In re: Rosa Amelia Morillo

Opinion

3 IN RE: ROSA AMELIA MORILLO CASE NO. 13-07734 (ESL) 4 || SERRANO 5 CHAPTER 13 Debtor 6 8 This case is before the court upon the Debtor’s Objection to Claim Number (12) by ° Creditor Treasury Department (Hacienda de P.R.) and Notice of Opportunity for a Hearing (the “Objection”) (Docket No. 39) and the reply (Docket No. 63) filed by the Treasury 0 Department of the Commonwealth of Puerto Rico (thereafter referred to as “Treasury”). The Debtor filed a Sur-Reply to Puerto Rico Treasury Department’s Reply to Debtor’s Objection to Claim Number 12 (Docket No. 70). Also before the court is the Debtor’s Motion for Summary Judgment on Objection to Claim #12 filed at Docket entry #39 (Docket No. 125) and Treasury’ □ Response in Opposition to Debtor’s Motion for Summary Judgment on Objection to POC 12 6 and Memorandum of Law Thereof (Docket No. 132). The Debtor argues that section 507(a)(8)(C) is not applicable because the tax debts on proof of claim #12 were incurred by Jet Center, Inc., which is a juridical person separate and distinct from the Debtor. Debtor also argues that 13 L.P.R.A. §$33331-33332 do not apply to the Debtor because these sections were enacted in the year 2011, subsequent to Jet Center, Inc.’s tax debts. Moreover, section 6180 of the Puerto Rico Internal Revenue Code of 1994, 13 L.P.R.A. $8180 did not impose personal liability for withholding of taxes on the officers of a corporation. Treasury contends that the Debtor, as President of Jet Center, Inc. was responsible for the tax withholdings of such entity and for the corporate tax obligations pursuant to 11 U.S.C. §507(a)(8)(C) and section 6180 of the Puerto Rico Internal Revenue Code, 13 L.P.R.A. $8180, as amended by section 6080.01 of

27 -|-

1 the Puerto Rico Internal Revenue Code, 13 L.P.R.A. §$33331. Treasury argues that both codes 2 impose personal liability for taxes withheld. 3 For the reasons stated below, the Debtor’s Motion for Summary Judgment on Objection 4 || to Claim #12’s is denied and Treasury’s cross motion for summary judgment is granted in part 5 || and denied in part. 6 Jurisdiction 7 The court has jurisdiction pursuant to 28 U.S.C. $§ 157(a) and 1334(b). This is a core 8 || proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). 9 Procedural Background 10 The Debtor filed a Chapter 13 bankruptcy petition on September 19, 2013. In her 11 Statement of Financial Affairs (‘SOFA’) the Debtor disclosed in line item #18 that she had a 12 ||business named Jet Center from the years 1999-2010 and the nature of such business was 13 charter sales (Docket No. 4, pg. 48). On February 20, 2014, the Debtor’s Chapter 13 plan was 14 || confirmed (Docket No. 31). On March 18, 2014, the Treasury filed proof of claim #12-1 in the 15 ||amount of $62,633.38 of which $42,094.70 was listed as a priority claim under 11 U.S.C. 16 || §$507(a)(8), and the remaining $20,538.68 was listed as a general unsecured claim. These taxes 17 || are owed by Jet Center, Inc. 18 On May 28, 2014, the Debtor filed her Objection to Treasury’s proof of claim #12 19 || arguing that the Debtor is not liable for the tax debts of Jet Center, Inc. and that the same has 20 || been inactive since April 16, 2014 (Docket No. 39). On June 2, 2014, the Debtor filed an 21 Informative Motion by which she informed that the amendment to the SOFA consisted in 22 || changing the date of cancellation of Jet Center, Inc. to April 16, 2014 instead of the year 2010 23 (Docket No. 41). On June 25, 2014, Treasury filed a motion (Docket No. 48) requesting an 24 |/extension of thirty (30) days to reply to Debtor’s objection to claim #12 and the same was 25 || granted on June 26, 2014 (Docket No. 49). 26 On August 13, 2014, Treasury filed its Reply to Debtor’s Objection to the Department of 27 || Treasury’s POC No. 12 arguing that pursuant to 11 U.S.C. §507(a)(8)(C) and section 6080.01 2.

