                               T.C. Memo. 2012-143



                         UNITED STATES TAX COURT



               EVERETT ASSOCIATES, INC., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 26685-07L.                           Filed May 17, 2012.



      Donald F. Payne (an officer), for petitioner.

      James A. Whitten, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      GOEKE, Judge: Pursuant to section 6330(d),1 petitioner seeks review of a

notice of determination sustaining respondent’s proposed levy. Respondent’s


      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-

collection activity stems from alleged deficiencies in petitioner’s employment taxes.2

Petitioner challenges the propriety of respondent’s collection actions by asserting,

primarily, that respondent received and retained a portion of a cash distribution in

violation of the express terms of petitioner’s chapter 11 bankruptcy plan. The

improperly collected portion of the cash distribution, petitioner submits, should be

refunded. Petitioner also contests the underlying tax liabilities, including all

assessments of penalties and interest, for two periods listed on the notice of

determination (Form 941, Employer’s Quarterly Federal Tax Return, for the quarter

ended June 30, 2000, and Form 940, Employer’s Annual Federal Unemployment

(FUTA) Tax Return, for the year ended December 31, 2001), and one tax period not

listed on the notice of determination (Form 941 for the quarter ended March 31,

2000).

                                 FINDINGS OF FACT

         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


         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 and 3509.
                                              -3-

United States Bankruptcy Code3 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 general unsecured claim consisted of penalties (including interest thereon), as of

the petition date, on respondent’s unsecured priority claims.



            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-

      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 11 U.S.C. Section 507(a)” following the liquidation of certain assets.

Article 9.01 of the plan also discharges petitioner from debts on confirmation. The

plan expressly provides that the bankruptcy court retained jurisdiction to determine

objections to claims brought by the debtor or any other party in interest.

      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
                                           -5-

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 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

trust4 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



      4
          Respondent held a junior lien on the property throughout the period at issue.
                                          -6-

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

following unpaid tax liabilities:

                                                                Balance due as of
      Period (Ending)                    Form                     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
                                         -7-

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 (NOD) to petitioner. The NOD listed the following tax periods and

balances due:5

      5
          Respondent’s NOD notes that “net outcome”, which provided for the
                                                                     (continued...)
                                         -8-

                                        Period                 Balance due as of
          Form                         (Ending)                    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 sections 6656 and 6651 for certain failure to deposit and

failure to pay penalties. Concerning the failure to pay penalties, the Appeals officer

decided that petitioner was entitled to relief “because the taxpayer was asserted

[sic] the * * * [penalty] for periods during which the taxpayer’s bankruptcy case

was pending and in direct violation of the U.S. Bankruptcy Laws.”




      5
       (...continued)
reduced balances due, was “not entirely as a result of the granting of penalty relief.”
                                          -9-

      The Appeals officer also determined that petitioner was not entitled to relief

under section 6330 from the proposed levy action because petitioner “failed to fully

participate in the Collection Due Process Hearing.”6

      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 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.

      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.”
                                       - 10 -

      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 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

                                     OPINION

      Section 6330 provides that no levy may be made on any property or right to

property of a person unless the Commissioner first notifies such person in writing


      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.
                                          - 11 -

of the right to a hearing before the Appeals Office. Sec. 6330(a). At the hearing,

the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed

levy, including appropriate spousal defenses, challenges to the appropriateness of

collection actions, and offers of collection alternatives. Sec. 6330(c)(2)(A); Sego v.

Commissioner, 114 T.C. 604, 609 (2000); Goza v. Commissioner, 114 T.C. 176,

180 (2000). A taxpayer may contest the existence or amount of the underlying tax

liability if the taxpayer did not receive a statutory notice of deficiency for the tax

liability in question or did not otherwise have an earlier opportunity to dispute the

tax liability. Sec. 6330(c)(2)(B); see also Sego v. Commissioner, 114 T.C. at 609.

Following a hearing, the Appeals Office must make a determination whether the

Commissioner may proceed with the proposed collection action.

      We have jurisdiction to review the Appeals Office’s determination. Sec.

6330(d)(1); see sec. 301.6330-1(f), Q-F3, Proced. & Admin. Regs. (“the taxpayer

can only ask the court to consider an issue * * * that was properly raised in the

taxpayer’s CDP hearing”).

      Where the underlying tax liability is properly at issue, we review that

determination de novo. Goza v. Commissioner, 114 T.C. at 181-182. Where the

underlying tax liability is not at issue, we review the determination for an abuse of

discretion. Id. at 182. Taxpayers may prove abuse of discretion by showing that
                                          - 12 -

the Commissioner exercised his discretion arbitrarily, capriciously, or without sound

basis in fact or law. See Giamelli v. Commissioner, 129 T.C. 107, 111 (2007).8

      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 petitioner’s bankruptcy case;9 (2) respondent improperly

assessed and collected failure to pay penalties which were discharged according to




      8
        This Court held in Robinette v. Commissioner, 123 T.C. 85, 101 (2004),
rev’d, 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. See Golsen v. Commissioner, 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). See Keller v. Commissioner, 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’g T.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. See Jordan v.
Commissioner, 134 T.C. 1, 9 (2010) (“because section 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” (citing 5 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.
                                         - 13 -

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 Years

      The Tax Court is a court of limited jurisdiction; we may exercise jurisdiction

only to the extent expressly authorized by Congress. Sec. 7422; see also Henry

Randolph Consulting v. Commissioner, 112 T.C. 1, 4 (1999). Under section

6330(d)(1)(A), we have jurisdiction over the determination made by the Appeals

Office, and our jurisdiction is defined by the scope of that determination. Freije v.

Commissioner, 125 T.C. 14, 25 (2005).

      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 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
                                           - 14 -

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

       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., Weber v. Commissioner, 138 T.C.

