Withholding Taxes on Wage Dividends for Pre-Bankruptcy Wages Assigned to Fourth Priority in Distribution of Bankrupt’s Estate-In re Connecticut Motor Lines, Inc.
Among claims against a bankrupt estate were those for unpaid wages and vacation pay earned within three months of the bankruptcy of the employer. The referee ordered distribution of the amount of the claims, assigning them second priority, but he refused to authorize deduction of income withholding tax and social security taxes from these payments as requested by the Government. The district court reversed, holding the trustee in bankruptcy liable for the taxes as a first priority administrative expense. On appeal, held, reversed. Taxes based on wage claims accruing prior to bankruptcy but paid during bankruptcy are section 64a(4) “taxes legally due and owing by the bankrupt.”