Bankruptcy
Page 1
Harry
M. Herckner, Appellant v.
United States of America
, Appellee.
U.S.
District Court,
Dist.
N.J.
; Civ. 04-5898 (GEB),
March 18, 2005
.
Unpublished opinion affirming an unreported BC-DC N.J. decision.
[ Code
Secs. 6323 and 6871]
Collection: Liens: Bankruptcy: Unsecured claim. --
The IRS could
abandon its secured status and elect to be treated as an unsecured
creditor in a debtor's bankruptcy plan. The debtor filed a voluntary
Chapter 7 petition after the IRS filed federal tax liens against
property jointly owned by the debtor and his wife. After the bankruptcy
petition was filed, the IRS stated that it held an unsecured priority
claim in its proof of claim. The presence of pre-petition liens did not
require the IRS to pursue secured claims. The debtor's arguments to the
contrary were based on readily distinguishable law.
¬
Caution: The court has designated this opinion as NOT FOR PUBLICATION.
Consult the Rules of the Court before citing this case.®
MEMORANDUM
OPINION
BROWN, District Judge: This is an interlocutory appeal from a decision
of the United States Bankruptcy Court for the District of New Jersey
("the Bankruptcy Court") denying Appellant's motion for
summary judgment. This Court has appellate jurisdiction over this matter
pursuant to 28 U.S.C. §158(a). 1
The Court, having considered the parties' submissions and decided the
matter without oral argument pursuant to Fed. R. Civ. P. 78, and for the
reasons set forth below, will affirm the order below.
I. BACKGROUND
Harry Herckner ("Appellant") and his wife, Pamela Herckner,
are delinquent in the filing of their 2000 individual income tax
returns. 2
The IRS properly filed federal tax liens against properties jointly
owned by Mr. and Mrs. Herckner in
Burlington
County
and
Ocean County
,
New Jersey
and
Citrus County
,
Florida
for the delinquent taxes and attendant civil penalties. On
February 2, 2004
, Mr. Herckner filed a voluntary Chapter 7 petition and identified the
real and personal property to which the federal liens would have
attached. On
May 13, 2004
, the IRS filed a proof of claim based upon the 2000 joint federal
income tax liability and civil penalties. In its proof of claim, the IRS
stated an unsecured priority claim in the amount of $177,227.61 and an
unsecured general claim in the amount of $26,311.42. Appellant then
commenced an adversary proceeding asserting that the claims filed by the
IRS should be reclassified as fully secured claims. The Bankruptcy Court
denied Appellant's motion for summary judgment and this appeal followed.
II. ANALYSIS
A.
Standard of Review
Bankruptcy Rule 8013 provides, in pertinent part:
On appeal the
district court ... may affirm, modify, or reverse a bankruptcy judge's
judgment, order, or decree or remand with instructions for further
proceedings. Findings of fact, whether based on oral or documentary
evidence, shall not be set aside unless clearly erroneous, and due
regard shall be given to the opportunity of the bankruptcy court to
judge the credibility of witnesses.
FED. R. BANKR. P. 8013 (2005). "A finding is clearly erroneous
when, although there is evidence to support it, the reviewing court on
the entire evidence is left with the definite and firm conclusion that a
mistake has been committed."
United States
v. United States Gypsum Co., 333
U.S.
364, 395 (1948). A bankruptcy court's conclusions of law, on the other
hand, are subject to plenary review. See Brown v.
Pennsylvania
State
Employees Credit Union, 851 F.2d 81, 84 (3d Cir. 1988). Where mixed
questions of law and fact are presented, the appropriate standard must
be applied to each component of the appeal. See In re Sharon
Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989).
B.
