Decision will be entered for respondent subject to a
GOEKE, Judge: Pursuant to
Some of the facts have been stipulated, and those facts are incorporated herein by reference. Petitioner is a corporation with its principal place of business in California. Petitioner filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code 3 on November 9, 2001, in the Bankruptcy Court for the Northern District of California (bankruptcy court). Respondent subsequently filed a proof of claim which included a secured claim of $51,873.80, an unsecured priority claim (priority claim) of $130,239.07, and an unsecured general claim of $41,226.40. The composition of the secured and priority claims was as follows:
| Penalty | Interest | |||||
| Type of | Period | to bankruptcy | to bankruptcy | |||
| Claim | tax | (Ending) | Tax due | petition date | petition date | Total |
| Secured | WT- | 3/31/00 | $26,436.90 | $12,251.57 | $13,185.33 | $51,873.80 |
| FICA, | ||||||
| Form 941 | ||||||
| Priority | FUTA, | 12/31/99 | 1,933.64 | - 0 - | 543.49 | 2,477.13 |
| Form 940 | ||||||
| WT- | 06/30/00 | 75,436.67 | - 0 - | 10,487.19 | 85,923.86 | |
| FICA, | ||||||
| Form 941 | ||||||
| WT- | 12/31/00 | 31,907.88 | - 0 - | 2,380.74 | 34,288.62 | |
| FICA, | ||||||
| Form 941 | ||||||
| WT- | 03/31/01 | 2,915.01 | - 0 - | 256.29 | 3,171.30 | |
| FICA, | ||||||
| Form 941 | ||||||
| FUTA, | 12/31/01 | 4,009.16 | - 0 - | 369.00 | 4,378.16 | |
| Form 940 |
The *145 general unsecured claim consisted of penalties (including interest thereon), as of the petition date, on respondent's unsecured priority claims.
As part of its bankruptcy case, petitioner developed a chapter 11 plan (bankruptcy plan or plan) which was confirmed on February 24, 2003. The bankruptcy plan generally provided for the liquidation of some of petitioner's assets. Nonetheless, the plan also contemplated that petitioner would continue its business and use its gross receipts to satisfy certain creditors' claims.
Pursuant to article 7.04 of the plan, petitioner would sell an unimproved lot located in Santa Rosa, California (Santa Rosa lot), and use the proceeds to satisfy the claims of the secured creditors with liens on the property. Article 5.02 of the plan further provides that respondent's secured claim would be "paid in full, together with interest as provided by law." Similarly, article 5.01 of petitioner's plan provides that priority claims would be "paid in full and in the order of priority set forth in
The "effective date" of the plan was defined as 30 days following confirmation, which was March 26, 2003. Petitioner filed an application for entry of final order with the bankruptcy court on February 8, 2005. The bankruptcy court approved the application the following day, and petitioner's bankruptcy case was closed on March 3, 2005.
During the pendency of its bankruptcy case, petitioner did not object to nor move to value respondent's proof of claim. Since the close of its bankruptcy case, petitioner has not moved to reopen the case nor filed any action to recover money respondent received from the sale of property pursuant to the bankruptcy plan.
Petitioner submits the sale of the lot was diligently pursued but delayed several times because of circumstances beyond its control. As asserted by petitioner, the Santa Rosa lot was originally to be sold for a negotiated price of $165,000. When that sale *147 did not materialize, petitioner allegedly received two subsequent bids for the lot of $185,000 and $225,000. These purported bids never resulted in a completed sale. Eventually, the holder of the senior note and deed of trust 4 on the lot, Ona Roth used powers pursuant to the deed of trust to cause a trustee's sale of the property. At the foreclosure sale, in December 2006, the lot was sold for over $260,000.
As a result of the December 2006 sale, Ms. Roth had her secured claim paid in full. The remainder of the sale proceeds, $125,953.63, was thereafter delivered to respondent on December 29, 2006. Respondent applied $112,262.33 to the tax period for the quarter ended March 31, 2000 (a secured tax period), and $13,691.30 to the tax period for the quarter ended June 30, 2000 (an unsecured tax period).
Respondent asserts that, at some point before November 21, 2006, petitioner defaulted on its bankruptcy plan. On November 21, 2006, respondent issued a Letter 1058, Final Notice of Intent to Levy and Notice of Your Right to a Hearing (NIL), to petitioner advising that respondent intended to levy and collect the *148 following unpaid tax liabilities:
| Period (Ending) | Form | Balance due as of 12/21/2006 |
| 6/30/00 | 941 | $43,286.11 |
| 3/31/02 | 941 | 1,835.11 |
| 6/30/02 | 941 | 1,214.93 |
| 9/30/02 | 941 | 1,223.74 |
| 12/31/01 | 940 | 2,774.87 |
| 12/31/02 | 940 | 1,439.89 |
| Total | 51,774.65 |
Petitioner timely requested a hearing with respondent on November 30, 2006. In its request, petitioner argued that respondent should abate penalties for failure to use the Electronic Federal Tax Payment System (EFTPS) and failure to timely make Federal tax deposits. Petitioner also generally contested interest assessments on respondent's claims. In addition, petitioner asserted that respondent collected more proceeds from the sale of the Santa Rosa lot than allowed pursuant to petitioner's bankruptcy plan.
