In re Inc.

Decision Date03 March 2011
Docket Number01–12660–CEC.,Nos. 01–12655–CEC,01–12658–CEC,s. 01–12655–CEC
PartiesIn re PT–1 COMMUNICATIONS, INC.; PT–1 Long Distance, Inc.; and PT–1 Technologies, Inc., Debtors.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

OPINION TEXT STARTS HERE

Laurence May, Esq., Cole, Schotz, Meisel, Forman & Leonard, P.A., New York, NY, Attorneys for Edward P. Bond, Liquidating Trustee of the Liquidating Trust U/A/W PT–1 Communications, Inc., PT–1 Long Distance, Inc., and PT–1 Technologies, Inc.Bartholomew Cirenza, Esq., Thomas P. Cole, Esq., United States Department of Justice, Tax Division, Washington, D.C., Attorneys for the Internal Revenue Service.

DECISION

CARLA E. CRAIG, Chief Judge.

This is the fourth in a series of decisions by this Court addressing the claims of the Internal Revenue Service (the “IRS”) in these bankruptcy cases, and addressing the debtors' counterclaims against the IRS seeking payment of tax refunds. See In re PT–1 Commc'ns, Inc., 403 B.R. 250 (Bankr.E.D.N.Y.2009); In re PT–1 Commc'ns, Inc., 386 B.R. 402 (Bankr.E.D.N.Y.2007); In re PT–1 Commc'ns, Inc., 357 B.R. 217 (Bankr.E.D.N.Y.2006). This matter arises in the context of a motion of the Liquidating Trustee (the Trustee) of the Liquidating Trust U/A/W PT–1 Communications, Inc., PT–1 Long Distance, Inc., and PT–1 Technologies, Inc. (the “Liquidating Trust”) seeking, among other things, a tax refund of $6,913,228.53 plus interest, which was paid with the tax return for the period of March 9, 2001December 31, 2001 (the “Short Period”). An evidentiary hearing was held with respect to the contested issues on this motion.

For the following reasons, Trustee's motion seeking a tax refund is granted in part to the extent that certain deductions are allowed, as more fully set forth herein.

Jurisdiction

This Court has jurisdiction of this core proceeding pursuant to 28 U.S.C. §§ 157 and 1334, 11 U.S.C. § 1142, the Eastern District of New York standing order of reference dated August 28, 1986, and the order dated November 23, 2004 confirming the plan of reorganization in this case. This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure 7052.

Facts

The following facts were undisputed with respect to this motion, or were found to be undisputed in one or more of the three prior decisions of this Court in this contested matter, familiarity with which is assumed.

I. The Bankruptcy Cases and the IRS's Requests for Payment of Pre and Post Petition Taxes

On March 9, 2001, PT–1 Communications, Inc. (“PT–1 Communications”), PT–1 Long Distance, Inc. (PT–1 Long Distance), and PT–1 Technologies, Inc. (together “PT–1” or the “Debtors”) commenced these bankruptcy cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code. No chapter 11 trustee was ever appointed. PT–1, as debtors and debtors-in-possession, continued in possession of their assets and in the management of their businesses until the Debtors' Second Amended Joint Plan of Reorganization dated as of August 31, 2004 (“Plan”) was confirmed on November 23, 2004. At that time, as provided in Article 5 of the Plan, certain of the Debtors' assets, rights, and powers were transferred to the Liquidating Trust.

On September 16, 2002, the Debtors and their subsidiaries (who were calendar year taxpayers) filed a tax return for the Short Period, which was the balance of the 2001 tax year after the commencement of these bankruptcy cases. In their return, the Debtors reported taxable income of $19,160,492 for the Short Period, and they paid $6,706,172 in taxes with the return. The IRS accepted the Debtors' tax return and the tax payment. On February 14, 2003, the Debtors paid the IRS $207,056.53 in interest that had accrued on the Short Period taxes.

On February 6, 2004, the IRS filed a request for an administrative expense payment seeking $2,064,860.08 in penalties and interest for the Short Period, and $25,900,740.77 in taxes, penalties, and interest for the period January 1, 2001 to March 8, 2001, which was the portion of the 2001 tax year preceding the Debtors' bankruptcy filing (the “Stub Period”). The IRS also sought $7,189,664.92 for taxes, penalties, and interest for the 2002 tax year.

On August 13, 2004, the IRS filed an amended request seeking interest and penalties for the Short Period totaling $2,064,860.08, and seeking $7,189,664.92 for taxes, penalties, and interest for the 2002 tax year. The IRS withdrew its request for payment of any taxes, interest, or penalties for the Stub Period.

On August 1, 2006, the IRS filed another amended administrative payment request seeking taxes and interest for the Short Period in the amount of $581,040 arising from the IRS's disallowance of loss carryforwards from the 2000 tax year and loss carrybacks from the 2002 tax year. It also sought penalties and interest totaling $470,086.54 for PT–1's failure to timely pay its taxes and failure to pay estimated taxes for the Short Period, and $7,863,701.84 for estimated taxes for the 2002 tax year.

II. The Trustee's Motions to Disallow the IRS's Request for Administrative Expense Payments and Counterclaims for Tax Refunds, and the IRS's Motion to Reopen the Record

On March 14, 2005, the Trustee filed a motion to disallow the IRS's requests for administrative expense payments. The Trustee also sought a declaration that PT–1 was permitted to file a tax return for PT–1 and its subsidiaries for the Stub Period.1 Additionally, the Trustee sought to carry forward and carry back net operating losses against the taxable income for the Short Period; to recover a tax refund of $2,178,891 for the tax period that ended June 30, 1998 plus interest (the 1998 Tax Refund”); and to recover a refund of $6,913,228.53 which was paid with the Short Period tax return (the 2001 Tax Refund”).

