Holywell Corporation v. Smith United States v. Smith
| Decision Date | 25 February 1992 |
| Docket Number | Nos. 90-1361,90-1484,s. 90-1361 |
| Parties | HOLYWELL CORPORATION, et al., Petitioners, v. Fred Stanton SMITH, etc., et al. UNITED STATES, Petitioner, v. Fred Stanton SMITH et al |
| Court | U.S. Supreme Court |
Petitioner debtors, four affiliated corporate entities and an individual, filed Chapter 11 bankruptcy petitions after one of them defaulted on a real estate loan. The Bankruptcy Court consolidated the cases and the debtors represented their own bankruptcy estates as debtors in possession. Creditors approved a Chapter 11 plan that provided, inter alia, for placement of the debtors' property into a trust and appointment of a trustee to liquidate all of the trust property and to distribute it to the creditors of the various bankruptcy estates. The plan said nothing about whether the trustee had to file income tax returns or pay any income tax due, but the United States did not object to the plan's confirmation. The plan took effect in October 1985. One of the corporate debtors filed a tax return for the fiscal year ending July 31, 1985, including as income capital gains earned in the postbankruptcy sale of certain properties in its estate, but requested respondent Smith, the appointed trustee, to pay the taxes owed. Neither the corporate debtors nor Smith filed income tax returns for succeeding fiscal years, in which there was capital gains and interest income. Over the objections of the United States and the debtors, the Bankruptcy Court granted Smith's request for a declaratory judgment that he had no duty under the Internal Revenue Code (Code) to file income tax returns or pay income taxes. Both the District Court and the Court of Appeals affirmed.
Held: Smith is required by the Code to file income tax returns and pay taxes on the income attributable to the property of both the corporate debtors and Gould. Pp. 52-59.
(a) Smith is an "assignee" of "all" or "substantially all" of the "property . . . of a corporation" and therefore is required by § 6012(b)(3) of the Code to file returns that the corporate debtors would have filed had their property not been assigned to him. The plan transferred the corporate debtors' estates to Smith as trustee, and it is undisputed that he meets the usual definition of the word "assignee" in both ordinary and legal usage. Nothing in § 6012(b)(3) limits the definition of an "as- signee" to persons who wind up a dissolving corporation or manage the day-to-day business of a distressed corporation. Pp. 52-54.
(b) With respect to the income attributable to Gould's property, Smith is required by § 6012(b)(4) to make a return not, as the United States argues, because he is the "fiduciary" of the "estate . . . of an individual," but because he is the "fiduciary" of a "trust." Since the plan declared and established a separate and distinct trust and vested the property of Gould's estate in Smith, it did not simply substitute Smith for Gould as the fiduciary of Gould's "estate." However, the trust here—which the plan described as a trust and created for the express purpose of liquidating Gould's estate and distributing it to creditors clearly fits the description of a liquidating trust in 26 CFR § 301.7701-4(d). Moreover, when the plan assigned the property of Gould's estate to Smith, it gave him powers consistent with the definition of "fiduciary" in § 7701(a)(6) of the Code and 26 CFR § 301.7701-6. Respondents' argument that it is Gould who must pay the trust's taxes under the Code's "grantor trust" rules is rejected. In re Sonner, 53 B.R. 859, distinguished. Also rejected is their contention that Smith lacked sufficient discretion in performing his duties under the plan to be a fiduciary, since the liquidating trust is a trust under the Code and Smith's duties satisfy the regulations' description of a fiduciary. Pp. 54-58.
(c) Respondents also err in asserting that Smith may ignore the duties imposed by the Code because the plan does not require him to pay taxes. Section 1141(a) of the Bankruptcy Code—which states that "the provisions of a confirmed plan bind . . . any creditor"—does not preclude the United States from seeking payment of any taxes. Even if § 1141(a) binds creditors with respect to claims that arose before confirmation, it does not bind them with regard to post-confirmation claims. Cf. 11 U.S.C. § 101(10). Here, the United States is not seeking taxes due prior to Smith's appointment, but is merely asserting that Smith, after his appointment, must make tax returns in the same manner as the assignee of the property of any corporation or the trustee of any trust. Pp. 58-59.