___ (May 7, 2012); Freije v. Commissioner, 125 T.C. at 25; see also Brady v.

Commissioner, 136 T.C. 422 (2011) (holding that taxpayer was not entitled to a

credit for alleged overpayment in prior years because his claims were not made

within the applicable period of limitations); Landry v. Commissioner, 116 T.C. 60

(2001) (taxpayer was time barred from applying a credit arising from overpayments

in nondetermination years to a tax liability addressed in a notice of determination).




       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.
                                         - 15 -

      In Freije v. Commissioner, 125 T.C. at 27, we held that “our jurisdiction

under section 6330(d)(1)(A) encompasses consideration of facts and issues in

nondetermination years where the facts and issues are relevant in evaluating a claim

that an unpaid tax has been paid.” We noted that such an inquiry “surely includes a

claim * * * that the ‘unpaid tax’ has in fact been satisfied by a remittance that the

Commissioner improperly applied elsewhere.” Id. at 26. Nonetheless, we qualified

that our consideration of nondetermination years in a CDP context extends only

“insofar as the tax liability for that year may affect the appropriateness of the

collection action for the determination year.” Id. at 28.

      Our recent Opinion in Weber v. Commissioner, 138 T.C. at ___ (slip op. at

25-41), clarified Freije and similar jurisprudence concerning the propriety of

nondetermination tax period review in CDP cases. In Weber, the taxpayer

asserted that a section 6672 penalty liability (a nondetermination liability) had

been overpaid and that the overpayment should be credited to a determination-year

income tax liability. Id. at ___ (slip op. at 25).11 Rejecting the taxpayer’s

      11
         As a preliminary inquiry, Weber v. Commissioner, 138 T.C. ___, ___ (slip
op. at 26-31) (May 7, 2012) (citing Brady v. Commissioner, 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
                                                                        (continued...)
                                         - 16 -

suggestion that this Court’s jurisdiction fully extends into the consideration of facts

and circumstances in nondetermination years, we stated:

             An overpayment of a section 6672 penalty (or any other liability)
      that has been determined by the IRS or a court but has not been either
      refunded or applied to another liability may be an “available credit”
      that, under Freije, could be taken into account in a CDP hearing to
      determine whether the tax at issue remains “unpaid” and whether the
      IRS can proceed with collection. But a mere claim of an overpayment
      is not an “available credit” but is instead a claim for a credit; and such
      a claim need not be resolved before the IRS can proceed with
      collection of the liability at issue. * * * [Id. at ___ (slip op. at 40);
      emphasis supplied.]

Weber effectively stands for the proposition that only nonrefunded or not yet

applied “available” credits arising in nondetermination years may be considered by

this Court in determining whether a tax liability at issue has been reduced or

eliminated; until the credit has fully materialized, the taxpayer merely asserts a claim

for credit which is beyond the scope of our jurisdiction in a CDP case. See id. at

___ (slip op. at 31-41).




      11
        (...continued)
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).
                                         - 17 -

      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 this Court established by Freije.

Accordingly, we will address this contention in turn.

II. The Underlying Tax Liabilities

      During petitioner’s CDP hearing, it did not dispute that it had failed to deduct

and withhold certain employment taxes under sections 3111, 3301, and 3402; rather,

petitioner asserted that respondent erroneously assessed interest and penalties

related to its employment tax liabilities which accrued before, during the pendency

of, and following its bankruptcy case. Respondent, in the NOD, granted petitioner

penalty relief for some tax periods, but did not address petitioner’s claims of invalid
                                         - 18 -

interest assessments. Petitioner now asks us to review both interest and penalty

assessments.

      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. Sec. 6330(c)(2)(B). The term

“underlying tax liability” is not defined in the Code, and guidance on the meaning of

the term is not provided in the regulations. Nonetheless, we have held that “it is

reasonable to interpret the term ‘underlying tax liability’ as a reference to the

amounts that the Commissioner assessed for a particular tax period.” Montgomery

v. Commissioner, 122 T.C. 1, 7 (2004). Generally, this will consist of amounts

reported due on a taxpayer’s return along with statutory interest and penalties. Id. at

8; see also Fransen v. Commissioner, T.C. Memo. 2007-237 n.5. Accordingly, it is

within our jurisdiction to review respondent’s contested interest and penalty

assessments.
                                        - 19 -

III. Prior Opportunity To Dispute the Underlying Tax 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

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. Sec. 6330(c)(2)(B).

       Petitioner did not receive any notice of deficiency for its employment tax

liabilities concerning the tax periods at issue. See sec. 6205(b); Anderson v.

Commissioner, T.C. Memo. 2003-112 (“[R]espondent may assess employment tax

without providing taxpayers with a deficiency notice or an opportunity for a

prepayment forum to dispute respondent’s employment tax determination.”).

Respondent also summarily assessed additional, disputed amounts of interest and



      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, 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, 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.
                                          - 20 -

penalties against petitioner on those liabilities, following the close of petitioner’s

bankruptcy proceedings in 2005. The record before us, therefore, makes clear that

petitioner never received a notice of deficiency for the contested tax periods;

however, there remains the question of whether petitioner was afforded the

opportunity to contest these underlying tax liabilities.

      Federal bankruptcy courts may consider the amount or legality of taxes,

including penalties and interest. Bankruptcy Code sec. 505(a); Sabath v.

Commissioner, T.C. Memo. 2005-222. Where a taxpayer has filed a bankruptcy

action and the Commissioner has submitted a proof of claim for unpaid Federal tax

liabilities in that action, we have held that the taxpayer has had the opportunity to

dispute the liabilities for purposes of section 6330(c)(2)(B). See Kendricks v.

Commissioner, 124 T.C. 69 (2005); Sabath v. Commissioner, T.C. Memo. 2005-

222; see also Bankruptcy Code sec. 502(a) (“A claim or interest, proof of which is

filed * * * is deemed allowed, unless a party in interest * * * objects.”).

      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 by counsel, did

not file an objection to these tax liabilities. Accordingly, petitioner is precluded
                                         - 21 -

from challenging the underlying liabilities, including penalties and interest, as

submitted by respondent in his proof of claim. See Salazar v. Commissioner, T.C.