Petitioner actively participated in its collection due process hearing (CDP hearing). After a period of correspondence, respondent abated the following penalties:
| Period | |||
| Form | (Ending) | Penalty abated | Amount |
| 941 | 3/31/00 | Failure to pay | $5,706.75 |
| 941 | 6/30/00 | Failure to pay | 7,265.85 |
| 941 | 3/31/02 | Failure to deposit | 1,535.57 |
| 941 | 6/30/02 | Failure to deposit | 924.03 |
| 941 | 9/30/02 | Failure to deposit | 973.29 |
| 941 | 12/31/02 | Failure to deposit | 920.41 |
On October 19, 2007, respondent's Appeals Office issued its notice of determination *149 (NOD) to petitioner. The NOD listed the following tax periods and balances due: 5
| Form | Period (Ending) | Balance due as of 10/30/07 |
| 941 | 6/30/00 | $6,682.88 |
| 941 | 3/31/02 | 0.00 |
| 941 | 6/30/02 | 38.99 |
| 941 | 9/30/02 | 0.00 |
| 940 | 12/31/01 | 2,900.62 |
| 940 | 12/31/02 | 0.00 |
| Total | 9,622.49 |
In the Appeals case memorandum attached to the NOD the Appeals officer asserted that petitioner raised "only one issue" in the CDP hearing: the failure of respondent to grant penalty relief. The Appeals officer concluded that petitioner was entitled to relief under
The Appeals officer also determined that petitioner was not entitled to relief under
Petitioner timely filed a petition with this Court on November 20, 2007, contesting respondent's determination to sustain the proposed levy. Petitioner attached respondent's NOD to the petition but specifically requested that the Court review Appeals' determination for the Forms 941 for the quarters ended March 31, 2000 (a period not listed in respondent's NOD), and June 30, 2000, and Form 940 for the year ended December 31, 2001. In its petition, petitioner cites several alleged errors made by respondent in his determination:
1. Settlement Officer * * * was unsure of the effect of Bankruptcy law, as it related to application of FTP and FTD penalties. * * * [The settlement officer] refused to accept any additional written argument and did not therefor consider the effect of multiple interperiod transfers on the net balance claimed.
2. The *151 IRS has collected $41,226.44 plus accrued interest and FTP/FTD penalties for their unsecured general claim in the Chapter 11, ahead of other higher priority creditors.
3. Other non-pecuniary loss penalties have been collected by lien and levy. ... [sic] contra 507(a) of Code.
4. * * * [The settlement officer] confined his final assessment only to FTP and FTD issues that showed as still outstanding amounts, and was unwilling to address a credit for amounts over-collected, by lien and levy, and contrary to Bankruptcy Law.
5. * * * [The settlement officer] wanted to get the case closed, without addressing the above substantial issues that became evident. The Chapter 11 was closed in 2005, and there is no other forum to address the overcollected amounts.
The tax periods listed on respondent's proof of claim and those listed in the NOD share only two tax periods in common—the Form 941 for the quarter ended June 30, 2000, and the Form 940 for the year ended December 31, 2001.
On October 20, 2008, respondent filed a motion to dismiss as to the employment tax periods ended March 31 and September 30, 2002, and for the year ended December 31, 2002, as moot on the grounds that the tax liabilities *152 for those periods had been paid in full and the proposed levy was no longer necessary. On August 7, 2009, respondent's motion was granted.
This case was tried on March 7 and 17, 2011, in San Francisco, California. 7
OPINIONWe have jurisdiction to review the Appeals Office's determination.
Where the underlying tax liability is properly at issue, we review that determination de novo.
Petitioner asserts a panoply of grievances against respondent. The wide-ranging assertions can generally be channeled into three distinct categories: (1) respondent improperly assessed interest before, during the pendency of, and following the close of *155 petitioner's bankruptcy case; 9 (2) respondent improperly assessed and collected failure to pay penalties which were discharged according to petitioner's bankruptcy plan; and (3) respondent applied petitioner's bankruptcy payments in contravention of petitioner's bankruptcy plan, entitling petitioner to a refund.
I. Nondetermination YearsThe Tax Court is a court of limited jurisdiction; we may exercise jurisdiction only to the extent expressly authorized by Congress.
Petitioner's petition includes a tax period not addressed in respondent's notice of intent to levy nor in the notice of determination: the tax period for the quarter ending March 31, 2000. Petitioner argues that, as a result of respondent's purportedly erroneous *156 assessment for that period, petitioner overpaid the corresponding tax liability and the resulting credit should be applied to the balances due for the other periods validly listed on petitioner's petition. Alternatively, petitioner submits that the surplus payment resulting from the satisfaction of petitioner's tax liability for the quarter ending March 31, 2000, was applied in contravention of petitioner's confirmed bankruptcy plan to its tax period for the quarter ending June 30, 2000. If petitioner is correct in either assertion, it will affect respondent's collection action for at least one period that petitioner appropriately listed on its Tax Court petition. 10*157
We have previously considered whether we have jurisdiction to conclude that a taxpayer's liability for a determination year in a CDP case should be reduced or eliminated by recognized overpayments from nondetermination years or remittances misapplied to nondetermination years. See, e.g.,
In
Our recent Opinion in
An overpayment of a
Petitioner's primary assertion that it overpaid a tax liability for a nondetermination period, resulting in a credit which should be applied to the balances due in determination periods, would require this Court to consider, de novo, the entirety of petitioner's tax liability for the nondetermination period. Weber precludes us from engaging in such an inquiry; nonetheless, petitioner would not be entitled to an overpayment credit for the nondetermination period at issue in any event (discussed further infra). However, petitioner's alternate assertion that the surplus payment resulting from the satisfaction of petitioner's tax liability in a nondetermination period was misapplied to a determination period, appears to appropriately fit within the jurisdictional ambit of *161 this Court established by
During petitioner's CDP hearing, it did not dispute that it had failed to deduct and withhold certain employment taxes under
In a CDP hearing, a taxpayer may raise challenges to the existence or amount of the underlying liability for any tax period only if the taxpayer did not receive any statutory notice of deficiency for the tax liability or did not otherwise have an opportunity to dispute the underlying liability.
