Everett Assocs., Inc. v. Comm'r of Internal Revenue
| Decision Date | 17 May 2012 |
| Docket Number | Docket No. 26685-07L |
| Parties | EVERETT ASSOCIATES, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
Donald F. Payne (an officer), for petitioner.
James A. Whitten, for respondent.
GOEKE, Judge: Pursuant to section 6330(d),1 petitioner seeks review of a notice of determination sustaining respondent's proposed levy. Respondent'scollection activity stems from alleged deficiencies in petitioner's employment taxes.2Petitioner challenges the propriety of respondent's collection actions by asserting, primarily, that respondent received and retained a portion of a cash distribution in violation of the express terms of petitioner's chapter 11 bankruptcy plan. The improperly collected portion of the cash distribution, petitioner submits, should be refunded. Petitioner also contests the underlying tax liabilities, including all assessments of penalties and interest, for two periods listed on the notice of determination (Form 941, Employer's Quarterly Federal Tax Return, for the quarter ended June 30, 2000, and Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, for the year ended December 31, 2001), and one tax period not listed on the notice of determination (Form 941 for the quarter ended March 31, 2000).
Some of the facts have been stipulated, and those facts are incorporated herein by reference. Petitioner is a corporation with its principal place of business in California. Petitioner filed a voluntary petition for relief under chapter 11 of theUnited States Bankruptcy Code3 on November 9, 2001, in the Bankruptcy Court for the Northern District of California (bankruptcy court). Respondent subsequently filed a proof of claim which included a secured claim of $51,873.80, an unsecured priority claim (priority claim) of $130,239.07, and an unsecured general claim of $41,226.40. The composition of the secured and priority claims was as follows:
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¦ ¦Type of ¦Period ¦ ¦Penalty to ¦Interest to ¦ ¦
¦Claim ¦tax ¦(Ending)¦Tax due ¦bankruptcy ¦bankruptcy ¦Total ¦
¦ ¦ ¦ ¦ ¦petition date¦petition date ¦ ¦
+--------+--------+--------+----------+-------------+--------------+----------¦
¦ ¦WT- ¦ ¦ ¦ ¦ ¦ ¦
¦Secured ¦ ¦3/31/00 ¦$26,436.90¦$12,251.57 ¦$13,185.33 ¦$51,873.80¦
¦ ¦FICA, ¦ ¦ ¦ ¦ ¦ ¦
¦ ¦Form 941¦ ¦ ¦ ¦ ¦ ¦
+--------+--------+--------+----------+-------------+--------------+----------¦
¦Priority¦FUTA, ¦12/31/99¦1,933.64 ¦- 0 - ¦543.49 ¦2,477.13 ¦
¦ ¦Form 940¦ ¦ ¦ ¦ ¦ ¦
+--------+--------+--------+----------+-------------+--------------+----------¦
¦ ¦WT-FICA,¦06/30/00¦75,436.67 ¦- 0 - ¦10,487.19 ¦85,923.86 ¦
¦ ¦Form 941¦ ¦ ¦ ¦ ¦ ¦
+--------+--------+--------+----------+-------------+--------------+----------¦
¦ ¦WT-FICA,¦12/31/00¦31,907.88 ¦- 0 - ¦2,380.74 ¦34,288.62 ¦
¦ ¦Form 941¦ ¦ ¦ ¦ ¦ ¦
+--------+--------+--------+----------+-------------+--------------+----------¦
¦ ¦WT-FICA,¦03/31/01¦2,915.01 ¦- 0 - ¦256.29 ¦3,171.30 ¦
¦ ¦Form 941¦ ¦ ¦ ¦ ¦ ¦
+--------+--------+--------+----------+-------------+--------------+----------¦
¦ ¦FUTA, ¦12/31/01¦4,009.16 ¦- 0 - ¦369.00 ¦4,378.16 ¦
¦ ¦Form 940¦ ¦ ¦ ¦ ¦ ¦
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The general unsecured claim consisted of penalties (including interest thereon), as of the petition date, on respondent's unsecured priority claims.
As part of its bankruptcy case, petitioner developed a chapter 11 plan (bankruptcy plan or plan) which was confirmed on February 24, 2003. The bankruptcy plan generally provided for the liquidation of some of petitioner's assets. Nonetheless, the plan also contemplated that petitioner would continue its business and use its gross receipts to satisfy certain creditors' claims.