Memo. 2008-38, aff’d, 338 Fed. Appx. 75 (2d Cir. 2009).

      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
                                        - 22 -

the bankruptcy proceedings had closed.13 Accordingly, we will review these

assessments de novo. Goza v. Commissioner, 114 T.C. at 181-182.

      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.




      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, 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. See Fed. 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
(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.
                                        - 23 -

IV. Post-Bankruptcy-Petition Interest on a Secured Claim Versus an Unsecured
    Claim

      Interest on a tax underpayment generally accrues from the last date prescribed

for payment of the tax to the date the tax is paid. Sec. 6601(a). However, in a

bankruptcy proceeding, the characterization of a creditor’s prepetition claim

determines whether the claim properly accrues postpetition interest. See United

States v. Victor, 121 F.3d 1383, 1386-1387 (10th Cir. 1997).

      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 lien14 on property to which the bankrupt estate has an interest.

Bankruptcy Code sec. 506(a). Unsecured claims include those claims which are not

secured by a lien on the bankrupt estate’s property, as well secured claims to the

extent that the amount of the claim secured by a lien exceeds the value of the

encumbered property. See id. Priority claims consist of unsecured claims listed in

Bankruptcy Code sec. 507. Tax claims are typically afforded eighth priority




      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.
                                         - 24 -

according to the provision. See Bankruptcy Code sec. 507(a)(8). All remaining

claims are characterized as general unsecured claims.

      Bankruptcy creditors are entitled to postpetition interest only if their claim is

oversecured. Bankruptcy Code sec. 506(b); United States v. Ron Pair Enters., Inc.,

489 U.S. 235 (1989);15 see also In re Kingsley, 86 B.R. 17, 18 (Bankr. D. Conn.

1988) (“As a general rule, interest on an allowed prepetition claim, other than a

claim secured by property the value of which is greater than the amount of the

claim, stops accruing as of the filing of the bankruptcy petition.”). Postpetition

interest accrues from the date of the bankruptcy filing until the payment of the

secured claim or the effective date of the reorganization plan. Rake v. Wade, 508

U.S. 464, 468 (1993). A claim is secured only to the extent of the bankrupt estate’s

interest in the encumbered property. Bankruptcy Code sec. 506(a)(1). Claims are

unsecured to the extent the value of the claim exceeds the value of the bankrupt

estate’s interest in the encumbered property. Id. Bankruptcy law, therefore,

expressly recognizes that a creditor’s claim can be bifurcated into secured and

unsecured portions. See Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 961

      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 (Bankr. D. Nev. 1987); In re
Granite Lumber Co., 63 B.R. 466 (Bankr. D. Mont. 1986); In re Stack Steel &
Supply Co., 28 B.R. 151 (Bankr. W.D. Wash. 1983).
                                         - 25 -

(1997). The value of the encumbered property is determined “‘in light of the

purpose of the valuation and of the proposed disposition or use of such property’”.

Id. (quoting 11 U.S.C. sec. 506(a)(1)). Generally, such an assessment is based on

the property’s fair market value. Taffi v. United States (In re Taffi), 68 F.3d 306,

309 (9th Cir. 1995), aff’d en banc, 96 F.3d 1190 (9th Cir. 1996). The sale price of

the encumbered property in a fair, arm’s-length transaction, if occurring during the

pendency of the bankruptcy case, is usually the best means of determining its fair

market value. Romley v. Sun Nat’l Bank (In re Two S Corp.), 875 F.2d 240, 244

(9th Cir. 1989) (“Evidence of other appraised values is also irrelevant, because the

sale price is a better indicator of the asset’s value than any estimate of value given

prior to the sale.”); see also Takisake v. Alpine Grp., Inc. (In re Alpine Grp., Inc.),

151 B.R. 931, 935 (B.A.P. 9th Cir. 1993) (the sale price “is conclusive evidence of

the property’s value”).

      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 Collier on Bankruptcy, para. 3012.01, at 3012-

2 (16th ed. 2012) (“In order to determine the value of a secured claim, the court
                                         - 26 -

must determine the value of the collateral securing the claim.”). Petitioner proffers

that postpetition bids for the sale of the Santa Rosa lot validly evidence the

property’s fluctuating fair market value and that respondent’s corresponding claim

on the property should reflect such changes in value. Respondent counters that

applicable bankruptcy rules foreclose a postbankruptcy valuation of the secured

collateral by this Court and that respondent’s uncontested claim in the bankruptcy

proceeding serves as direct evidence that respondent’s secured claim was fully

secured. Alternatively, respondent contends that if we were to endeavor to

determine the fair market value of the encumbered property, we should focus on its

disposition value.

      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

evidence of the validity and amount of the claim.” Fed. R. Bankr. P. 3001(f); see

also In re Padget, 119 B.R. 793, 798 (Bankr. D. Colo. 1990) (“[A] proper claim

timely filed stands, absent objection.”). If petitioner disagreed with the value of

respondent’s proof of claim, bankruptcy rules afforded it the opportunity to file a
                                          - 27 -

motion with the court and litigate the matter. See Fed. R. Bankr. P. 3012. The

obligation to file a motion to value a claim during the bankruptcy case is placed on

the party desiring to reclassify the claim. See Piedmont Trust Bank v. Linkous (In

re Linkous), 990 F.2d 160, 163 (4th Cir. 1993) (“A debtor should inform the

secured creditor of an intent to reclassify its claim into partially secured and partially

unsecured status. Placing such a responsibility with the debtor is both logical and

not unduly burdensome.” (Emphasis supplied.)). If a party desiring to contest a

valuation fails to do so during the pendency of the bankruptcy proceedings, he is

generally estopped from raising the issue at a later date. Agricredit Corp. v.

Harrison (In re Harrison), 987 F.2d 677 (10th Cir. 1993) (rejecting an attempt at a

postbankruptcy confirmation recharacterization of a secured claim). An order

confirming a bankruptcy plan is “binding on all parties and all questions that could

have been raised pertaining to the plan are entitled to res judicata effect.” Trulis v.

