1. BACKGROUND- This memorandum addresses whether a $30,000 fund dedicated to paying maritime wage lien claimants of the F/T Midas should be paid to the seamen pro rata, without a deduction for employment taxes. I tentatively hold that it should not.

A formal motion is not pending before the court, but apparently the parties, represented by Steven Shamburek for the seamen and Stephen Baker for the IRS, feel that the matter is at issue.

I do not have the detail on what the tax burden would be on the $30,000, but this detail is not required to make a tentative ruling. I surmise that 5ABR66      the $30,000 is not sufficient to pay the wage claims in full -- that is both the net wages and the associated employee's tax deductions. The $30,000 is from the sale of the F/T Midas. The $30,000 was arrived at in mediation, to be distributed by the disbursing agent (apparently somebody from Bucknell Stehlik's office or Tony Neupert). The disbursing agent needs direction on whether to disburse after deducting the employment taxes, or to ignore the employment taxes and pay the entire $30,000 to the seamen pro rata.

I imagine that the seamen would not be objecting if there were enough to pay the full amount of their net wages and the employee's taxes to the government taxing authorities. Probably the following hypothetical scenario reflects the actual situation:

• The seamen have a $100 maritime wage lien.
• There is only $75 from the sale of the vessel to cover the lien.
• The tax burden (assume 25%) would take $25 from the $100, if there were $100, leaving $75 for the seamen.
• Seamen's Position- There is only $75, however, and the seamen say that is exactly what they are owed. Under maritime law they are next in lien priority to receive the $75, notwithstanding the employment tax laws.
• IRS's Position- The seamen should only get $56.25 (75% of $75), and the taxing authority should get $18.75 (25% of $75) because the disbursing agent cannot pay net wages to the seamen without paying the taxes over to the government.

The briefing is scattered through the record, and the court has added to the record Stephen Baker's July 18, 1997, letter and Steve Shamburek's September 5, 1997, letter regarding the issue by filing, concurrent with this tenative decision, a Memorandum of Record to Attach Letters to the Court From Stephen Baker and Steven Shamburek Regarding Distribution of $30,000 to Wage Claimants [Midas Case].

2. TENTATIVE RULING- I tentatively rule that the disbursing agent must deduct the employees' share of taxes before paying the net over to the seamen.

5ABR67      The seamen have a second priority maritime lien, after the in custodia legis expenses. 46 USC § 31326(b). The withholding statutes are identified in Stephen Baker's letter in which he cited 26 USC §§ 3101, 3102, 3111, 3123, 3402, 3504, and 3505.

I do not think that bankruptcy law is very relevant in resolving the issue we are addressing. Rather, the resolution centers on accommodating the maritime lien law with the tax laws.

Few cases discuss the precise issue the parties have raised. The view of Marine Midland Trust Company of New York v United States, 299 F2d 724 (4^th Cir 1962) appears to be a rational accommodation of the priority scheme of maritime lien laws and the collection scheme of the Internal Revenue Code. I will follow it.

The distinction in Marine Midland and our case is that the seamen were apparently paid the full amount of their net wages and wanted their withholding taxes paid to the government. The junior lienors in Marine Midland, those subordinate to the wage claimants, were the ones objecting. This is not a significant factor in applying the law to our case, however. The court said, at 724-25:

The S.S. Pacific Star was sold by the court below on the crew's libel for wages and the libels of junior maritime lienors including the appellant. After payment of the ship's custodial expenses and a tort claim, the sale proceeds standing vicariously for the ship were applied to the wages, with the required deductions for taxes. This retent was paid to the United States also at the seamen's request. Since the residue of the ship funds were insufficient to meet the liens subsequent to wages, these lienors objected to the tax disbursement.

The money, confessedly, did not go to the United States as a lienor of any kind. For these taxes the Government had no lien or jus in re against the vessel or the substituted fund. Its right derived from the seamen. What it took was a part of their lay in the voyage: 'a lien upon the last plank of the ship.' 4 Benedict on Admiralty 282 (6 ed. 1940). Even if they had not directed the purser of the funds-- whether court, clerk or registry-- to attorn to the Government for this portion of their money, 5ABR68      he was nevertheless obliged by law to do so. With the money in hand, reserved under the command of the statute, he had no choice under the statute but to relinquish it to the sovereign, for whom it was marked.

But it became marked money only after severance-- by satisfaction-- of the seamen's claims from the ship or her monetary equivalent, when it lost its identity with the ship. Not until the whole of the wage had been set aside for each seaman was it labelled as in part the Government's. The United States was not a stand-in for the seamen, nor was it their subrogee. It was their transferee.

The Government was gathering of the seamen and of no one else: it partook only of the mariners' portion. The other demandants, for whom the ship was a lienee too, cannot complain of a lawful take from another's entitlement, no matter the taker.

The facts stated in Judge Roberts' opinion in Kesserling v F/T Arctic Hero, 1993 AMC 447, 1992 WL 470510 (D AK 1992) are too abbreviated to persuade me that he was addressing the same issue that is raised in our case. He may have been addressing a question involving wages paid outside the lien claim, and only involving whether the tax burden of that claim was itself entitled to a lien status. If the latter, both F/T Arctic Hero and Marine Midland agree that there is no maritime lien for this type of tax.

If F/T Arctic Hero does relate to our fact situation, I respectfully disagree with its conclusion that taxes should not be withheld from maritime wages paid out of proceeds of the sale of a vessel. Judge Roberts indicated the government had cited no contrary authority. Certainly, in that case, there is authority to the contrary in the form of Marine Midland.

In any event, based on the record in our cases, I conclude that there is not binding District Court authority compelling me to decide otherwise. This would be an excellent case to appeal to the District Court to test my understanding.

Banco De Credito Industrial, S.A. v Tesoreria General, 990 F2d 827 (5^th Cir 1993), cert den, 114 SCt 877 (1994) involved a Spanish Social Security tax which is not a direct deduction 5ABR69      from a seaman's gross wages, but a payment more akin to contribution to a pension fund. As such, it is factually distinct from the wage deductions sought in our case.

As Mr. Baker points out at pages 4-5 of his letter, even if the entire $30,000 is paid to the seamen they would owe the related taxes which normally would have been deductible from the $30,000. The withholding scheme of the tax code merely assures the payment. The fact that this conclusion seems so obvious probably explains the dearth of cases on the issue.

3. CONCLUSION- There is no pending motion, but the letters of Mssrs. Shamburek and Baker, with the attachments, clearly identify the issue. To allow for some procedural regularity, however, I will enter an order adopting my tentative ruling, subject to any party asking for a more formal or extended proceeding to make a better record for appeal.