1 || of the Puerto Rico Internal Revenue Code, 13 L.P.R.A. $8180, the Debtor as the owner of Jet 2 Center, Inc. has the contributive obligation to pay all the tax debts of said corporation and is 3 || personally liable for the same (Docket No. 63). On August 18, 2014, the Debtor filed a Motion 4 || for Leave to Reply (Docket No. 66) requesting an extension of thirty (30) days to file its reply to 5 || Treasury’s motion and the same was granted on August 20, 2014 (Docket No. 67). On 6 || September 11, 2014, the Debtor filed an Informative Motion Amending Statement of Financial 7 || Affairs #18 which consisted in clarifying the corporate status of the business identified as Jet 8 || Center, Inc. (Docket No. 69). On September 12, 2014, the Debtor filed her Sur-Reply to Puerto 9 || Rico Treasury Department’s Reply to Debtor’s Objection to Claim Number 12 arguing as 10 follows: (i) Treasury has failed to establish any statutory or case law basis for the Debtor’s 11 |} liability for the debt allegedly incurred by Jet Center, Inc.; (11) Treasury has not established that 12 ||the Debtor was the person responsible for collecting and withholding taxes at Jet Center, Inc. 13 from any other person and remitting the same to Treasury; and (ili) the amended Puerto Rico 14 || Internal Revenue Code of 2011 added a new section that specifies that corporate stakeholders 15 || are responsible for withholding or collecting corporate taxes, but this section is inapplicable in 16 || this case because the alleged tax debts are for the years 2000-2010 which fall under the Puerto 17 || Rico Internal Revenue Code of 1994 (Docket No. 70). 18 On September 24, 2014, the court docketed an Order and Notice Preliminary Pretrial 19 || Conference ordering the Debtor and Treasury to file a joint pre-trial report seven (7) days prior 20 || to the hearing date which was scheduled for 01/14/2015 (Docket No. 73). On January 9, 2015, 21 || the Debtor filed a Motion Requesting Pretrial Hearing be Continued or Converted to Status 22 || Conference (Docket No. 84) and the same was granted on January 14, 2015. The pretrial 23 || hearing was continued and rescheduled for May 6, 2015 (Docket No. 85). On February 19, 24 || 2015, the Debtor filed an Informative Motion informing the court that she had served Treasury 25 through its legal counsel with a first of interrogatories, request for admissions and request for 26 || production of documents (Docket No. 89). On March 26, 2015, Treasury filed a Motion 27 || Requesting Extension of Time of thirty (30) days to answer Debtor’s first set of interrogatories, 3-

1 ||request for admissions and request for production of documents (Docket No. 99). Treasury’s 2 || motion requesting an extension of time was granted on March 27, 2015 (Docket No. 100). On 3 || May 4, 2015, the Debtor filed a Motion for Continuance of Pretrial Hearing (Docket No. 105) 4 || and the same was granted on said date (Docket No. 106). The pretrial hearing was continued to 5 || September 2, 2015. 6 On September 1, 2015, the Debtor filed a Motion for Summary Judgment on Objection 7 || to Claim #12 filed at Docket Entry #39 by which she maintains that: (1) the Puerto Rico Internal 8 || Revenue Code of 1994 is the controlling law in this case, given that the alleged tax claims were 9 incurred during the years 2000 through 2010, prior to the enactment of the Puerto Rico Internal 10 || Revenue Code of 2011; Gi) section 6180 of the Puerto Rico Internal Revenue Code of 1994, 31 11 ||L.P.R.A. §8180 would be applicable. This section is very similar to section 6080.01 of the 12 || Puerto Rico Internal Revenue Code of 2011, 13 L.P.R.A. §33331. However, this section does 13 include the term personal liability. “What the statute established is that when a person who 14 || withholds taxes for another, those taxes are deemed to be in a special trust fund for the 15 }|Commonwealth of Puerto Rico. The statute does not provide any consequences for failure to 16 collect or withhold taxes for another person. The statute simply establishes that taxes collected 17 || for another person belong to a trust fund for the Commonwealth of Puerto Rico, provides for the 18 }|manner in which the trust fund is assessed, collected, and paid and provides a statute of 19 || limitations for its assessment;’(iii) the Puerto Rico Internal Revenue Code of 2011 created a 20 |/new section (section 6080.02, 13 L.P.R.A. $33332) that imposes personal liability to the 21 || officers of a corporation for taxes payable by a corporation; (iv) since the Puerto Rico Internal 22 Revenue Code of 1994 did not impose personal liability on a person that failed to collect or 23 || withhold taxes for another, Treasury cannot deem the Debtor liable for those taxes; and (v) 24 || section 507(a)(8)(C) is not applicable because the tax debt alleged in proof of claim #12-1 was 25 |/incurred by Jet Center, Inc., not by the Debtor. The Debtor is not personally liable under state 26 law (Docket No. 125). On the same date, the Debtor filed the Statement of Uncontested Facts 27 Support of Debtor’s Motion for Summary Judgment (Docket No. 126). On October 7, 2015, -4.

1 || Treasury filed its Reply to Debtor’s Statement of Uncontested Facts in Support of Motion for 2 || Summary Judgment (Docket No. 133). On October 7, 2015, Treasury filed its Response in 3 || Opposition to Debtor’s Motion for Summary Judgment on Objection to POC 12 and 4 || Memorandum of Law Thereof by which it contends that the Debtor, as President of Jet Center, 5 || Inc. was responsible for the tax withholdings of such entity and for the corporate tax obligations 6 || pursuant to 11 U.S.C. $507(a)(8)(C) and section 6180 of the Puerto Rico Internal Revenue 7 || Code, 13 L.P.R.A. $8180 as amended by section 6080.01 of the Puerto Rico Internal Revenue 8 || Code, 13 L.P.R.A. §33331. Treasury argues that both the 1994 and 2011 codes impose personal 9 || liability for taxes withheld. Moreover, the Debtor’s omission to submit the taxes withheld to 10 || Treasury constitutes an illegal appropriation of public funds (Docket No. 132). 11 The first issue before the court is whether Treasury’s tax claim for taxes which were 12 || withheld by Jet Center, Inc. are trust fund taxes pursuant to 11 U.S.C. §507(a)(8)(C). If 13 || Treasury’s tax claim is for trust fund taxes, the second issue is whether the Debtor as President 14 ||of Jet Center, Inc. is personally liable pursuant to the Puerto Rico Internal Revenue Code of 15 |} 1994, 16 The parties agree as to the following uncontested material facts (Docket Nos. 126 & 133): M Material Uncontested Facts 1. The Debtor was the President of Jet Center, Inc., a corporation duly organized under