Barton, 107 F.3d 685, 691 (9th Cir. 1995). The record before us is devoid of any

substantive information regarding petitioner’s bankruptcy proceedings; however,

respondent avers that petitioner never objected to his proof of claim, nor moved to

value the claim during those proceedings. Petitioner has never disputed this

assertion.
                                         - 28 -

      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.

Bankruptcy Code sec. 350(b); Fed. R. Bankr. P. 5010. Nonetheless, petitioner

chose not to pursue any of these avenues to contest respondent’s proof of claim.

      We will not attempt a postbankruptcy final decree valuation of respondent’s

claim. Indeed, even bankruptcy courts are reluctant to value claims following a plan

confirmation. See In re Wilkins, 71 B.R. 665 (Bankr. N.D. Ohio 1987). “[T]he

proper time for valuation is prior to Plan confirmation and not afterwards.” Id. at

670. We find that, before this Court, respondent’s proof of claim is dispositive

evidence of its “validity and amount”. See Fed. R. Bankr. P. 3001(f). Accordingly,

respondent’s secured claim was oversecured, thereby validly entitling respondent to

postpetition interest on his secured claim.
                                         - 29 -

V. Postpetition Rate of Interest on Respondent’s Secured Claim16

      As noted supra, section 6601(a) provides that if a taxpayer fails to pay a tax

imposed by the Code, interest shall accrue from the date that the tax payment is due

until the date it is paid. The rate of interest is “the underpayment rate established

under section 6621”. Id. For a “large corporate underpayment” however, this rate

is increased by 2 additional percentage points. Sec. 6621(c)(1). A “large corporate

underpayment” is defined as an underpayment of tax by a C corporation for any

“taxable period” if the underpayment for such “taxable period” exceeds $100,000.

Sec. 6621(c)(3)(A). In the case of any tax imposed by subtitle A, such as an income

tax, the “taxable period” is the taxable year. Sec. 6621(c)(3)(B)(I). For all other


      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.
                                           - 30 -

underpayments of tax, the “taxable period” refers to the period to which the

underpayment relates. Sec. 6621(c)(3)(B)(ii); see also sec. 301.6621-3(b)(4),

Proced. & Admin. Regs. (“the taxable period for an underpayment of FICA

taxes is the calender quarter”). The appropriate rate of tax, therefore,

depends on the “taxable period” to which petitioner’s employment taxes

relate.

          Subtitle C of the Code governs payment of employment taxes. Sections 3111

and 3301 impose taxes on employers under FICA (pertaining to Social Security) and

FUTA (pertaining to unemployment), respectively, based on wages paid to

employees. Similarly, section 3402 requires that employers deduct and withhold

income tax on wages paid to employees. Petitioner reported each of these taxes on

quarterly returns, and respondent has assessed the tax for each quarter separately.

As none of these taxes are imposed by subtitle A, each of petitioner’s contested

taxable quarters must be viewed in isolation when determining the applicability of a

“large corporate underpayment”.

          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.”
                                        - 31 -

Nonetheless, respondent now accepts the interest calculations of his insolvency

expert which were performed during the pendency of this case. Respondent asserts

that those calculations reflect an application of the general underpayment rate

established under section 6621.

      Bankruptcy Code sec. 506(b) does not provide a specific rate of interest for

secured claims arising from nonconsensual liens such as those at issue; however,

courts have repeatedly held that the rates of interest provided by otherwise

applicable statutes govern. See Lapiana v. Bank of Ravenswood (In re Lapiana),

100 B.R. 998, 1004 (N.D. Ill. 1989); Gline v. Horn & Co. (In re Isley), 104 B.R.

673, 680 (Bankr. D. N.J. 1989); In re Krump, 89 B.R. 821, 825 (Bankr. S.D. 1988);

Hunter v. Ohio Citizens Bank (In re Henzler Mfg. Co.), 55 B.R. 194, 197 (Bankr.

N.D. Ohio 1985); In re Hoffman, 28 B.R. 503, 508 (Bankr. Md. 1983); In re

Busman, 5 B.R. 332, 341 (Bankr. E.D.N.Y. 1980). Accordingly, we find

respondent’s assessments of postpetition interest on his secured claim in accordance

with the general underpayment rate of section 6621 are valid.

VI. Postconfirmation Interest and Interest Rate on Respondent’s Secured Claim

       Confirmed chapter 11 plans bind the debtor and all creditors to the terms of

the plan. Bankruptcy Code sec. 1141(a); In re Penrod, 169 B.R. 910, 916 (Bankr.

N.D. Ind. 1994) (“The plan is essentially a new and binding contract, sanctioned by
                                        - 32 -

the court, between the debtors and their pre-confirmation creditor.”), aff’d, 50 F.3d

459 (7th Cir. 1995); see also Hillis Motors, Inc. v. Haw. Auto. Dealers’ Ass’n, 997

F.2d 581, 588 (9th Cir. 1993) (bankruptcy plans are to be interpreted under the rules

governing the interpretation of contracts).

      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

section 6621. Petitioner generally protests all postconfirmation accrual of interest

on the claim.

      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
                                         - 33 -

secured claim at the general underpayment rate of section 6621.17 Accordingly, we

conclude that such interest assessments were valid.

VII. Interest on Respondent’s Priority Claim

      Both parties agree that priority tax claims do not accrue interest from the

petition date through confirmation of the plan. See Bankruptcy Code sec. 506(b).

Petitioner, however, contests the accrual of postconfirmation interest on

respondent’s priority claim. Respondent counters that the bankruptcy plan provides

for the deferred payment of his priority claim, entitling him to interest until the claim

was paid in full.

