Conway founded National in April 1995. From National’s inception until its Chapter 7 bankruptcy in May 2003, Conway served as National’s CEO, president, and chairman of the board. As an airline, National was required to collect a transportation excise tax from its passengers and pay over the collected taxes to the Government at regular intervals. See 26 U.S.C. § 4261. These taxes were assessed against and paid by National’s passengers; National held these taxes in trust for the Government. See Begier v. IRS, 496 U.S. 53, 55 (1990).
National struggled as a business and never reported a profit for an entire year. In the third quarter of 2000, Conway and the other directors of National began to discuss the possibility of declaring bankruptcy. On Thursday, November 30, 2000, National sent its quarterly excise tax return to the IRS with a check for $1,832,501.01 to pay those taxes. The IRS received and deposited the check on December 4, 2000. However, National filed for Chapter 11 bankruptcy on December 6, 2000, and, on the advice of counsel, closed its bank accounts to establish new accounts for reorganization. The accounts were closed before the check to the IRS had been debited, and payment to the IRS was refused. In the period immediately following the bankruptcy filing, National made no efforts to pay the excise taxes.
During bankruptcy, National regularly made bi-weekly payments of the excise taxes it collected in the ordinary course of business. However, the terrorist attacks of September 11, 2001, had a dramatic effect on the aviation industry. In response to that problem, Congress passed the Air Transportation Safety & System Stabilization Act, Pub. L. No. 107-42, 115 Stat. 230 (2001) (“Stabilization Act” or “Act”). One provision of the Act allowed airlines to defer paying over the collected excise taxes until November 15, 2001. 49 U.S.C. § 40101. Pursuant to authority granted under the Stabilization Act, the IRS extended the deferral to January 15, 2002. IRS Notice 2001-77, 2001-2 C.B. 576; 2001 IRB LEXIS 424. Many airlines also received direct infusions of money under the Stabilization Act, including National, which received approximately $21 million from the Government. On January 15, 2002, when the taxes for the third quarter of 2001 became due, National filed an excise tax return, but did not pay over the collected taxes, instead requesting a six-month extension for payment. Similarly, on January 30, 2002, National sent in a tax return for the fourth quarter of 2001 without payment.
Judge(s): Catharina Haynes
Jurisdiction: U.S. Court of Appeals, Fifth Circuit
Related Categories: Business Organizations , Civil Remedies , Taxation
|Circuit Court Judge(s)|
|Trial Court Judge(s)|
|Appellant Lawyer(s)||Appellant Law Firm(s)|
|Laura Gavioli||SNR Denton US LLP|
|Kenneth Pfaehler||SNR Denton US LLP|
|Appellee Lawyer(s)||Appellee Law Firm(s)|
|Ellen DelSole||United States Department of Justice|
|Robert Metzler||United States Department of Justice|
|Jennifer Rubin||United States Department of Justice|