The IRS May Elect To Be Treated As An Unsecured Creditor
A creditor may surrender its security in a bankruptcy proceeding and
instead make an unsecured claim against the estate. See Hoxworth
v. Blinder, 74 F.3d 205, 209 (10 th Cir. 1996)
("[T]he [Bankruptcy C]ode allows [the creditor] to make an
unsecured proof of claim against the estate, and not assert its secured
lien against assets traced into the estate."). A secured creditor
can pursue one of three courses:
(1) he may
prove his claim as an unsecured claim and surrender his security; (2) he
may prove his claim as a secured claim, give credit thereon for the
value of the security, and share in the general assets as to the
unsecured balances; or (3) he may not file a claim at all and rely
solely upon his lien.
Delaney v. City and
County
of
Denver
, 185 F.2d 246, 251 (10 th Cir. 1950). For example, in In
re Krahn, 124 B.R. 78 (Bkrtcy. D.
Minn.
1990), the court held that the IRS could not resuscitate a pre-petition
lien, emphasizing that it had voluntarily abandoned its
secured status to assert a priority unsecured claim. See Krahn,
124 B.R. at 80-81. Therefore, this Court concludes that the IRS can
elect to abandon its secured status under pre-petition liens and proceed
as an unsecured creditor.
The Court is not persuaded by Appellant's position that the presence of
pre-petition liens dictates that the IRS must pursue secured claims. 3
As correctly pointed out by the IRS and Trustee in their respective
briefs, each of the cases cited by Appellant to support this position
are readily distinguishable on the facts. In each of these cases, the
IRS had filed secured claims in a bankruptcy proceeding, but then
attempted to have the claims treated as priority claims in a Chapter 11
plan filed in the same proceeding. See
U.S.
v. TM Bldg. Products, Ltd. [ 98-2
USTC ¶50,845], 231 B.R. 364, 367-68 (S.D. Fla. 1998); In re
DiMaria, 202 B.R. 634, 640 (Bkrtcy. S.D.
Fla.
1996); In re Reichert, 138 B.R. 522, 525 (Bkrtcy. W.D. Mich. 1992). Each
court correctly held that secured claims are not entitled to priority
treatment. See e.g. DiMaria, 202 B.R. at 640 (holding that "the IRS
is not entitled to claim both the benefits of its right to encumbered
property and the status afforded to unsecured claims under §507").
None of these cases, however, address the situation where, as here, the
IRS opts to abandon its pre-petition liens and file unsecured claims
rather than secured claims.
For example, in U.S. v. TM Bldg. Products, Ltd. [ 98-2
USTC ¶50,845], 231 B.R. 364 (S.D. Fla. 1998), the IRS filed a proof
of claim and amended proof of claim, both times listing both secured and
unsecured claims. TM Bldg. [ 98-2
USTC ¶50,845], 231 B.R. at 367. The IRS then filed objections to
the debtors Chapter 11 Plan of Reorganization.
Id.
As a result, the debtor amended its Plan prior to the confirmation
hearing.
Id.
During the confirmation hearing, the IRS urged denial of confirmation,
but never objected to the Plan's classification of its claims as secured
rather than priority.
Id.
at 368. On appeal, the IRS argued that its secured claims should have
been treated as unsecured priority claims. The district court affirmed
the Chapter 11 Plan and declined to permit the IRS to treat its secured
claims as unsecured priority claims. The court emphasized that "the
presence or absence of a recorded Notice of Federal Tax Lien at the time
a petition for Chapter 11 relief is filed will control how a claim ...
is treated in bankruptcy." TM Bldg. [ 98-2
USTC ¶50,845], 231 B.R. at 370-71.
The situation in TM Bldg. is much different than that presented
here. Here, the IRS actually filed unsecured priority claims. The TM
Bldg. decision cannot be construed to affect the creditor's right to
abandon its pre-petition liens and pursue unsecured priority claims.
Similarly, DiMaria and Reichert do not support Appellant's
position in this case. These cases merely hold that a filed secured
claim may not also be treated as a priority claim in a Chapter 11 Plan. 4
Therefore, this Court holds that the IRS may abandon its security
interest and elect to be treated as an unsecured creditor. Accordingly,
this Court affirms the Bankruptcy Court's order denying Appellant's
motion for summary judgment.
