Riggs v. Comm'r

• Decision Date: 26 May 2015
• Docket Number: T.C. Memo. 2015-98,Docket No. 16522-13L.
• Parties: KATHY L. RIGGS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

KATHY L. RIGGS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

T.C. Memo. 2015-98

Docket No. 16522-13L.

UNITED STATES TAX COURT

May 26, 2015

P failed to collect and remit employment taxes on behalf of a corporation that she controlled. This corporation's successor-in-interest, a second corporation, eventually entered ch. 11 bankruptcy and made several adequate protection payments to R. These payments were made by checks which indicated they were to be applied against P's personal liability for the trust fund recovery penalty. R, however, applied these checks against the corporation's tax debt and initiated this collection action against P. At P's collection due process hearing, the Appeals officer denied P currently not collectible (CNC) status. P appeals this determination under I.R.C. sec. 6330.

Held: This Court has jurisdiction under I.R.C. sec. 6330 because the bankruptcy stay applicable to P's corporation does not apply to her as an individual.

Held, further, P is not entitled to CNC status because of the equity in her assets.

Held, further, R correctly applied the payments against the corporate tax liability.

Kathy L. Riggs, pro se.

Mark J. Tober, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

GOEKE, Judge: Petitioner, Kathy Riggs, lived in Jacksonville, Florida, at the time she filed a petition with this Court. Despite her legal obligation, she failed to collect and remit payroll taxes on behalf of Amber Construction Co. (Amber Construction), a corporation that she controlled. Consequently, respondent assessed a penalty against her under section 6672 in the amount of Amber Construction's unpaid payroll taxes. Petitioner timely filed a request for a collection due process hearing before an IRS Appeals officer. The Appeals officer sustained the determination. Petitioner now appeals this determination under section 6330(d).¹

FINDINGS OF FACT

Petitioner incorporated Amber Construction in 1997 under the State law of Florida. At all times petitioner was the owner and president of Amber Construction. During its period of operation the company provided services to general contractors in and around Jacksonville, Florida. It also accrued substantial unpaid Federal employment taxes related to certain periods from December 2003 to December 2011.

In November 2011 respondent issued petitioner a proposed assessment regarding her personal liability for the trust fund recovery penalty based upon her status as a responsible officer of Amber Construction. In an attempt to collect the unpaid employment tax of Amber Construction after it was assessed, respondent also filed a lien against petitioner as the corporation's nominee in April 2012. This corporate nominee lien attached only to an office building on Columbia Park Drive (Columbia Park property).

Throughout this period petitioner continued to operate the contracting business. However, at some point she ceased using the entity Amber Construction and instead began using a new wholly owned corporation, Amber Rebar, Inc. (Amber Rebar). This second corporation filed a petition for chapter 11 bankruptcy on May 15, 2012. On its bankruptcy schedules, Amber Rebar listed numerousarticles of personal property but no interests in real property. In these proceedings the bankruptcy court permitted Amber Rebar to pay petitioner a salary of $2,181² per week. The court eventually adjusted this amount to $1,095 per week.

In a separate proceeding before a District Court, respondent established that Amber Rebar was the successor-in-interest to Amber Construction's tax liabilities. Thus, in Amber Rebar's bankruptcy proceeding, respondent filed a proof of claim against the corporation for unpaid Federal employment taxes. Amber Rebar and respondent then entered into an adequate protection agreement that on October 3, 2012, was converted into an order by the bankruptcy court. Beginning on October 25, 2012, the agreement required Rebar to make monthly payments to respondent of $3,420. Amber Rebar complied with the order for seven months. Each check mailed by petitioner on behalf of Amber Rebar indicated that it was to be applied to petitioner's liability for the trust fund recovery penalty.

Eventually, respondent also initiated collection efforts against petitioner as an individual. On November 30, 2012, respondent issued a final notice of intent to levy on petitioner's personal assets. Subsequently, respondent filed a notice of Federal tax lien against petitioner. Petitioner then requested a collection dueprocess hearing, seeking review of respondent's efforts to collect the trust fund recovery penalty by levy.