20 the laws of the Commonwealth of Puerto Rico (Docket No. 126, Exhibit 1). 2. The Treasury filed proof of claim #12-1 asserting that Debtor was liable for tax debts 22 || allegedly incurred by Jet Center, Inc. for the years 2000, 2001, 2002, 2003, 2004, 2005 and 23 || 2010. 24 3. Proof of claim #12-1 discloses that the alleged tax debts incurred by Jet Center, Inc. for *5 years 2000, 2001, 2002, 2003, 2004, 2005 and 2010 consist of a priority portion in the amount of $42,094.70 and an unsecured portion in the amount of $20,538.68.

5-

4. Pursuant to proof of claim #12-1, the tax debts allegedly incurred by Jet Center, Inc. for

2 the years 2000, 2001, 2002, 2003, 2004, 2005 and 2010 consist of corporate taxes, employer 3 || taxes, withholding taxes and insufficient fund checks. 4 Applicable Law and Analysis 5 Standard for Motion for Summary Judgment 6 7 Rule 56 of the Federal Rules of Civil Procedure, is applicable to this proceeding by Rul g || 7056 of the Federal Rules of Bankruptcy Procedure. Summary judgment should be entered “i 9 the pleadings, depositions, answers to interrogatories, and admissions on file, together with th 10 affidavits, if any, show that there is no genuine issue as to any material fact and that the movin M party is entitled to a judgment as a matter of law.” Fed. R. Bankr. P. 7056; see also, In r Colarusso, 382 F.3d 51 Cir. 2004), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-32

4 (1986). 15 “The summary-judgment procedure authorized by Rule 56 is a method for promptl 16 || disposing of actions in which there is no genuine issue as to any material fact or in which only 17 question of law is involved.” Wright, Miller & Kane, Federal Practice and Procedure, 3d, Vo 18 10A, § 2712 at 198. “Rule 56 provides the means by which a party may pierce the allegations i the pleadings and obtain relief by introducing outside evidence showing that there are no fac issues that need to be tried.” Id. at 202-203. Summary judgment is not a substitute for a trial o

disputed facts; the court may only determine whether there are issues to be tried, and it is 23 improper if the existence of a material fact is uncertain. Id. at 205-206. 24 Summary judgment is warranted where, after adequate time for discovery and upo 25 || motion, a party fails to make a showing sufficient to establish the existence of an elemen 26 essential to its case and upon which it carries the burden of proof at trial. Celotex Corp. □□ Catrett, 477 U.S. 317, 322 (1986). The moving party must “show that there is no genuine issu -6-

as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed

2 R. Civ. P. 56(c). 3 For there to be a “genuine” issue, facts which are supported by substantial evidence mus 4 || be in dispute, thereby requiring deference to the finder of fact. Furthermore, the disputed fact 5 must be “material” or determinative of the outcome of the litigation. Hahn v. Sargent, 523 F.2 6 461, 464 (1" Cir. 1975), cert. denied, 425 U.S. 904 (1976). When considering a petition fo summary judgment, the court must view the evidence in the light most favorable to th

9 nonmoving party. Poller v. Columbia Broadcasting Systems, Inc., 368 U.S. 464, 473 (1962); 19 || Daury v. Smith, 842 F.2d 9, 11 (1* Cir. 1988). 11 The moving party invariably bears both the initial as well as the ultimate burden i 12 demonstrating its legal entitlement to summary judgment. Adickes v. Kress & Co., 398 U.S, 13 144, 157 (1970). See also Lépez v. Corporacién Azucarera de Puerto Rico, 938 F.2d 1510, 151 (1 Cir. 1991). It is essential that the moving party explain its reasons for concluding that th record does not contain any genuine issue of material fact in addition to making a showing o

17 || Support for those claims for which it bears the burden of trial. Bias v. Advantage International 18 || Inc., 905 F.2d 1558, 1560-61 (D.C. Cir. 1990), cert. denied, 498 U.S. 958 (1990). 19 The moving party cannot prevail if any essential element of its claim or defense requires 20 trial. Lépez, 938 F.2d at 1516. In addition, the moving party is required to demonstrate that 71 there is an absence of evidence supporting the nonmoving party’s case. Celotex, 477 U.S. at 325. See also, Prokey v. Watkins, 942 F.2d 67, 72 (1* Cir. 1991); Daury, 842 F.2d at 11. In its

opposition, the nonmoving party must show genuine issues of material facts precluding 95 Summary judgment; the existence of some factual dispute does not defeat summary judgment. 26 || Kennedy v. Josepthal & Co., Inc., 814 F.2d 798, 804 (1“ Cir. 1987). See also, Kauffman v. 27 || Puerto Rico Telephone Co., 841 F.2d 1169, 1172 C1“ Cir. 1988); Hahn, 523 F.2d at 464. A -7-

party may not rely upon bare allegations to create a factual dispute but is required to point to

