Begier v. Internal Revenue Service/Concurrence Scalia

Justice SCALIA, concurring in the judgment.

Representative Edwards, the House floor manager for the bill that enacted the Bankruptcy Code, said on the floor that "[t]he courts should permit the use of reasonable assumptions" regarding the tracing of tax trust funds. 124 Cong.Rec. 32417 (1978). We do not know that anyone except the presiding officer was present to hear Representative Edwards. Indeed, we do not know for sure that Representative Edwards' words were even uttered on the floor rather than inserted into the Congressional Record afterwards. If Representative Edwards did speak these words, and if there were others present, they must have been surprised to hear him talking about the tracing of 26 U.S.C. § 7501 tax trust funds, inasmuch as the bill under consideration did not relate to the Internal Revenue Code but the Bankruptcy Code, and contained no provision even mentioning trust-fund taxes. Only the Senate bill, and not the House proposal, had mentioned trust-fund taxes-and even the former had said nothing whatever about the tracing of tax trust funds. See S. 2266, 95th Cong., 2d Sess., § 541 (1978). Only the Senate Committee Report on the unenacted provision of the Senate bill had discussed that subject. See S.Rep. No. 95-1106, p. 33 (1978).

Nonetheless, on the basis of Representative Edwards' statement, today's opinion concludes that "[t]he courts are directed " (presumably it means directed by the entire Congress, and not just Representative Edwards) "to apply 'reasonable assumptions' to govern the tracing of funds." Ante, at 67 (emphasis added). I do not agree. Congress conveys its directions in the Statutes at Large, not in excerpts from the Congressional Record, much less in excerpts from the Congressional Record that do not clarify the text of any pending legislative proposal.

Even in the absence of direction to do so, however, I certainly think we should apply reasonable assumptions to govern the tracing of funds. Unfortunately, that still does not answer the question before us here. One "traces" a fund only after one identifies the fund in the first place. The problem here is not "following the res" of the tax trust, but identifying the res to begin with. Seeking to come to grips with this point, the Court once again resorts to legislative history, this time even further afield. It relies upon the House Report on what later became 11 U.S.C. § 547, which says:

"A payment of withholding taxes constitutes a payment of     money held in trust under Internal Revenue Code § 7501(a),      and thus will not be a preference because the beneficiary of      the trust, the taxing authority, is in a separate class with respect to those taxes, if they have been      properly held for payment, as they will have been if the      debtor is able to make the payments." H.R.Rep. No. 95-595,     p. 373 (1977), U.S.Code Cong. & Admin.News 1978, p. 6329.

The Court decides this case by "adopting" "a literal reading" of the above language. Ante, at 66. I think it both demeaning and unproductive for us to ponder whether to adopt literal or not-so-literal readings of Committee Reports, as though they were controlling statutory text. Moreover, even applying the lax legislative-history standards of recent years, this Committee Report should not be considered relevant. If a welfare bill conditioned benefits upon a certain maximum level of "income," courts might well (regrettably) regard as authoritative the Committee Report's statement that "income" means "income as computed under the Internal Revenue Code"; but surely they would not regard as authoritative its statement that a particular class of receipt constitutes income under the Internal Revenue Code. Authoritativeness on the latter sort of point is what the Court accepts here. The proposed (and ultimately enacted) provision of law to which this Committee Report pertained was the general provision of the Bankruptcy Code setting forth the five conditions for a voidable preference, reading in part as follows:

"Except as provided in subsection (c) of this section,     the trustee may avoid any transfer of property of the debtor-

"(1) to or for the benefit of a creditor;

"(2) for or on account of an antecedent debt owed by the     debtor before such transfer was made;

"(3) made while the debtor was insolvent;

"(4) made . . . on or within 90 days before the date of     the filing of the petition . . .;  and

"(5) that enables such creditor to receive more than     such creditor would receive [under a chapter 7 bankruptcy distribution]." H.R. 8200, 95th Cong., 2d Sess., §     547(b) (1977);  see 11 U.S.C. § 547(b).

The Committee Report's discussion of withholding taxes paid during the preference period presumably clarifies the meaning of the phrase "property of the debtor" in this text. If that is authoritative concerning the construction and effect of § 7501, imagine what other laws concerning "property of the debtor" could also have been enacted through discussion in this Committee Report. The matter seems to me plainly too far beyond the immediate focus of the legislation to be deemed resolved by the accompanying Committee Report. It was certainly thoughtful of whoever drafted the report to try to clear up the issue of what kind of an estate, legal or equitable, the debtor possesses in trust-fund taxes that are paid, but that discussion is a kind of legislative-history "rider" that even the most ardent devotees of legislative history should ignore.

If the Court had applied to the text of the statute the standard tools of legal reasoning, instead of scouring the legislative history for some scrap that is on point (and therefore ipso facto relevant, no matter how unlikely a source of congressional reliance or attention), it would have reached the same result it does today, as follows: Section 7501 obviously intends to give the United States the advantages of a trust beneficiary with respect to collected and withheld taxes. Unfortunately, it does not always succeed in doing so. A trust without a res can no more be created by legislative decree than can a pink rock-candy mountain. In the nature of things no trust exists until a res is identified. Ordinarily the res is identified by the settlor of the trust; in the case of § 7501 it is initially identified (if at all) by the statute, subject (as I shall discuss) to later reidentification by the taxpayer. Where the taxes subject to the trust-fund provision of § 7501 are collected taxes, the statute plainly identifies the res: it is the collections. There may be difficulty in tracing them, but there is no doubt that they exist. Where, however, the taxes subject to the trust-fund provision are withheld taxes, the statute provides no clear identification. When I pay a worker $90 there is no clearly identifiable locus of the $10 in withheld taxes that I do not pay him. Indeed, if my total assets at the time of the payment are $90 there is no conceivable locus.

We may have to grapple at some later date with the question whether the lack of immediate identification means that no trust arises, or rather that § 7501 creates some hitherto unheard-of floating trust in an unidentified portion of the taxpayer's current or later-acquired assets. We do not have to reach that question today, because even though identification was not made by the statute immediately, it was made by the taxpayer when it wrote a check upon a portion of a designated fund to the Government. (It is clear from the statutory scheme that the taxpayer has the power to identify which portion of its assets constitutes the trust fund; indeed, 26 U.S.C. § 7512 permits the Government to compel such identification where it has not been made.)  Even if no trust existed before that check was written, it is clear that a trust existed then. See 1 W. Fratcher, Scott on Trusts § 26.5 (4th ed.1987) (promise to create trust becomes effective when settlor transfers or otherwise designates res as trust property).

The designation here, however, occurred within the 90-day preference period. Ordinarily, the debtor's alienation of his equitable interest by declaring a trust would constitute a preference. It seems to me, however, that one must at least give this effect to § 7501's clearly expressed but sometimes ineffectual intent to create an immediate trust: If and when the trust res is identified from otherwise unencumbered assets, the trust should be deemed to have been in existence from the time of the collection or withholding. Thus, the designation of res does not constitute a preference, and the funds paid were not part of the debtor's estate.

For these reasons, I concur in the judgment of the Court.