While this Court now maintains general jurisdiction to review all collection determinations of the Appeals Office irrespective of the type of underlying tax, 12*163 as noted supra, we are constrained in our review to only those liabilities for which the taxpayer has neither received a notice of deficiency nor otherwise had a prior opportunity to dispute.
Petitioner did not receive any notice of deficiency for its employment tax liabilities concerning the tax periods at issue. See
Federal bankruptcy courts may consider the amount or legality of taxes, including penalties and interest.
In petitioner's bankruptcy proceeding, respondent submitted a proof of claim, including a secured claim of $51,873.80, a priority claim of $130,239.07, and a general unsecured claim of $41,226.40, for petitioner's unpaid employment tax liabilities, including penalties and interest. Petitioner, represented *165 by counsel, did not file an objection to these tax liabilities. Accordingly, petitioner is precluded from challenging the underlying liabilities, including penalties and interest, as submitted by respondent in his proof of claim. See
Following the close of petitioner's bankruptcy case on March 3, 2005, respondent assessed additional interest and penalties on petitioner's unpaid employment tax liabilities arising from its March 2000, June 2000, and December 2001 quarters. Of those periods, the June and December quarters were addressed in respondent's notice of determination; only the March and June quarters were addressed in petitioner's bankruptcy case. Petitioner did not receive a notice of deficiency for any of these periods, nor was it afforded the prior opportunity to contest the liabilities during its bankruptcy case as the assessments were made after the bankruptcy proceedings had closed. 13*166 *167 Accordingly, we will review these assessments de novo.
In sum, petitioner may not dispute its unpaid liabilities as submitted by respondent in his proof of claim. Our focus instead appropriately narrows to the interest and penalties which accrued on respondent's secured and priority tax claims during the pendency of petitioner's bankruptcy case and following the confirmation of petitioner's bankruptcy plan.
IV. Post-Bankruptcy-Petition Interest on a Secured Claim Versus an Unsecured ClaimInterest on a tax underpayment generally accrues from the last date prescribed for payment of the tax to the date the tax is paid.
Prepetition claims are characterized as either secured or unsecured. Unsecured claims are further distinguished into priority claims and general unsecured claims. For a creditor to be entitled to a secured claim, the claim must be secured by a lien 14 on property to which the bankrupt estate has an interest. *168
Bankruptcy creditors are entitled to postpetition interest only if their claim is oversecured.
There remains a dispute over whether respondent's secured claim was fully secured during the period following petitioner's bankruptcy petition. The determination of the security of respondent's claim requires an inquiry into the proper fair market value of petitioner's Santa Rosa lot—the property encumbered by respondent's Federal tax lien. See 9
We agree with respondent's primary contention that bankruptcy rules, supplemented by the provisions of petitioner's self-structured bankruptcy plan, preclude our inquiry into the fair market value of the encumbered property; we need not address the parties' arguments regarding its proper valuation.
Respondent's validly executed proof of claim constitutes "prima facie *172 evidence of the validity and amount of the claim."
Article 8.01 of petitioner's bankruptcy plan further provided for the retained jurisdiction of the bankruptcy court to determine the validity, priority, and extent of liens. This afforded petitioner the option to contest the valuation of respondent's claim until its bankruptcy case was closed on March 3, 2005. Even after the bankruptcy court's final decree, petitioner was freely permitted to reopen the case.
We will not attempt a postbankruptcy final decree valuation of respondent's claim. Indeed, even bankruptcy *174 courts are reluctant to value claims following a plan confirmation. See
As noted supra,
Subtitle C of the Code governs payment of employment taxes.
Respondent has vacillated over the appropriate postpetition rate of interest on his secured claim. Noting that the initial balance of the tax due for petitioner's March 2000 tax period was $118,498.30, respondent admits that he "may have initially computed and assessed interest at the large corporate underpayment rate." Nonetheless, respondent now accepts the interest calculations of his insolvency expert which were performed *177 during the pendency of this case. Respondent asserts that those calculations reflect an application of the general underpayment rate established under
Confirmed chapter 11 plans bind the debtor and all creditors to the terms of the plan.
Article 5.02 of petitioner's confirmed bankruptcy plan provides that respondent's secured claim would be "paid in full, together with interest as provided by law." Respondent contends that this provision allowed for the accrual of postconfirmation interest on his secured claim at the general underpayment rate of
The express terms of petitioner's bankruptcy plan unambiguously provided that respondent's secured claim would be paid with interest. Furthermore, in the light of the qualifying language that interest would be paid as "provided by law", we find that petitioner's bankruptcy plan contemplated interest accrual on respondent's secured claim at the general underpayment *179 rate of
Both parties agree that priority tax claims do not accrue interest from the petition date through confirmation of the plan. See
A bankruptcy court can confirm a chapter 11 bankruptcy plan only if the plan satisfies *180 various statutory requirements. See
Section 5.01 of petitioner's confirmed bankruptcy plan provides that respondent's priority tax claims are to be paid "in full" from the proceeds of petitioner's assets. At issue is whether that term calls for deferred payments, or alternatively, whether the plan should be interpreted to preclude the accrual of interest on respondent's claim.
Petitioner cites
What follows is a discussion of the cases cited by petitioner as well as
In
In
After the confirmation of the plan, litigation ensued concerning the proper characterization of the Commissioner's claim. At the conclusion of a series of appeals, ending with a denial of certiorari by the Supreme Court, the Commissioner's claim was definitively established as an "Allowed *184 Claim". Id. The Commissioner thereafter asserted he was entitled to postconfirmation interest on his priority claim from the confirmation date of the plan to the date when it was definitively established as an "Allowed Claim". Id.
