Murray Drabkin v. District of Columbia; Murray Drabkin, Trustee v. District of Columbia

Summary

The United States Court of Appeals for the District of Columbia Circuit considered whether Auto-Train Corporation's pre-bankruptcy payment of employee withholding taxes to the District of Columbia was made from trust funds or constituted a voidable preference under the Bankruptcy Code. The court held that payment of funds covered by a statutory trust provision, without more, does not create a trust for purposes of 11 U.S.C. § 541, particularly where the debtor did not segregate or trace the funds.

Holdings

1. A prepetition payment of withholding taxes made after the applicable 45-day period may be recovered as a preferential transfer when the payment was made from estate property, unless the funds are traceable to a trust excluded from the estate.
2. The mere fact of prepetition payment of funds covered by a statutory trust provision does not, without more, create a trust for purposes of § 541 or exclude the payment from the bankruptcy estate.
3. For a late prepetition tax payment, courts should use reasonable assumptions in tracing funds to a statutory trust, but the mere act of payment is not a reasonable assumption when the payment has no prior relationship to withheld tax funds.

Questions Presented

1. Whether a prepetition payment of withholding taxes made within the preference period was an avoidable preference under 11 U.S.C. § 547.
2. Whether the mere fact that Auto-Train paid funds covered by a statutory trust provision was sufficient to establish that the payment was made from trust property excluded from the bankruptcy estate under 11 U.S.C. § 541.
3. What tracing standard applies to prepetition tax payments made after the applicable 45-day ordinary-course period under the pre-1984 Bankruptcy Code.

Disposition

affirmed