Petitioner argued at the hearing that she was entitled to noncollectible or currently not collectible (CNC) status because she had no disposable income. Petitioner claimed the bankruptcy court determined the amount Amber Rebar could pay the IRS as adequate protection after determining the officer salary petitioner needed to pay her monthly expenses. Thus, she asserted, her salary as set and adjusted by the bankruptcy court left no disposable income to pay the trust fund penalty.

The Appeals officer, however, noted there was equity in several of petitioner's assets. First, petitioner is the sole owner of the Columbia Park property with $92,540 of equity. Second, petitioner owns a boat jointly with her husband with $45,398 of equity. Third, before December 30, 2012, petitioner had an interest as a joint tenant with a right of survivorship with her parents in a residence on Oliver Creek Drive (Oliver Creek property) with $317,540 of equity. On December 30, 2012, petitioner transferred this property solely to her parents by quitclaim deed. At no point did petitioner pay taxes on the Oliver Creek property or claim it as an asset on a loan application.

Because of the equity in these assets that could be liquidated or borrowed against to pay the trust fund penalty, the Appeals officer concluded petitioner was not entitled to CNC status. No other collection alternatives were considered by the Appeals officer because none were requested by petitioner.

Petitioner has filed a petition with this Court seeking review of the Appeals officer's determination and respondent's allocation of the adequate protection payments. Throughout the administrative review process and at the time petitioner filed her petition with this Court, Amber Rebar had a pending bankruptcy case. The original bankruptcy case, filed on May 15, 2012, was dismissed on May 17, 2013. However, two days before, on May 15, 2013, petitioner filed a new bankruptcy petition. The second case did not close until September 30, 2014, well after petitioner's trust fund penalty case came before this Court in July 2013.

OPINION

I. Jurisdiction

This Court must first decide whether it has jurisdiction to review the Appeals officer's determination. If a bankruptcy stay was in place when the petition was filed, the petition would be invalid and we would lack jurisdiction. There are two relevant Bankruptcy Code provisions under which a stay may arise. Title 11 U.S.C. sec. 362 (2012) provides eight specific instances when civilactions are automatically stayed by a pending bankruptcy. Title 11 U.S.C. sec. 105 (2012), on the other hand, authorizes a court to issue a stay in instances not provided for under 11 U.S.C. sec. 362(a). Solidus Networks, Inc. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1094 (9th Cir. 2007); People Place Auto Hand Carwash, LLC v. Commissioner, 126 T.C. 359, 365 (2006). The court in Amber Rebar's bankruptcy did not issue a stay under 11 U.S.C. sec. 105. Thus, this Court will consider only whether the automatic stay under 11 U.S.C. sec. 362 included petitioner in its scope.

Title 11 U.S.C. sec. 362(a)(1) provides a stay for a proceeding "against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title". As an officer of Amber Rebar, petitioner claims respondent's action is stayed by this provision and the notice of determination was issued to her in violation of 11 U.S.C. sec. 362(a)(1) and was therefore invalid. Petitioner cites A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir. 1986), as support for this proposition.

The company in A.H. Robins manufactured a contraceptive device called the Dalkon Shield. Id. at 996. This device was eventually found to be defective, and the company filed for chapter 11 bankruptcy as a result of the growing numberof civil claims pending against it. Id. Though their claims against the company were stayed, plaintiffs attempted to proceed against several corporate officers and other codefendants. Id.

In its analysis, the court noted that "[s]ubsection (a)(1) is generally said to be available only to the debtor," though it may apply to third parties where there is such "identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant". Id. at 999. The court recognized, however, that a stay would not extend to third parties that were "independently liable." Id. (quoting In re Metal Ctr., Inc., 31 B.R. 458, 462 (Bankr. D. Conn. 1983)). Ultimately, because the codefendants (other than the insurer) had rights to indemnity and status as additional insureds under the debtor's insurance policy, the court concluded the company was the real party defendant and that a judgment against the codefendants would in effect be a judgment against the debtor. Thus, actions against the nondebtor corporate officers were stayed.

In the present case, Amber Rebar is not the "real party defendant." The parties have presented no evidence or argument to show that petitioner will be indemnified by the corporation if she is forced to pay the trust fund recovery penalty. Furthermore, the Court of Appeals for the Eleventh Circuit has held that an individual's liability for the trust...