III. CONCLUSION
For the foregoing reasons, the order of the Bankruptcy Court denying
Appellant's motion for summary judgment is affirmed. An appropriate form
of order is filed herewith.
1
Pursuant to Fed. R. Bankr. P. 8003, Appellant is required to file a
motion for leave to appeal. Despite Appellant's failure to request leave
to appeal, this Court will grant leave to appeal under Fed. R. Bankr. P.
8003(c) and reach the merits of the action.
2
For the purposes of this section, the Court relies on the party's Joint
Stipulation of Facts.
3
Appellant further contends that "[h]ad the IRS identified its claim
as secured, the Trustee would have been required to abandon some or all
of Mr. Herckner's assets under 11 U.S.C. §554." Appellant Brief at
2. However, Section 554 merely provides that the trustee or the court may
determine that property should be abandoned because it is either
burdensome to the estate or of inconsequential value and benefit to the
estate. See 11 U.S.C. §§554(a) and (b) (2005). Further,
Appellant offers no further support for this contention.
4
This Court finds that allowing the IRS to proceed as an unsecured
creditor does not constitute a violation of 26 U.S.C. §6334.
Appellant has cited no authority to support this position. Further, as
the IRS points out, it has not levied on Appellant's property. Moreover,
as discussed supra, this Court finds that the Bankruptcy Code
permits the IRS to abandon its security interest and pursue unsecured
priority claims.
In
re Dwight M. Bolden, Debtor.
U.S.
Bankruptcy Court, Cent.
Dist.
Calif.
; LA 04-29732 TD,
June 21, 2005
.
[ Code
Secs. 6321, 6323
and 6871]
Bankruptcy: Chapter 7: Tax Lien: Secured claim: Priority:
Abandonment: Turnover: Administrative costs. --
The Bankruptcy
Court upheld the trustee's motion for turnover of the debtor's home, and
denied the debtor's motion to compel abandonment of the property, where
the debtor claimed that the total tax liens against his home far exceed
its value. The court held that the turnover order would facilitate an
expeditious sale of the property and provide unsecured creditors with
significant benefits. Under the Bankruptcy Code, the trustee is allowed
to avoid tax penalty liens of the IRS and Franchise Tax Board. After
avoiding the IRS tax penalty liens, the trustee is permitted to preserve
those avoided liens for the benefit of the estate. Thus, turnover of the
property will confer a sizable amount in avoided tax penalties and
associated interest for the substantial benefit of the estate.
MEMORANDUM
OF DECISION RE TRUSTEE'S MOTION FOR AVOIDANCE AND TURNOVER OF TAX
PENALTY LIENS AND DEBTOR'S MOTION FOR ABANDONMENT
INTRODUCTION
DONOVAN, Bankruptcy Judge: On
April 6, 2005
, I announced my tentative decisions in two matters in Dwight M.
Bolden's (Mr. Bolden) chapter 7 case. The first matter was the chapter 7
trustee's (trustee) motion for turnover of real property, Mr. Bolden's
home. The second matter was Mr. Bolden's motion to compel the chapter 7
trustee to abandon real property, Mr. Bolden's home. After hearing oral
argument, the hearings were continued to
May 18, 2005
, and on
May 18, 2005
, the hearings were continued again to
June 1, 2005
. At the June 1 hearings, I withdrew my April 6 tentative decisions and
announced my final rulings. This memorandum will supplement my findings
of fact and conclusions of law announced orally on June 1.
FACTS
Mr. Bolden filed a voluntary chapter 7 bankruptcy petition on
September 14, 2004
. At the time of filing, Mr. Bolden listed in his schedules $587,875 in
assets ($570,000 in real property and $17,875 in personal property), and
$585,895.09 in liabilities ($570,000 in secured claims and $15,895.09 in
unsecured, non-priority claims). In schedule I, Mr. Bolden states that
he is self-employed by the Law Offices of Bolden & Martin (Bolden
& Martin), where Mr. Bolden has been employed for 15 years. Mr.
