In the recent opinion issued by Judge Laurie Selber Silverstein of the Bankruptcy Court for the District of Delaware, In re Altegrity, et al., Case No. 15-10226 (LSS) (D. Del. Bankr. Ct. Jan. 15, 2016), the Court considered a motion filed by the Altegrity, et al. (“Altegrity” or “Debtors”) under Section 505 of the Bankruptcy Code to determine its tax liability owed to the State of Oklahoma for the fiscal year ending Sept. 30, 2011, even though the Debtors have a tax protest proceeding pending before the Oklahoma Tax Commission.
The Debtors are privately held information services companies that serve commercial and governmental entities.
In denying Debtors’ motion, the Court noted that Debtors, in making this request, “ignore well-established law that a court – including this Court – should not rule on constitutional issues unless such adjudication is unavoidable.”
After the filing of Debtors’ chapter 11 petitions, the Oklahoma Tax Commission filed a proof of claim against Debtor TOIC in the amount of $24,710,008 asserting a $1.7 million general unsecured claim, and a $23 million priority unsecured claim under 11 U.S.C. § 507(a)(8).
The Court first found that it does have jurisdiction under Section 505(a)(1) to determine the Debtors’ tax liability. The Court then found that it was appropriate to exercise its discretion to abstain from ruling on the issue. Per the Court, adjudication of the tax dispute before the Oklahoma Tax Commission would not delay the administration of the bankruptcy case, nor protect creditors from dissipation of the estate’s assets via an uncontested tax assessment. The Court noted that Altegrity’s Plan has already gone effective, and the Debtors have been contesting the tax assessment in the appropriate forum since 2012. Finally, the Court found that it is not in a position to more efficiently adjudicate the tax assessment than the presiding administrative law judge.
Accordingly, the Court denied Altegrity’s motion to determine tax liability under Section 505 and abstained from determining the Debtors’ tax liability.
Carl D. Neff is a partner with the law firm of Fox Rothschild LLP. You can reach Carl at (302) 622-4272 or at firstname.lastname@example.org.