J.J. Re-Bar Corp., Inc. v. US (In re J.J. Re-Bar Corp., Inc.)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
14 years 8 months ago

Citation:

J.J. Re-Bar Corp., Inc. v. United States of America (In re J.J. Re-Bar Corp., Inc.), No. 09-60054 (9th Cir. June 24, 2011)

Tag(s):

9th Circuit

Ruling:

A corporate chapter 11 debtor that has not paid federal employment trust-fund taxes may not invoke a confirmed plan’s discharge injunction to prevent the IRS from collecting trust-fund recovery penalties from the debtor’s officers.

Procedural context:

Appeal from final decision of the bankruptcy appellate panel affirming the decision of the bankruptcy court denying the debtor's motion to stop the IRS's investigation of whether the debtor's officers were liable under 26 U.S.C. § 6672.

Facts:

The debtor failed to pay trust-fund income and social-security taxes it withheld from employee paychecks and thus held in trust for the federal government. A provision of the confirmed chapter 11 plan purported to enjoin any action against a nondebtor party based upon a preconfirmation claim for which the debtor was the primary obligor. The IRS did not object to plan confirmation. After confirmation, the IRS began an investigation into whether the debtor’s officers were liable for trust-fund recovery penalties under 26 U.S.C. § 6672. The debtor filed a motion to stop the investigation, claiming that the debtor is the primary obligor of the unpaid employment-tax liability, and imposition of section 6672 liability against the officers would thus violate the plan injunction. The Ninth Circuit affirmed the decisions of the bankruptcy court and bankruptcy appellate panel against the debtor for two reasons. First, the Anti-Injunction Act, 26 U.S.C. §7421(a), prohibits any suit to restrain the assessment or collection of any tax. The debtor argued that confirmation of the plan precluded application of the Anti-Injunction Act to an act that the plan would enjoin. In a footnote, the court rejected the debtor’s preclusion argument because the plan did not “clearly, specifically, and unambiguously” discharge the officers from section 6672 liability. The second reason for the Ninth Circuit’s decision is that section 6672 liability attaches only to responsible persons and not also to the taxpayer, and the plan discharge injunction purported to apply only to claims for which the debtor was the primary obligor.

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