Muntwyler v. United States

Frederic Muntwyler (plaintiff) was the majority shareholder in and an officer of Air Mid-America Airlines (the airline). The airline failed to pay certain employee withholding taxes (trust-fund taxes) and certain other taxes (non-trust-fund taxes) to the Internal Revenue Service (IRS). In June 1973, the airline assigned all its assets to Bernard Chaitman (the trustee), who served as a trustee for the benefit of the airline’s creditors and was authorized to pay the claims of the airline’s creditors. In August, the IRS filed a claim with the trustee seeking approximately $32,000 for unpaid trust-fund and non-trust-fund taxes. The trustee promptly paid approximately $12,000 to the IRS with instructions that the IRS should apply the payment to the trust-fund-tax debt. The IRS accepted the payment but instead applied it to the non-trust-fund-tax debt. How the IRS applied the trustee’s payment was important because Muntwyler was potentially personally liable for the unpaid trust-fund taxes but faced no personal liability for unpaid non-trust-fund taxes. In November 1976, the IRS assessed Muntwyler pursuant to Internal Revenue Code (code) § 6672 for approximately $18,600 in trust-fund taxes. The IRS also assessed Muntwyler approximately $1,000 in non-trust-fund taxes. In May 1977, Muntwyler paid $1,288 to the IRS and requested a refund, which the IRS denied. Muntwyler then sued the United States (defendant) for a refund of the $1,288 plus a claimed $13,526 overpayment for 1976 that the IRS also refused to refund. The district court granted summary judgment to Muntwyler with respect to the $1,288, ruling that because the trustee’s payment was voluntary, the IRS was required to honor the trustee’s instructions about how to apply it. However, the district court rejected Muntwyler’s other refund claim on statute-of-limitations grounds. The United States appealed, arguing that the trustee’s payment was involuntary because it was made after the IRS filed an administrative claim with the trustee and that the IRS could have seized the airline’s assets.