      A bankruptcy court can confirm a chapter 11 bankruptcy plan only if the plan

satisfies various statutory requirements. See Bankruptcy Code sec. 1129. One such

requirement, articulated in Bankruptcy Code sec. 1129(a)(9)(C),18 is



      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, 1006 (9th
Cir. 2004) (quoting Cal. 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:


                                                                           (continued...)
                                         - 34 -

that, absent agreement otherwise, if the plan provides for deferred payments to a

government creditor holding a priority tax claim, the plan must also entitle the

creditor to “value, as of the effective date of the plan, equal to the allowed amount

of such claim”. Bankruptcy courts “have almost uniformly ruled that the proper

method of providing such creditors with the equivalent of the value of their claim as

of the effective date of the plan is to charge interest on the claim throughout the

payment period.” United States v. S. States Motor Inns, Inc. (In re S. States Motor

Inns, Inc.), 709 F.2d 647, 650 (11th Cir. 1983); see also United States v. Neal

Pharmacal Co., 789 F.2d 1283, 1285 (8th Cir. 1986) (“a debtor * * * may only defer

the payment of priority tax claims if the creditor who is forced to accept the deferred



      18
       (...continued)
      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.
                                         - 35 -

payments receives interest on its claim in an amount that renders the deferred

payments equivalent to the present value of its claim”).

      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 In re Pharmadyne Labs., Inc., 53 B.R. 517 (Bankr. D. N.J.

1985), and United States v. White Farm Equip. Co., 157 B.R. 117 (N.D. Ill. 1993),

in support of its proposition that postconfirmation interest accrual on respondent’s

claim is unwarranted. Respondent counters by generally attempting to distinguish

the present facts from those in the cases upon which petitioner relies.

      What follows is a discussion of the cases cited by petitioner as well as United

States v. Arrow Air, Inc. (In re Arrow Air, Inc.), 101 B.R. 332 (S.D. Fla.1989), a

case cited, but not examined by respondent, and In re Collins, 184 B.R. 151 (Bankr.

N.D. Fla. 1995). In these latter two cases, the respective courts held that the

debtors’ delayed payments to priority tax creditors entitled the creditors to interest

accrual on their claims pursuant to bankruptcy plan provisions providing for the

payment of those claims “in full”. Consistent with these cases, we find that
                                          - 36 -

petitioner’s bankruptcy plan contemplated deferred payments on respondent’s

priority claim and that respondent was, correspondingly, entitled to accrue interest

on his claim during the period following confirmation of petitioner’s bankruptcy

plan.

        A. Caselaw

        In In re Pharmadyne Labs., Inc., 53 B.R. at 519, the debtor’s chapter 11

bankruptcy plan allowed for the payment of priority tax claims “to the extent there *

* * [were] funds available for payment” following the liquidation of the debtor’s

assets and the satisfaction, in full, of higher priority claims. After payments were

delayed, the Commissioner sought postconfirmation interest on his claims pursuant

to 11 U.S.C. sec 1129(a)(9)(C); however, the court cursorily dismissed the section’s

applicability by finding that “The plan * * * [did] not provide for the deferment of

payments to the I.R.S.” Id. at 522. The court’s decision arguably embraces the

premise that the absence of any express provision in a bankruptcy plan for deferred

payments serves to preclude the Commissioner from asserting entitlement to

postconfirmation interest on his claim.

        In White Farm Equip. Co., 157 B.R. at 118-119, the debtor’s bankruptcy plan

provided that certain claims would be paid the “allowed amount thereof in cash on

the latter of the Effective Date or the date upon which such claims become Allowed
                                         - 37 -

Claims.” The plan also explicitly restricted “Allowed Claims” from accruing

interest following the petition date. Id. at 119.

      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 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. Id. at 121. The court agreed

with the bankruptcy court’s interpretation of the debtor’s bankruptcy plan and

concluded that the plan unambiguously provided that no postconfirmation interest

would be paid on the Commissioner’s “Allowed Claim”. Id. at 121. The court

further found that the debtor’s plan clearly “did not provide for deferred cash

payments”, but instead anticipated payments “as soon as the IRS’ claim became an

allowed claim.” Id.

      The District Court also suggested that the different underlying purposes of

plans of reorganization and, conversely, plans of liquidation, might factor into an
                                         - 38 -

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 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 11 U.S.C. sec. 1129(a)(9)(C), may be more appropriately

limited to bankruptcy reorganization plans if not expressly provided for in a

liquidation plan.

        In contrast to the bankruptcy plans in the cases cited by petitioner, the

debtor’s reorganization plan in In re Arrow Air, Inc., 101 B.R. at 333, provided that

the Commissioner’s priority tax claim would be paid “in full” on the effective date

of the plan or as soon thereafter as feasible; the plan did not expressly provide for

deferred cash payments. Payment of the Commissioner’s priority claim was delayed

for 11 months following the effective date of the plan. Id. at 335. The
                                         - 39 -

Commissioner asserted that he was entitled to the accrual of interest on his claim

during that period. Id. at 334.

       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 * * * [11 U.S.C. sec. 1129(a)(9)(C)].” Id. at 334-335. The

court construed the ambiguous wording in the plan against the debtor-drafter and

found it was reasonable to interpret “in full” as reflecting a promise, consistent with

11 U.S.C. sec. 1129(a)(9)(C), to pay interest on the claim for any delay in payment.

Id. at 335-336. In so finding, the court placed the burden on the debtor-drafter to

cure any ambiguities that might arise in the provisions of its bankruptcy plan. Id. at

336.

       In accord with this approach, the court in In re Collins, 184 B.R. at 155,

found that a debtor’s plan promising payment “in full” was ambiguous and

interpreted the provision against the debtor to include postconfirmation interest on

the Commissioner’s priority claim. The court also rejected the suggestion, first

espoused in White Farm Equip. Co., that a liquidation plan may be construed

differently from a reorganization plan with respect to the accrual of
                                         - 40 -

postconfirmation interest on a priority tax claim. Id. While recognizing that “the

purpose of allowing deferral of payments, instead of cash on confirmation, may be

to facilitate reorganization”, the court reiterated that “the present value requirement

of * * * [11 U.S.C. sec. 1129(a)(9)(C)] ensures that priority claimants will be

compensated for the ‘time value of money’ if their payment is delayed.” Id. (citing

United States v. S. States Motor Inns, Inc., 709 F.2d at 652 (noting that the primary

intent of 11 U.S.C. sec. 1129(a)(9)(C) is to provide the Government with a future

amount equal in value to an amount paid in full upon the effective date of the plan)).