911 F.2d 1539 (CA 11 1990), reversed.
[Amicus Curiae information from page 49 intentionally omitted] Justice THOMAS delivered the opinion of the Court.
These cases require us to decide whether a trustee appointed to liquidate and distribute property as part of a Chapter 11 bankruptcy plan must file income tax returns and pay income tax under the Internal Revenue Code.
Miami Center Limited Partnership borrowed money from the Bank of New York (Bank) to develop "Miami Center," a hotel and office building complex in Miami, Florida. In August 1984, after it defaulted on the loan, MCLP and four affiliated debtors, Holywell Corporation, Chopin Associates, Miami Center Corporation, and Theodore B. Gould each filed Chapter 11 bankruptcy petitions. The Bankruptcy Court consolidated the five cases.
Prior to confirmation of a Chapter 11 plan, the debtors represented their own bankruptcy estates as debtors in possession. See 11 U.S.C. § 1101(1). The estates of Gould and Holywell contained two principal assets: equity in Miami Center and cash proceeds from the postbankruptcy sale of certain real estate in Washington, D.C., known as the Washington Properties.
In August 1985, the Bank and other creditors approved a "Consolidated Plan of Reorganization." The plan required the debtors to give up their interests in Miami Center and the proceeds from the sale of the Washington Properties, but otherwise permitted them to remain in business. Part V of the plan provided:
2. . . . [A]ll right, title and interest of the Debtors in and to the Trust Property, including Miami Center, shall vest in the Trustee, without further act or deed by the Debtors. . . ." App. 41.
The plan required the trustee to liquidate and distribute all of the trust property to the creditors of the various bankruptcy estates. It empowered the trustee to "[m]anage, operate, improve, and protect the Trust Property"; to "[r]elease, convey, or assign any right, title, or interest in or about the Trust Property"; and to perform other, similar actions. Id., at 42. The plan said nothing about whether the trustee had to file income tax returns or pay any income tax due. The United States did not object to its confirmation.
The plan took effect on October 10, 1985. The trustee appointed by the court, respondent Fred Stanton Smith, immediately sold Miami Center to the Bank in consideration for cash and cancellation of the Bank's claim. The trustee then distributed these and other assets to third-party creditors. Holywell Corporation filed a tax return for the fiscal year ending July 31, 1985. The income for this fiscal year included capital gains earned in the sale of the Washington Properties. Holywell asked the trustee to pay the taxes owed. Neither the corporate debtors nor the trustee filed federal income tax returns for any fiscal year ending after July 31, 1985. The income for these years included the capital gains earned in the sale of Miami Center and interest earned by reinvesting the proceeds.
In December 1987, the trustee sought a declaratory judgment from the Bankruptcy Court that he had no duty to file income tax returns or pay income tax under the federal income tax laws. The United States and the debtors opposed the action. The Bankruptcy Court declared that the trustee did not have to make any federal tax returns or pay any taxes. 85 B.R. 898 (Bkrtcy.S.D.Fla.1988). The District Court, in an unreported opinion, and the Court of Appeals, 911 F.2d 1539 (CA11 1990), both affirmed. The United States, in No 90-1484, and the debtors, in No. 90-1361, each petitioned this Court for a writ of certiorari. We granted review. 500 U.S. ----, 111 S.Ct. 2234, 114 L.Ed.2d 476 (1991).
The Internal Revenue Code ties the duty to pay federal income taxes to the duty to make an income tax return. See 26 U.S.C. § 6151(a) (). We conclude in this case that the trustee must pay the tax due on the income attributable to the corporate debtors' property because § 6012(b)(3) requires him to make a return as the "assignee" of the "property . . . of a corporation." We further hold that the trustee must pay the tax due on the income attributable to the individual debtor's property because § 6012(b)(4) requires him to make a return as the "fiduciary" of a "trust." Finally, we decide that the United States did not excuse the trustee from these duties by failing to object to the plan.