2 || Specific facts contained in affidavits, depositions and other supporting documents which, if 3 || established at trial, could lead to a finding for the nonmoving party. Over the Road Drivers, Inc. 4 || v. Transport Insurance Co., 637 F.2d 816, 818 (1* Cir. 1980). 5 The moving party has the burden to establish that it is entitled to summary judgment; no 6 defense is required where an insufficient showing is made. Lépez, 938 F.2d at 1517. The nonmoving party need only oppose a summary judgment motion once the moving party has met

9 its burden. Adickes, 398 U.S. at 159. 10 For the reasons explained below, this court denies the Debtor’s motion for summary 11 judgment, and grants in part and denies in part Treasury’s cross motion for summary judgment. 12 |! Personal Liability for Trust Fund Tax Claims pursuant to 11 U.S.C. $507(a)(8)(C) 13 Section 1322(a)(2) provides that a Chapter 13 plan, “shall provide for the full payment, 1 deferred cash payments, of all claims entitled to priority under section 507 of this title, unless th holder of a particular claim agrees to a different treatment of such claim.” 11 U.S.C. $1322(a)(2). 7 Section 507(a)(8) provides in pertinent part: 18 “Tt]he following expenses and claims have priority in the following order: 19 (8) Eighth, allowed unsecured claims of governmental units, only to the 20 extent that such claims are for---

1 (C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity.” 11 U.S.C. §507(a)(8)(C). The type of taxes referred to in 11 U.S.C. §507(a)(8)(C) are “trust fund” taxes and th

same are not dischargeable in bankruptcy irrespective of the age of the debt pursuant to 11

95 U-S.C. §§523(a)(1)(A)' and 507(a)(8)(C). See In re Calabrese, 689 F. 3d 312, 314 Grd Cir. 26 |} ——_—___- Section 523(a)(1)(A) provides: “a discharge under section 727, 1141, 1228(a), or 1328(b) of this title does no 27 || discharge an individual debtor from any debt— (1) Fora tax or customs duty— -8-

2012). “It should be noted that, in contrast to all of the other portions of section 507(a)(8), ther

2 no time limit applicable to trust fund taxes. A claim for trust fund taxes will be eligible fo 3 || priority no matter what the age of the claim.” See Alan N. Resnick & Henry J. Sommer, 4 Collie 4 || on Bankruptcy 4 507.11[4] (16th ed. 2015). Trust fund taxes generally include income taxes tha 5 an employer is required to withhold from the pay of his employees, the employee’s portion o Social Security taxes, and sales taxes which were collected by the debtor from a third party. Fo a claim to be afforded priority under section 507)(a)(8)(C) it must satisfy all of the following fiv

9 (5) factors: (1) the claim is held by a governmental unit; (ii) it is a tax claim; (iii) the tax is owe 10 || by a party other than the debtor; (iv) the tax must be withheld or collected from another party an 11 |} then transmitted to a governmental unit; and (v) the debtor must be liable for the tax payment i 12 || some capacity. Alan N. Resnick & Henry J. Sommer, 4 Collier on Bankruptcy 4 507.11[4] (16t 13 ed. 2015). Thus, if the tax at issue is actually owed by a taxpayer other than the debtor, and th debtor has the responsibility to withhold and/or collect monies (funds/tax receipts/revenues) an: then remit the same to a taxing authority, then it is a trust fund tax and falls under the scope o

7 section 507(a)(8). See Ill. Dep’t of Revenue v. Hayslett/Judy Oil, Inc., 426 F. 3d 899, 902 (7 18 |} Cir. 2005) (“These taxes are collected from individuals by a third party who then remits the ta 19 the government. Income tax and social security tax” are common examples of ‘trust fun: 20 taxes. citing Rosenow v. Ill. Dep’t. of Revenue, 715 F. 2d 277, 279 qt Cir. 1983)’”). 71 In the instant case, the Treasury’s total claim consists of $62,633.38, of which $42,094.7 is the alleged priority portion pursuant to section 507(a)(8)(C), which consists of the principa

24 (A) of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, 25 whether or not a claim for such tax was filed or allowed.” 11 U.S.C. $523(a)(1)(A). 26 ||* The Seventh Circuit has also concluded that the Illinois Use Tax, a sales tax, falls under the scope of sectio 507(a)(8)(C). See Rosenow v. Ill Dep’t. of Revenue, 715 F. 2d 277 (7" Cir. 1983); Il Dep’t of Revenue v, 27 || Hayslett/Judy Oil, Inc., 426 F. 3d 899 (7" Cir. 2005). This may be similar to the sales and use tax of th Commonwealth of Puerto Rico. See 13 L.P.R.A. $$32024-32025. -9-

and interests on withholding taxes and two (2) insufficient fund checks. The remainder portion o

2 the claim is the general unsecured portion which amounts to $20,538.68 and consists o 3 $8,489.29 in corporate taxes owed by Jet Center, Inc. for the year 2000 and $12,049.39 i 4 || penalties and surcharges (Claims Register, proof of claim #12-1). The Puerto Rico Interna 5 Revenue Code of 1994 is the code that applies, given that the alleged taxes were incurred prior to 6 the effective date of the Puerto Rico Internal Revenue Code of 2011. See 13 L.P.R.A. §800 (1994) and 13 L.P.R.A. §30011 (2011).

