Matter of Huckabee Auto Co.
| Decision Date | 09 October 1984 |
| Docket Number | Bankruptcy No. 80-00151-Mac,Adv. No. 84-5043.,80-00152-Mac |
| Citation | 43 BR 306 |
| Parties | In the Matter of HUCKABEE AUTO COMPANY, Debtor. In re HUCKABEE PROPERTIES, INC., Debtor. In re HUCKABEE AUTO COMPANY, Debtor. In re HUCKABEE PROPERTIES, INC., Debtor. Leo B. HUCKABEE, Jr., Leo B. Huckabee III, Huckabee Auto Company, Movants, v. UNITED STATES of America, Respondent. |
| Court | U.S. Bankruptcy Court — Middle District of Georgia |
Joseph J. Burton, Swift, Currie, McGhee & Hiers, Atlanta, Ga., for movants.
Rodger M. Moore, Atty., Tax Div., Dept. of Justice, Washington, D.C., for respondent.
On February 8, 1980, Huckabee Auto Company and Huckabee Properties, Inc., Debtors, filed their petitions under Chapter 11 of the United States Bankruptcy Code. These cases were consolidated by the Court on April 21, 1981. On January 28, 1982, Debtors' Chapter 11 plan was confirmed by the Court.
On June 17, 1983, Debtors filed a "Proof of and Objection to Additional Claim of the Internal Revenue Service" pursuant to 11 U.S.C.A. § 501(c) (West 1979). On July 14, 1983, Debtors filed an "Amendment to Proof of and Objection to Additional Claim of the Internal Revenue Service." These filings assert that Debtors are operating under a confirmed plan of reorganization, which provides for the full payment of all allowed claims of the Internal Revenue Service (IRS). These filings further assert that although the payments to the IRS are being timely made, the IRS proposed to assess a 100 percent penalty pursuant to 26 U.S.C.A. § 6672 (West 1967 & Supp.1984) against Mr. Leo B. Huckabee, Jr., and Mr. Leo B. Huckabee III, the principal corporate officers of Debtors.
In response to Debtors' filings, the IRS filed its "Opposition to Claim Filed by Debtors on Behalf of Internal Revenue Service." By order dated March 14, 1984, the Court overruled the assertions of the IRS to the extent that the IRS objected to the jurisdiction of this Court to hear Debtors' contentions. In re Huckabee Auto Co., 38 Bankr. 188 (Bankr.M.D.Ga.1984). On June 11, 1984, Debtors filed a "Second Amendment to Proof of and Objection to Claim and Counterclaim." The counterclaim asserts that despite the agreement of the IRS to not enforce the 100 percent penalty until a ruling by this Court on the merits of Debtors' contentions, the IRS seized certain tax refund checks of the Huckabees and filed a notice of tax lien against the residences of the Huckabees.
On June 11, 1984, Mr. Leo B. Huckabee, Jr., Mr. Leo B. Huckabee III, and Huckabee Auto Company, Movants, filed a "Motion for Temporary Restraining Order and Preliminary Injunction."1 The adversary proceeding requests that the Court enjoin the IRS from enforcing the 100 percent penalty.
The adversary proceeding came on for a hearing on June 12, 1984. At the hearing, the IRS agreed to make no further collection efforts, pending a ruling on the merits by this Court. The parties agreed that all issues raised by Debtors' "Proof of and Objection to Additional Claim of the Internal Revenue Service" and the "Motion for Temporary Restraining Order and Preliminary Injunction" would be consolidated and considered at the June 12, 1984, hearing. The Court has considered the evidence presented at the hearing and the briefs of counsel,2 and the Court now publishes the following findings of fact and conclusions of law.
This dispute concerns Debtor Huckabee Auto Company's FICA and employment withholding taxes for the first quarter of 1980. On March 31, 1980, Debtor Huckabee Auto Company drew a check payable to the IRS in the amount of $5,808.70 designated as "half taxes for Feb." On July 22, 1980, Debtor Huckabee Auto Company filed its return for the first quarter of 1980, and the return showed total first quarter taxes of $44,675.42. The return also showed that $5,808.70 had been paid by Debtor Huckabee Auto Company on the first quarter taxes. Also on July 22, 1980, Debtor Huckabee Auto Company drew a check made payable to the IRS in the amount of $16,158.40.
