UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

(a) FACTS - The debtor seeks to reopen this chapter 7 case to determine dischargeability of a debt. In 1984, the debtor guaranteed the City of Palmer payment of a claim for sales taxes incurred by a corporation in which she had obtained an interest after the taxes were incurred. At the time of the bankruptcy, she no longer held an interest in the corporation. She was discharged in January, 1989. This is a no asset case and no claims bar date has ever been set.

The City of Palmer was not listed in Parks' schedule of debts. She claims to have forgotten the debt. The City filed a state court action to recover on Parks' guaranty in August, 1994. About $11,000 is involved.

The trial is set in State of Alaska District Court for early January, 1994. Debtor seeks a determination of dischargeability in this court which will necessarily untrack the state court trial.

(b) REOPENING IS DISCRETIONARY - Whether this debt is discharged or not does not depend on reopening the case. See, In re Beezley, 994 F2d 1443 (9th Cir 1993). The state court can make this determination. Because of the analysis set out in the following section, I exercise my discretion to deny reopening. 11 USC § 350(b), FRBP 5010, and Beezley at 1434. See, In re Costa, 172 BR 954, 959 (Bankr ED Cal 1994), holding that generally in a no asset, no-bar-date case, all unscheduled debts are discharged, except those falling within the "bad actor" exceptions to discharge under §§ 523(a)(2), (4), or (6). This statement can be expanded to include any debt which is otherwise not dischargeable under § 523(a), such as certain tax debts outlined in § 523(a)(1).

Concurrent jurisdiction exists in the state court to determine dischargeability in this case. In re Tapp, 16 BR 315, 318, fn1 (Bankr       4 ABR 59  D AK 1981). Compare, In re Siragusa, 24 F3d 406 (9th Cir 1994) (regarding dischargeability under § 523(a)(5) involving a support issue).

(c) THE DEBT IS PROBABLY NONDISCHARGEABLE - In their briefing, the parties did not discuss the issue of whether this debt may be nondischargeable on the merits. Therefore, the following is not intended to preclude them from raising the issue in state court.

It appears on the surface, however, that the debt is for the guaranty of a trust fund tax which may not be dischargeable.

11 USC § 507(a)(7)(C) [from the October 22, 1994, passage of the Bankruptcy Reform Act of 1994, this has been renumbered as § 507(a)(8)(C)], gives priority status to claims of governmental units for "a tax required to be collected or withheld and for which the debtor is liable in whatever capacity." 11 USC 523(a)(1)(A), makes such § 507(a)(7) taxes nondischargeable in the case of an individual debtor. Sales taxes which a vendor collects from a customer for a municipality are "trust fund taxes" and within the ambit of § 507(a)(7)(C). See DeChiaro v New York State Tax Commission, 760 F2d 432 (2nd Cir 1985), holding sales taxes are governed by the "trust fund" tax provision rather than the "excise tax" provisions of § 507(a)(7). But, see, In re Tapp, at 322, holding sales taxes fall within the excise tax provisions. I would follow the 2nd Circuit's analysis which appears to be the majority rule.

"In whatever capacity," presumably includes a guaranty of such debt (as in Parks' case, a city sales tax collected from customers for turnover to the City of Palmer), and a guaranty of such a tax is within the reach of § 507(a)(7)(C). An individual debtor who is liable as a "responsible party" for nonpayment of taxes due to a state or municipality by a corporation of which debtor is an officer cannot discharge this obligation, even though the corporation is the entity which is principally liable. In re Felland, 153 BR 835 (Bankr WD Wis 1993).

The breadth of "liability in whatever capacity" is greater than just "responsible parties" under statutes similar to the 100% penalty tax under 26 USC § 6672. In re LMS Holding Co., 149 BR 684, 686 (Bankr ND OK 1993). In LMS Holdings, a chapter 11 debtor-in-possession (RMC) had, before its own bankruptcy case was filed, assumed some FUTA and FICA       4 ABR 60  taxes from another debtor who was in bankruptcy. Some of these taxes were "trust fund" taxes falling under § 507(a)(7)(C) in the prior bankruptcy. When RMC later filed its own bankruptcy, it claimed that the obligations it had assumed were not in the § 507(a)(7)(C) class debts in RMC's bankruptcy because they had not been incurred by RMC itself. The court rejected this argument and said:

Congress could hardly have chosen broader language than "in whatever capacity." The plain meaning of this language does include transferees such as RMC.

Likewise, liability based upon Parks' guaranty of the City of Palmer's sale tax claim, even if incurred by a predecessor, should also be nondischargeable.

Therefore,

IT IS ORDERED that the debtor's motion to reopen is DENIED without prejudice to debtor raising any dischargeability defense in state court.

DATED: December 23, 1994

HERBERT A. ROSS
U.S. Bankruptcy Judge