9 Treasury’s alleged priority tax claim is for two (2) types of taxes; namely: (i) incom 10 ||taxes that an employer is required to deduct and withhold from the pay of his employees 11 || pursuant to section 1141 of the Puerto Rico Internal Revenue Code of 1994, 13 L.P.R.A. □□□□□□ 12 || and (ii) the 7% withholding at source on payments made to another person for services rendere 13 pursuant to section 1143 of the Puerto Rico Internal Revenue Code of 1994, 13 L.P.R.A. 8543. Section 1141 of the Puerto Rico Internal Revenue Code of 1994 pertains to income ta withholding at the source in the case of wages. Section 1141(a)(4) defines the term “employer’ 17 as: “*’.. the person for whom an individual performs or has performed any service, of whateve 18 ||nature, as the employee of such person, except that: (A) If the person for whom the individua 19 || performs or has performed the services does not have control of the payment of the wages fo 20 |! such services, the term ‘employer,’ except for purposes of clause (1), means the person havin 71 control of the payment of such wages, and (B) in the case of a person paying wages on behalf o a nonresident individual, foreign partnership, or foreign corporation not engaged in trade o

business within Puerto Rico, the term ‘employer,’ except for purposes of clause (1) of this

25 subsection, means such person.” 13 L.P.R.A. $8541(a)(4)(A), (B). Moreover, section □□□□□□□□ 26 |} ——_—___——_. *Section 1141(b) of the Puerto Rico Internal Revenue Code of 1994 provides: “Requirement to withhold. Ever 27 || employer who makes payments of wages shall deduct and withhold a tax on the sum of all wages determine according to the withholding schedules that, in harmony with the tax rates fixed in this Part, shall be approved by th -10-

pertains to the employer’s obligation to deduct and withhold a tax on all wages and section 6181

2 || and the regulations establish the manner, time, and conditions for the payment or deposit of suc 3 || withheld taxes. Section 1141(1) establishes the employer’s liability for the tax. Section □□□□ 4 || provides in pertinent part that: “the employer shall be liable to the Secretary for the payment o 5 the tax required to be deducted and withheld under this section and shall not be liable to an 6 2° person for the amount of any such payment.” 13 L.P.R.A. §8541(1). 7 The other priority tax claim Treasury alleged is based on the 7% withholding at source o 8 9 payments made to another person for services rendered pursuant to section 1143 of the Puert 10 || Rico Internal Revenue Code of 1994, 13 L.P.R.A. §8543°. Section 1143(a) of the Puerto Ric 11 || Internal Revenue Code of 1994 provides in pertinent part: [t]he Government of Puerto Rico an 12 every natural or juridical person who, in the exercise of a trade or business activity or for th 13 Secretary of the Treasury and which shall be part of the regulations of this Part. For purposes of applying sai 14 |] schedules, the term ‘amount of the wages’ shall mean the amount by which the wages exceed the allowabl exemption for withholding allowable under subsection (c)(1).” 15 “ Section 6181 of the Puerto Rico Internal Revenue Code of 1994 provides in pertinent part: “[a]ny person who pays 16 salaries and is required to deduct and withhold from any employee any income taxes under sec. 8541, or th regulations promulgated by the Secretary pursuant to the Code, and to remit payment of such taxes to th 17 || Government of Puerto Rico, shall deposit the amount of taxes thus deducted and withheld at any of the bankin institutions designated as public fund depositories and which have been authorized by the Secretary to receive suc 18 || taxes. Federal savings and loan associations and federal thrift banks that conduct business in Puerto Rico shall b deemed to be financial institutions for purposes of being designated as public fund depositories under this Code: 19 || Taxes shall be paid or deposited as established in the regulations promulgated by the Secretary regarding th manner, time, and conditions that shall govern the payment or deposit of such withheld taxes. When promulgatin 20 such regulations, the Secretary shall follow, as pertinent, the criteria established in regulatory provisions on th collection and deposit of income taxes withheld from salaries paid by the federal government and the correspondin deduction for Social Security.”13 L.P.R.A. $8181. 22 Section 1143(a) of the Puerto Rico Internal Revenue Code of 1994 provides in pertinent part: [t]he Government o Puerto Rico and every natural or juridical person who, in the exercise of a trade or business activity or for th generation of income in Puerto Rico, makes payments to another person by reason of services rendered, and ever 23 payer who makes payments to a health provider for health services rendered by said provider to any person, shal deduct and withhold seven percent (7%) of said payments. The term “Government of Puerto Rico” includes th 24 || Government of the Commonwealth of Puerto Rico, its agencies, instrumentalities, public corporations and politica subdivisions. The term “payer” means insurers, nonprofit associations, health insurance cooperatives, health servic 25 organizations, and any other person who makes payments in the name of the persons mentioned herein. The ter services does not include the contracting of insurance, the lease or sale of tangible real or personal property, printin 26 || services, sale of newspapers, magazines, and other publications (including the placement of advertisements) an contracting of radio or television time.” 13 L.P.R.A. §8543(a). 27 -11-

generation of income in Puerto Rico, makes payments to another person by reason of service

