A-55160, OCTOBER 1, 1934, 14 COMP. GEN. 260

A-55160: Oct 1, 1934

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A CLAIM OF THE UNITED STATES AGAINST THE RECEIVER OF AN INSOLVENT OR BANKRUPT BANK FOR TAXES COLLECTED ON CHECKS IS A PREFERRED CLAIM UNDER SECTION 3466. 1934: REFERENCE IS MADE TO YOUR LETTER OF MAY 23. - WHICH BANK IS NOW INSOLVENT. WENT INTO LIQUIDATION AND THE FIRST NATIONAL BANK IN DETROIT WAS APPOINTED LIQUIDATING AGENT OF SAID BANK. LIQUIDATION PROCEEDINGS WERE CARRIED ON BY THE FIRST NATIONAL BANK IN DETROIT UNTIL ITS CONSOLIDATION WITH THE PEOPLES WAYNE COUNTY BANK ON DECEMBER 31. WHEN THE NAME OF THE BANK WAS CHANGED TO THE FIRST WAYNE NATIONAL BANK OF DETROIT AND ON OCTOBER 8. ITS NAME WAS AGAIN CHANGED TO THE FIRST NATIONAL BANK. ALL DEPOSIT OBLIGATIONS OF THE PEOPLES STATE BANK OF REDFORD WERE DIRECTLY ASSUMED BY THE FIRST NATIONAL BANK.

A-55160, OCTOBER 1, 1934, 14 COMP. GEN. 260

TAXES - BANK CHECKS - SET-OFF TAXES ON CHECKS IMPOSED BY SECTION 751 OF THE REVENUE ACT OF 1932, COLLECTED BY BANKS AS FIDUCIARY AGENTS OF THE UNITED STATES, BECOME IMPRESSED WITH A TRUST AND DO NOT BECOME A PART OF THE GENERAL ASSETS OF THE BANK. A CLAIM OF THE UNITED STATES AGAINST THE RECEIVER OF AN INSOLVENT OR BANKRUPT BANK FOR TAXES COLLECTED ON CHECKS IS A PREFERRED CLAIM UNDER SECTION 3466, REVISED STATUTES. SECTION 22 OF THE ACT OF MARCH 1, 1879, 20 STAT. 351, GRANTING IMMUNITY TO INSOLVENT OR BANKRUPT BANKS FROM THE PAYMENT OF TAXES TO THE UNITED STATES FROM BANK ASSETS, DOES NOT APPLY TO AMOUNTS COLLECTED BY THE BANKS AS TAXES ON BANK CHECKS. THE PROCEEDS OF TREASURY CHECKS REPRESENTING INCOME-TAX REFUNDS LEGALLY MAY BE OFFSET AGAINST THE UNPAID LIABILITY OF AN INSOLVENT BANK ON ACCOUNT OF CHECK TAXES COLLECTED PRIOR TO THE TIME THE BANK WENT INTO RECEIVERSHIP.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF THE TREASURY, OCTOBER 1, 1934:

REFERENCE IS MADE TO YOUR LETTER OF MAY 23, 1934, PRESENTING FOR CONSIDERATION THE QUESTION WHETHER THE AMOUNT OF THREE CHECKS REPRESENTING INCOME-TAX REFUNDS DUE CERTAIN INSOLVENT CONSOLIDATED BANKS LEGALLY MAY BE SET OFF AGAINST THE UNPAID LIABILITY OF THE FIRST NATIONAL BANK--- DETROIT, SUCCESSOR TO THE THREE BANKS--- WHICH BANK IS NOW INSOLVENT--- BECAUSE OF CHECK TAXES COLLECTED BY SAID BANK DURING THE MONTH OF JANUARY 1933, AND NOT PAID TO THE COLLECTOR OF INTERNAL REVENUE PRIOR TO THE TIME SAID BANK WENT INTO RECEIVERSHIP.