Bolden's current monthly income is $4,000. Mr. Bolden's statement of
financial affairs states that as of
September 29, 2004
, his income for the year to date was $43,258.50. Mr. Bolden further
states that his yearly income in 2002 was $57,678, and that he received
no income in 2003. In schedule J, Mr. Bolden indicates that his current
monthly expenditures are $4,425.
Mr. Bolden's main asset is his residence, located at
5641 Sherbourne Drive
in
Los Angeles
(the property). The property contains a 4 bedroom, 4 bathroom, 3,034
square foot house on a 9,250 square foot lot. The house was built in
1959. The house has an attached garage, central heating and air, a
fireplace, and a private pool. The trustee listed the house for sale on
January 17, 2005
, for $924,500.
Mr. Bolden valued the property at $570,000 on schedule A. Schedule D
indicates that there are three secured claims against the property: (1)
a 1989 first deed of trust held by Cenlar Mortgage (Cenlar) in the
amount of $285,000, (2) an Internal Revenue Service (IRS) tax lien in
the amount of $285,000; and (3) a California Franchise Tax Board tax
lien listed in an "unknown" amount.
The evidence shows that the IRS has eight secured tax liens against the
property totaling $1,324,632.52, comprised of $450,672.75 in unpaid
taxes, $249,022.93 in penalties, and $624,936.84 in interest. Each
secured tax lien was recorded on a different date, with respect to
different taxes owed, and with its own priority. All of the secured tax
claims are for unpaid income taxes. The secured tax liens relate to the
following tax years: 1989; 1990; 1993-1995; and 1999-2001. The secured
tax liens were assessed on the following dates:
December 12, 1994
;
September 14, 1992
;
March 13, 1995
;
May 27, 1996
;
December 15, 1997
;
April 28, 2003
;
May 5, 2003
; and
April 14, 2003
, respectively. The IRS filed one proof of claim in this case to cover
its eight separate tax liens.
The property also is subject to unsecured priority tax claims held by
the IRS in the total sum of $537,369.60. Mr. Bolden's Schedule E
acknowledges delinquent taxes for 2002 and 2003 owed to both the IRS and
the Franchise Tax Board in "unknown" amounts. The evidence
provided by the IRS indicates that these taxes were assessed in
1999-2003 and relate to the 1998-2003 tax periods, for income, FICA, and
FUTA taxes.
The IRS also asserts unsecured general claims against Mr. Bolden
totaling $940,773.45, for income, FICA, and FUTA taxes for 1994 and
1999-2003.
Additionally, as of
December 27, 2004
, Bolden & Martin owed the California Employment Development
Department (EDD) $213,296.63 in unpaid taxes. The EDD filed a notice of
state tax lien against Bolden & Martin as a result of its failure to
pay its state tax liability.
The penalty portions of the IRS secured tax liens total $339,272.
On Schedule C, Mr. Bolden claimed a $50,000 homestead exemption pursuant
to California Code of Civil Procedure §704.730(a)(1). The trustee has
not objected to this exemption. Mr. Bolden now claims that he is
entitled to a $75,000 homestead exemption, but he has not yet amended
his schedules to reflect this change.
Mr. Bolden has refused to cooperate with the trustee's efforts to sell
the property. Four property visits were scheduled for potential buyers.
On
February 4, 2005
, the trustee's broker, Ron Bombiger, advised Mr. Bolden's attorney by
fax of a property visit scheduled for
February 5, 2005
, at
11:00 a.m.
On the same day, the trustee's broker advised Mr. Bolden's attorney by
fax of additional property visits scheduled for (1) February 8 at 5:00
p.m.; (2) February 10 at 5:00 p.m.; and (3) February 12 at 11:00 a.m.
Mr. Bolden's attorney responded to the first notice by stating that he
was unable to contact Mr. Bolden and that the broker's 24-hour notice
was "stupid and rude." In response to the second notice, Mr.