2 || tendered, and every payer who makes payments to a health provider for health services rendere 3 || by said provider to any person, shall deduct and withhold seven percent (7%) of said payments, 4 1113 L.P.R.A. §8543(a). Moreover section 1143(c) provides: “Liability of the payer. Unles Pp 5 otherwise provided, any person required to deduct and withhold any taxes under any of th 6 provisions of this section shall be liable to the Secretary for the payment of such taxes and shal 4 not be liable to any other person for the amount of any such payments.” 13 L.P.R.A. §8543(c), 8 9 Section 1143(f) provides that: “[a]ny person who fails to meet his/her responsibility to deduc 10 and withhold the income tax described in subsection (a) of this section shall be subject to th 11 || penalties set forth in sec. 8055 of Part II and 8065 of Part I.” 13 L.P.R.A. 88543(f). 12 As to the first issue, based upon the referenced sections of the Puerto Rico Interna 3 Revenue Code of 1994, both of these type of income taxes satisfy the five factors to b 14 considered trust fund taxes pursuant to 11 U.S.C. $507(a)(8)(C). However, the corporate incom 15 16 taxes and the insufficient fund checks (for which Treasury fails to specify the type of tax tha

17 || was paid with these checks) are not trust fund taxes. The remaining issue is whether the Debtor 1g ||as President of Jet Center, Inc., a cancelled® corporation (since April 16, 2014), is personall 19 || liable for these trust fund taxes which were withheld by Jet Center, Inc. but were not remitted t 20 Treasury. 21 22 23 24 jj SSS ° It appears that Jet Center, Inc. was administratively cancelled by the Department of State for failure to comply wit 25 annual obligation to file reports or pay annual dues for certain consecutive years. Section 15.02 of the Genera Corporations Act of 2009 provides in pertinent part: “[i]Jf a domestic corporation fails to file the annual repor 26 || required by law for a term of two (2) consecutive years, the Secretary of State is authorized to revoke the certificat of incorporation, the Secretary of State shall notify the affected corporation of his/her intention to revoke by sendin 27 notice of such intentions by mail to the registered agent of such corporation as it appears in its records.” 1 L.P.R.A. $3852. -12-

Part II of the Internal Revenue Code of Puerto Rico of 1994 is titled, “Administrativ

2 || Provisions, Procedures, Interests, Penalties, and Additions to Taxes.” Section 6180, titled 3 || “Liability for taxes collected” provides: 4 “Anytime any person is required to collect or withhold from any other person an 5 taxes imposed by this Code and to remit said tax to the Commonwealth of Puert Rico, the amount of the taxes thus collected or withheld shall be deemed to be 6 special trust fund for the Commonwealth of Puerto Rico. The amount of said fun shall be assessed, collected, and paid in the same manner and be subject to th 7 same provisions and limitations, including penalties, applicable that are applicabl with regards to the taxes that gave origin to such fund, except that the provision 8 of sec. 8025 of this Part regarding the prescriptive term for assessment shall no apply and the Secretary may assess such amount at any time.” 13 L.P.R.A. $8180. 9 Pp 10 □□ The term person in Part II is defined in section 6057 as: “[f]or purposes of this Subtitle 11 and except when otherwise provided, the term ‘person’ means and includes any individual

B partnership, trust, corporation, association, or any official, agent, or employee of a corporation o 14 ||a@ partner, agent, or employee of a partnership or trust on account of which such individual 15 || official, agent, employee, partner or trustee is required to engage in the act which constitutes g Pp 16 || violation. Said term also includes any official, agent or employee of a department, agency, instrumentality, public corporation, or municipality of the Government of Puerto Rico.” 13 18 L.P.R.A. $8062. 19 20 The court finds that section 6057 of the Puerto Rico Internal Revenue Code of 199

1 makes clear that the term “person” as employed in section 6180, includes any individual, officer, 22 or employee of a corporation which is required to collect or withhold, and remit (pay over taxes) 23 ||to Treasury taxes held in trust and is responsible for payment of these trust fund taxes to th 24 Treasury. The amount of the trust fund taxes will be assessed, collected, and paid in the sam 25 manner and subject to the same provisions and limitations that are applicable with regards to th 26 taxes that gave origin to such fund. 27 -13-

Moreover, section 6180 of the Puerto Rico Internal Revenue Code of 1994, 13 L.P.R.A,

9 || $8180, in particular, references the applicable provisions that gave origin to the trust fund taxes, 3 || The specific provisions regarding the employees’ withholding of income taxes and adjudicatin 4 || responsibility to a person, and not necessarily to a corporation are sections 1141(1) and 6050 o 5 the Puerto Rico Internal Revenue Code of 1994, 13 L.P.R.A. §$8541(1), 8055 and the pertinen Regulations for Section 1141 which were approved on December 22, 2000. Section 1141d 7 provides that: “the employer shall be liable to the Secretary for the payment of the tax required t 8 be deducted and withheld under this section and shall not be liable to any person for the amoun 9 yp 10 |} of any such payment.” 13 L.P.R.A. §8541(1). Section 1141(a)(4) defines the term “employer” as: 11 ||‘... the person for whom an individual performs or has performed any service, of whateve 12 || nature, as the employee of such person, except that: (A) If the person for whom the individua 13 . performs or has performed the services does not have control of the payment of the wages fo 14 . . such services, the term ‘employer,’ except for purposes of clause (1), means the person havin 15 16 control of the payment of such wages.”13 L.P.R.A. $8541(a)(4)(A). Article 1141(1)-1’ of th