THE STATUS OF THE THREE INSOLVENT BANKS AND THE FACTS IN CONNECTION WITH THE CLAIMS FOR REFUND OF INCOME TAXES APPEAR AS FOLLOWS:

ON MAY 29, 1931, THE PEOPLES STATE BANK OF REDFORD, MICH., WENT INTO LIQUIDATION AND THE FIRST NATIONAL BANK IN DETROIT WAS APPOINTED LIQUIDATING AGENT OF SAID BANK. LIQUIDATION PROCEEDINGS WERE CARRIED ON BY THE FIRST NATIONAL BANK IN DETROIT UNTIL ITS CONSOLIDATION WITH THE PEOPLES WAYNE COUNTY BANK ON DECEMBER 31, 1931, WHEN THE NAME OF THE BANK WAS CHANGED TO THE FIRST WAYNE NATIONAL BANK OF DETROIT AND ON OCTOBER 8, 1932, ITS NAME WAS AGAIN CHANGED TO THE FIRST NATIONAL BANK--- DETROIT. ALL DEPOSIT OBLIGATIONS OF THE PEOPLES STATE BANK OF REDFORD WERE DIRECTLY ASSUMED BY THE FIRST NATIONAL BANK--- DETROIT AS ITS OWN OBLIGATIONS AT THEIR FACE VALUE.

ON A CLAIM OF THE PEOPLES STATE BANK OF REDFORD, FILED APPARENTLY BY THE FIRST NATIONAL BANK--- DETROIT, AS LIQUIDATING AGENT, FOR REFUND OF INCOME TAXES PAID BY SAID BANK FOR THE CALENDAR YEAR 1931, THERE WAS ALLOWED THE AMOUNT OF $9,354.03, REFUND AND INTEREST CHECK NO. 977,571, DATED APRIL 17, 1934, FOR SAID AMOUNT WAS ISSUED TO THE ORDER OF C. O. THOMAS, RECEIVER, FIRST NATIONAL BANK--- DETROIT, SUCCESSOR TO PEOPLES STATE BANK OF REDFORD, MICH.

A COPY OF A BILL OF SALE AND AGREEMENT FILED WITH THE BUREAU OF INTERNAL REVENUE IN SUPPORT OF THE CLAIM FOR INCOME-TAX REFUND SHOWS THAT THE ASSETS OF THE PEOPLES STATE BANK OF REDFORD, MICH., WERE TAKEN OVER BY THE FIRST NATIONAL BANK--- DETROIT ON MAY 29, 1931.

IN A LETTER DATED MARCH 24, 1934, ADDRESSED TO THE COMMISSIONER OF INTERNAL REVENUE, C. O. THOMAS, RECEIVER, STATED THAT:

ALL DEPOSIT OBLIGATIONS OF SAID PEOPLES STATE BANK OF REDFORD WERE DIRECTLY ASSUMED BY SAID FIRST NATIONAL BANK IN DETROIT AS ITS OWN OBLIGATIONS AT THEIR FULL FACE AMOUNT; THE LIQUIDATION OF SAID PEOPLES STATE BANK OF REDFORD HAS RESULTED IN LARGE LOSSES, THE ASSETS NOW BEING MUCH LESS THAN THE LIABILITIES, AND BY REASON OF ASSUMING THE DEPOSIT OBLIGATIONS AS AFORESAID, LARGE LOSSES HAVE BEEN SUSTAINED BY THE FIRST NATIONAL BANK--- DETROIT.

IT APPEARS CLEAR THAT CHECK NO. 977,571, REPRESENTING REFUND OF INCOME TAX PAID BY THE PEOPLES STATE BANK OF REDFORD, MICH., FOR THE CALENDAR YEAR 1931, WAS PROPERLY ISSUED IN FAVOR OF C. O. THOMAS, RECEIVER, FIRST NATIONAL BANK OF DETROIT, SUCCESSOR TO THE PEOPLES STATE BANK OF REDFORD, MICH.

THE PENINSULAR STATE BANK CONSOLIDATED WITH THE PEOPLES WAYNE COUNTY BANK ON APRIL 30, 1930; THE PEOPLES WAYNE COUNTY BANK CONSOLIDATED WITH THE FIRST NATIONAL BANK IN DETROIT ON DECEMBER 31, 1931, AND THE NAME WAS CHANGED TO THE FIRST WAYNE NATIONAL BANK OF DETROIT. THE NAME WAS AGAIN CHANGED AS OF OCTOBER 8, 1932, TO THE FIRST NATIONAL BANK--- DETROIT. A CLAIM OF THE PENINSULAR STATE BANK FOR REFUND OF INCOME TAXES PAID BY SAID BANK FOR THE CALENDAR YEAR 1929, THERE WAS ALLOWED THE AMOUNT OF $594.77, REFUND AND INTEREST, BY TREASURY CHECK NO. 969,313, DATED MARCH 8, 1934, TO THE ORDER OF C. O. THOMAS, RECEIVER, FIRST NATIONAL BANK--- DETROIT, SUCCESSOR TO PENINSULAR STATE BANK.

