Southeast Waffles, LLC v. U.S. Department of Treasury (In re Southeast Waffles, LLC)
- Citation:
- No. 11-6522, 2012 U.S. App. LEXIS 24991 (6th Cir. Dec. 6, 2012)
- Tag(s):
-
- Ruling:
- The decision of the bankruptcy appellate panel was affirmed. The debtor cannot state a claim for avoidance of payments that necessarily resulted in a dollar-for-dollar reduction in tax penalties due. The fraudulent-transfer statutes were not meant to provide debtors with either a means to avoid tax penalties legitimately imposed or a means to recover prepetition payments made in satisfaction of those penalties.
- Procedural context:
- Appeal to the United States Court of Appeals for the Sixth Circuit, from the United States Bankruptcy Appellate Panel for the Sixth Circuit.
- Facts:
- The IRS assessed penalties against the debtor for failure to file its tax returns and to fully and timely pay the taxes due. Thereafter, but prior to filing bankruptcy, the debtor made payments to IRS in the amount of $637,652.07. After it filed bankruptcy, the debtor filed a complaint against the IRS seeking to recover the pre-petition penalty payments pursuant to the Tennessee Uniform Fraudulent Transfer Act and 11 U.S.C. §§ 544 and 548. The debtor argued that the penalty payments were of no value to the debtor because the underlying liability “was not for actual pecuniary loss.” The IRS filed a motion to dismiss, which the bankruptcy court granted because “it [wa]s not disputed that the debt was legitimately due for the penalties from this debtor,” and there was no evidence of misconduct that would question whether the payment was “accurately and correctly” credited “dollar for dollar.” The debtor appealed to the bankruptcy appellate panel, which affirmed the bankruptcy court’s decision. The panel noted that the payments reduced the debtor’s tax debt dollar for dollar and there was considerable case law holding that a dollar for dollar reduction in debt is sufficient to establish reasonably equivalent value. The debtor appealed to the court of appeals, arguing that the bankruptcy court should have focused on the IRS’s assessment of the penalties rather than the debtor’s payment of the penalties.
- Judge(s):
- Boggs, Clay, and Stafford
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