      B. Conclusion

      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 11 U.S.C. sec. 1129(a)(9)(C) without

meaningful analysis. In re Pharmadyne Labs., Inc., 53 B.R. at 522; see also In re

Arrow Air, Inc., 101 B.R. at 335 (“There is no citation of authority and really very

little analysis. In short, we glean nothing of value from Pharmadyne other than the

Government lost the issue.”). Further, the court did not apply, nor even consider,

the doctrine of contra proferentem to construe the seemingly ambiguous plan
                                         - 41 -

provisions against the debtor-drafter.19 Courts have widely applied the doctrine

when interpreting opaque bankruptcy plan provisions. See, e.g., Cnty. of Ventura v.

Brawders (In re Brawders), 325 B.R. 405 (BAP 9th Cir. 2005); Harstad v. First Am.

Bank (In re Harstad), 155 B.R. 500 (Bankr. D. Minn. 1993), aff’d, 39 F.3d 898 (8th

Cir. 1994); cf. In re Stuart, 402 B.R. 111 (Bankr. E.D. Pa. 2009) (questioning the

liberal use of the doctrine). Cognizant of the questionable precedential value

established by the Pharmadyne opinion, we conclude that it is of limited value in our

present inquiry.

      The facts of the second case upon which respondent relies, White Farm

Equip. Co., are distinguishable on their face from those at present. In White Farm

Equip. Co., 157 B.R. at 119, the debtor’s bankruptcy plan explicitly provided for

payment of priority claims on a definite date: the later of the effective date or the

date when each claim became an “Allowed Claim.” In contrast, petitioner’s plan

provides only that respondent’s priority claim would be paid “in full” following the


      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, 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.
                                         - 42 -

satisfaction of senior claims. Nothing in petitioner’s plan delineates a specific

payment date; rather, the prescribed hierarchal payment schedule in petitioner’s plan

alludes to the possibility of a delay in payment of respondent’s claim.

      Furthermore, in White Farm Equip. Co., the debtor’s plan explicitly provided

that the Commissioner’s priority tax 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 White Farm Equip. Co. was

accurate when it seemingly accepted that the ultimate purpose of a bankruptcy

plan may factor into whether delayed payments on claims are entitled to interest.

No other court has endorsed such a premise, nor do we. Instead, we adopt the

finding of the court in In re Collins, 184 B.R. at 155, expressly rejecting any

distinction in the application of 11 U.S.C. sec. 1129(a)(9)(C) to either

liquidation or reorganization plans. We, therefore, address petitioner’s bankruptcy

plan without regard to the anticipated ultimate result of the plan to petitioner.20




      20
          Although petitioner, in a misguided attempt to align with the reasoning of
United States v. White Farm Equip. Co. 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.
                                         - 43 -

        Declining to invest in the scant reasoning of Pharmadyne or the inapposite

factual circumstances of White Farm Equip. Co., we turn to other relevant 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 In re Arrow Air and In re Collins. In those cases the respective courts

found that language providing for the payment of the Commissioner’s claims “in

full” was ambiguous and should be construed against the debtor-drafters. Article

5.0121 of petitioner’s plan similarly provides that respondent’s priority claim “shall

be paid in full and in the order of priority set forth in 11 U.S.C. Section 507(a)”

following the liquidation of certain assets. (Emphasis added.) Petitioner was

represented by counsel when its bankruptcy plan was drafted and had the

opportunity to clearly tailor the plan, if desired, to avoid both deferred payments and

the accrual of postconfirmation interest on respondent’s claim. We find instructive

the court’s observation in Fawcett v. United States (In re Fawcett), 758 F.2d 588,

590-591 (11th Cir. 1985), which, while analyzing a bankruptcy plan provision

concerning a debtor’s payment on a secured claim, retains relevance to the issue at

hand:

        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.
                                           - 44 -

      If a debtor submits a generalized statement 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 Bankruptcy Code sec. 1129(a)(9)(C).

      C. Postconfirmation Rate of Interest on Respondent’s Priority Claim

      Respondent did not offer the rate used in calculating interest on his priority

claim. Indeed, respondent remains uncertain as to the manner by which interest was

calculated on the claim. 22 Nonetheless, respondent now avers that the proper




      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).
                                         - 45 -

rate of postconfirmation interest on the priority claim is the rate under section

6621(a).23

       Courts have taken different approaches in determining the proper interest

rate that a postconfirmation priority claim is afforded pursuant to 11 U.S.C. sec.

1129(a)(9)(C).24 The Court of Appeals for the Ninth Circuit, to which an appeal in

this case would lie, has held that a bankruptcy court “must make a case-by-case

determination of what interest rate the reorganizing debtor would have to pay a

creditor in order to obtain a loan on equivalent terms in the open market.” United

States v. Camino Real Landscape Maint. Contractors, Inc. (In re Camino Real



      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, 1289 (8th Cir.
1986) (finding that the sec. 6621 rate is “clearly relevant” but noting courts must
also consider market rates in general and whether the sec. 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, 1023 (W.D.
Va. 1986) (applying the sec. 6621 rate to an 11 U.S.C. sec. 1129(a)(9)(C) claim); In
re Conn. Aerosols, Inc., 42 B.R. 706, 711 (D. Conn. 1984) (holding that the 28
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, 156-157 (Bankr. N.D. Fla. 1995) (rejecting the rate of interest
provided in 28 U.S.C. secs. 1961 and 6621 but noting that the consideration of both
as “evidence of the proper market rate is permissible.” (citing United 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, 272 (Bankr. D. Mass. 1984)
(applying interest rate 2.5% above the sec. 6621 rate).
                                         - 46 -

Landscape Maint. Contractors), 818 F.2d 1503, 1508 (9th Cir. 1987). Consistent

with this approach, the court expressly rejects “that the interest rate on deferred

taxes for purposes of [11 U.S.C.] § 1129(a)(9)(C) is fixed as § 6621 provides.” Id.

at 1505. The court similarly asserts that such interest rates are not necessarily

congruent with the rates paid on Treasury obligations because an inquiry into the

appropriate rate should focus on the “debtor’s cost of borrowing, not the

government’s.” Id. at 1506. Nonetheless, both rates may aid a court in its factual

inquiry. Id. at 1506-1507.