ON THE CLAIM OF THE PEOPLES WAYNE COUNTY BANK FOR REFUND OF INCOME TAXES PAID BY SAID BANK FOR THE CALENDAR YEAR 1925, FILED JULY 18, 1933, THERE WAS ALLOWED THE AMOUNT OF $3,938.65, REFUND AND INTEREST, BY TREASURY CHECK NO. 967,596, DATED FEBRUARY 28, 1934, TO THE ORDER OF C. O. THOMAS, RECEIVER, FIRST NATIONAL BANK--- DETROIT, SUCCESSOR TO PEOPLES WAYNE COUNTY BANK.

ON THE FACTS OF RECORD, IT APPEARS THAT THE THREE CHECKS WERE PROPERLY ISSUED IN FAVOR OF C. O. THOMAS, RECEIVER OF THE FIRST NATIONAL BANK--- DETROIT, SUCCESSOR TO THE THREE ORIGINAL BANKS.

IT APPEARS THAT THERE WAS REPORTED AN AMOUNT OF $36,072.91, TAXES COLLECTED BY THE FIRST NATIONAL BANK--- DETROIT ON CHECKS FOR THE MONTH OF JANUARY 1933 AND UPON SUCH REPORT ASSESSMENT IN THAT AMOUNT WAS MADE AGAINST SAID BANK BY THE COLLECTOR OF INTERNAL REVENUE UNDER THE PROVISIONS OF SECTION 751 OF THE REVENUE ACT OF 1932; THAT ON MAY 11, 1933, THE COMPTROLLER OF THE CURRENCY UNDER THE AUTHORITY GRANTED BY THE PROVISIONS OF SECTION 203 OF THE ACT OF MARCH 9, 1933, 48 STAT. 2, APPOINTED C. O. THOMAS AS RECEIVER FOR SAID BANK; THAT A PROOF OF CLAIM FOR THE CHECK TAXES WAS PRESENTED TO SAID RECEIVER BY THE COLLECTOR OF INTERNAL REVENUE; THAT THE CHECK TAXES WERE TREATED AS A BANK ASSET AND THE COLLECTOR AS A DEPOSITOR OR OTHER GENERAL CREDITOR ENTITLED ONLY TO THE RATABLE DIVIDEND WITH OTHER GENERAL CREDITORS; AND THAT A DIVIDEND OF 50 PERCENT HAS BEEN PAID BY THE RECEIVER TO ALL DEPOSITORS. IT FURTHER APPEARS THAT THERE IS A BALANCE DUE THE UNITED STATES ON ACCOUNT OF SUCH TAXES OF $18,036.46, PLUS INTEREST IN THE AMOUNT OF $1,094.41, MAKING A TOTAL LIABILITY OF $19,130.87.

SECTION 751 OF THE ACT OF JUNE 6, 1932, 47 STAT. 276, PROVIDES:

(A) THERE IS HEREBY IMPOSED A TAX OF 2 CENTS UPON EACH OF THE FOLLOWING INSTRUMENTS, PRESENTED FOR PAYMENT ON OR AFTER THE 15TH DAY AFTER THE DATE OF THE ENACTMENT OF THIS ACT AND BEFORE JULY 1, 1934: CHECKS, DRAFTS, OR ORDERS FOR THE PAYMENT OF MONEY, DRAWN UPON ANY BANK, BANKER, OR TRUST COMPANY; SUCH TAX TO BE PAID BY THE MAKER OR DRAWER.

