In re John Renton Young, Ltd.
| Decision Date | 31 May 1988 |
| Docket Number | Bankruptcy No. BK-S-86-1873-LBR. |
| Citation | 87 BR 635 |
| Parties | In re JOHN RENTON YOUNG, LTD., dba Young and Company, Debtor. |
| Court | U.S. Bankruptcy Court — District of Nevada |
Nancy L. Allf, John Peter Lee, Ltd., Las Vegas, Nev., for debtor.
Rollin Thorley, Sp. Asst. U.S. Atty., I.R.S. Dist. Counsel, Las Vegas, Nev., for I.R.S.
John Renton Young ("Young") is the president and sole shareholder of the debtor, John Renton Young, Ltd., dba Young and Company ("debtor"). Among the debtor's scheduled obligations is a debt owed to the Internal Revenue Service ("IRS") in the amount of $164,457.96 for "payroll taxes" and a debt for "FUTA taxes" in the amount of $3,186.82. Although the chapter 11 case was filed on August 19, 1986, no hearing on plan confirmation has been set and the debtor remains in possession.
By letter dated January 28, 1988, the IRS notified Young that it intended to assess a 100 percent penalty against him pursuant to section 6672 of the Internal Revenue Code for withholding taxes owed by the debtor. Section 6672(a) provides:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable.
26 U.S.C. § 6672(a).1 Alleging by way of affidavit that the estate would suffer irreparable harm if the IRS took such action,2 the debtor requested that this court exercise its section 105 powers in order to enjoin the assessment of the 100 percent penalty against Young.3
In response, the IRS argued that the debtor lacked standing to bring a motion to enjoin, that the court lacked subject matter jurisdiction to entertain such a motion, and that the motion was barred by both the doctrine of sovereign immunity and by the Federal Anti-Injunction Act.4
A threshold issue to be decided is whether the Bankruptcy Court has subject matter jurisdiction to hear the debtor's motion. Because this motion is one brought by the debtor to enjoin activities which will allegedly interfere with its ability to reorganize, this court has subject matter jurisdiction to hear the present dispute.5
The conclusion in the case at bar is not at odds with this court's prior decision in In re Educators Inv. Corp., 59 B.R. 910 (Bankr.D.Nev.1986). In Educators, a nondebtor obligor sought to enjoin the collection of a 100 percent penalty which had been assessed against him pursuant to section 6672. In that case, this court held that although a bankruptcy court has jurisdiction to determine the tax liability of debtors properly before the court, see, 28 U.S.C. § 1334(a), (b); 28 U.S.C. § 157(a), (b)(2)(A); and 11 U.S.C. § 505(a), the bankruptcy court does not have jurisdiction to hear an unrelated proceeding to determine the tax liability of a nondebtor, or to enjoin the assessment of or collection of a tax against a nondebtor "where the determination or assessment does not involve any issue of bankruptcy law, does not involve property of the estate or of the debtor, and could not have any effect on the bankruptcy estate." In re Educators Inv. Corp., 59 B.R. at 913 (emphasis added).
The case in Educators had been converted from a chapter 11 to a chapter 7. Accordingly, in Educators, there was not, nor could there have been, any legitimate allegation that the 100 percent penalty assessed against the nondebtor obligor would have had any effect on the debtor's ability to reorganize. Conversely, in the instant case there exists a much clearer connection between the financial wherewithal of Mr. Young as the president and sole shareholder of the chapter 11 debtor, and such debtor's prospective ability to reorganize. As a result, the mandate of Educators is satisfied in this case.
The next issue is whether this court has the power to enjoin the IRS from assessing a section 6672 tax against Young in light of the anti-injunction provision set forth in 26 U.S.C. § 7421(a). That section provides:
Except as provided in sections 6212(a) and (c), 6213(a), and 7426(a) and (b)(1), and 7429(b), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.
Finding no solace in the enumerated statutory exceptions to section 7421, the debtor argued that despite the existence of the anti-injunction statute, this court may exercise its general equitable powers under 11 U.S.C. § 105 to restrain the imposition of a section 6672 tax by the IRS. While the issue raised is one which has been described as "raging", In re Herbie K's, Inc., 57 B.R. 468, 469 (Bankr.W.D.La.1985), a careful analysis of the case law reveals that there is little or no precedent remaining to support the debtor's position. Rather, the cases which have held that the Anti-Injunction Act did not bar relief by the bankruptcy court have either been reversed or have relied upon cases which have been reversed.
