The Internal Revenue Code directs "every person receiving any
payment for facilities or services" subject to excise taxes to
"collect the amount of the tax from the person making such
payment." 26 U.S.C. § 4291. It also requires an employer to
"collect" Federal Insurance Contributions Act taxes from its
employees "by deducting the amount of the tax from the wages
as
and when paid," § 3102(a), and to "deduct and withhold
upon such wages [the employee's federal income tax]," §
3402(a)(1). The amount of taxes "collected or withheld" is "held to
be in a special fund in trust for the United States." § 7501. Thus,
these taxes are often called "trust-fund taxes." After American
International Airlines, Inc., fell behind in its trust-fund tax
payments, the Internal Revenue Service, pursuant to § 7512, ordered
it to deposit all future taxes collected into a separate bank
account. AIA established the account, but did not deposit funds
sufficient to cover the entire amount of its obligations.
Nonetheless, it remained current on the obligations, paying part of
them from the separate bank account and part from its general
operating funds. In a subsequent liquidation proceeding under the
Bankruptcy Code, petitioner Begier was appointed AIA's trustee.
Seeking to exercise his power under § 547(b) of the Bankruptcy Code
-- which permits a trustee to avoid certain preferential payments
made before the debtor files for bankruptcy -- Begier filed an
adversary action against the Government to recover the entire
amount that AIA had paid the IRS for trust-fund taxes during the 90
days before the bankruptcy filing. The Bankruptcy Court refused to
permit Begier to recover any of the money AIA had paid out of the
separate account on the ground that AIA had held that money in
trust for the IRS. However, it allowed him to avoid most of the
payments made out of AIA's general accounts, holding that such
funds were property of the debtor. The District Court affirmed, but
the Court of Appeals reversed, holding that
any
pre-petition payment of trust-fund taxes is a payment of funds that
are not the debtor's property, and that such a payment is therefore
not an avoidable preference.
Page 496 U. S. 54
Held: AIA's trust-fund tax payments from its general
accounts were transfers of property held in trust, and therefore
cannot be avoided as preferences. Pp.
496 U. S.
58-67.
(a) Equality of distribution among creditors is a central policy
of the Bankruptcy Code that is furthered by § 547(b) to the extent
that it permits a trustee to avoid pre-petition preferential
transfers of "property of the debtor." Although not defined by the
Code, "property of the debtor" is best understood to mean property
that would have been part of the estate had it not been
transferred. Its meaning is coextensive with its post-petition
analog "property of the estate," which includes all of the debtor's
legal or equitable interests in property as of the commencement of
the case. § 541(a)(1). Since a debtor does not own an equitable
interest in property he holds in trust for another, that interest
is not "property of the estate" and, likewise, not "property of the
debtor." Pp.
496 U. S.
58-59.
(b) AIA created a trust within the meaning of 26 U.S.C. § 7501
at the moment the money was withheld or collected. The statutory
trust extends to the amount of tax "collected or withheld," and the
language of §§ 4291, 3102(a), and 3402(a)(1) makes clear that the
acts of collecting and withholding occur at the time of payment --
the recipient's payment for the service in the case of excise taxes
and the employer's payment of wages in the case of FICA and income
taxes. The fact that AIA neither put the taxes in a segregated fund
nor paid them to the IRS does not somehow mean that AIA never
collected or withheld them in the first place. Mandating
segregation as a prerequisite to the creation of a trust under §
7501 would make § 7512's requirement that funds may be segregated
in special and limited circumstances superfluous and, would mean
that an employer could avoid the creation of a trust simply by
refusing to segregate. Pp.
496 U. S. 60-62.
(c) The funds transferred from AIA's general accounts were trust
assets. Neither § 7501 nor common law rules for tracing trust
res offer guidance on how to determine whether the assets
were trust property. And the strict rule of
United States v.
Randall, 401 U. S. 513 --
which prohibited the IRS from recovering withheld taxes ahead of
the bankruptcy proceeding's administrative expenses -- did not
survive the 1978 restructuring of the Bankruptcy Code. The 1978
Code's legislative history shows that Congress intended that the
courts permit the use of "reasonable assumptions" under which the
IRS could demonstrate that amounts of withheld taxes were still in
the debtor's possession at the time the petition was filed. Thus,
Congress expected that the IRS would have to show some connection
between the trust and the assets sought to be applied to a debtor's
trust fund obligations. While the Bankruptcy Code does not
demonstrate how extensive this nexus must
Page 496 U. S. 55
be, the legislative history identifies one reasonable
assumption: that any voluntary pre-petition payment of trust fund
taxes out of the debtor's assets is not a transfer of the debtor's
property. Other rules might be reasonable, but the only evidence
presented suggests that Congress preferred this one. Pp.
