US SUPREME COURT DECISIONS

1. A trustee in bankruptcy for an employer is required by the withholding provisions of the Internal Revenue Code of 1954 (IRC) and similar provisions of the New York City Administrative Code to withhold taxes from the payment of priority claims for wages earned by employees prior to the employer's bankruptcy, but unpaid at the inception of the bankruptcy proceeding. The payment of the wage claims is "payment of wages" under IRC § 3402(a) requiring withholding of income taxes, and is wages under IRC § 3102(a) requiring withholding of social security taxes, and an "employer," defined by IRC § 3401(d)(1) to include "the person having control of the payment" of wages, is present under § 3402(a). The same rationale applies to the withholding of city income taxes under the similar City Code provisions. Pp. 419 U. S. 48-52.

2. From the obligation to withhold it follows that the trustee is also required to prepare and submit to the wage claimants and to the taxing authorities the reports and returns required of employers under IRC §§ 6051(a), 6001, and 6011 and similar provisions of the City Code. P. 419 U. S. 52.

3. Requiring the trustee to withhold, report, and file returns does not unduly burden the administration of bankrupt estates so as to contravene the spirit of the Bankruptcy Act, for the burden is the same as any employer, or receiver, arrangement debtor, or other fiduciary, with a like number of employees must bear; moreover, both the IRC and the City Code allow the trustee to withhold taxes at a flat rate, thus facilitating the tax computation. Pp. 419 U. S. 52-54.

4. Proofs of claim by the United States and New York City with respect to the withholding taxes on the priority wage claims are not required. Since tax liability accrues only when the wage is paid, and since the wages subject to the wage claims here, although earned before bankruptcy, were not paid prior thereto, so that the chanrobles.com-red

Page 419 U. S. 44

bankrupt employer's tax liability came into being only during bankruptcy, the taxes are not like debts of the bankrupt for which proofs of claim must be filed. Pp. 419 U. S. 54-55.

5. The federal and city withholding taxes are entitled, as are the priority wage claims from which they emerge, to second priority of payment under § 64a(2) of the Bankruptcy Act. Such taxes are not within the fourth priority under § 64a(4), since they did not become due and owing by the bankrupt until after the wage claims were paid following bankruptcy. Nor are such taxes entitled to first priority under § 64a(1), since they are not costs or expenses of administration of the bankrupt estate, but are part of the wage clams themselves, and are carved out of the payment of those claims. Pp. 419 U. S. 55-58.

480 F.2d 184, affirmed.

BLACKMUN, J., delivered the opinion for a unanimous Court.