OCTOBER TERM, 1991
Syllabus
HOLYWELL CORP. ET AL.
v. SMITH ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE
ELEVENTH CIRCUIT
No.90-1361. Argued December 4, 1991-Decided February
25,1992*
Petitioner debtors, four affiliated corporate entities and
Theodore B.
Gould, filed Chapter 11 bankruptcy petitions after one of the
entities defaulted on a real estate loan. The Bankruptcy Court
consolidated the cases and the debtors represented their own
bankruptcy estates as debtors in possession. Creditors approved a
Chapter 11 plan that provided,
inter alia, for placement of
the debtors' property into a trust and appointment of a trustee to
liquidate all of the trust property and to distribute it to the
creditors of the various bankruptcy estates. The plan said nothing
about whether the trustee had to file income tax returns or pay any
income tax due, but the United States did not object to the plan's
confirmation. The plan took effect in October 1985. One of the
corporate debtors filed a tax return for the fiscal year ending
July 31, 1985, including as income capital gains earned in the
postbankruptcy sale of certain properties in its estate, but
requested respondent Smith, the appointed trustee, to pay the taxes
owed. Neither the corporate debtors nor Smith filed income tax
returns for succeeding fiscal years, in which there was capital
gains and interest income. Over the objections of the United States
and the debtors, the Bankruptcy Court granted Smith's request for a
declaratory judgment that he had no duty under the Internal Revenue
Code (Code) to file income tax returns or pay income taxes. Both
the District Court and the Court of Appeals affirmed.
Held: Smith is required by the Code to file income tax
returns and pay taxes on the income attributable to the property of
both the corporate debtors and Gould. Pp. 52-59.
(a) Smith is an "assignee" of "all" or "substantially all" of
the "property ... of a corporation" and therefore is required by §
6012(b)(3) of the Code to file returns that the corporate debtors
would have filed had their property not been assigned to him. The
plan transferred the corporate debtors' estates to Smith as
trustee, and it is undisputed that he meets the usual definition of
the word "assignee" in both ordinary and legal usage. Nothing in §
6012(b)(3) limits the definition of an "as-
*Together with No. 90-1484,
United States v.
Smith et
al., also on certiorari to the same court.
48
Syllabus
signee" to persons who wind up a dissolving corporation or
manage the day-to-day business of a distressed corporation. Pp.
52-54.
(b) With respect to the income attributable to Gould's property,
Smith is required by § 6012(b)(4) to make a return not, as the
United States argues, because he is the "fiduciary" of the "estate
... of an individual," but because he is the "fiduciary" of a
"trust." Since the plan declared and established a separate and
distinct trust and vested the property of Gould's estate in Smith,
it did not simply substitute Smith for Gould as the fiduciary of
Gould's "estate." However, the trust here-which the plan described
as a trust and created for the express purpose of liquidating
Gould's estate and distributing it to creditors-clearly fits the
description of a liquidating trust in 26 CFR §301.7701-4(d).
Moreover, when the plan assigned the property of Gould's estate to
Smith, it gave him powers consistent with the definition of
"fiduciary" in § 7701 (a)(6) of the Code and 26 CFR §301.7701-6.
Respondents' argument that it is Gould who must pay the trust's
taxes under the Code's "grantor trust" rules is rejected.
In re
Sonner, 53 B. R. 859, distinguished. Also rejected is their
contention that Smith lacked sufficient discretion in performing
his duties under the plan to be a fiduciary, since the liquidating
trust is a trust under the Code and Smith's duties satisfy the
regulations' description of a fiduciary. Pp. 54-58.
(c) Respondents also err in asserting that Smith may ignore the
duties imposed by the Code because the plan does not require him to
pay taxes. Section 1141(a) of the Bankruptcy Code-which states that
"the provisions of a confirmed plan bind ... any creditor" -does
not preclude the United States from seeking payment of any taxes.
Even if § 1141(a) binds creditors with respect to claims that arose
before confirmation, it does not bind them with regard to
postconfirmation claims. Cf. 11 U. S. C. § 101(10). Here, the
United States is not seeking taxes due prior to Smith's
appointment, but is merely asserting that Smith, after his
appointment, must make tax returns in the same manner as the
assignee of the property of any corporation or the trustee of any
trust. Pp.58-59.
911 F.2d
1539, reversed.