496 U. S.
62-67.
878 F.2d 762 (CA3 1989), affirmed.
MARSHALL, J., delivered the opinion of the Court, in which
REHNQUIST, C.J., and BRENNAN, WHITE, BLACKMUN, STEVENS, O'CONNOR,
and KENNEDY, JJ., joined. SCALIA, J., filed an opinion concurring
in the judgment,
post, p.
496 U. S.
67.
Justice MARSHALL delivered the opinion of the Court.
This case presents the question whether a trustee in bankruptcy
may "avoid" (
i.e., recover) from the Internal Revenue
Service payments of certain withholding and excise taxes that the
debtor made before it filed for bankruptcy. We hold that the funds
paid here were not the property of the debtor prior to payment;
instead, they were held in trust by the debtor for the IRS. We
accordingly conclude that the trustee may not recover the
funds.
American International Airways, Inc., was a commercial airline.
As an employer, AIA was required to withhold federal income taxes
and to collect Federal Insurance Contributions Act taxes from its
employees' wages. 26 U.S.C. § 3402(a) (income taxes); § 3102(a)
(FICA taxes). As an airline, it was required to collect excise
taxes from its customers for payment to the IRS. § 4291. Because
the amount of these taxes is "held to be a special fund in trust
for the United States," § 7501, they are often called
"trust-fund
Page 496 U. S. 56
taxes."
See, e.g., Slodov v. United States,
436 U. S. 238,
436 U. S. 241
(1978). By early 1984, AIA had fallen behind in its payments of its
trust fund taxes to the Government. In February of that year, the
IRS ordered AIA to deposit all trust fund taxes it collected
thereafter into a separate bank account. AIA established the
account, but did not deposit funds sufficient to cover the entire
amount of its trust fund tax obligations. It nonetheless remained
current on these obligations through June 1984, paying the IRS
$695,000 from the separate bank account and $946,434 from its
general operating funds. AIA and the IRS agreed that all of these
payments would be allocated to specific trust fund tax
obligations.
On July 19, 1984, AIA petitioned for relief from its creditors
under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101
et
seq. (1982 ed.). AIA unsuccessfully operated as a debtor in
possession for three months. Accordingly, on September 19, the
Bankruptcy Court appointed petitioner Harry P. Begier trustee and
converted the case to a Chapter 7 liquidation. 11 U.S.C. § 701
et seq. (1982 ed.). Among the powers of a Chapter 7
trustee is the power under § 547(b) [
Footnote 1] to avoid certain payments made by the
Page 496 U. S. 57
debtor that would
"enabl[e] a creditor to receive payment of a greater percentage
of his claim against the debtor than he would have received if the
transfer had not been made and he had participated in the
distribution of the assets of the bankrupt estate."
H.R.Rep. No. 95-595, p. 177 (1977), U.S.Code Cong. & Admin.
News 1978, pp. 5787, 6138. Seeking to exercise his avoidance power,
Begier filed an adversary action against the Government to recover
the entire amount that AIA had paid the IRS for trust fund taxes
during the 90 days before the bankruptcy filing.
The Bankruptcy Court found for the Government in part and for
the trustee in part.
In re American International Airways,
Inc., 83 B.R. 324 (ED Pa.1988). It refused to permit the
trustee to recover any of the money AIA had paid out of the
separate account on the theory that AIA had held that money in
trust for the IRS.
Id. at 327. It allowed the trustee to
avoid most of the payments that AIA had made out of its general
accounts, however, holding that
"only where a tax trust fund is actually established by the
debtor and the taxing authority is able to trace funds segregated
by the debtor in a trust account established for the purpose of
paying the taxes in question would we conclude that such funds are
not property of the debtor's estate."
Id. at 329. The District Court affirmed. App. to Pet.
for Cert. A-22-A26. On appeal by the Government, the Third Circuit
reversed, holding that any pre-petition payment of trust fund taxes
is a payment of funds that are not the debtor's property, and that
such a payment is therefore not an avoidable preference. 878 F.2d
762 (1989). [
Footnote 2] We
affirm.