On August 1, 2006, the Trustee filed his first motion to disallow the IRS's request for administrative payment of taxes, interest and penalties for the Short Period and the 2002 tax year. Additionally, the Trustee sought summary judgment on his counterclaims seeking authorization for PT–1 to file a tax return for the Stub Period and seeking an award of the 2001 Tax Refund and the 1998 Tax Refund.

On December 7, 2006, this Court granted the Trustee's first motion, in part, and disallowed the IRS's request for administrative payment relating to the 2002 tax year. PT–1 Commc'ns, 357 B.R. 217.

On March 26, 2007, this Court disallowed the IRS's request for an administrative payment of penalties and interest for PT–1's failure to timely pay its taxes for the Short Period. The Court also disallowed as time barred the IRS's request for penalties based on PT–1's failure to pay estimated taxes, interest and penalties for the 2001 tax year. Lastly, the Court denied the Trustee's motion for summary judgment on his counterclaims for declaratory relief and to recover tax refunds, without prejudice to renewal upon a more complete record. PT–1 Commc'ns, 386 B.R. 402.

On September 21, 2007, the Trustee filed his second motion for summary judgment seeking to disallow and expunge the IRS's request for an administrative expense payment of $581,040 for taxes and interest for the Short Period. The Trustee also renewed his request for summary judgment seeking a declaratory judgment directing the IRS to accept PT–1's Stub Period tax return and an award of the 1998 Tax Refund and the 2001 Tax Refund.

On March 31, 2009, this Court granted the Trustee's second motion, in part, and disallowed the IRS's administrative expense payment request for Short Period, directed the IRS to accept PT–1's Stub Period tax return, and awarded the Trustee the 1998 Tax Refund. PT–1 Commc'ns, 403 B.R. 250. The Court denied the Trustee's motion with respect to his counterclaim for the 2001 Tax Refund, and scheduled that contested matter for an evidentiary hearing. Id. at 277. The evidentiary hearing was held on July 2, 2009, August 26, 2009, and August 27, 2009. Oral argument was heard on March 25, 2010, and the record was closed.

On July 28, 2010, the IRS filed a motion seeking to reopen the record to introduce additional evidence regarding the sale of assets to IDT in connection with the Trustee's request to carry forward net operating losses from the Stub Period. A hearing on the IRS's motion was held on September 15, 2010.

This decision addresses the Trustee's entitlement to the 2001 Tax Refund and the IRS's motion to reopen the record.

Testimony Regarding the Nature and Operation of the Debtors' Businesses

Adam Kolodny, formerly the chief operating officer of the Debtors, testified regarding the business of PT–1 Long Distance and PT–1 Communications. As part of his duties, Mr. Kolodny was responsible for the management of the Debtors' billing departments. (Tr.2 7/2/09 at 13.) The following is a summary of his testimony regarding the operation of the Debtors' businesses.

I. PT–1 Long Distance

PT–1 Long Distance was in the telecommunications business; it provided long distance services and processed approximately 10 million calls a month. (Tr. 7/2/09 at 17.) PT–1 Long Distance recorded information relating to each call placed through its switches, including the originating telephone number, duration of the call, and the number which was being called. (Tr. 7/2/09 at 18.) Each call was then rated based upon a billing agreement. (Tr. 7/2/09 at 19.)

In order to obtain payment for calls placed through its switches, PT–1 Long Distance would collect the data from each call processed and then send the information to a billing intermediary (the “Intermediary”), such as Hold Billing Services or ACI. (Tr. 7/2/09 at 19, 20, 26, 86–87.) Some calls, labeled “upfront rejects,” would not be included in the information sent to the Intermediary because either the calls were less than six seconds or PT–1 Long Distance's switches did not obtain sufficient information about the...

To continue reading

Request your trial
6 cases
  • United States v. Bond, 11 Civ. 5608 (BMC)
    • United States
    • U.S. District Court — Eastern District of New York
    • September 15, 2012
    ...PT-1's NOLs from the other years without which the Trustee would not be entitled to a refund for the 2001 Short Period. 4) Decision IV: 447 B.R. 115, Issued March 3, 2011 The Bankruptcy Court issued Decision IV on March 3, 2011, following a three-day evidentiary hearing and two rounds of po......
  • United States v. Bond
    • United States
    • U.S. District Court — Eastern District of New York
    • September 17, 2012
    ...NOLs from the other years without which the Trustee would not be entitled to its claimed refund for the 2001 Short Period.4) Decision IV: 447 B.R. 115, issued March 3, 2011 The Bankruptcy Court issued Decision IV on March 3, 2011, following a three-day evidentiary hearing and two rounds of ......
  • United States v. Bond
    • United States
    • U.S. Court of Appeals — Second Circuit
    • August 13, 2014
    ...PT–1 Commc'ns, Inc., 357 B.R. 217 (Bankr.E.D.N.Y.2006); 386 B.R. 402 (Bankr.E.D.N.Y.2007); 403 B.R. 250 (Bankr.E.D.N.Y.2009); 447 B.R. 115 (Bankr.E.D.N.Y.2011). In sum, the bankruptcy court dismissed all the government's claims, and granted summary judgment in favor of the Liquidating Trust......
  • United States v. Bond
    • United States
    • U.S. District Court — Eastern District of New York
    • September 17, 2012
    ...NOLs from the other years without which the Trustee would not be entitled to its claimed refund for the 2001 Short Period. 4) Decision IV: 447 B.R. 115, issued March 3, 2011 The Bankruptcy Court issued Decision IV on March 3, 2011, following a three-day evidentiary hearing and two rounds of......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT