Appeal in Bankruptcy from the Order of the United States District Court for the Southern District of Illinois, Northern Division Nos. RI-BK-73-233 and RI-BK-73-234 Robert D. Morgan, Judge.
Bauer, Wood, Circuit Judges, and Grant, Senior District Judge.*fn*
Appellant Onofre J. Sotelo contends that the district court erred in not discharging in bankruptcy a liability imposed upon him under 26 U.S.C. § 6672 for failing to account to the government for taxes withheld from the wages of the employees of the corporation of which he was chief executive officer. The question on review is whether the liability is a nondischargeable tax or a dischargeable penalty.
Sotelo does not challenge his liability under 26 U.S.C. § 6672.*fn1 He only argues that the liability should have been discharged by his personal bankruptcy petition. Sotelo bases his argument on Section 17 of the Bankruptcy Act, 11 U.S.C. § 35, which provides in pertinent part:
"§ 35. Dischargeability of debts - Debts not affected by discharge
(a) A discharge in bankruptcy shall release a bankrupt from all of his provable debts, whether allowable in full or in part, except such as (1) are taxes which became legally due and owing by the bankrupt to the United States or to any State or any subdivision thereof within three years preceding bankruptcy: Provided, however, That a discharge in bankruptcy shall not release a bankrupt from any taxes . . . (e) which the bankrupt has collected or withheld from others as required by the laws of the United States or any State or political subdivision thereof, but has not paid over. . . ."
The Bankruptcy Judge proved and allowed Sotelo's liability. The liability thus is dischargeable under Section 17 unless it is a "tax . . . legally due and owing by the bankrupt to the United States." Sotelo maintains that his liability cannot be a nondischargeable "tax" because 26 U.S.C. § 6672 calls it a "penalty." Under his view, only the employer corporation obligated to withhold the funds is liable for a "tax." 26 U.S.C. § 3402.
The government recognizes that Section 6672 explicitly imposes a "penalty" rather than a "tax", but relies on an uncontroverted line of cases that repudiate the statutory language and hold that a Section 6672 liability is a nondischargeable tax for bankruptcy purposes. In re Murphy, 533 F.2d 941, 942 (5th Cir. 1976), aff'g In re Murphy, 381 F. Supp. 813 (N.D. Ala. 1974); Westenberg v. United States, 285 F. Supp. 915 (D. Ariz. 1968); Lynn v. Scanlon, 234 F. Supp. 140 (E.D.N.Y. 1964); Sherwood v. United States, 228 F. Supp. 247 (E.D.N.Y. 1964).
Notwithstanding this contrary precedent, we reverse the district judge and hold the liability to be a dischargeable debt.
All the cases cited by the government rely on Botta v. Scanlon, 314 F.2d 392 (2d Cir. 1963), which holds that the liability imposed under Section 6672 is a "tax" within the meaning of the Internal Revenue Code's Anti-Injunction Statute, applicable to suits brought to restrain "the assessment or collection of any tax " (emphasis added). 26 U.S.C. § 7421(a).*fn2
The Botta court based its decision on Section 6671 of the Internal Revenue Code. Section 6671 mandates that
"any reference in this title [which includes the Anti-Injunction Statute] to 'tax' imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter [which includes Section 6672]."
No provision equivalent to Section 6671 applies to references to "taxes" in the Bankruptcy Act. Botta's holding that a Section 6672 "penalty" is a "tax" for purposes of the Anti-Injunction Statute, premised as it is on the clear language ...