7 Article 1141(1)(1) of the Regulations for Section 1141 establish in the Spanish language the following: “Articul 1g |} 1141d)-1. — Responsabilidad por la contribucion.- El patrono esta obligado a cobrar la contribucién deduciendo reteniendo el monto de la misma de los salaries del empleado al pagarlos, efectiva o implicitamente. En □□□□□□□□ 19 |} cuando los salarios son implicitamente pagados, véase el Articulo 1141-2. Un patrono estara obligado a deducir retener la contribuci6n a pesar de que los salarios se paguen en bienes 0 servicios que no sean dinero (por ejemplo, 20 salarios pagados en acciones 0 bonos; véase el Articulo 1141(a)(1)-1) y pagar la contribucién al Secretario e efectivo. Si los salarios se pagan en propiedad que no sea dinero, el patrono hara los arreglos necesarios par 91 || asegurarse que el monto de la contribucién que se requiere retener esté disponible para depositarse en la instituci6 bancaria correspondiente. 22 La cantidad de cualquier contribucién retenida y cobrada por el patrono constituye un fondo especial en fideicomis q y Pp Pp y' P para el Estado Libre Asociado de Puerto Rico. El patrono u otra persona obligada a deducir y retener la contribucié 23 bajo la Seccidn 1141 del Cédigo no respondera a persona otra alguna por el monto de dicha contribucién retenida pagada al Secretario. 24 La Seccién 6050 del Cédigo impone severas penalidades por voluntariamente dejar de pagar, recaudar o dar cuent 25 || de y entregar en pago, la contribucién impuesta por la Seccién 1141 del Cédigo, o por intentar voluntariamente e alguna forma evadir o derrotar la contribucién. La imposicién de estas penalidades aplica a cualquier persona, 26 || incluyendo el patrono o a cualquier individuo, sociedad, corporacién o cualquier oficial, funcionario, agente empleado de un patrono corporativo 0 un socio, agente o empleado de una sociedad, 0 un miembro 0 empleado d 27 || cualquier otro patrono, que como tal patrono, individuo, oficial, agente, funcionario, empleado o socio esté obligado a realizar el acto con el cual ocurra la violacién. Dicho término incluye también a cualquier oficial, agente -14-

Regulations for section 1141 establish that the amounts withheld or collected by the employe 9 |} constitute a special trust fund for the Commonwealth of Puerto Rico. Said Regulations establis 3 || that Section 6050 of the Code imposes severe penalties for any person who willfully attempts i 4 any way to evade or defeat any taxes imposed by section 1141 of the Code. The Regulation 5 specify that the imposition of these penalties apply to any person, including the employer or an 6 individual, partnership, corporation or any officer, official, agent or employee of a corporat 4 employer which has the obligation to engage in the act which constitutes the violations. Se 8 9 Regulations for Section 1141 of Subtitle A. 10 The particular provisions regarding the 7% withholding at source on payments made t 11 another person for services rendered, which adjudicate responsibility to a person are sections 12 1143(c), (f) and 6050 of the Puerto Rico Internal Revenue Code of 1994, 13 L.P.R.A. §§$8543(c), 3 (f), 8055 and the pertinent Regulations for Sections 1142, 1143 and 1234 of Subtitle A an 14 Section 6127 of Subtitle F which were approved on May 6, 1997. Section 1143(c) provides that; 15 16 ““...any person required to deduct and withhold any taxes under any of the provisions of thi

7 section shall be liable to the Secretary for the payment of such taxes and shall not be liable to an 18 || other person for the amount of any such payments.” 13 L.P.R.A. $8543(c). Article 1143(c)-1% 0 19 || the Regulations provide that every person, natural or juridical which is obligated to deduct an 20 |) withhold the income tax described under Section 1143 of the Code, will be responsible of th 21 . . payment of the amounts withheld, whether the same are deducted and withheld at the origin, 22 23 empleado de un departamento, agencia, instrumentalidad, corporacién publica 0 municipio del Estado Libr Asociado de Puerto Rico.” Article 1141()-1 of Regulations for Section 1141. * Article 1143(c)-(1) of the Regulations establish in the Spanish language the following: “Responsabilidad por la 25 || cantidades retenidas. El Gobierno de Puerto Rico y toda persona, natural o juridica, obligada a efectuar la deduccié y retenci6n requerida sobre el monto de los pagos cubiertos bajo la Seccién 1143 del Cddigo, sera responsable de 26 || pago de dicha cantidad a retenerse, sea o no ésta deducida y retenida en el origen y no responderd a persona otr. alguna por el monto de dicha cantidad retenida y pagada al Secretario.” Article 1143(c)-1 of Regulations for Sectio 27 || 1142, 1143 and 1234 of Subtitle A and Section 6127 of Subtitle F. -15-

Section 1143(f) provides that: “[a]ny person who fails to meet his/her responsibility to deduc

|| and withhold the income tax described in subsection (a) of this section shall be subject to th 3 || penalties set forth in sec. 8055 of Part II. 4 Thus, in the instant case, the Debtor as President? of Jet Center, Inc., as an officer of th 5 corporation is personally responsible for these trust fund taxes and may not use the corporat structure as a shield to prevent her from complying with the responsibility that a person tha 7 collects or withholds trust fund taxes has to remit the same to Treasury. The Court notes tha 8 9 there are some similarities between sections 6057 and 6180 of the Puerto Rico Internal Revenu 10 || Code of 1994 and sections 6672 and 6671 of the Internal Revenue Code, 26 U.S.C. 886672!” an 11 ||6671'' which allow the Internal Revenue Service to collect unpaid taxes from corporate officer 12 || or from persons responsible for a corporation’s finances that fail to remit to the governmen 13 . payment of trust fund taxes. See United States v. Sotelo, 436 U.S. 268, 98 S. Ct. 1795, 56 L. Ed, 14 2d 275(1978). The court notes that if the Puerto Rico Internal Revenue Code of 2011 wer 15 16 applicable, the analysis would have been simpler because the 2011 Internal Revenue Cod

