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U.S. Supreme Court

Jersey Shore State Bank v. United States, 479 U.S. 442 (1987)

Jersey Shore State Bank v. United States

No. 86-1736

Argued December 8, 1986

Decided January 20, 1987

479 U.S. 442


Section 3505 of the Internal Revenue Code of 1964 (Code) provides that persons such as lenders, who are not employers but who directly or indirectly pay employees' wages, will be personally liable for all or a portion of "a sum equal to" any Social Security and income taxes that are not withheld from the wages and paid to the Government as required by Subtitle C of the Code. Code § 6303(a) requires the Government, within 60 days of making an assessment of unpaid taxes, to notify "each person liable for the unpaid tax" of the amount of the assessment, and to make a demand for payment. Without first giving a § 6303(a) notice, the Government brought suit against petitioner in Federal District Court seeking a determination that it was liable under § 3505 for amounts reflecting unpaid taxes required to be withheld from wages paid to employees of a third-party employer. The District Court granted summary judgment for petitioner, holding that a § 6303(a) notice was required. The Court of Appeals reversed.

Held: Section 6303(a) does not require the Government to provide notice and a demand for payment to a lender before bringing a civil suit to collect sums for which the lender is liable under § 3505. Pp. 479 U. S. 446-449.

(a) Section 6303(a)'s description of an assessment notice recipient as a person "liable for the unpaid tax" does not clearly include a § 3505 third-party lender, who is liable for all or part of "a sum equal to" the unpaid taxes. Pp. 479 U. S. 446.

(b) Compliance with § 6303(a)'s requirements that the notice "stat[e] the amount" assessed and "deman[d] payment thereof " would frequently have little meaning to lenders in § 3505 cases, since the amount stated and demanded (1) could include the employer's share of unpaid Social Security taxes, for which the lender is not liable; (2) could equal the lender's liability only if the lender provided payroll financing throughout the period covered by the assessment; and (3) would rarely be accurate for a lender liable only under § 3505(b), which limits exposure to 25% of the funds loaned to the employer. Pp. 479 U. S. 446-447.

(c) It would not be fundamentally unfair to require the Government to provide § 6303(a) notice to delinquent employers but not to lenders in § 3505 cases, since employers, who are subject to summary collection procedures soon after unpaid employment taxes are assessed, have a far chanrobles.com-red

Page 479 U. S. 443

greater need for such a notice than third-party lenders, upon whom liability can be imposed only after a civil suit. Pp. 479 U. S. 447-448.

(d) A third-party lender would not be unfairly prejudiced by lack of a § 6303(a) notice even if, as contended by petitioner, a timely assessment under § 6501(a) would trigger an additional 6-year limitation period under § 6502(a)(1) for a collection suit against the lender, since, as § 3505's legislative history suggests, Congress envisioned a system in which third-party lenders would take their potential § 3505 liability into consideration by including the amount of potential withholding liability in their loans and taking adequate security, and since, even without a § 6303(a) notice, a prudent lender may be alerted to its § 3505 liability at the time it engages in "net payroll financing," e.g., providing funds to the employer for wages, but not for withholding taxes. Pp. 479 U. S. 448-449.

781 F.2d 974, affirmed.

REHNQUIST, C. J., delivered the opinion for a unanimous Court.