Page 496 U. S. 58
II
A
Equality of distribution among creditors is a central policy of
the Bankruptcy Code. According to that policy, creditors of equal
priority should receive
pro rata shares of the debtor's
property.
See, e.g., 11 U.S.C. § 726(b) (1982 ed.);
H.R.Rep. No. 95-585,
supra, at 177-178. Section 547(b)
furthers this policy by permitting a trustee in bankruptcy to avoid
certain preferential payments made before the debtor files for
bankruptcy. This mechanism prevents the debtor from favoring one
creditor over others by transferring property shortly before filing
for bankruptcy. Of course, if the debtor transfers property that
would not have been available for distribution to his creditors in
a bankruptcy proceeding, the policy behind the avoidance power is
not implicated. The reach of § 547(b)'s avoidance power is
therefore limited to transfers of "property of the debtor."
The Bankruptcy Code does not define "property of the debtor."
Because the purpose of the avoidance provision is to preserve the
property includable within the bankruptcy estate -- the property
available for distribution to creditors -- "property of the debtor"
subject to the preferential transfer provision is best understood
as that property that would have been part of the estate had it not
been transferred before the commencement of bankruptcy proceedings.
For guidance,
Page 496 U. S. 59
then, we must turn to § 541, which delineates the scope of
"property of the estate" and serves as the post-petition analog to
§ 547(b)'s "property of the debtor." [
Footnote 3]
Section 541(a)(1) provides that the "property of the estate"
includes "all legal or equitable interests of the debtor in
property as of the commencement of the case." Section 541(d)
provides:
"Property in which the debtor holds, as of the commencement of
the case, only legal title and not an equitable interest . . .
becomes property of the estate under subsection (a) of this section
only to the extent of the debtor's legal title to such property,
but not to the extent of any equitable interest in such property
that the debtor does not hold."
Because the debtor does not own an equitable interest in
property he holds in trust for another, that interest is not
"property of the estate." Nor is such an equitable interest
"property of the debtor" for purposes of § 547(b). As the parties
agree, then, the issue in this case is whether the money AIA
transferred from its general operating accounts to the IRS was
property that AIA had held in trust for the IRS.
Page 496 U. S. 60
B
We begin with the language of 26 U.S.C. § 7501, the Internal
Revenue Code's trust fund tax provision:
"Whenever any person is required to collect or withhold any
internal revenue tax from any other person and to pay over such tax
to the United States, the amount of tax so collected or withheld
shall be held to be a special fund in trust for the United
States."
The statutory trust extends, then, only to "the amount of tax so
collected or withheld." Begier argues that a trust fund tax is not
"collected or withheld" until specific funds are either sent to the
IRS with the relevant return or placed in a segregated fund. AIA
neither put the funds paid from its general operating accounts in a
separate account nor paid them to the IRS before the beginning of
the preference period. Begier therefore contends that no trust was
ever created with respect to those funds, and that the funds paid
to the IRS were therefore property of the debtor.
We disagree. The Internal Revenue Code directs "every person
receiving any payment for facilities or services" subject to excise
taxes to "collect the amount of the tax from the person making such
payment." § 4291. It also requires that an employer "collec[t]"
FICA taxes from its employees "by deducting the amount of the tax
from the wages
as and when paid." § 3102(a) (emphasis
added). Both provisions make clear that the act of "collecting"
occurs at the time of payment -- the recipient's payment for the
service in the case of excise taxes and the employer's payment of
wages in the case of FICA taxes. The mere fact that AIA neither
placed the taxes it collected in a segregated fund nor paid them to
the IRS does not somehow mean that AIA never collected the taxes in
the first place.
The same analysis applies to taxes the Internal Revenue Code
requires that employers "withhold." Section 3402(a)(1) requires
that "every employer making payment of wages shall deduct and
withhold
upon such wages [the employee's federal income
tax]." (Emphasis added.) Withholding thus
Page 496 U. S. 61
occurs at the time of payment to the employee of his net wages.
S.Rep. No. 95-1106, p. 33 (1978) ("[A]ssume that a debtor owes an
employee $100 for salary on which there is required withholding of
$20. If the debtor paid the employee $80, there has been $20
withheld. If, instead, the debtor paid the employee $85, there has
been withholding of $15 (which is not property of the debtor's
estate in bankruptcy)").
See Slodov, 436 U.S. at
436 U. S. 243
(stating that "[t]here is no general requirement that the withheld
sums be segregated from the employer's general funds," and thereby
necessarily implying that the sums are "withheld" whether or not
segregated). The common meaning of "withholding" supports our
interpretation.