      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 the foundation of his interest assessments and

instead offers to this Court that he “usually charges interest at the general

unemployment [sic] rate under I.R.C. § 6621(a).”25 We find respondent’s position

      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. See United States v. Camino Real Landscape
                                                                         (continued...)
                                         - 47 -

untenable for two distinct reasons: (1) it presumes this Court will accept

respondent’s arbitrary interest assessments by accepting, at face value, his statement

that this is what “usually” occurs; and (2) it does not reflect the appropriate law of

the Ninth Circuit, as discussed supra.

      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 of interest he used in assessing

interest on his priority claim that the Appeals officer did not properly obtain




      25
       (...continued)
Maint. Contractors, Inc. (In re Camino Real Landscape Maint. Contractors), 818
F.2d 1503,1508 (9th Cir. 1987).
                                         - 48 -

verification that all applicable law and procedure26 had been followed pursuant to

section 6330(c)(1).27

VIII. Penalties

      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 Goza v. Commissioner, 114 T.C. at 181-182. However,

if respondent’s determination was based on erroneous views


      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, 96-97 (2009); Marlow v.
Commissioner, T.C. Memo. 2010-113. Federal taxes are validly assessed when
they are formally recorded on a record of assessment. See sec. 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.
                                        - 49 -

of the law and petitioner’s unpaid liabilities were discharged in bankruptcy, then

we must reject respondent’s view and find that there was an abuse of discretion.

See, e.g., Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990); Bussell v.

Commissioner, 130 T.C. 222, 236 (2008); Swanson v. Commissioner, 121 T.C.

111, 119 (2003).

      A. Assessment of Penalties

      Section 6651(a)(3) imposes an addition to tax in the case of a failure to pay a

tax required to be shown on a return, which was not so shown, within 21 days after

the date of the IRS’ notice and demand letter. The addition to tax is 0.5% of tax if

the failure to pay is for not more than 1 month, with an additional 0.5% for each

additional month or fraction thereof during which such failure to pay continues, not

to exceed 25% in the aggregate. The failure to pay penalty thus may continue to

accrue for up to 50 months, until payment. See Kimball v. Commissioner, T.C.

Memo. 2008-78.

      Generally, a taxpayer’s pending bankruptcy case alters these aforementioned

rules. Section 6658(a) provides that “No addition to the tax shall be made under

section 6651, 6654, or 6655 for failure to make timely payment of tax with respect

to a period during which a case is pending under title 11 of the United States
                                          - 50 -

Code”.28 Nonetheless, section 6658 does not prevent the Commissioner from

assessing additions to tax which accrue during the pendency of the bankruptcy case

related to employment taxes to the extent that they are withheld or collected from

others. Sec. 6658(b); Kiesner v. IRS (In re Kiesner), 194 B.R. 452, 458 (Bankr.

E.D. Wis. 1996); see also S. Rept. No. 96-1035, at 51 (1980), 1980-2 C.B. 620,

646 (“These relief rules do not, however, apply with respect to liability for penalties

for failure to timely pay or deposit any employment tax required to be withheld by

the debtor or trustee.”).

      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 Nonetheless, as

      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, 2005-1 C.B. 470.
      29
           Respondent’s response to the Court’s order states:

                                                                          (continued...)
                                        - 51 -

discussed infra, we find that all penalties which accrued postpetition on prepetition

claims were discharged upon confirmation of petitioner’s bankruptcy plan.

      B. Reasonable Cause

      The section 6651(a)(3) addition to tax is not imposed if the taxpayer proves

that the failure to pay is due to reasonable cause and not willful neglect. Sec.

301.6651-1(a)(3), Proced. & Admin. Regs.; see also Reese v. Commissioner, T.C.

Memo. 2006-21, aff’d, 201 Fed. Appx. 961 (4th Cir. 2006). Reasonable cause is

shown if the taxpayer “exercised ordinary business care and prudence in providing

for payment of his tax liability and was nevertheless either unable to pay the tax or

would suffer an undue hardship * * * if he paid on the due date.” Sec. 301.6651-

1(c)(1), Proced. & Admin. Regs. Whether the taxpayer has shown reasonable cause

is a question of fact to be decided on the entire record. Duncan v. Commissioner,

T.C. Memo. 2000-269.

      Petitioner submits that it exhibited “ordinary business care * * * and prudence

* * * in providing payment to Respondent”. In particular, petitioner testified that


      29
        (...continued)
      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.
                                           - 52 -

despite its best efforts it was precluded from following its bankruptcy plan and

selling the Santa Rosa lot because 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 section 6658(b) allows for the accrual of

postpetition penalties on the “trust fund” portion of petitioner’s tax liabilities and

that the aforementioned terrorist attacks had no bearing on petitioner’s failure to pay

withholding taxes. Respondent’s settlement officer also testified that petitioner had

a “history of not timely making deposits dating back to 1993.” Petitioner never

refuted this testimony.

       Given these circumstances, we find that petitioner has not sufficiently

established that its failure to pay its tax liabilities is due to reasonable cause and




       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.
                                         - 53 -

not willful neglect. See sec. 301.6651-1(a)(3), Proced. & Admin. Regs.

Accordingly, the section 6651(a)(3) addition to tax was properly imposed.

      C. Discharge of Debts

      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 We have jurisdiction to decide

whether a tax liability for which collection is at issue was discharged in bankruptcy.