7 amended section 6180, which under the new Code is section 6080.01, 13 L.P.R.A. §33331 to ad 18 || subsection (b) which is titled, “penalties” for violations of this this section and refers to $3308 19 |I, The court notes that the Commonwealth of Puerto Rico Department of State’s electronic registry of corporation 20 and entities disclose that Jet Center, Inc. (registry #102097) filed its last annual report on July 18, 2009 for the yea 2008. The 2008 annual report discloses that the Debtor (Rosa A. Montalvo/ Rosanna Montalvo) was the President, Vice-President and Treasurer of said corporation and such appointments were for an indefinite amount of time] Debtor’s bankruptcy petition clarifies that Rosa Amelia Morillo Serrano is also known as: Rosa A. Montalvo, Ros 22 Amelia Morillo de Montalvo, Rosa Morillo Serrano and does business as Jet Center and Plaza Tours Inc. Section 6672 provides in pertinent part: “[a]ny person required to collect, truthfully account for, and pay over an 23 tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, o willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to othe 24 penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or no accounted for and paid over. No penalty shall be imposed under section 6653 of part II of subchapter A of chapte: 25 || 68 for any offense to which this section is applicable.” 26 U.S.C. §$6672(a). 26 ||"! Section 6671 provides in pertinent part: “(b) Person defined. The term ‘person’, as used in this subchapter includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, 27 ||employee, or member is under a duty to perform the act in respect of which the violation occurs.” 26 U.S.C] §6671(b). -16-

and §33332. Section 6080.2(a), 13 L.P.R.A. §33332, incorporates the analysis of “person” an

2 references section 6030.19, 13 L.P.R.A. $33089 which is equivalent to section 6057, 13 L.P.R.A. 3 || $8062 of the 1994 Code. Section 6080.2(b) also incorporates the penalties imposed by sections 4 || 6050 and 6060 of the Puerto Rico Internal Revenue Code of 1994, 13 L.P.R.A. §$8055, 8065. 5 Section 6080.02 provides: 6 “(a) Penalty.—Any person liable, as described in subsection (b) of this section 7 shall be personally subject, in addition to any other penalty established under thi Code, to a penalty equal to the full amount of the taxes evaded, not collected, no 8 withheld, not deposited, not reported, or not remitted by the entity or person (as 9 such term is defined in §33089 of this title) so required under such obligatio under any part of this Code. 10 (b) Persons Liable— 11 (1) Any chief operating officer, president, chief financial officer, chie accounting officer, comptroller, and any official serving in a simil 12 capacity with an entity or person (as such term is defined in §33089 of thi 13 title) required to collect, withhold, account for, and remit payment of an taxes or levies established under any part of this Code; 14 (2) any person whose responsibility, duty, function, or obligation at a 15 entity or person (as such term is defined in $33089 of this title) is t collect, withhold, deposit, account for, or remit payment of any taxes o 16 levies established under any part of this Code, who knowingly does no 7 collect or account for and faithfully remits payment of such taxes in th manner and under the terms established in any part of this Code, and 18 (3) any person who knowingly attempts in any way to evade or defeat an taxes imposed by any part of this Code or the payment of such taxes, 19 (c) This section shall be subject to the general application provisions of thi 20 Subtitle, including §33089 and 33001 of this title among others.” 13 □□□□□□□□ 1 $6080.02. 22 However, the Debtor is not personally liable for the corporate taxes and for th 23 || insufficient fund checks which Treasury claims in proof of claim #12-1 as an unsecured genera 24 claim, given that the same are not trust fund taxes. The court finds that Treasury failed to specif 25 the type of tax the corporation paid with the insufficient fund checks. Thus, the court conclude 26 27 -|7-

that Treasury’s priority claim pursuant to 11 U.S.C. §507(a)(8)(C) is for the amount o

4 || $30,856.06. 3 Conclusion 4 In light of the aforestated, this court finds that the income tax withholdings pursuant to ° Sections 8541, 8543, 13 L.P.R.A. §§1141 & 1143 satisfy the five (5) factors to be considered ° trust fund taxes pursuant to 11 U.S.C. §507(a)(8)(C) and that the Debtor is personally ’ responsible for payment of the same. However, the court concludes that Treasury’s priority claim pursuant to 11 U.S.C. §507(a)(8)(C) is limited to the amount of $30,856.06 and Treasury ° is not entitled to claim the remainder of its unsecured general claim for corporate taxes and '0 insufficient fund checks. The Debtor’s Motion for Summary Judgment on Objection to Claim #12’s is denied and Treasury’s cross motion for summary judgment is granted in part and denied in part. 13 SO ORDERED. In San Juan, Puerto Rico, this 3“ day of February, 2016. 15 16

18 19 20 21 22 23 24 25 26 27 -18-