(B) EVERY PERSON PAYING ANY OF THE INSTRUMENTS MENTIONED IN SUBSECTION (A) AS DRAWEE OF SUCH INSTRUMENT SHALL COLLECT THE AMOUNT OF THE TAX IMPOSED UNDER SUCH SUBSECTION BY CHARGING SUCH AMOUNT AGAINST ANY DEPOSITS TO THE CREDIT OF THE MAKER OR DRAWER OF SUCH INSTRUMENT AND SHALL ON OR BEFORE THE LAST DAY OF EACH MONTH MAKE A RETURN, UNDER OATH, FOR THE PRECEDING MONTH, AND PAY SUCH TAXES TO THE COLLECTOR OF THE DISTRICT IN WHICH HIS PRINCIPAL PLACE OF BUSINESS IS LOCATED, OR IF HE HAS NO PRINCIPAL PLACE OF BUSINESS IN THE UNITED STATES, TO THE COLLECTOR AT BALTIMORE, MARYLAND. SUCH RETURNS SHALL CONTAIN SUCH INFORMATION AND BE MADE IN SUCH A MANNER AS THE COMMISSIONER, WITH THE APPROVAL OF THE SECRETARY, MAY BY REGULATIONS PRESCRIBE. EVERY PERSON REQUIRED TO COLLECT ANY TAX UNDER THIS SECTION IS HEREBY INDEMNIFIED AGAINST THE CLAIMS AND DEMANDS OF ANY PERSON FOR THE AMOUNT OF ANY PAYMENTS MADE IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION.

SECTION 3466, REVISED STATUTES, PROVIDES:

WHENEVER ANY PERSON INDEBTED TO THE UNITED STATES IS INSOLVENT, OR WHENEVER THE ESTATE OF ANY DECEASED DEBTOR, IN THE HANDS OF THE EXECUTORS OR ADMINISTRATORS, IS INSUFFICIENT TO PAY ALL THE DEBTS DUE FROM THE DECEASED, THE DEBTS DUE TO THE UNITED STATES SHALL BE FIRST SATISFIED, AND THE PRIORITY HEREBY ESTABLISHED SHALL EXTEND AS WELL TO CASES IN WHICH A DEBTOR, NOT HAVING SUFFICIENT PROPERTY TO PAY ALL HIS DEBTS, MAKES A VOLUNTARY ASSIGNMENT THEREOF, OR IN WHICH THE ESTATE AND EFFECTS OF AN ABSCONDING, CONCEALED, OR ABSENT DEBTOR ARE ATTACHED BY PROCESS OF LAW, AS TO CASES IN WHICH AN ACT OF BANKRUPTCY IS COMMITTED.

SECTION 22 OF THE ACT OF MARCH 1, 1879, 20 STAT. 351, PROVIDES:

THAT WHENEVER AND AFTER ANY BANK HAS CEASED TO DO BUSINESS BY REASON OF INSOLVENCY OR BANKRUPTCY, NO TAX SHALL BE ASSESSED OR COLLECTED, OR PAID INTO THE TREASURY OF THE UNITED STATES, ON ACCOUNT OF SUCH BANK, WHICH SHALL DIMINISH THE ASSETS THEREOF NECESSARY FOR THE FULL PAYMENT OF ALL ITS DEPOSITORS; AND SUCH TAX SHALL BE ABATED FROM SUCH NATIONAL BANKS AS ARE FOUND BY THE COMPTROLLER OF THE CURRENCY TO BE INSOLVENT; AND THE COMMISSIONER OF INTERNAL REVENUE, WHEN THE FACTS SHALL SO APPEAR TO HIM, IS AUTHORIZED TO REMIT SO MUCH OF SAID TAX AGAINST INSOLVENT STATE AND SAVINGS BANKS AS SHALL BE FOUND TO AFFECT THE CLAIMS OF THEIR DEPOSITORS.