      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. See 11 U.S.C. sec. 522(c)(2)(B). As the
Supreme Court explained in Johnson v. Home State Bank, 501 U.S. 78, 84 (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.” See
Connor v. United States (In re Connor), 27 F.3d 365, 366 (9th Cir. 1994); Iannone
v. Commissioner, 122 T.C. 287, 292-293 (2004); see also Bussell v. Commissioner,
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.
                                          - 54 -

Washington v. Commissioner, 120 T.C. 114, 121 (2003); Thomas v. Commissioner,

T.C. Memo. 2003-231.

      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 Respondent, 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:




      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.
                                         - 55 -

      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.”34 Generally,

pursuant to Bankruptcy Code section 1141(d)(1)(A), confirmation of a plan of

reorganization grants a chapter 11 debtor a discharge of all debts arising prior to




      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. See Munich v. Commissioner, 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’g T.C. Memo. 1999-192; 330 W. Hubbard Rest. Corp. v. United
States, 203 F.3d 990, 997 (7th Cir. 2000) (same); Larson v. Northrop Corp., 21
F.3d 1164, 1168 n.7 (D.C. Cir. 1994) (declining to reach issues neither argued nor
briefed).
                                          - 56 -

confirmation.35 Nonetheless, the confirmation of a plan does not discharge a debtor

if: (1) the plan provides for the liquidation of all or substantially all the property of

the estate; (2) the debtor does not engage in business after consummation of the

plan; and (3) the debtor would be denied a discharge under Bankruptcy Code sec.

727(a) if the case was filed as a chapter 7 proceeding.36 Bankruptcy Code sec.

1141(d)(3). The “net effect” of this provision is that a “corporate debtor which is

liquidated under chapter 11 and does not continue in business after its chapter 11

plan goes into effect does not receive a bankruptcy discharge.” In re SunCruz

Casinos, LLC, 342 B.R. 370, 380 (Bankr. S.D. Fla. 2006).

      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




      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). See In re SunCruz Casinos, LLC, 342 B.R. 370, 380
(Bankr. S.D. Fla. 2006).
                                           - 57 -

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

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:



       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”.
                                         - 58 -

      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 cited by respondent, sufficient to establish that petitioner’s plan does not

fall under the exception to discharge provision in Bankruptcy Code section

1141(d)(3). See Fin. Sec. Assurance, Inc. v. T-H New Orleans Ltd. P’ship (In re T-

H New Orleans Ltd. P’ship), 116 F.3d 790, 804 (5th Cir. 1997) (noting that where

one alternative of a bankruptcy plan is liquidation of property two years after a

plan’s effective date does not render the plan a liquidation under 11 U.S.C. sec.

1141(d)(3)(A)).

      Respondent has conceded that petitioner’s bankruptcy plan makes no

provision for the postpetition penalties which accrued on respondent’s prepetition

claims.38 Accordingly, we find that the plan effectively discharged petitioner of

failure to pay penalties which accrued during the pendency of its bankruptcy case.




      38
        Priority tax claims do not include nonpecuniary penalties. 11 U.S.C. sec.
507(a)(8)(G); see also Erickson v. Commissioner, 172 B.R. 900, 915 (Bankr. D.
Minn. 1994) (additions to tax assessed under sec. 6651(a)(3) “are not for
compensatory or pecuniary loss”).
                                         - 59 -

We hold that respondent’s Appeals officer’s failure to address this discharge

constitutes an abuse of discretion. See, e.g., Swanson v. Commissioner, 121 T.C.

111, 119 (2003) (“If respondent’s determination was based on erroneous views of

the law and petitioner's unpaid liabilities were discharged in bankruptcy, then we

must reject respondent’s views and find that there was an abuse of discretion.”).

IX. The Application of Petitioner’s Payments in Contravention of the Bankruptcy
    Plan

      A confirmed chapter 11 plan will bind the debtor and all creditors to the terms

of the plan. 11 U.S.C. sec. 1141(a) (2006); In re Space Bldg. Corp., 206 B.R. 269,

272-273 (D. Mass. 1996); In re Penrod, 169 B.R at 916 (the plan is essentially a

new and binding contract between debtor and creditor).

      Under article 5.01 of petitioner’s bankruptcy plan claims entitled to priority

pursuant to Bankruptcy Code section 507(a), which included respondent’s priority

tax claims, would be paid in full and “in the order of priority set forth in * * *

[Bankruptcy Code sec. 507(a)].” Petitioner submits that respondent applied

$13,691.30 in foreclosure sale proceeds to the tax period for the quarter ended June

30, 2000, to partially satisfy his priority claim ahead of claims of other unpaid,

higher-priority creditors. This application of sale proceeds, petitioner asserts,
                                         - 60 -

violates the express terms of the bankruptcy plan.39 Petitioner now requests a

refund for all inappropriately applied amounts.

      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 section 6402(a).

      Even if petitioner overpaid its tax liability for any period at issue, section

6330 does not provide this Court with jurisdiction to determine an overpayment or

to order a refund or credit of taxes paid. See Greene-Thapedi v. Commissioner, 126

T.C. 1, 8-11 (2006); MacDonald v. Commissioner, T.C. Memo. 2009-240 (“In

general, our jurisdiction under section 6330(d)(1) is limited to reviewing whether the

Commissioner’s proposed collection activity is appropriate.”); see also Perkins v.

Commissioner, T.C. Memo. 2008-103.40 Petitioner, however, for purposes of this


      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).
                                          - 61 -

assertion, does not argue that it overpaid its tax liability; instead, petitioner asks this

Court to direct respondent to return to petitioner a bankruptcy distribution. We see

no authority that would allow us to do so. Respondent’s priority tax claims remain

unpaid, and following petitioner’s default respondent was entitled to enforce

payments due through his own administrative processes. See In re Jankins, 184

B.R. 488 (Bankr. E.D. Va. 1995). Petitioner must avail itself of other legal forums

to pursue its desired redress.

X. Conclusion

       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 section

VII); and (2) postpetition penalties (discussed supra section VIII). A Rule 155

calculation is needed to address these holdings.
                                          - 62 -

      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 Rule

                                                   155 calculation.
