In Uncategorized on 05/27/2015 at 21:39

I was unsure whether to blog Kathy L. Riggs, 2015 T. C. Memo. 98, filed 5/26/15, yesterday. I thought Pacific Management Group was more interesting and of wider application.

Kathy’s CDP seeking CNC status runs aground because her equity in half a boat and a whole office building would pay off the TFRPs at issue, and then some, to say nothing of her joint tenancy interest in her parents’ home, which Kathy claims is just a probate-avoider. So nothing new here.

What might be of interest is a series of partial payments of the theretofore unwithheld withholdings from Kathy’s successor Sub S. Kathy’s first corporation didn’t bother paying over withholdings, so Kathy formed a successor, but FL, unlike TX (see my blogpost “Nothing Succeeds,” 2/26/15, for the TX story), nails dodgers who fold and reincorporate, so IRS gets a USDC decision accordingly.

IRS liens both Kathy and the successor. Successor files Ch XI, but doesn’t mention realty as an asset.

The bankruptcy literate among my readers will remember that certain creditors can get 11 USC §361 “adequate protection” for debtor’s realty interests, and that’s the deal that Kathy cuts with IRS on behalf of successor corporation, and some payments are made.

Kathy wants those credited to her TFRPs. No dice, says Judge Goeke.

The automatic stay in 11 USC §362 doesn’t help Kathy, because there’s no showing her successor S Corp has to indemnify her for the TFRPs, and Eleventh Circuit (where this case is Golsenized) says TFRPs are separate from withholdings.

Now nondebtors can be shielded under 11 USC §105, which gives Bankruptcy Court power to do what it has to do to keep the process going, but Kathy never got a 105 order protecting her.

So Kathy is out there, with assets sufficient to pay off the TFRPs if she sells the boat and the office building, and the existence of IRS liens on both isn’t an excuse why they can’t be sold or hocked.

And her protection payments were for the successor corporation’s benefit. Kathy’s attempt to designate these for her benefit loses.

“In United States v. Energy Res. Co., 495 U.S. 545, 551 (1990), the Supreme Court held ‘that * * * [a bankruptcy court] may order the IRS to apply tax payments to offset trust fund obligations [rather than the non-trust-fund tax liabilities] where it concludes that this action is necessary for a reorganization’s success.’ Respondent rightfully distinguishes Energy Resources by noting that the bankruptcy court never ordered that [successor corporation’s] adequate protection payments be applied towards petitioner’s penalty liability. Therefore, respondent argues the payments made by [successor corporation] were properly applied against the company’s tax liability.” 2015 T. C. Memo. 98, at p. 15.

Kathy claims she noted on her checks that they adequate protection payments were for her TFRPs, and IRS agrees taxpayer can designate voluntary payments.

Except these payments weren’t voluntary.

“The adequate protection payments were directed by the bankruptcy court, and those payments were made with respect to [successor corporation’s] liabilities, not petitioner’s. Therefore, neither petitioner nor [successor corporation], without permission from the bankruptcy court, would have the right to allocate the payments between [successor corporation’s] tax liability and any residual liability she had individually for the trust fund recovery penalty.” 2015 T. C. Memo. 98, at p. 16 (Footnote omitted, but it cites the Dixon case, the subject of my blogpost “The Great Dissenter – Redivivus,” 9/3/13. And I got to express my Taishoff “good try” to Larry Campagna, Esq., personally at the Judicial Conference last week, over a well-made Manhattan).

So following Dixon, IRS can apply as it likes. Kathy is unprotected.

  1. See 26USC§6672. These are penalties imposed upon persons responsible for collecting taxes to be paid over to the United States, but who fail to do so. In this case it was payroll tax withholdings.


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