See Webster's Third New International
Dictionary 2627 (1981) (defining "withholding" to mean "the act or
procedure of deducting a tax payment from income
at the
source") (emphasis added).
Our reading of § 7501 is reinforced by § 7512, which permits the
IRS, upon proper notice, to require a taxpayer who has failed
timely "to collect, truthfully account for, or pay over [trust fund
taxes]", or who has failed timely "to make deposits, payments, or
returns of such tax," § 7512(a)(1), to "deposit such amount in a
separate account in a bank . . . and . . . keep the amount of such
taxes in such account until payment over to the United States," §
7512(b). If we were to read § 7501 to mandate segregation as a
prerequisite to the creation of the trust, § 7512's requirement
that funds be segregated in special and limited circumstances would
become superfluous. Moreover, petitioner's suggestion that we read
a segregation requirement into § 7501 would mean that an employer
could avoid the creation of a trust simply by refusing to
segregate. Nothing in § 7501 indicates, however, that Congress
wanted the IRS to be protected only insofar as dictated by the
debtor's whim. We conclude, therefore, that AIA created a trust
within the meaning of § 7501 at the moment the relevant payments
(from customers to AIA for excise
Page 496 U. S. 62
taxes and from AIA to its employees for FICA and income taxes)
were made.
C
Our holding that a trust for the benefit of the IRS existed is
not alone sufficient to answer the question presented by this case:
whether the
particular dollars that AIA paid to the IRS
from its general operating accounts were "property of the debtor."
Only if those particular funds were held in trust for the IRS do
they escape characterization as "property of the debtor." All §
7501 reveals is that AIA at one point created a trust for the IRS;
that section provides no rule by which we can decide whether the
assets AIA used to pay the IRS were assets belonging to that
trust.
In the absence of specific statutory guidance on how we are to
determine whether the assets transferred to the IRS were trust
property, we might naturally begin with the common law rules that
have been created to answer such questions about other varieties of
trusts. Unfortunately, such rules are of limited utility in the
context of the trust created by § 7501. Under common law
principles, a trust is created in property; a trust therefore does
not come into existence until the settlor identifies an
ascertainable interest in property to be the trust
res. G.
Bogert, Law of Trusts and Trustees § 111 (rev.2d ed.1984); 1A W.
Fratcher, Scott on Trusts § 76 (4th ed.1987). A § 7501 trust is
radically different from the common law paradigm, however. That
provision states that "the
amount of [trust fund] tax . .
. collected or withheld shall be held to be a special fund in trust
for the United States." (Emphasis added.) Unlike a common law
trust, in which the settlor sets aside particular
property
as the trust
res, § 7501 creates a trust in an abstract
"amount" -- a dollar
figure not tied to any particular
assets -- rather than in the actual dollars withheld. [
Footnote 4] Common law tracing rules,
designed
Page 496 U. S. 63
for a system in which particular property is identified as the
trust
res, are thus unhelpful in this special context.
Federal law delineating the nature of the relationship between
the § 7501 trust and preferential transfer rules is limited. The
only case in which we have explored that topic at any length is
United States v. Randall, 401 U.
S. 513 (1971), a case dealing with a post-petition
transfer of property to discharge trust fund tax obligations that
the debtor had accrued pre-petition. There, a court had ordered a
debtor in possession to maintain a separate account for its
withheld federal income and FICA taxes, but the debtor did not
comply. When the debtor was subsequently adjudicated a bankrupt,
the United States sought to recover from the debtor's general
assets the amount of withheld taxes ahead of the expenses of the
bankruptcy proceeding. The Government argued that the debtor held
the amount of taxes due in trust for the IRS, and that this amount
could be traced to the funds the debtor had in its accounts when
the bankruptcy petition was filed. The trustee maintained that no
trust had been created because the debtor had not segregated the
funds. The Court declined directly to address either of these
contentions.
Id. at
401 U. S. 515.
Rather, the Court simply refused to permit the IRS to recover the
taxes ahead of administrative expenses, stating that
"the statutory policy of subordinating taxes to costs and
expenses of administration would not be served by creating or
enforcing trusts which eat up an estate, leaving little or nothing
for creditors and court officers whose goods and services created
the assets."
Id. at
401 U. S.
517.