The District Court affirmed the lower bankruptcy court's holding that the Commissioner was not entitled to postpetition interest.
The District Court also suggested that the different underlying purposes of plans of reorganization and, conversely, plans of liquidation, might factor into an inquiry focused on discerning whether a plan implicitly directs the debtor to make deferred payments. Id. Noting that the plan at issue effected a liquidation, the court stated that "the purpose of making deferred payments on a priority *185 claim is to increase cash flow and thus increase the prospect of a successful reorganization. Here, no such purpose exists. White Farm's plan * * * did not provide for payments over time to facilitate reorganization." Id. This passage appears to imply that the court would more seriously consider whether a plan impliedly called for deferred payments on a priority claim if the provision providing for such payments was part of a larger bankruptcy reorganization. In a similar vein, the passage may be further interpreted as the court's intimation that deferred payments, and corresponding interest pursuant to
In contrast to the bankruptcy plans in the cases cited by petitioner, the debtor's reorganization plan in
In reversing the lower bankruptcy court's holding that the delayed payment was not a deferred cash payment precluding the accrual of interest on the Commissioner's priority claim, the District Court focused its inquiry on whether the debtor's plan to pay the priority claim "in full" constituted a "guaranteed payment in the manner provided by * * * [
In accord with this approach, the court in
We are not persuaded by the cases petitioner cites. We further decline to follow the reasoning of In re Pharmadyne Labs., Inc. In that case the court summarily dismissed the applicability of
The facts of the second case upon which respondent relies, White Farm Equip. Co., are distinguishable on their face from those at present. In
Furthermore, in White Farm Equip. Co., the debtor's plan explicitly provided that the Commissioner's priority tax *190 claims would not include interest for the period following the petition date. Petitioner's plan contains no such restriction.
We are also unconvinced that the court in
Declining to invest in the scant reasoning of Pharmadyne or the inapposite factual circumstances of White Farm Equip. Co., we turn to other relevant *191 caselaw for guidance. We first note that the provisions of petitioner's bankruptcy plan concerning respondent's priority claim are nearly identical to the debtors' plans at issue in both
If a debtor submits a generalized statement *192 that it will pay * * * in full-100%, creditors are entitled to interpret that statement as guaranteeing the payment of each and every part of the creditor's claim. If the debtor wishes to be more specific * * * it is the debtor's duty to put the creditor on notice by specifically detailing any exceptions. Failing this, the debtor as draftsman of the plan has to pay the price if there is any ambiguity about the meaning of the terms of the plan. * * *
In accord with this quoted passage and the courts' decisions in In re Arrow Air and In re Collins, we will construe the ambiguous language in the bankruptcy plan against the debtor-drafter. Consequently, we find that article 5.01 provides for deferred payments and the corresponding accrual of interest on respondent's priority claim pursuant to
Respondent did not offer the rate used in calculating interest on his priority claim. Indeed, respondent remains *193 uncertain as to the manner by which interest was calculated on the claim. 22 Nonetheless, respondent now avers that the proper rate of postconfirmation interest on the priority claim is the rate under
Courts have taken different approaches in determining the proper interest rate that a postconfirmation priority claim is afforded pursuant to
The parties have not offered any evidence concerning the appropriate market rate of interest on respondent's priority claims. Petitioner's failure to submit such evidence is excusable; respondent's is not. Petitioner was placed in the unenviable position of attempting to discern the substance of respondent's calculations when respondent himself was unable to do so. Respondent dismisses his outright failure to identify *196 the foundation of his interest assessments and instead offers to this Court that he "usually charges interest at the general unemployment [sic] rate under
With no evidence submitted to this Court concerning the relevant market rate of interest on respondent's claim, we cannot presently determine the propriety of respondent's assessments. Nonetheless, it is clear from respondent's inability to express to this Court the postconfirmation rate *197 of interest he used in assessing interest on his priority claim that the Appeals officer did not properly obtain verification that all applicable law and procedure 26 had been followed pursuant to
Petitioner disputes the assessment of penalties on three alternate grounds: (1) the penalties improperly accrued postpetition; (2) the penalties should be abated for reasonable cause; or (3) petitioner's bankruptcy plan and the corresponding confirmation order preclude respondent from subsequently assessing and collecting postpetition failure to pay penalties. As noted supra, we review the penalty assessments de novo. See
Generally, a taxpayer's pending bankruptcy case alters these aforementioned rules.
Petitioner's unpaid tax for the taxable periods at issue constitutes employment tax liabilities. Accordingly, failure to pay penalties properly accrued on those tax deficiencies throughout the pendency of petitioner's bankruptcy case. In response to this Court's order after trial, respondent conceded that penalties did not validly accrue following the effective date of petitioner's bankruptcy plan; respondent is unable to conclusively demonstrate that all of his penalty assessments correspond to periods during the pendency of petitioner's bankruptcy case. 29*201 Nonetheless, as discussed infra, we find that all penalties which accrued postpetition on prepetition claims were discharged upon confirmation of petitioner's bankruptcy plan.
B. Reasonable CauseThe
Petitioner submits that it exhibited "ordinary business care * * * and prudence * * * in providing payment to Respondent". In particular, petitioner testified that despite its best efforts it was precluded from following its bankruptcy plan and selling the Santa Rosa lot because *202 title companies were unable to provide "free and clear" title to the property. Furthermore, petitioner cites the economic downturn in its business following the September 11, 2001, terrorist attacks as preventing the timely payment of its tax liabilities. 30 Petitioner provides no evidence correlating either situation with its failure to pay taxes when due.