Bolden's attorney left a telephone message for the trustee's attorney
stating that discussions with Mr. Bolden were underway regarding making
the property available for prospective buyers' visits. Mr. Bolden did
not make the property available for buyers' visits on the scheduled
dates. A "For Sale" sign was placed on the property by the
trustee's broker on
February 7, 2005
. Mr. Bolden apparently removed the "For Sale" sign from the
property. Due to Mr. Bolden's lack of cooperation, the trustee's real
estate broker has not had reasonable access to the property to
facilitate the trustee's efforts to sell the property.
Mr. Bombiger's telephone log shows that between
January 25, 2005
, and
February 16, 2005
, 41 people called to inquire about the property. These people required
an interior viewing of the property before deciding whether to submit a
purchase offer to the trustee. On
February 17, 2005
, the trustee's real estate broker received a written offer to purchase
the property for $975,000. The offer was made subject to inspection of
the property.
On
February 18, 2005
, the trustee filed a motion for turnover of the property. On
March 14, 2005
, Mr. Bolden filed a motion to compel the trustee to abandon the
property. On
April 6, 2005
, the IRS filed a memorandum in support of the trustee's motion for
turnover of the property. On
May 13, 2005
, Cenlar filed a joinder to the trustee's motion for turnover of the
property and in opposition to Mr. Bolden's motion to compel abandonment.
DISCUSSION
A.
Mr. Bolden's Motion for Abandonment
Mr. Bolden opposes the trustee's turnover motion, and pursuant to 11
U.S.C. §554(b) and Federal Rule of Bankruptcy Procedure 6007(b), Mr.
Bolden seeks an order compelling the trustee to abandon the property. 1
Section 554(b) requires the court to find that the property to be
abandoned is either burdensome or of inconsequential value and benefit
to the estate.
Mr. Bolden's basis for requesting an order compelling abandonment is his
claim that the total tax liens against his home far exceed its value.
Mr. Bolden contends that the property is of inconsequential value and
benefit to the bankruptcy estate. Mr. Bolden analyzes the estate's
interest in the property as follows:
Fair Market Value $ 925,000.00
Cost of
Sale
(6%) (55,500.00)
Payoff First Trust Deed (330,000.00)
IRS Tax Lien (1,324,632.52)
State FTB Tax Lien (532,588.79)
State EDD Tax Lien (213,296.63)
Total Tax Liens ( 2,400,517.94)
Net [Deficiency] From
Sale
[Before Homestead ($ 2,126,017.00)
Exemption]
Homestead Exemption (75,000.00 2 2 At this
time, Mr. Bolden has
claimed a $50,000
homestead exemption, not
a $75,000 exemption. Mr.
Bolden states that he
will be claiming a
$75,000 homestead
exemption and bases his
analysis on the
anticipated homestead
exemption.)
Net [Deficiency] To Estate ( $ 2,201,017.94)
Based on this analysis, Mr. Bolden concludes that a sale of the property
for $925,000 will not satisfy the liens on the property but that other
costs and fees would be incurred by the trustee and other professionals
in connection with the sale of the property. Thus, Mr. Bolden asserts
that the property would provide inconsequential value and benefit to the
estate and should be abandoned by the trustee.
Mr. Bolden suggests the following as his expected order of distribution
of sale proceeds, as prescribed by §724(b) 3
, should the property be turned over to the trustee and sold: (1)
Cenlar's deed of trust; (2) Mr. Bolden's homestead exemption; (3)
admin
istrative claims; and (4) tax claims secured by liens. According to Mr.
Bolden, the distribution scheme he envisions would satisfy only a small
portion of the secured debt and leave nothing for unsecured creditors.
Based on his analysis, Mr. Bolden concludes that the property is of
little, no, or even negative value to the estate, and the trustee should
be ordered to abandon it.
B.
Trustee's Motion for Turnover
The trustee contends that Mr. Bolden makes two errors in his analysis.