In 1978, Congress fundamentally restructured bankruptcy law by
passing the new Bankruptcy Code. Among the changes Congress decided
to make was a modification of the rule this Court had enunciated in
Randall under the old Bankruptcy Act. The Senate bill
attacked
Randall directly, providing in § 541 that trust
fund taxes withheld or collected
Page 496 U. S. 64
prior to the filing of the bankruptcy petition were not
"property of the estate."
See S.Rep. No. 95-1106, p. 33
(1978).
See also ibid. ("These amounts will not be
property of the estate regardless of whether such amounts have been
segregated from other assets of the debtor by way of a special
account, fund, or otherwise, or are deemed to be a special fund in
trust pursuant to provisions of applicable tax law") (footnote
omitted). The House bill did not deal explicitly with the problem
of trust fund taxes, but the House Report stated that "property of
the estate" would not include property held in trust for another.
See H.R.Rep. No. 95-595, p. 368 (1977), U.S.Code Cong.
& Admin. News 1978, p. 6321. Congress was unable to hold a
conference, so the Senate and House floor managers met to reach
compromises on the differences between the two bills.
See
124 Cong.Rec. 32392 (1978) (remarks of Rep. Edwards); Klee,
Legislative History of the New Bankruptcy Law, 28 DePaul L.Rev.
941, 953-954 (1979). The compromise reached with respect to the
relevant portion of § 541, which applies to post-petition
transfers, was embodied in the eventually enacted House amendment,
and explicitly provided that "in the case of property held in
trust, the property of the estate includes the legal title, but not
the beneficial interest in the property." 124 Cong.Rec., at 32417
(remarks of Rep. Edwards).
Compare id. at 32363 (text of
House amendment). Accordingly, the Senate language specifying that
withheld or collected trust fund taxes are not part of the
bankruptcy estate was deleted as
"unnecessary, since property of the estate does not include the
beneficial interest in property held by the debtor as a trustee.
Under [§ 7501], the amounts of withheld taxes are held to be a
special fund in trust for the United States."
Id. at 32417 (remarks of Rep. Edwards). [
Footnote 5]
Page 496 U. S. 65
Representative Edwards discussed the effects of the House
language on the rule established by
Randall, indicating
that the House amendment would supplant that rule:
"[A] serious problem exists where 'trust fund taxes' withheld
from others are held to be property of the estate where the
withheld amounts are commingled with other assets of the debtor.
The courts should permit the use of reasonable assumptions under
which the Internal Revenue Service, and other tax authorities, can
demonstrate that amounts of withheld taxes are still in the
possession of the debtor at the commencement of the case."
Ibid. The context of Representative Edwards' comment
makes plain that he was discussing whether a post-petition payment
of trust fund taxes involved "property of the estate." This focus
is not surprising, given that
Randall, the case Congress
was addressing, involved a post-petition demand for payment by the
IRS. But Representative Edwards' discussion also applies to the
question whether a pre-petition payment is made from "property of
the debtor." We have explained that "property of the debtor" is
that property that would have been part of the estate had it not
been transferred before the commencement of bankruptcy proceedings.
Supra, at 2262-2263. The same "reasonable assumptions"
therefore apply in both contexts.
The strict rule of
Randall thus did not survive the
adoption of the new Bankruptcy Code. But by requiring the IRS to
"demonstrate that amounts of withheld taxes are still in the
possession of the debtor at the commencement of the case
[
i.e., at the filing of the petition]," 124 Cong.Rec. at
32417 (remarks of Rep. Edwards), Congress expected that the IRS
would have to show some connection between the § 7501 trust
Page 496 U. S. 66
and the assets sought to be applied to a debtor's trust fund tax
obligations.
See United States v. Whiting Pools, Inc.,
462 U. S. 198,
462 U. S. 205,
n. 10 (1983) (IRS cannot exclude funds from the estate if it cannot
trace them to § 7501 trust property). The question in this case is
how extensive the required nexus must be. The Bankruptcy Code
provides no explicit answer, and Representative Edwards' admonition
that courts should "permit the use of reasonable assumptions" does
not add much. The House Report does, however, give sufficient
guidance regarding those assumptions to permit us to conclude that
the nexus requirement is satisfied here. That Report states:
"A payment of withholding taxes constitutes a payment of money
held in trust under Internal Revenue Code § 7501(a), and thus will
not be a preference because the beneficiary of the trust, the
taxing authority, is in a separate class with respect to those
taxes, if they have been properly held for payment, as they will
have been if the debtor is able to make the payments."
H.R.Rep. No. 95-595,
supra, at 373, U.S.Code Cong.