Respondent counters that
Given these circumstances, we find that petitioner has not sufficiently established *203 that its failure to pay its tax liabilities is due to reasonable cause and not willful neglect. See
Petitioner asserts that even if penalties were properly assessed during the pendency of its bankruptcy case, its bankruptcy plan and the corresponding confirmation order discharged those penalties. 31*204 We have jurisdiction to decide whether a tax liability for which collection is at issue was discharged in bankruptcy.
Respondent's Appeals officer did not consider the possibility that postpetition penalties were discharged under petitioner's bankruptcy plan; instead, he cursorily determined that the penalties were appropriately assessed. 32*206 Respondent, *205 in his posttrial brief, also failed to discuss the extent to which a bankruptcy discharge might affect the appropriateness of his collection activities. In a posttrial order we directed respondent to address whether the discharge provision in petitioner's bankruptcy plan precludes the assessment and collection of postpetition additions to tax and penalties. 33 In respondent's response he proffers:
Petitioner's reliance on the Article IX as grounds to preclude respondent from assessing post-petition failure to pay penalties is misplaced, because the discharge of debt occurred on the effective date of the Plan, March 26, 2003, which date is more than sixteen months after the petition date of November 9, 2001. The discharge under Article IX only precludes assessment of failure to pay penalties after plan confirmation, not after the petition date as argued by petitioner.
Respondent cites no authority for this conclusion.Article IX of petitioner's bankruptcy plan states: "The Debtor shall be discharged from debts on confirmation." Similarly the order confirming the plan provides that petitioner is "discharged from all dischargeable debts." 34Generally, pursuant to
Certain aspects of petitioner's confirmed bankruptcy plan resemble a general liquidation plan; specifically, the plan is labeled a "plan of liquidation" and provides for the liquidation of some, but not all, of petitioner's assets. Petitioner also referred to its bankruptcy plan during trial and on brief as primarily a plan of liquidation. 37 Nonetheless, the provisions of petitioner's bankruptcy plan, supplemented by the bankruptcy court's order, make clear that the purpose of the plan was a corporate reorganization, not a full asset liquidation. For example, article VII of the plan provides:
7.02 Debtor shall operate the retail locations for a period of six (6) months. Should said business produce a net operating profit during such period, such operating profit for a period of two years thereafter shall be distributed * * * .
Only in the event that the retail locations failed to produce a "net operating profit" during such period would petitioner be forced to sell the business. The bankruptcy *209 order also provides that "Confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtor or any successor to the Debtor under the Plan." (Emphasis added.). Implicit in this provision is the bankruptcy court's understanding that the plan effected a reorganization of petitioner's business, rather than a comprehensive liquidation.Furthermore, the uncontroverted testimony of petitioner's president reveals that as of March 17, 2011, nearly eight years after confirmation of the plan:
Everett still files its annual state tax returns, still pays its $800-a-year annual minimum tax, and did not dissolve or become defunct as a result of any of its reorganization activities.
Petitioner also sold the Santa Rosa lot in December 2006, over three years after plan confirmation. We find these facts, without the benefit of any contrary evidence or authority *210 cited by respondent, sufficient to establish that petitioner's plan does not fall under the exception to discharge provision inRespondent has conceded that petitioner's bankruptcy plan makes no provision for the postpetition penalties which accrued on respondent's prepetition claims. 38*211 Accordingly, we find that the plan effectively discharged petitioner of failure to pay penalties which accrued during the pendency of its bankruptcy case. We hold that respondent's Appeals officer's failure to address this discharge constitutes an abuse of discretion. See, e.g.,
A confirmed chapter 11 plan will bind the debtor and all creditors to the terms of the plan.
Under article 5.01 of petitioner's bankruptcy plan claims entitled to priority pursuant to
Respondent, while acknowledging that other priority claimants were entitled to payment in full before payment on his priority claim, notes that "The propriety of the distributions under the Plan is complicated because the Tax Court does not have all the facts and it may lack the authority to take corrective action." Furthermore, respondent questions whether he has the authority to refund such amounts to petitioner administratively pursuant to
Even if petitioner overpaid its tax liability for any period at issue,
We sustain respondent's collection activity concerning all liabilities respondent submitted in his proof of claim (discussed supra section III). Petitioner is also not entitled to an overpayment credit (discussed supra sections I, V, and VI).
We do not, however, sustain respondent's collection activity regarding: (1) postconfirmation interest on respondent's priority claim (discussed supra*214 section VII); and (2) postpetition penalties (discussed supra section VIII). A
In reaching our holdings herein, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, groundless, or otherwise without merit.
