In re H & R Ice Co., Inc.
| Decision Date | 03 August 1982 |
| Docket Number | Adv. No. 82-0286-2-11.,Bankruptcy No. 80-03224-2-11 |
| Citation | 24 BR 28 |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
| Parties | In re H & R ICE COMPANY, INC., Debtor. H & R ICE COMPANY, INC. and Kenneth R. Bennett, Plaintiffs, v. UNITED STATES of America, Department of Treasury, Internal Revenue Service, Defendant. |
William C. Paxton, Independence, Mo., for debtor/plaintiffs.
Michael P. Haney, Dept. of Justice, Washington, D.C., for defendant.
H & R Ice Company is a debtor in Chapter 11 reorganization. At the time of filing, September 30, 1980, there existed accrued but unpaid withholding & FICA taxes due the United States. The proof of claim filed by the IRS on November 14, 1980 alleged a total indebtedness to the United States of $5,008.99: $3,709.52 for taxes assessed October 20, 1980 and due for the first quarter of 1980; $186.59 for interest due to the date of the petition; $1,112.88 for penalty to the date of the petition.
In a proof of claim filed October 8, 1981, consolidating and amending all prior proofs of claim, an additional amount of $11,157.71 was listed as owing from the third quarter of 1980 and assessed on April 20, 1981. It was also stated that the claim was subject to a counterclaim of $1,079.24. The total indebtedness claimed by the United States was $15,897.86, subject to the setoff or counterclaim.
The plan of reorganization provided that the allowed tax claims were to be paid in equal quarterly installments over the period of six (6) years after the date of assessment, with interest, as permitted by § 1129(a)(9)(C) of the Code, Title 11, U.S.C. On May 8, 1981, the plan was confirmed.
The proposed assessment is allegedly for the company's unpaid withholding taxes for the first and third quarters of 1980 in the sum of $2,792.85 and $9,146.18 respectively. Also included is a proposed assessment for $3,439.55 for the fourth quarter of 1980 which H & R Ice claims to have paid.
Debtor and Bennett subsequently filed this Complaint for Injunctive Relief in this Court seeking to enjoin the assessment of the § 6672 penalty against Bennett. The Complaint alleges that the proposed assessment is illegal, void, and unenforceable by virtue of § 1141(a) of the Code, Title 11, U.S.C., and that if the proposed assessment against Bennett is allowed to take place it would irreparably interfere with the reorganization of the debtor corporation and impede the effective administration of the estate. Plaintiffs ask that this Court issue an order permanently enjoining the assessment.
By way of answer defendant filed a Motion to Dismiss plaintiffs' Complaint on the grounds that the Bankruptcy Court is without jurisdiction of the subject matter of the action and that plaintiffs failed to state a claim upon which relief can be granted.
Section 1471 of Title 28, U.S.C. defines the scope of the jurisdiction of the Bankruptcy Court. That jurisdiction has been broadened significantly from the jurisdiction accorded this court under the Act.1
Additionally, Section 505(a)(1), Title 11, U.S.C., provides that:
". . . The court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction."
Plaintiff Kenneth Bennett is not in bankruptcy nor has he filed a claim against the debtor corporation. His liability for payment of the unpaid taxes is personal and not derivative. Emshwiller v. U.S., 565 F.2d 1042, 1047 (8th Cir.1977); Kelly v. Lethert, 362 F.2d 629, 635 (8th Cir.1966). No assets of the estate are claimed by the IRS in that assessment. The liability arises, however, from the failure to pay the taxes of the debtor. The subject matter of the complaint is related to a case arising under Title 11 and this court has general jurisdiction.
More specifically, the Bankruptcy Court has jurisdiction under Section 505(a)(1) to determine the legality of the assessment. The jurisdictional grant of that Section is not, by its terms, limited to a determination of tax liability of the debtor. In re Major Dynamics, Inc., 14 B.R. 969 (Bkrtcy.S.D.Cal. 1981).
In Major Dynamics, supra, a seller of solar energy panel packages filed a petition under Chapter 11 of the Bankruptcy Code. The packages had been sold to individual purchasers who made a downpayment with the balance due on a promissory note. "The transaction was designed to provide a substantial tax shelter by virtue of the investment tax credit, solar energy tax credit, depreciation, deduction for management fees and other such potential tax benefits." Major Dynamics, supra, at 970. The packages were never delivered. The list of unsecured creditors contained only names of the investors.
The IRS began auditing and assessing deficiencies and penalties against those creditors to recover the deductions claimed prematurely. The Creditors' Committee sought to enjoin the assessments on the basis that the fractionalization of the creditors would make the reorganization impossible. The IRS argued, as in the case at bar, that the Bankruptcy Court was without jurisdiction and that 26 U.S.C., Section 7421 was an absolute bar to the suit for injunction.
As to the jurisdictional issue, the court held that the Section 505 authorization permitting the Bankruptcy Court to determine taxes was broad enough to encompass the obligations of third parties. It concluded that "since the plain language of the statute in § 505(a)(1) provides, subject to the limitations in § 505(a)(2), that the bankruptcy court may determine the amount or legality of any tax or penalty the . . . Court has jurisdiction to determine disputes between third party creditors and the IRS in an appropriate case." Major Dynamics, supra, at 972. See also Bostwick v. U.S., 521 F.2d 741 (8th Cir.1975).
Bennett is a creditor of the debtor. In addition, he is involved with the daily operation of the business and it is reasonable to extend the rationale of Major Dynamics to the facts before the Court. This Court finds that under the broad jurisdictional grants of 1471(a)(b) and (c), Title 28, U.S.C., § 505 of the Code, Title 11, U.S.C., it has jurisdiction to hear the Complaint.
There is no question that the Internal Revenue Code provides a comprehensive scheme for the collection of unpaid taxes from any possible source. There is also no question that Kenneth Bennett's liability is individual and personal, Kelly v. Lethert, 362 F.2d 629, 635 (8th Cir.1966), Spivak v. United States, 370 F.2d 612 (2nd Cir.1976), and that he may be assessed for the tax deficiency under Section 6672.
The primary purpose of Section 7421 is to protect the government's need to assess and collect taxes as expediently as possible with a minimum of pre-enforcement judicial interference. Bob Jones University v. Simon, 416...
To continue reading
Request your trial