& Admin. News 1978, p. 6329. [
Footnote 6] Under a literal reading of the above passage,
the bankruptcy trustee could not avoid any voluntary pre-petition
payment of trust fund taxes, regardless of the source of the funds.
As the House Report expressly states, the limitation that the funds
must "have been properly held for payment" is satisfied "if the
debtor is able to make the payments." The debtor's act of
voluntarily paying its trust fund tax obligation
Page 496 U. S. 67
therefore is alone sufficient to establish the required nexus
between the "amount" held in trust and the funds paid. We adopt
this literal reading. In the absence of any suggestion in the
Bankruptcy Code about what tracing rules to apply, we are relegated
to the legislative history. The courts are directed to apply
"reasonable assumptions" to govern the tracing of funds, and the
House Report identifies one such assumption to be that any
voluntary pre-petition payment of trust fund taxes out of the
debtor's assets is not a transfer of the debtor's property. Nothing
in the Bankruptcy Code or its legislative history casts doubt on
the reasonableness of that assumption. Other rules might be
reasonable, too, but the only evidence we have suggests that
Congress preferred this one. We see no reason to disregard that
evidence.
III
We hold that AIA's payments of trust fund taxes to the IRS from
its general accounts were not transfers of "property of the
debtor," but were instead transfers of property held in trust for
the Government pursuant to § 7501. Such payments therefore cannot
be avoided as preferences. The judgment of the Court of Appeals
is
Affirmed.
[
Footnote 1]
This case is governed by 11 U.S.C. § 547(b) (1982 ed.), which
reads:
"Except as provided in subsection (c) of this section, the
trustee may avoid any transfer of property of the debtor -- "
"(1) to or for the benefit of a creditor;"
"(2) for or on account of an antecedent debt owed by the debtor
before such transfer was made;"
"(3) made while the debtor was insolvent;"
"(4) made -- "
"(A) on or within 90 days before the date of the filing of the
petition; or"
"(B) between 90 days and one year before the date of the filing
of the petition, if such creditor, at the time of such transfer --
"
"(i) was an insider; and"
"(ii) had reasonable cause to believe the debtor was insolvent
at the time of such transfer; and"
"(5) that enables such creditor to receive more than such
creditor would receive if -- "
"(A) the case were a case under chapter 7 of this title;"
"(B) the transfer had not been made; and"
"(C) such creditor received payment of such debt to the extent
provided by the provisions of this title."
The statute has been amended to replace "property of the debtor"
with "an interest of the debtor in property."
See n 3,
infra. The old version of
§ 547(b) applies to this case, however, because AIA filed its
bankruptcy petition before the effective date of the amendment.
[
Footnote 2]
No other Court of Appeals has decided a case that presents the
precise issue we decide here. The Ninth and District of Columbia
Circuits have, however, resolved against the taxing authorities
cases presenting related issues.
See In re R & T Roofing
Structures & Commercial Framing, Inc., 887 F.2d 981, 987
(CA9 1989) (rejecting the Government's argument that assets the IRS
seized from a debtor to satisfy a trust fund tax obligation before
the debtor filed its bankruptcy petition were assets held in trust
for the Government under 26 U.S.C. § 7501, and therefore deciding
that the transfer effected by the seizure involved "property of the
debtor" and was not exempt from avoidance);
Drabkin v. District
of Columbia, 263 U.S.App.D.C. 122, 125, 824 F.2d 1102, 1105
(1987) (reaching a similar conclusion with respect to a voluntary
payment of withheld District of Columbia employee income taxes in a
case governed by a provision of local law that "essentially
mirror[ed]" § 7501).
[
Footnote 3]
To the extent the 1984 amendments to § 547(b) are relevant, they
confirm our view that § 541 guides our analysis of what property is
"property of the debtor" for purposes of § 547(b). Among the
changes was the substitution of "an interest of the debtor in
property" for "property of the debtor." 11 U.S.C. § 547(b). Section
547(b) thus now mirrors § 541's definition of "property of the
estate" as certain "interests of the debtor in property." §
541(a)(1). The Senate Report introducing a predecessor to the bill
that amended § 547(b) described the new language as a "clarifying
change." S.Rep. No. 98-65, p. 81 (1983). We therefore read both the
older language ("property of the debtor") and the current language
("an interest of the debtor in property") as coextensive with
"interests of the debtor in property" as that term is used in §
541(a)(1).