According to the trustee, Mr. Bolden first incorrectly lumps the eight
IRS tax liens together as if they were a single secured claim against
the property, and secondly, Mr. Bolden assumes incorrectly that his
homestead exemption claim will be paid prior to avoided liens.
The trustee notes that there are eight tax liens, each recorded on a
different date, each respecting different taxes owed, and each with its
own priority in relation to other liens. The evidence here confirms that
the tax liens constitute separate liens, not a single blanket lien and
that there are eight separate and distinct IRS secured tax liens, each
with its own priority, for eight separate and distinct tax years.
The trustee and the IRS persuasively argue that the avoided tax liens
will come ahead of Mr. Bolden's homestead exemption for purposes of
distribution. It is true, as Mr. Bolden argues, that the trustee cannot
contest the validity of a claimed exemption after the 30-day period for
objecting has expired and no extension has been obtained, even if a
debtor has no colorable basis for the exemption, citing Taylor v.
Freeland & Kronz, 503 U.S. 638, 112 S.Ct. 1644 (1992). Mr.
Bolden claimed a $50,000 homestead exemption on his Schedule C. The
trustee did not object to the homestead exemption claim within the
30-day period allowed following the conclusion of the creditors meeting.
Pursuant to Rule 4003(b) and the holding in Taylor v. Freeland &
Kronz, an objection at this time would be time-barred, and the
$50,000 exemption claimed by Mr. Bolden at the outset would be allowed
whether or not Mr. Bolden had a colorable statutory basis for claiming
it. On the other hand, the trustee can contest the priority of the
exemption with respect to competing liens. The basic rule of "first
in time, first in right" is used to determine the priority of
competing liens. United States v. City of New Britian [ 54-1
USTC ¶9191], 347 U.S. 81 (1954).
Pursuant to §522(c)(2), exempt property, such as that represented by
Mr. Bolden's homestead exemption claim, remains liable for debts secured
by a lien that is not avoided or for which a notice of such things as a
federal tax lien has been filed. 4
The homestead exemption does not have precedence over the tax liens.
Generally, a debtor is not entitled to claim a homestead exemption on
property that is subject to an IRS levy. Treas. Reg. on Proc. and Admin.
§301.6334-1(c);
United States
v. Estes [ 71-2
USTC ¶9677], 450 F.2d 62, 65 (5th Cir. 1971);
Davenport
v.
United States
[ 91-2
USTC ¶50,531], 136 B.R. 125, 127-28 (Bankr. W.D. Ky. 1991) (a
state-created homestead exemption is ineffective against a federal tax
lien, but the proceeds of a sale of property are subject to a valid tax
lien under §522).
It has been recognized that the IRS has its own exemption scheme and
that a "[state] homestead exemption does not erect a barrier around
a taxpayer's home sturdy enough to keep out the Commissioner of Internal
Revenue." United States v. Estes [ 71-2
USTC ¶9677], 450 F.2d at 65 (no provision of a state's law may
exempt property or rights in property from levy for the collection of
federal taxes owed). The Supreme Court has concluded that the Supremacy
Clause allows the federal government to "sweep aside state-created
exemptions." United States v. Rodgers [ 83-1
USTC ¶9374], 461 U.S. 677, 701 (1983).
The holder of a properly filed tax lien need not file an objection to a
homestead exemption in order to challenge the homestead exemption. Braddock
v.
United States
( In re Braddock), 149 B.R. 636, 639 (Bankr. D.
Mont.
1992). Requiring holders of tax liens to file objections to the
homestead exemption would render §522(c)(2) superfluous.
Id.
