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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10865
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Can I file suit on a US Bankruptcy Trustee paying the

Customer Question

Customer: Can I file suit on a US Bankruptcy Trustee for not paying the business 941 employee taxes (Business was sold in US Bankruptcy Court for 50K) hile the following year those same taxes were taken from me personally by the IRS?
JA: Thanks. Can you give me any more details about your issue?
Customer: I sold a business through Bankruptcy Court in Dallas Texas for 50K in 2010. The trustee was supposed to pay the remaining residual 941 taxes owed to the IRS, with those funds... (Only 9K or so) The following Tax return year 2011. In the 2012 I was supposed ti have a 10K refund or so... The IRS Kept my refund to satisfy those 941 taxes that were never paid by that US Trustee.
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Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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I hold a JD (Juris Doctorate, a doctoral degree in the law),concentration in Tax Law & Corporate law, an MBA (specialization in finance & tax), and BBA from Mercer University's Stetson School of Business and Economics, as well as CFP® and CRPS designations.

I can help here

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The short answer here is yes ... because the trustee has a fiduciary duty to the estate and to you.

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Your ability to make a case here will turn on your ability to show some agreement or documentation that he was, in deed, supposed to pay the payroll taxes.

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The trust fund penalty, a penalty for not paying those taxes, ("trust" coming from the constructive trust that's created when a responsible person deducts those payroll taxes and is responsible for paying them in) is levied on the "responsible person," which NORMALLY is the corporate officers, owners and I have even see cases where payroll personnel were held accountable.

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But if the business was part OF the bankruptcy estate, the trustee would be a responsible person (AGAIN, any real success here will be from showing that this was the understanding, and CERTAINLY if the terms and responsibilities were codified (reduced to writing)... for example in the sales contract.

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On the negative side there have been attempts to limit the liability of a trustee; the National Bankruptcy Review Commission provided recommendations of when a trustee might be liable, and not, but the Commission’s recommendations as to trustee immunity and liability did not result in an amendment to section 323 of the

Bankruptcy Code.

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But something you MAY be able to use ... Mosser v. Darrow, decided over 50 years ago, was the Supreme Court’s first (and only) opinion concerning the personal liability of a bankruptcy trustee ... and that one did no go in the trustee's favor; the Court observed that trustees are able to limit, if not avoid, liability by making candid periodic accountings to the court and parties in interest of their actions or by seeking instructions from the court “as to matters which involve difficult questions of judgment.” Unfortunately, the trustee in Mosser failed to pursue either option.

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SO, your showing that this was done WITHOUT accountings or court involvement may also be useful.

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Hope this helps to clarify and help you work through it ... but yes, you certainly CAN, ... whether or not you'll be successful will turn on your (1) documenting that it was the trustees duty and/or (2) showing that he did so (selling and not paying the taxes without the proper disclosure)

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If this HAS helped, (and you don't have any other questions on this), I'd really appreciate a positive rating(using those stars on your screen) … That's the only way I'll be credited with a portion of what you've paid JustAnswer.com

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Thank you,

Lane

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