[
Footnote 4]
The general common law rule that a trust is not created absent a
designation of particular property obviously does not invalidate §
7501's creation of a trust in the "amount" of withheld taxes. The
common law of trusts is not binding on Congress.
[
Footnote 5]
Because of the absence of a conference and the key roles played
by Representative Edwards and his counterpart floor manager Senator
DeConcini, we have treated their floor statements on the Bankruptcy
Reform Act of 1978 as persuasive evidence of congressional intent.
See, e.g., CFTC v. Weintraub, 471 U.
S. 343,
471 U. S. 351
(1985).
Cf. 124 Cong.Rec. 37391 (1978) (remarks of Rep.
Rousselot) (expressing view that remarks of floor manager of the
Act have "the effect of being a conference report").
[
Footnote 6]
Petitioner's claim that this legislative history is irrelevant
because the House Bill was not enacted is in error. The exact
language to which the quoted portion of the House Report refers was
enacted into law.
Compare § 547(b) with H.R. 8200, 95th
Cong., 1st Sess., § 547(b) (1977). The version of § 541 that was
eventually enacted is different than the original House bill, but
only in that it makes explicit rather than implicit that "property
of the estate" does not include the beneficiary's equitable
interest in property held in trust by the debtor.
Compare
§ 541(d) with H.R. 8200,
supra, § 541(a)(1).
JUSTICE SCALIA, concurring in the judgment.
Representative Edwards, the House floor manager for the bill
that enacted the Bankruptcy Code, said on the floor that "[t]he
courts should permit the use of reasonable assumptions" regarding
the tracing of tax trust funds. 124 Cong.Rec. 32417 (1978). We do
not know that anyone except the presiding officer was present to
hear Representative Edwards. Indeed, we do not know for sure that
Representative Edwards' words were even uttered on the floor rather
than inserted into the Congressional Record afterwards. If
Representative Edwards did speak these words, and if there were
others present, they must have been surprised to hear
Page 496 U. S. 68
him talking about the tracing of 26 U.S.C. § 7501 tax trust
funds, inasmuch as the bill under consideration did not relate to
the Internal Revenue Code but the Bankruptcy Code, and contained no
provision even mentioning trust fund taxes. Only the Senate bill,
and not the House proposal, had mentioned trust fund taxes -- and
even the former had said nothing whatever about the
tracing of tax trust funds.
See S. 2266, 95th
Cong., 2d Sess., § 541 (1978). Only the Senate
Committee
Report on the
unenacted provision of the Senate bill
had discussed that subject.
See S.Rep. No. 95-1106, p. 33
(1978).
Nonetheless, on the basis of Representative Edwards' statement,
today's opinion concludes that "[t]he courts are
directed"
(presumably it means directed by the entire Congress, and not just
Representative Edwards) "to apply
reasonable assumptions' to
govern the tracing of funds." Ante at 496 U. S. 67
(emphasis added). I do not agree. Congress conveys its directions
in the Statutes at Large, not in excerpts from the Congressional
Record, much less in excerpts from the Congressional Record that do
not clarify the text of any pending legislative proposal.
Even in the absence of direction to do so, however, I certainly
think we should apply reasonable assumptions to govern the tracing
of funds. Unfortunately, that still does not answer the question
before us here. One "traces" a fund only after one identifies the
fund in the first place. The problem here is not "following the
res" of the tax trust, but identifying the
res to
begin with. Seeking to come to grips with this point, the Court
once again resorts to legislative history, this time even farther
afield. It relies upon the House Report on what later became 11
U.S.C. § 547, which says:
"A payment of withholding taxes constitutes a payment of money
held in trust under Internal Revenue Code § 7501(a), and thus will
not be a preference because the beneficiary of the trust, the
taxing authority, is in a separate
Page 496 U. S. 69
class with respect to those taxes, if they have been properly
held for payment, as they will have been if the debtor is able to
make the payments."
H.R.Rep. No. 95-595, p. 373 (1977), U.S.Code Cong. & Admin.
News 1978, p. 6329. The Court decides this case by "adopting" "a
literal reading" of the above language.
Ante at
496 U. S. 66. I
think it both demeaning and unproductive for us to ponder whether
to adopt literal or not-so-literal readings of Committee Reports,
as though they were controlling statutory text. Moreover, even
applying the lax legislative history standards of recent years,
this Committee Report should not be considered relevant. If a
welfare bill conditioned benefits upon a certain maximum level of
"income," courts might well (regrettably) regard as authoritative
the Committee Report's statement that "income" means "income as
computed under the Internal Revenue Code"; but surely they would
not regard as authoritative its statement that a particular class
of receipt constitutes income under the Internal Revenue Code.