(tax liens are entitled to priority over homestead exemptions even where
the IRS did not object to the homestead exemption). In other words, §522(c)(2)
neutralizes Mr. Bolden's claim that he is entitled to collect on his
homestead exemption claim here because no timely objection to his
$50,000 claim was filed by the trustee. 5
The trustee here contends that the property should not be abandoned
because the liens that he seeks to avoid will confer a benefit on the
estate and should be turned over to the trustee pursuant to §542(a). 6
The trustee notes that §724(a) states: "The trustee may avoid a
lien that secures a claim of a kind specified in section 726(a)(4) of
this title." While §726 deals generally with the distribution of
property of the estate, §726(a)(4) provides that the fourth priority in
distribution of property of the estate is "in payment of any
allowed claim, whether secured or unsecured, for any fine, penalty, or
forfeiture, or for multiple, exemplary, or punitive damages, arising
before the earlier of the order for relief or the appointment of a
trustee, to the extent that such fine, penalty, forfeiture, or damages
are not compensation for actual pecuniary loss suffered by the holder of
such claim." Taken together, §§724(a) and 726(a)(4) establish a
statutory basis to allow the trustee to avoid tax penalty liens of the
IRS and Franchise Tax Board. Here, the tax penalty liens (with the
exception of the IRS' trust fund recovery penalty) were assessed against
Mr. Bolden before the order for relief, as fines or penalties, and not
as compensation for actual pecuniary loss. The tax penalties were
punitive in nature and assessed to punish a failure to pay taxes.
The Supreme Court has explained that the bankruptcy statute
"manifests a congressional purpose to bar all claims of any kind
against a bankrupt except those based on a 'pecuniary' loss." Simonson
v. Granquist [ 62-1
USTC ¶9298], 369 U.S. 38, 82 S.Ct. 537, 538-39 (1962). The Court
reasoned: "Tax penalties are imposed at least in part as punitive
measures against persons who have been guilty of some default or wrong.
Enforcement of penalties against the estates of bankrupts, however,
would serve not to punish the delinquent taxpayers, but rather their
entirely innocent creditors."
Id.
at 539. This congressional intent to protect innocent creditors from
delinquent taxpayers has been preserved in present §724(a).
The trustee contends further that §§551 and 349(b) accord him the
statutory right to preserve any liens avoided under §724(a) for the
benefit of the estate. Section 551 states in pertinent part: "Any
transfer avoided under section ... 724(a) of this title ... is preserved
for the benefit of the estate but only with respect to property of the
estate." Section 349(b) states in pertinent part: "Unless the
court, for cause, orders otherwise, a dismissal of a case other than
under section 742 of this title --(1) reinstates --*** (B) any transfer
avoided under section ... 724(a) of this title ...." Further, Collier
on Bankruptcy states that §551 applies to §724(a) dealing with
fines, penalties, and forfeitures. 5-551 Collier on Bankruptcy
--15th Edition Revised ¶551.01. Thus, I conclude, that after avoiding
the IRS tax penalty liens under §724(a), the trustee has the statutory
right under §§551 and 349(b) to preserve the liens avoided for the
benefit of the estate.
Ultimately here, turnover of the property will confer a benefit on the
estate because the trustee will avoid what he estimates is $339,272 in
tax penalties and interest on tax penalties for the benefit of the
estate, as follows:
IRS Total Principal Amount of Amount of Amount Amount Balance
Lien Amount Amount Penalties Interest to Avoided and Paid to Available
Recordation Claimed of to Petition Petition Preserved IRS on for
Date as a Taxes Date Date/Amount for Estate Lien Subsequent
Lien on of Interest (Penalties Liens
Petition Attributed + Interest
Date to on
Penalties Penalties)
2/12/93
$279,803$70,565 $38,582 $170,656/$60,325 $98,907 $180,896 $386,104
(1990) 7 7 $38,
582 ¸
($38,582 +
$70,565) ´
$170,656
2/8/95
$260,081$54,770 $45,532 $159,779/$72,532 $118,064 $142,017 $244,087
(1989) 8 8 $45,
532 ¸
($45,532 +
$54,770) ´
$159,779
7/11/95
$185,401$61,676 $29,901 $93,824/$30,635 $60,536 $124,865 $119,222
(1995) 9 9 $29,
901 ¸
&nb
