B & P Enterprises, Inc., 67 Bankr. at 184)): the history of the debtor, the absence or existence of prebankruptcy collection or "enforced collection measures" of the I.R.S. against the corporation and responsible corporate officers; the nature and contents of a Chapter 11 plan (e.g., last resort liquidation or reorganization); the presence, extent and nature of administrative and/or court action; the presence of pre- or post-bankruptcy agreements between the debtor (or trustee) and the I.R.S.; and the existence of exceptional or special circumstances or equitable reasons warranting such allocation. /4/ The following cases hold payment of priority taxes in bankruptcy to be involuntary: In re McCom Communications, Inc., 76 Bankr. 180 (N.D. Ala. 1987); In re Mister Marvins, Inc., 48 Bankr. 279 (E.D. Mich. 1984); In re Frost, 47 Bankr. 961 (D. Kan. 1985); In re Avildsen Tools & Machines, Inc., 40 Bankr. 253 (N.D. Ill. 1984), aff'd on other grounds, 794 F.2d 1248 (7th Cir. 1986); In re Vincent McCall Co., 68-2 U.S. Tax Cas. (CCH) Paragraph 9591 (E.D. Wis. 1986); In re Herald, 66 Bankr. 169 (Bankr. E.D.N.C. 1986); In re Tam Specialty Co., 85-2 U.S. Tax Cas. (CCH) Paragraph 9758 (Bankr. N.D. Cal. 1985); In re State Mechanical, Inc., 84-2 U.S. Tax Cas. (CCH) Paragraph 9880 (Bankr. W.D. Wash. 1984); In re Obie Elie Wrecking Co., 35 Bankr. 114 (Bankr. N.D. Ohio 1983); In re Hubler Rentals, 79-2 U.S. Tax Cas. (CCH) Paragraph 9621 (E.D. Pa. 1979). The following decisions hold such payments to be voluntary: In re Venice Printing Co., No. 86-1421 (Bankr. 9th Cir. Apr. 15, 1987), appeal pending, No. 87-6072 (9th Cir.); DuCharmes & Co. v. Michigan, 75 Bankr. 71 (E.D. Mich. 1987), appeal pending, No. 87-1715 (6th Cir.); In re Tom LeDuc Enterprises, Inc., 47 Bankr. 900 (W.D. Mo. 1984); In re Professional Technical Services, Inc., 78 Bankr. 949 (Bankr. E.D. Mo. 1987); In re Energy Resources Co., 59 Bankr. 702 (Bankr. D. Mass. 1986), aff'd, No. 86-1533 (D. Mass. Aug. 5, 1987), appeal pending, No. 87-1896 (1st Cir.); In re Lifescape, Inc., 54 Bankr. 526 (Bankr. D. Colo. 1985). The following cases hold, like the court of appeals below, that allocation of payments is within the discretion of the bankruptcy court: Hineline v. Household Fin. Corp., 72 Bankr. 642 (N.D. Ohio 1987); In re Vermont Fiberglass, Inc., 76 Bankr. 358 (Bankr. D. Vt. 1987); In re B & P Enterprises, Inc., 67 Bankr. 179 (Bankr. W.D. Tenn. 1986). /5/ Indeed, trust fund taxes that have not been paid over to the government prior to bankruptcy, but are still in the debtor's possession, are not even included in the property of the estate that is available to be used in the reorganization. Rather, such funds are viewed as property in which the debtor holds "only legal title and not an equitable interest," which is excluded from the bankruptcy estate (11 U.S.C. (& Supp. IV) 541(d)). See 124 Cong. Rec. 32417, 34016-34017 (1978). /6/ The courts have uniformly held that, when a corporation files for bankruptcy, the bankruptcy court cannot enjoin the IRS from collecting the Section 6672 liabilities of its corporate officers. See In re LaSalle Rolling Mills, Inc., 832 F.2d 390 (7th Cir. 1987); A to Z Welding & Mfg. Co. v. United States, 803 F.2d 932 (8th Cir. 1986); United States v. Huckabee Auto Co., 783 F.2d 1546 (11th Cir. 1986). A different rule would allow the responsible officers to have the best of both worlds. They could essentially obtain the benefit of the automatic stay that is accorded to a bankrupt debtor without actually filing for bankruptcy and thus taking the steps that Congress deemed necessary to assure the ultimate collection of the Section 6672 liabilities, namely, surrendering one's assets for administration as part of the bankruptcy estate in a proceeding in which Section 6672 liability is a nondischargeable, priority claim. /7/ The Administrative Office of the United States Courts has estimated that 90% of Chapter 11 reorganization plans fail. See In re Timbers of Inwood Forest Assocs., Ltd., 808 F.2d 363, 382 (5th Cir. 1987) (Jones, J., dissenting), aff'd, No. 86-1602 (Jan. 20, 1988). The court of appeals in this case itself appears to have recognized the high likelihood of failure in that it directed the bankruptcy court on remand to consider whether that reorganization plan was merely a "stop gap scheme to hold the taxing authority at bay," notwithstanding the fact that the bankruptcy court had already "passed on the feasibility of the plan" (App., infra, 8a). /8/ The Collection Division of the IRS estimates that up to $25 million per year in tax revenue could be lost if designations are permitted routinely. APPENDIX