Authoritativeness on the latter sort of point is what the Court
accepts here. The proposed (and ultimately enacted) provision of
law to which this Committee Report pertained was the general
provision of the Bankruptcy Code setting forth the five conditions
for a voidable preference, reading in part as follows:
"Except as provided in subsection (c) of this section, the
trustee may avoid any transfer of property of the debtor -- "
"(1) to or for the benefit of a creditor;"
"(2) for or on account of an antecedent debt owed by the debtor
before such transfer was made;"
"(3) made while the debtor was insolvent;"
"(4) made . . . on or within 90 days before the date of the
filing of the petition . . . ; and"
"(5) that enables such creditor to receive more than such
creditor would receive [under a chapter 7 bankruptcy
Page 496 U. S. 70
distribution]."
H.R. 8200, 95th Cong., 2d Sess., § 547(b) (1977);
see
11 U.S.C. § 547(b). The Committee Report's discussion of
withholding taxes paid during the preference period presumably
clarifies the meaning of the phrase "property of the debtor" in
this text. If that is authoritative concerning the construction and
effect of § 7501, imagine what other laws concerning "property of
the debtor" could also have been enacted through discussion in this
Committee Report. The matter seems to me plainly too far beyond the
immediate focus of the legislation to be deemed resolved by the
accompanying Committee Report. It was certainly thoughtful of
whoever drafted the report to try to clear up the issue of what
kind of an estate, legal or equitable, the debtor possesses in
trust fund taxes that are paid, but that discussion is a kind of
legislative history "rider" that even the most ardent devotees of
legislative history should ignore.
If the Court had applied to the text of the statute the standard
tools of legal reasoning, instead of scouring the legislative
history for some scrap that is on point (and therefore
ipso
facto relevant, no matter how unlikely a source of
congressional reliance or attention), it would have reached the
same result it does today, as follows: Section 7501 obviously
intends to give the United States the advantages of a trust
beneficiary with respect to collected and withheld taxes.
Unfortunately, it does not always succeed in doing so. A trust
without a
res can no more be created by legislative decree
than can a pink rock-candy mountain. In the nature of things, no
trust exists until a
res is identified. Ordinarily the
res is identified by the settlor of the trust; in the case
of § 7501, it is initially identified (if at all) by the statute,
subject (as I shall discuss) to later reidentification by the
taxpayer. Where the taxes subject to the trust fund provision of §
7501 are
collected taxes, the statute plainly identifies
the
res: it is the collections. There may be difficulty in
tracing them, but there is no doubt that they exist. Where,
however, the
Page 496 U. S. 71
taxes subject to the trust fund provision are
withheld
taxes, the statute provides no clear identification. When I pay a
worker $90, there is no clearly identifiable locus of the $10 in
withheld taxes that I do
not pay him. Indeed, if my total
assets at the time of the payment are $90, there is no conceivable
locus.
We may have to grapple at some later date with the question
whether the lack of immediate identification means that no trust
arises, or rather that § 7501 creates some hitherto unheard-of
floating trust in an unidentified portion of the taxpayer's current
or later-acquired assets. We do not have to reach that question
today, because, even though identification was not made by the
statute immediately, it was made by the taxpayer when it wrote a
check upon a portion of a designated fund to the Government. (It is
clear from the statutory scheme that the taxpayer has the power to
identify which portion of its assets constitutes the trust fund;
indeed, 26 U.S.C. § 7512 permits the government to compel such
identification where it has not been made.) Even if no trust
existed before that check was written, it is clear that a trust
existed then.
See 1 W. Fratcher, Scott on Trusts § 26.5
(4th ed.1987) (promise to create trust becomes effective when
settlor transfers or otherwise designates
res as trust
property).
The designation here, however, occurred within the 90-day
preference period. Ordinarily, the debtor's alienation of his
equitable interest by declaring a trust would constitute a
preference. It seems to me, however, that one must at least give
this effect to § 7501's clearly expressed but sometimes ineffectual
intent to create an
immediate trust: if and when the trust
res is identified from otherwise unencumbered assets, the
trust should be deemed to have been in existence from the time of
the collection or withholding. Thus, the designation of
res does not constitute a preference, and the funds paid
were not part of the debtor's estate.
For these reasons, I concur in the judgment of the Court.