Prior to 1986, two circuits had directly considered the interrelationship between the Bankruptcy Act and the anti-injunction statute. See Matter of Becker's Motor Transp., Inc., 632 F.2d 242 (3d Cir.1980), cert. denied, 450 U.S. 916, 101 S.Ct. 1358, 67 L.Ed.2d 341 (1981); Bostwick v. United States, 521 F.2d 741 (8th Cir.1975). Significantly, neither case was on point. Both cases involved the imposition of liability against the debtor rather than against a nondebtor obligor.
In Bostwick, the court considered whether the bankruptcy court had jurisdiction to determine the dischargeability of a bankrupt's tax debt when the United States had not filed a proof of claim or otherwise participated in or consented to the proceedings. Examining section 2A of the Bankruptcy Act, (which gave the court the power to determine the amount and legality of any unpaid tax), and the provisions of section 17(c)(4), (which gave the court the power to enjoin any action pending a determination of dischargeability), the Eighth Circuit concluded that it had jurisdiction since Congress intended "to enact a complete scheme governing bankruptcy which overrides the general policy represented by the Anti-Injunction Act." Bostwick, 521 F.2d at 744.
In Becker, the court considered, inter alia, whether the Anti-Injunction Act would preclude the issuance of an injunction against a claim for pre-petition penalties and post-petition interest on a nondischargeable tax debt that had been satisfied pursuant to a plan of arrangement. The Becker court examined the holding in Bostwick and found that it represented a judicially created exception to section 7421(a), which was contrary to Congressional intent. Noting that Congress had had several opportunities to legislate such an exception but had declined to do so, the court stated:
However persuasive the arguments against application of § 7421(a) to bankruptcy court adjudications may be, we believe that a bankruptcy court exemption cannot be judicially fashioned without contravening congressional intent. Although there may be some merit in permitting the policy behind the Bankruptcy Act to outweigh the rationale that underpins the anti-injunction legislation, such argument should be addressed to Congress. Accordingly, we conclude that the district court erred in sustaining the injunction that has been issued in this case.
Matter of Becker's Motor Transp., Inc., 632 F.2d at 246.
In accordance with the Third Circuit's reasoning in Becker, the majority of courts which have considered the applicability of the Anti-Injunction statute to nondebtors have held that the statute operates as an absolute bar. See, e.g., In re Success Tool and Mfg. Co., 62 B.R. 221 (N.D.Ill.1986); Matter of East Wind Industries, 61 B.R. 408 (D.N.J.1986); Bowen Industries, Inc. v. United States I.R.S., 61 B.R. 61 (W.D. Tex.1986); Matter of Driscoll's Towing Service, Inc., 51 B.R. 990 (S.D.Fla.1985); In re Steel Products, Inc., 53 B.R. 999 (W.D.Wash.1985); In re Franklin Press, Inc., 46 B.R. 523 (Bankr.S.D.Fla.1985).
Courts which have refused to find that the anti-injunction statute prohibits an injunction from issuing against the IRS have relied upon the rationale of Bostwick, or upon the decision in In re Steel Products, Inc., 47 B.R. 44 (Bankr.W.D.Wash.1984), (which was subsequently reversed by In re Steel Products, Inc., 53 B.R. 999 (W.D. Wash.1985)). See Matter of La Difference Restaurant, Inc., 63 B.R. 819 (S.D.N.Y. 1986); In re William Netherly, Inc., 53 B.R. 856 (Bankr.M.D.Fla.1985); In re Booth Tow Services, Inc., 53 B.R. 1014 (W.D.Mo.1985); In re J.K. Printing Services, Inc., 49 B.R. 798 (Bankr.W.D.Va. 1985); In re The Original Wild West Foods, Inc., 45 B.R. 202 (Bankr.W.D.Tex. 1984); In re Jon Co., Inc., 30 B.R. 831 (D.Colo.1983); In re H & R Ice Co., Inc., 24 B.R. 28 (Bankr.W.D.Mo.1982).
The "bankruptcy policy exception" of Bostwick was derailed by the Eighth Circuit itself in A to Z Welding & Mfg. Co., Inc. v. United States, 803 F.2d 932 (8th Cir.1986) (per curiam). In A to Z, the court stated:
A to Z argues that the `anti-injunction\' statute is not relevant to the present case inasmuch as Congress, in enacting the bankruptcy code, has evidenced an intention to enact a complete scheme overriding the anti-injunction act. In support of its argument, A to Z relies on Bostwick v. United States, 521 F.2d 741 (8th Cir.1975). Bostwick is inapposite to the case at hand. The injunction upheld in Bostwick was against collection of taxes assessed against the debtors...
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