Decision will be entered for respondent subject to a
Footnotes
1. Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. For convenience, we use the term "employment tax" to refer to taxes under the Federal Insurance Contributions Act (FICA),
secs. 3101-3125 , the Federal Unemployment Tax Act (FUTA),secs. 3301-3311 , and Federal income tax withholding,secs. 3401-3406 and3509↩ .3. Most of the references to the Bankruptcy Code refer to the provisions of 11 U.S.C. as in effect during the pendency of petitioner's bankruptcy case.↩
4. Respondent held a junior lien on the property throughout the period at issue.↩
5. Respondent's NOD notes that "net outcome", which provided for the reduced balances due, was "not entirely as a result of the granting of penalty relief."↩
6. At trial respondent's Appeals officer testified that he asked petitioner to stop sending additional letters to respondent during the CDP process. This was requested "Because their letters * * * were very lengthy, multiple pages, and they tend to focus on bankruptcy. That's not something that I can consider."↩
7. Following trial, respondent abated interest of $5,411 for petitioner's March 31, 2000, tax period because of a recognized error in his assessment.↩
8. This Court held in
Robinette v. Commissioner, 123 T.C. 85">123 T.C. 85 , 101 (2004), rev'd,439 F.3d 455">439 F.3d 455 (8th Cir. 2006), that we are not limited to the administrative record in reviewing CDP determinations. However, under the Golsen rule, we follow the law of the Court of Appeals for the Ninth Circuit, to which this case, absent a stipulation to the contrary, is appealable. SeeGolsen v. Commissioner, 54 T.C. 742">54 T.C. 742 , 757 (1970), aff'd,445 F.2d 985 (10th Cir. 1971) . That court has limited the review of the administrative determination to the administrative record (administrative record rule). SeeKeller v. Commissioner, 568 F.3d 710">568 F.3d 710 , 718 (9th Cir. 2009) ("our review is confined to the record at the time the Commissioner's decision was rendered"), aff'gT.C. Memo. 2006-166 (and aff'g and vacating decisions in related cases). Nonetheless, under a de novo standard of review, we still consider all of the relevant evidence introduced at trial. SeeJordan v. Commissioner, 134 T.C. 1">134 T.C. 1 , 9 (2010) ("becausesection 6330 requires a de novo standard of review when the underlying liability is properly in issue, the administrative record rule is not applicable to such a case" (citing5 U.S.C. sec. 554(a)(1) (2006)↩ )).9. Petitioner's corollary assertion is that respondent abused his discretion in failing to address petitioner's request for interest relief during its
sec. 6330↩ hearing.10. Curiously, if petitioner is correct in its alternate assertion, its underlying tax liability for the period ending June 30, 2000, might be increased. Petitioner desires this result because it assumes that respondent would correspondingly refund the amount of the overpayment to petitioner administratively, or that this Court would order a refund of that payment. Petitioner submits that it would thereafter apply the payment, in accordance with its bankruptcy plan, for the benefit of creditors with higher priority claims than respondent's.
11. As a preliminary inquiry,
Weber v. Commissioner, 139 T.C. , , 2012 U.S. Tax Ct. LEXIS 19">2012 U.S. Tax Ct. LEXIS 19 , *32-33 (May 7, 2012) (citingBrady v. Commissioner, 136 T.C. 422">136 T.C. 422 , 427 (2011)), determined that the taxpayer had met the threshold requirements for refund litigation.The timeliness of petitioner's request for a credit was not addressed by either party. Respondent received $125,953.63 from the sale of the Santa Rosa lot on December 29, 2006, during the pendency of petitioner's CDP hearing. Thereafter, petitioner repeatedly claimed to respondent's Appeals officer, through letters, emails, and oral communication, that it was entitled to a credit for its alleged overpayment. Respondent has not disputed, and we therefore assume, that these exchanges constituted an adequate and timely informal refund claim. See
secs. 6402(a) ,6511(a)↩ .12. Before the enactment of the Pension Protection Act of 2006 (PPA),
Pub. L. No. 109-280, sec. 855(a), 120 Stat. at 1019 , the Tax Court had jurisdiction to review an Appeals officer's determinations only in those cases where the Tax Court had jurisdiction over the underlying tax liability.Callahan v. Commissioner, 130 T.C. 44">130 T.C. 44 , 47-48 (2008). The PPA expanded our jurisdiction to include review of the Commissioner's collection activity, regardless of the type of underlying tax involved, for determinations made after October 16, 2006.PPA sec. 855 ;Perkins v. Commissioner, 129 T.C. 58">129 T.C. 58 , 63↩ n.7 (2007). The Appeals Office issued the NOD to petitioner on October 19, 2007, over 1 year after the PPA's effective date. Accordingly, we will review petitioner's underlying tax liabilities without a jurisdictional inquiry.13. Interest that accrues on an oversecured creditor's claim is added to the claim.
Warehouse Home Furnishings Distribs. Inc. v. Gladdin (In re Gladdin), 107 B.R. 803">107 B.R. 803 , 806 (Bankr. M.D. Ga. 1989). Bankruptcy law affords a debtor a mechanism to object to the creditor's claims during the pendency of its bankruptcy case. SeeFed. R. Bankr. P. 3007 . Nonetheless, petitioner was not apprised of the rate of interest accrual on respondent's secured claim until respondent assessed the interest following the close of petitioner's bankruptcy case. Respondent did not file an amended proof of claim during the bankruptcy proceeding reflecting the accrual of interest on his secured claim, nor did he assess additional interest during the bankruptcy proceeding. Cf.Sabath v. Commissioner, T.C. Memo 2005-222">T.C. Memo 2005-222 (finding that the taxpayer had an opportunity to challenge the amount of interest and penalties assessed before plan confirmation). Further, no evidence was submitted to this Court regarding whether interest accrual was addressed in a bankruptcy plan confirmation hearing. Petitioner, instead, contends that it remained unaware of the extent of interest accrual until it received notice of assessment more than two years after the close of its bankruptcy case. Respondent has never contested this assertion. Accordingly, we find that, in this context, petitioner was never afforded the opportunity to contest post-bankruptcy-petition interest accrual on respondent's secured claim.14. A Federal income tax lien includes "any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto".
Sec. 6321↩ .15. Before the Ron Pair Enters., Inc., decision, bankruptcy courts within the Ninth Circuit repeatedly held that secured tax liens were not entitled to postpetition interest. See
In re Nevada Envtl. Landfill, 81 B.R. 55">81 B.R. 55 (Bankr. D. Nev. 1987);In re Granite Lumber Co., 63 B.R. 466">63 B.R. 466 (Bankr. D. Mont. 1986);In re Stack Steel & Supply Co., 28 B.R. 151">28 B.R. 151↩ (Bankr. W.D. Wash. 1983).16.