Pursuant to article 7.04 of the plan, petitioner would sell an unimproved lot located in Santa Rosa, California (Santa Rosa lot), and use the proceeds to satisfy the claims of the secured creditors with liens on the property. Article 5.02 of the plan further provides that respondent's secured claim would be "paid in full, together with interest as provided by law." Similarly, article 5.01 of petitioner's plan provides that priority claims would be "paid in full and in the order of priority set forth in 11 U.S.C. Section 507(a)" following the liquidation of certain assets. Article 9.01 of the plan also discharges petitioner from debts on confirmation. The plan expressly provides that the bankruptcy court retained jurisdiction to determine objections to claims brought by the debtor or any other party in interest.
The "effective date" of the plan was defined as 30 days following confirmation, which was March 26, 2003. Petitioner filed an application for entry of final order with the bankruptcy court on February 8, 2005. The bankruptcycourt approved the application the following day, and petitioner's bankruptcy case was closed on March 3, 2005.
During the pendency of its bankruptcy case, petitioner did not object to nor move to value respondent's proof of claim. Since the close of its bankruptcy case, petitioner has not moved to reopen the case nor filed any action to recover money respondent received from the sale of property pursuant to the bankruptcy plan.
Petitioner submits the sale of the lot was diligently pursued but delayed several times because of circumstances beyond its control. As asserted by petitioner, the Santa Rosa lot was originally to be sold for a negotiated price of $165,000. When that sale did not materialize, petitioner allegedly received two subsequent bids for the lot of $185,000 and $225,000. These purported bids never resulted in a completed sale. Eventually, the holder of the senior note and deed of trust4 on the lot, Ona Roth used powers pursuant to the deed of trust to cause a trustee's sale of the property. At the foreclosure sale, in December 2006, the lot was sold for over $260,000.
As a result of the December 2006 sale, Ms. Roth had her secured claim paid in full. The remainder of the sale proceeds, $125,953.63, was thereafter deliveredto respondent on December 29, 2006. Respondent applied $112,262.33 to the tax period for the quarter ended March 31, 2000 (a secured tax period), and $13,691.30 to the tax period for the quarter ended June 30, 2000 (an unsecured tax period).
Respondent asserts that, at some point before November 21, 2006, petitioner defaulted on its bankruptcy plan. On November 21, 2006, respondent issued a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing (NIL), to petitioner advising that respondent intended to levy and collect the following unpaid tax liabilities:
+-------------------------------------------------+
¦Period (Ending)¦Form¦Balance due as of 12/21/2006¦
+---------------+----+----------------------------¦
¦6/30/00 ¦941 ¦$43,286.11 ¦
+---------------+----+----------------------------¦
¦3/31/02 ¦941 ¦1,835.11 ¦
+---------------+----+----------------------------¦
¦6/30/02 ¦941 ¦1,214.93 ¦
+---------------+----+----------------------------¦
¦9/30/02 ¦941 ¦1,223.74 ¦
+---------------+----+----------------------------¦
¦12/31/01 ¦940 ¦2,774.87 ¦
+---------------+----+----------------------------¦
¦12/31/02 ¦940 ¦1,439.89 ¦
+---------------+----+----------------------------¦
¦Total ¦ ¦51,774.65 ¦
+-------------------------------------------------+
Petitioner timely requested a hearing with respondent on November 30, 2006. In its request, petitioner argued that respondent should abate penalties for failure touse the Electronic Federal Tax Payment System (EFTPS) and failure to timely make Federal tax deposits. Petitioner also generally contested interest assessments on respondent's claims. In addition, petitioner asserted that respondent collected more proceeds from the sale of the Santa Rosa lot than allowed pursuant to petitioner's bankruptcy plan.
Petitioner actively participated in its collection due process hearing (CDP hearing). After a period of correspondence, respondent abated the following penalties:
+-------------------------------------------------+
¦Form¦Period (Ending)¦Penalty abated ¦Amount ¦
+----+---------------+------------------+---------¦
¦941 ¦3/31/00 ¦Failure to pay ¦$5,706.75¦
+----+---------------+------------------+---------¦
¦941 ¦6/30/00 ¦Failure to pay ¦7,265.85 ¦
+----+---------------+------------------+---------¦
¦941 ¦3/31/02 ¦Failure to deposit¦1,535.57 ¦
+----+---------------+------------------+---------¦
¦941 ¦6/30/02 ¦Failure to deposit¦924.03 ¦
+----+---------------+------------------+---------¦
¦941 ¦9/30/02 ¦Failure to deposit¦973.29 ¦
+----+---------------+------------------+---------¦
¦941 ¦12/31/02 ¦Failure to deposit¦920.41 ¦
+-------------------------------------------------+
On October 19, 2007, respondent's Appeals Office issued its notice of determination (NOD) to petitioner. The NOD listed the following tax periods and balances due:5
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