We first consider the trustee's duties with respect to the corporate debtors. Section 6012(b)(3) provides:
To continue reading
Request your trial
-
King v. Long Beach Mortgage Company
...of "assignee" in "legal and ordinary usage" is "one to whom a right or property is legally transferred". Holywell Corp. v. Smith 503 U.S. 47, 53, 112 S.Ct. 1021, 117 L.Ed.2d 196 (1992) (quoting Webster's Third New International Dictionary 132 (1986)) (emphasis added). Applying this definiti......
-
In Re Fontainebleau Las Vegas Holdings LLC
...956 F.2d 1065 (11th Cir.1992); Smith v. United States ( In re Holywell Corp.), 911 F.2d 1539 (11th Cir.1990), rev'd 503 U.S. 47, 112 S.Ct. 1021, 117 L.Ed.2d 196 (1992); Holywell Corp. v. Bank of N.Y. In re Holywell Corp.), 901 F.2d 931 (11th Cir.1990); Miami Ctr. Ltd. P'ship v. Bank of N.Y.......
-
Kipperman v. Internal Revenue Serv. (In re 800ideas.Com, Inc.)
...file returns, regardless of whether the trustee is an “operating trustee” or a “liquidating trustee.” Holywell Corp. v. Smith, 503 U.S. 47, 53–54, 112 S.Ct. 1021, 117 L.Ed.2d 196 (1992).7 When a corporation has no assets or income, a trustee may make a request to IRS to be relieved of the r......
-
In re Vale
...gross income to trigger the filing of a return.) In re Pflug, 146 B.R. 687, 689 (Bankr. E.D.Va.1992). Holywell Corp. v. Smith, 503 U.S. 47, 55, 112 S.Ct. 1021, 1026, 117 L.Ed.2d 196 (1992) ("Section 6012(b)(4), as the debtors assert, applies to the fiduciary of a trust as well as the fiduci......
-
Partnership Bankruptcy Tax Issues
...taxes, the case would ordinarily be converted to a Chapter 7 liquidation case. 25 I.R.C. § 6012(b)(4); Holywell Corporation v. Smith, 503 U.S. 47 26 I.R.C. § 1398(f)(2), (i). 27 I.R.C. §§ 1398(b)(2); 1399. 28 I.R.C. §§ 1398(b)(2); 1399. 29 I.R.S., Do You Need a New EIN?, available at http:/......
-
Jessica D. Gabel, the Terrible Tousas: Opinions Test the Patience of Corporate Lending Practices
...460 (U.S. 1999) (J. Thomas, concurring) (using the Random House Dictionary for the definition of “on account of”).Holywell Corp. v. Smith, 503 U.S. 47, 53 (U.S. 1992) (using Webster’s Third New InternationalDictionary for the definition of “assignee”); Hamm v. James (In re James), 406 F.3d ......
-
Chapter 10 TAXES
...See Rev. Proc. 94-45. IRC §§ 108 and 1001.[128] See GCM 38791, Aug. 28, 1981. See "Tax Planning," supra.[129] Holywell Corp. v. Smith, 503 U.S. 47 (1992).[130] See "Tax Planning" and "Selected Federal Income Tax," supra.[131] Based on Hamernik, K., Small Business Bankruptcies, Plans of Liqu......
-
Bankruptcy and the "insured vs. Insured" Exclusion in Directors and Officers Liability Insurance Policies
...participate, and resolve litigation. The trust is considered a separate and distinct entity from the debtor. See Holywell Corp. v. Smith, 503 U.S. 47, 55 (1992).10. Biltmore, 527 F.3d at 667.11. Id .12. Id. at 668.13. Id .14. Id. at 669-70.15. Outside of the insurance context, a company bef......