Bankruptcy Code sec. 511 , enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, sec. 704, 119 Stat. at 125, effective in cases commenced on or after October 17, 2005, provides:(a) If any provision of this title requires the payment of interest on a tax claim or on an administrative expense tax, or the payment of interest to enable a creditor to receive the present value of the allowed amount of a tax claim, the rate of interest shall be the rate determined under applicable nonbankruptcy law.
(b) In the case of taxes paid under a confirmed plan under this title, the rate of interest shall be determined as of the calendar month in which the plan is confirmed.
As petitioner filed his bankruptcy petition in 2001, the section is not applicable to the case at issue.17. Petitioner cites no authority to overcome the clear language of its bankruptcy plan. To the extent petitioner argues that the plan is ambiguous, under applicable California law, "where a contract is ambiguous, 'the language of * * * [the] contract should be interpreted most strongly against the party who caused the uncertainty to exist.'"
William M. Miller v. United States, 363 F.3d 999">363 F.3d 999 , 1006 (9th Cir. 2004) (quotingCal. Civ. Code sec. 1654 ). Consequently, even if ambiguity exists within the document, we interpret it against petitioner-drafter. See id.↩18.
Bankruptcy Code sec. 1129(a)(9)(C) provides in relevant part:The court shall confirm a plan only if all the following requirements are met:
* * * *
(9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that—
* * * *
(C) with respect to a claim of a kind specified in
section 507(a)(8)↩ of this title, the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim.19. The plan provision at issue in that case did not specifically address deferred payments. Nonetheless, the plan allowed for the payment of priority tax claims "to the extent there * * * [were] funds available for payment" following both the sale of the debtor's assets and the satisfaction of higher priority claims. See
In re Pharmadyne Labs., Inc., 53 B.R. 517">53 B.R. 517 , 518↩ (Bankr. D.N.J. 1985). This language may at least suggest the possibility of a delay in payment of the Commissioner's claim while the debtor liquidated its assets and, thereafter, applied the proceeds to satisfy the claims senior to those of the Commissioner.20. Although petitioner, in a misguided attempt to align with the reasoning of
United States v. White Farm Equip. Co. 117">157 B.R. 117 (N.D. Ill. 1993), contends that its bankruptcy plan constituted a plan of liquidation, as noted, infra↩, we find petitioner's bankruptcy plan to be a plan of reorganization.21. Respondent's posttrial brief mistakenly cites art. 5.02 as the provision governing the payment of respondent's priority claims. Art. 5.02 refers to the payment of respondent's secured claim.↩
22. In his posttrial response to an order from this Court, respondent noted:
Respondent's counsel has reviewed the evidence in this case, which consists of witness testimony and 113 exhibits, and did not find any detailed information on the interest rate used by respondent in calculating the post-confirmation accrual of interest on his priority claim. However, respondent usually charges interest at the general underpayment rate under
I.R.C. § 6621(a)↩ .23. Respondent's poor accounting pervades the entirety of his "calculations", making it difficult for petitioner to succinctly state its contentions to this Court.↩
24. See
United States v. Neal Pharmacal Co., 789 F.2d 1283">789 F.2d 1283 , 1289 (8th Cir. 1986) (finding that thesec. 6621 rate is "clearly relevant" but noting courts must also consider market rates in general and whether thesec. 6621 rate reflects the risk, quality of any security, and term applicable in the particular case);Architectural Design, Inc. v. IRS (In re Architectural Design, Inc.), 59 B.R. 1019">59 B.R. 1019 , 1023 (W.D. Va. 1986)(applying thesec. 6621 rate to an11 U.S.C. sec. 1129(a)(9)(C) claim);In re Conn. Aerosols, Inc., 42 B.R. 706">42 B.R. 706 , 711 (D. Conn. 1984) (holding that the28 U.S.C. sec. 1961 rate would "best approximate market conditions and provide the IRS with the value of its claim as of the effective date of the plan");In re Collins, 184 B.R. 151">184 B.R. 151 , 156-157 (Bankr. N.D. Fla. 1995) (rejecting the rate of interest provided in28 U.S.C. secs. 1961 and6621 but noting that the consideration of both as "evidence of the proper market rate is permissible." (citingUnited States v. S. States Motor Inns, Inc. (In re S. States Motor Inns, Inc.), 709 F.2d. 647, 652 (11th Cir. 1983))) ;In re Fi-Hi Pizza, Inc., 40 B.R. 258">40 B.R. 258 , 272 (Bankr. D. Mass. 1984) (applying interest rate 2.5% above thesec. 6621↩ rate).25. While we generally construe the terms of the ch. 11 plan against the drafter, we will not adopt respondent's position that
sec. 6621 governs the rate of postconfirmation interest on his secured claim as that assertion is contrary to established Ninth Circuit law. SeeUnited States v. Camino Real Landscape Maint. Contractors, Inc. (In re Camino Real Landscape Maint. Contractors), 818 F.2d 1503">818 F.2d 1503 ,1508↩ (9th Cir. 1987).26. For taxes like those at issue, the Appeals officer is generally required to verify under
sec. 6330(c)(1) that a valid assessment was made, that notice and demand was issued, that the liability was not paid, and that the Final Notice of Intent to Levy and Notice of Your Right to a Hearing was issued to the taxpayer.Ron Lykins, Inc. v. Commissioner, 133 T.C. 87">133 T.C. 87 , 96-97 (2009);Marlow v. Commissioner, T.C. Memo 2010-113">T.C. Memo 2010-113 . Federal taxes are validly assessed when they are formally recorded on a record of assessment. Seesec. 6203 .Nonetheless, in circumstances such as those at issue, the Appeals officer should recognize that the general rules regarding statutory interest are altered. Accordingly, a superficial review of the formal record of assessment for tax periods affected by a bankruptcy proceeding is not sufficient to satisfy the requirements of
sec. 6330(c)(1)↩ .27. It follows that the Appeals officer's failure to address petitioner's request for interest relief during petitioner's
sec. 6330↩ hearing also, in and of itself, constitutes an abuse of discretion.28. Petitioner's bankruptcy was pending from the date it filed its petition until its case was closed on March 3, 2005. See
Rev. Rul. 2005-9, 1 C.B. 470">2005-1 C.B. 470↩ .29. Respondent's response to the Court's order states:
In the present case, the evidentiary record does not contain a calculation or breakdown of the failure to pay penalties to enable respondent to determine which amounts, if any, accrued post-confirmation. Therefore, respondent is unable to definitively state that no failure to pay penalties accrued post-confirmation.
