Bankruptcy – discharge – taxes — credit cards

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United States Bankruptcy Court

Civil

Bankruptcy – discharge – taxes — credit cards

Where a bank paid a corporation’s payroll taxes from an account that lacked funds, the sole shareholder of the corporation cannot discharge amounts paid to the government and thus owed to the bank in bankruptcy.

“By having the business entity under the debtor’s control borrow money to pay taxes timely, the debtor avoids ever being assessed a penalty as a responsible person, but the White court found this tactic successfully avoided the exception to discharge of funds borrowed to pay the taxes at issue. Mr. VanDynHoven was at all times contingently liable for taxes owed by Action Electric as a responsible person, so the liability for those taxes constituted a claim against him. The definition of ‘claim’ – synonymous with ‘debt,’ the term used in section 523(a) – includes contingent liabilities, and the lack of an impossible assessment will not avoid the reality of the debtor’s liability. See 11 U.S.C. §§ 101(5), (12). Similarly, the ‘contingent’ guarantee of the Action Electric debt to the bank by the debtor, makes him liable to the bank for a nondischargeable debt to the extent of taxes paid on his behalf. Glaubitz v. Grossman,10-C-927, 2011 WL 147931 (E.D. Wis. Jan. 18, 2011), rev’g In re Glaubitz, 436 B.R. 99 (Bankr. E.D. Wis. 2010), is inapplicable as that case involved qualifying for a chapter 13 case, which does not include contingent obligations, whereas the debts under sections 523(a)(14) and (14A) do include such obligations.”

“This is not the clear cut case where a debtor pays his or her taxes with a credit card or a credit card access check for the exact amount of the taxes due. The account was also used for deposits from operations and other expenses. The court in Chrusz, 196 B.R. 221, solved the inability to trace each dollar by calculating a percentage of the borrowed funds to the total funds in the debtor’s account when the tax debt was paid. The percentage was then applied to the borrowed funds to determine the nondischargeable amount. This approach will not work in this case because there was never a positive balance in the Action Electric account in any month during which the tax debts were being paid, and the total overdraft exceeds the total tax debt. Therefore, the entire $101,432.98 is excepted from the debtor’s discharge.”

10-C-28421 In re Vandynhoven

E.D.Wis., McGarity, Bankr. J.