## Facts

- Fredric C. Muntwyler was president, treasurer, director, and majority shareholder of Air Mid-America Airlines, an Illinois corporation.
- The corporation sustained losses and ceased operations in May 1973, leaving unpaid employee withholding (trust-fund) taxes and excise (non-trust-fund) taxes.
- On June 13, 1973, the corporation assigned all assets to Bernard C. Chaitman as assignee/trustee for the benefit of creditors, with authority to liquidate assets and pay claims.
- In August 1973, the IRS filed a claim with the assignee for approximately $32,242.47 in unpaid corporate taxes.
- On August 25, 1973, the assignee tendered three checks totaling $12,132.93 to the IRS and directed that the payments be applied to the trust-fund portion of the tax liabilities.
- The IRS accepted the checks but applied the full amount to non-trust-fund liabilities instead of following the assignee’s directions.
- In 1976, the IRS assessed Muntwyler personally under I.R.C. § 6672 for trust-fund taxes and also assessed a smaller non-trust-fund amount; Muntwyler later made a payment of $1,288.30 toward the assessment and sought a refund.
- The district court granted summary judgment to Muntwyler on the $1,288.30 refund claim, concluding the assignee’s payments were voluntary and therefore designable; the United States appealed that ruling.

## Issues

1. Whether payments to the IRS made by an assignee for the benefit of creditors, after the IRS filed a claim but without levy, seizure, or a judicial collection proceeding, are “voluntary” so the payer may designate their application to trust-fund liabilities.

## Decision

- The Seventh Circuit affirmed the judgment for Muntwyler on the $1,288.30 refund claim.
- The assignee’s payments were voluntary because they were not made under distraint, levy, or a legal proceeding used by the government to collect taxes.
- Because the payments were voluntary, the IRS was required to apply them as directed to the trust-fund liabilities.
- The IRS’s contrary allocation improperly increased Muntwyler’s § 6672 exposure, supporting the refund award (with interest).

## Legal Principles

- A voluntary tax payment may be designated by the taxpayer (or representative) among multiple tax liabilities, and the IRS must honor that designation.
- A payment is involuntary when made as a result of distraint or levy, or through a legal proceeding in which the government seeks to collect delinquent taxes; in that situation, the IRS may allocate the payment as it chooses.
- The mere filing of an IRS claim in an assignment for the benefit of creditors, without use of coercive collection devices, does not render an assignee’s payment involuntary.
- An assignment for the benefit of creditors is a voluntary, nonjudicial liquidation mechanism; absent government compulsion within it, payments made by the assignee retain a voluntary character.

## Conclusion

The court held that an assignee’s tax payments made during a voluntary, nonjudicial assignment for the benefit of creditors remained voluntary where the IRS only filed a claim and did not employ levy or judicial collection, requiring the IRS to follow the assignee’s designation of payments to trust-fund taxes and supporting a refund for amounts assessed due to misapplication.


Muntwyler v. United States, 703 F.2d 1030 (7th Cir. 1983)