30. Petitioner, in a posttrial response to the Court's order, also alleged that its president's extended hospitalization, an embezzlement of funds by its controller, and a devastating patent suit all contributed to its failure to timely pay its tax liability. Petitioner, however, never submitted any evidence to substantiate these claims.↩
31. A discharge, however, does not protect the debtor's assets if those assets were subject to a Federal tax lien that was properly filed pursuant to
sec. 6323 before the bankruptcy petition was filed. See11 U.S.C. sec. 522(c)(2)(B) . As the Supreme Court explained inJohnson v. Home State Bank, 501 U.S. 78">501 U.S. 78 , 84, 111 S. Ct. 2150">111 S. Ct. 2150, 115 L. Ed. 2d 66">115 L. Ed. 2d 66 (1991), a discharge of personal liability in bankruptcy "extinguishes only one mode of enforcing a claim—namely, an action against the debtor in personam—while leaving intact another—namely, an action against the debtor in rem." SeeConnor v. United States (In re Connor), 27 F.3d 365">27 F.3d 365 , 366 (9th Cir. 1994);Iannone v. Commissioner, 122 T.C. 287">122 T.C. 287 , 292-293 (2004); see alsoBussell v. Commissioner, 130 T.C. 222">130 T.C. 222 , 235 (2008).Respondent filed a Federal tax lien for the taxable period ending March 31, 2000, before petitioner's bankruptcy petition was filed. The tax liability for that period was subsequently satisfied in full with proceeds from property to which the tax lien corresponding to that period attached. However, respondent did not file Federal tax liens before the filing of the bankruptcy petition for periods ending June 30, 2000, and December 31, 2001. Respondent now endeavors to levy against petitioner for these latter two periods; accordingly, a determination of whether petitioner's bankruptcy plan discharged postpetition penalties accruing on the tax liabilities for the two periods directly relates to the appropriateness of respondent's proposed collection action in the present case.↩
32. Respondent, in his posttrial response to the Court's order, conceded that failure to pay penalties should not have accrued after the effective date of petitioner's bankruptcy plan (March 26, 2003). Accordingly, only the failure to pay penalties which accrued before the effective date of the plan are at issue.
33. Our order stated as follows:
In petitioner's pretrial brief, it asserts that article IX of the chapter 11 plan, which discharges petitioner from debts on confirmation, precludes respondent from assessing and collecting additional post-petition additions to tax and penalties. Respondent did not address that article in its postural brief and should reconcile its directive with
section 6658 (b), I .R. C.↩ 34. The qualifying term of "dischargeable" may suggest that the bankruptcy court intended the discharge limitations of
Bankruptcy Code sec. 523 to apply. Nonetheless, this issue was not raised by respondent at trial, or in any postural brief or response. We need not address it here. SeeMuhich v. Commissioner, 238 F.3d 860">238 F.3d 860 , 864 n.10 (7th Cir. 2001) (issues not addressed or developed are deemed waived—it is not the Court's obligation to research and construct the parties' arguments), aff'gT.C. Memo. 1999-192 ;330 W. Hubbard Rest. Corp. v. United States, 203 F.3d 990">203 F.3d 990 , 997 (7th Cir. 2000) (same);Larson v. Northrop Corp., 21 F.3d 1164">21 F.3d 1164 , 1168 n.7, 305 U.S. App. D.C. 416">305 U.S. App. D.C. 416↩ (D.C. Cir. 1994) (declining to reach issues neither argued nor briefed).35. The limitations to discharge provided in
Bankruptcy Code sec. 523 apply only to individual debtors in a ch. 11 proceeding.Bankruptcy Code sec. 1141(d)(2)↩ .36. Only a debtor who is an individual can receive a discharge under
Bankruptcy Code sec. 727(a) . SeeIn re SunCruz Casinos, LLC, 342 B.R. 370">342 B.R. 370 , 380↩ (Bankr. S.D. Fla. 2006).37. Petitioner's "request for a collection due process hearing" is indicative of petitioner's general confusion concerning its bankruptcy plan. In the request, petitioner initially refers to its plan as a "Reorganization", only later stating that it is a "liquidating Chapter 11 Plan".↩
38. Priority tax claims do not include nonpecuniary penalties.
11 U.S.C. sec. 507(a)(8)(G) ; see alsoErickson v. Commissioner, 172 B.R. 900">172 B.R. 900 , 915 (Bankr. D. Minn. 1994) (additions to tax assessed undersec. 6651(a)(3)↩ "are not for compensatory or pecuniary loss").39. Petitioner's president testified that those unpaid creditors with higher priority than respondent include wage and vacation claim holders. Their claims, in total, exceed $20,000.↩
40. This Court maintains narrow overpayment jurisdiction in circumstances not congruous with those at issue. See
secs. 6404(h)(2)(B) ,6512(b)↩ .