THE TAX ON CHECKS IMPOSED BY SECTION 751 OF THE REVENUE ACT OF 1932 IS ON THE DRAWER OF THE CHECKS AND THE BANK IS MADE A COLLECTOR OF THE TAX OR FIDUCIARY AGENT OF THE UNITED STATES FOR THE PURPOSE OF SUCH COLLECTION AND THE DUTY IS LAID UPON IT TO PAY THE AMOUNT WHICH IT THUS COLLECTS TO THE COLLECTOR OF INTERNAL REVENUE IN WHICH THE BANK HAS ITS PRINCIPAL PLACE OF BUSINESS. MONEYS THUS COLLECTED BY BANKS UNDER SECTION 751 OF THE REVENUE ACT OF 1932 BECOME IMPRESSED WITH TRUST AND DO NOT BECOME A PART OF THE GENERAL ASSETS OF THE BANK. NEITHER DOES THE GOVERNMENT BECOME A MERE CREDITOR OF THE BANK WITH RESPECT TO RECEIVING OR CLAIMING THE AMOUNT SO COLLECTED FOR TAX ON CHECKS. IN SUCH CIRCUMSTANCES, THE MATTER IS NOT FOR CONSIDERATION UNDER THE PROVISIONS OF SECTION 22 OF THE ACT OF MARCH 1, 1879, SUPRA. NOTWITHSTANDING THIS, HOWEVER, IT APPEARS THAT THE COMPTROLLER OF THE CURRENCY HAS INSTRUCTED ALL CONSERVATORS OF NATIONAL BANKS THAT CLAIMS FOR AMOUNTS DUE THE UNITED STATES ON ACCOUNT OF TAXES COLLECTED ON CHECKS ARE NOT PREFERRED CLAIMS AGAINST NATIONAL BANKS IN RECEIVERSHIP, SO THAT IN THE PRESENT CASE, WHEN THE COLLECTOR OF INTERNAL REVENUE AT DETROIT, MICH., FILED A PROOF OF CLAIM WITH THE RECEIVER OF THE FIRST NATIONAL BANK OF DETROIT ON ACCOUNT OF TAXES COLLECTED ON CHECKS BY SAID BANK DURING THE MONTH OF JANUARY 1933 PRIOR TO THE APPOINTMENT OF THE RECEIVER, IN THE AMOUNT OF $36,072.91, SAID AMOUNT WAS CONSIDERED BY THE RECEIVER AS A BANK ASSET AND THE COLLECTOR WAS CLASSED AS A DEPOSITOR OR OTHER GENERAL CLAIMANT ENTITLED ONLY TO A RATABLE DIVIDEND WITH SUCH CREDITORS.

THE FOREGOING FACTS AS TO THE ACTION TAKEN IN THESE MATTERS DO NOT AFFECT THE INHERENT RIGHT OF THE UNITED STATES TO ASSERT ITS CLAIM FOR THE AMOUNT OF THESE FUNDS COLLECTED AND HELD IN TRUST BY THE FIRST NATIONAL BANK OF DETROIT. THE UNITED STATES HAS ALWAYS THE RIGHT TO SET OFF AGAINST AN AMOUNT DUE A CLAIMANT ANY SUM THE SAME PERSON, COMPANY, BANK, OR CORPORATION OWES TO THE GOVERNMENT, EITHER UNDER THE SAME OR OTHER CONTRACT OR OBLIGATION, AND UNDER SUCH CIRCUMSTANCES, IT APPEARING IN THE PRESENT CASE THAT THE AMOUNT DUE THE UNITED STATES FOR CHECK TAX COLLECTED BY THE BANK, EXCEPT AS TO THE AMOUNT WHICH HAS ALREADY BEEN RECEIVED, IS A PREFERRED CLAIM OF THE UNITED STATES UNDER SECTION 3466 OF THE REVISED STATUTES, ANY AMOUNT OTHERWISE FOUND DUE THE BANK OR THE RECEIVER OF SUCH BANK MAY BE APPLIED AGAINST SUCH INDEBTEDNESS.

ACCORDINGLY, THE AMOUNTS OF THE THREE CHECKS INVOLVED IN THIS MATTER LEGALLY MAY BE SET OFF AGAINST THE UNPAID LIABILITY OF THE FIRST NATIONAL BANK--- DETROIT TO THE UNITED STATES. THE NECESSARY ACTION WILL BE TAKEN TO CANCEL THE CHECKS AND DEPOSIT THE AMOUNTS THEREOF WITH THE TREASURER OF THE UNITED STATES AS AN INTERNAL-REVENUE COLLECTION WITH PERSONAL CREDIT TO HORATIO J. ABBOTT, COLLECTOR OF INTERNAL REVENUE, DETROIT, MICH. ..END