Debtor Huckabee Auto Company was unable to pay the remainder of the first quarter 1980 taxes. Mr. Leo B. Huckabee III testified that General Motors Acceptance Corporation (GMAC) had threatened to repossess Huckabee Auto Company's inventory. Mr. Leo B. Huckabee, Jr., and Mr. Leo B. Huckabee III testified that they had the authority to sign checks and determine which creditors were to be paid. They testified that Huckabee Auto Company did not have enough money to pay all creditors, and a decision therefore was made to pay GMAC, the employees, utilities, and those creditors absolutely necessary to keep the business afloat.
The IRS submitted a proof of claim in the Huckabee Auto Company Chapter 11 case, which included a claim for the first quarter 1980 FICA and employment withholding taxes. On January 28, 1982, the Court confirmed Debtors' third modified plan of reorganization, which provided for the full payment of all allowed claims of the IRS. The plan calls for the payment of the section 507(a)(1)3 taxes in full upon the effective date of the plan. Under Debtors' plan, the section 507(a)(6)4 taxes, which includes the first quarter 1980 FICA and employment withholding taxes, are being paid over a period of six years. The evidence reveals that the section 507(a)(6) payments to the IRS are being made timely by Debtors, and as of the June 12, 1984, hearing, Debtors had paid $5,750.00 to the IRS under their plan.
By letters and IRS forms dated June 9, 1983, the IRS notified Mr. Leo B. Huckabee, Jr., and Mr. Leo B. Huckabee III of its intention to assess a 100 percent penalty in the amount of $19,771.045 against them for Debtor Huckabee Auto Company's unpaid FICA and employment withholding tax liability for the first quarter of 1980.
On February 21, 1984, an amendment to Debtor Huckabee Auto Company's by-laws was passed by the directors of Debtor Huckabee Auto Company. The amendment provides:
Each director or officer of the corporation and each person at its request who has served as an officer or director shall be indemnified by this corporation against those expenses which are allowed by the laws of the State of Georgia and which are reasonably incurred in connection with any action, suit or proceeding, pending or threatened, in which such person may be involved by reason of his being or having been the director or officer of this corporation.
Mr. Leo B. Huckabee III testified that although his annual salary is approximately $44,000.00, he would not be able to pay the penalty. He further testified that he has no assets6 and that payment would have to come from Debtors. Mr. Leo B. Huckabee, Jr., testified that he earns approximately $1,800.00 a month and that he could not pay the penalty. He testified that he has no assets and that payment would have to come from Debtors. Both Mr. Leo B. Huckabee, Jr., and Mr. Leo B. Huckabee III testified that payment of the penalty by Debtors would seriously impair Debtors' effort to complete the plan of reorganization, over which this Court has retained jurisdiction. The IRS presented no evidence to rebut this testimony.
The IRS states that the IRS seeks only one recovery of the first quarter 1980 FICA and employment withholding taxes. If Debtors complete their plan, the FICA and employment withholding taxes for the first quarter of 1980 will be considered by the IRS to be paid in full, and the Huckabees will not be liable for the 100 percent penalty. If the Huckabees pay the penalty that the IRS is asserting against them, the FICA and employment withholding taxes for the first quarter of 1980 will be considered by the IRS to be paid in full. If the IRS is paid through the Chapter 11 plan, it will take six years to pay the tax obligation, and if the IRS attempts collection from the Huckabees, the tax obligation may be paid immediately. The question thus presented is whether the IRS must wait six years for payment of the tax obligation or whether, through the use of a penalty, it can attempt to collect the tax obligation immediately.
By order dated March 14, 1984, this Court held that Debtors have standing to object to the proposed assessment against the Huckabees and that the Court has jurisdiction over the contentions raised by Debtors. The Court held that 11 U.S.C.A. § 505 (West 1979) did not limit the Court's jurisdiction to determine the tax liability of Debtors and that the Court could hear Debtors' objection to the proposed 100 percent penalty against Debtors' officers under 26 U.S.C.A. § 6672 (West 1967 & Supp. 1984). Even though the proposed 100 percent assessment would be a personal liability of the officers, the tax due resulted from Debtor Huckabee Auto Company's failure to pay the taxes, and it therefore is related to a case under Title 11.7 See In re Huckabee Auto Co., 38 Bankr. 188 (Bankr. M.D.Ga.1984).
The IRS's proposed assessment against Mr. Leo B. Huckabee, Jr., and Mr. Leo B. Huckabee III is based on 26 U.S.C.A. § 6672 (West 1967 & Supp.1984), which provides in pertinent part:
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....
The parties stipulate that the Huckabees are persons required to collect the employment taxes, but the Huckabees argue that the failure to pay the taxes was not willful. It is settled that a finding of willfulness does not require a showing of malice or desire to defraud the United States. Rather, it is enough to show that the responsible person paid other creditors...
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