A Bankruptcy Appellate Panel of the 6th Circuit affirmed a Bankruptcy Court Order made regarding Southeast Waffles LLC. This Debtor had sought to avoid and recover penalty payments made to the IRS.
After the Ch. 11 Plan was confirmed, an appointed Liquidating Agent sold assets accordingly, as Debtor S.E. Waffles operated business as a debtor-in-possession.
Debtor S.E. Waffles had failed to file taxes and make proper payments to the IRS. Eventually several payments were made, but the IRS applied these funds to penalties only, rather than toward tax amounts due. The Debtor alleged fraudulent conveyances from that practice.
The Debtor’s argument under a constructive fraud theory (from its perspective) that payments made to the IRS “were for less than reasonably equivalent value” was rejected by the 6th Circuit Panel. The debt of penalties due was legitimate; it still had to be paid. In terms of value then, any payment going toward a tax liability is a dollar for dollar payment.