P.M. BRIEFING : Bankrupts Can’t Recover Taxes
The Supreme Court today strengthened the government’s power to keep the taxes withheld from businesses about to declare bankruptcy.
Voting 9 to 0, the justices ruled that the trustee of bankrupt American International Airways is not entitled to recover $700,000 in taxes paid to the Internal Revenue Service.
The airline had become delinquent by the spring of 1984 in withholding Social Security and income taxes from employee wages and excise taxes collected from passengers.
The IRS then ordered the airline to file monthly, instead of quarterly, tax returns and open a special bank account to handle the tax deposits.
American International filed for bankruptcy in July, 1984, to try to reorganize the business and pay off some of the money owed creditors. That effort failed, and three months later a trustee was appointed to liquidate the company.
The trustee sought to recover $1.6 million in taxes paid to the IRS in the months leading up to the liquidation.
A bankruptcy judge in Pennsylvania permitted the trustee to recover $700,000 from the government and the IRS appealed to the U.S. 3rd Circuit Court of Appeals based in Philadelphia.
The appeals court said the trustee may not recover the $700,000.
Start your day right
Sign up for Essential California for news, features and recommendations from the L.A. Times and beyond in your inbox six days a week.
You may occasionally receive promotional content from the Los Angeles Times.