THOMAS, J., delivered the opinion for a unanimous Court.
Kent L. Jones argued the cause for the United States in No.
90-1484 and petitioners in No. 90-1361. With him on the briefs for
the United States were Solicitor General Starr, Assistant Attorney
General Peterson, Deputy Solicitor General Wallace, Gary D. Gray,
and Francis M. Allegra.
49
Dennis G.
Lyons, Stuart E. Seigel, and
Kent A.
Yalowitz filed briefs for petitioners in No. 90-1361.
Herbert Stettin argued the cause for respondents in both cases.
With him on the brief for respondent Smith were Louis R. Cohen, F.
David Lake, Jr., and John Aramburu. Vance E. Salter, Thomas F.
Noone, Edward P. Zujkowski, Mortimer M. Caplin, Walter B. Slocombe,
Albert G. Lauber, Jr., Julia L. Porter, and James E. Salles filed a
brief for respondent Bank of New York. Barbara E. Vicevich filed a
brief for respondent Shutts & Bowen. t
t A brief of
amici curiae was filed for the State of
California et al. by
Mary Sue Terry, Attorney General of
Virginia,
H. Lane Kneedler, Chief Deputy Attorney General,
K. Marshall Cook, Deputy Attorney General,
Barbara M.
Rose, Senior Assistant Attorney General, and
Martha B.
Brissette and
John Patrick Griffin, Assistant Attorneys
General,
Daniel E. Lungren, Attorney General of California,
Richard Blumenthal, Attorney General of Connecticut,
Charles M. Oberly III, Attorney General of Delaware,
John
Payton, Corporation Counsel of the District of Columbia,
Robert A. Butterworth, Attorney General of Florida,
Michael J. Bowers, Attorney General of
Georgia,
Warren Price III, Attorney General of Hawaii,
Roland W Burris, Attorney General of Illinois,
Linley E.
Pearson, Attorney General of Indiana,
Bonnie J.
Campbell, Attorney General of Iowa,
Robert T.
Stephan, Attorney General of Kansas,
William J.
Guste, Jr., Attorney General of Louisiana,
Michael E.
Carpenter, Attorney General of Maine,
J. Joseph
Curran, Jr., Attorney General of Maryland,
Scott
Harshbarger, Attorney General of Massachusetts,
Frank
J. Kelley, Attorney General of Michigan,
Hubert H.
Humphrey III, Attorney General of Minnesota,
Michael C.
Moore, Attorney General of Mississippi,
William L.
Webster, Attorney General of Missouri,
Marc Racicot,
Attorney General of Montana,
Robert J. Del
Tufo, Attorney General of New Jersey,
Tom Udall,
Attorney General of New Mexico,
Robert Abrams, Attorney
General of New York,
Nicholas J. Spaeth,
Attorney General of North Dakota,
Dave Frohnmayer, Attorney
General of Oregon,
Ernest D. Preate, Jr., Attorney General
of Pennsylvania,
James E. O'Neil, Attorney General of Rhode
Island,
T. Travis Medlock, Attorney General of South
Carolina,
Charles W Burson, Attorney General of Tennessee,
Dan Morales, Attorney General of Texas,
R. Paul Van
Dam, Attorney General of Utah,
Mario J.
Palumbo, Attorney General of West Virginia, and
Victor A.
Kovner, Corporation Counsel of the City of New York.
50
JUSTICE THOMAS delivered the opinion of the Court. These cases
require us to decide whether a trustee appointed to liquidate and
distribute property as part of a Chapter 11 bankruptcy plan must
file income tax returns and pay income tax under the Internal
Revenue Code.
I
Miami Center Limited Partnership borrowed money from the Bank of
New York (Bank) to develop "Miami Center," a hotel and office
building complex in Miami, Florida. In August 1984, after it
defaulted on the loan, MCLP and four affiliated debtors-Holywell
Corporation, Chopin Associates, Miami Center Corporation, and
Theodore B. Gould-each filed Chapter 11 bankruptcy petitions. The
Bankruptcy Court consolidated the five cases.
Prior to confirmation of a Chapter 11 plan, the debtors
represented their own bankruptcy estates as debtors in possession.
See 11 U. S. C. § 1101(1). The estates of Gould and Holywell
contained two principal assets: equity in Miami Center and cash
proceeds from the postbankruptcy sale of certain real estate in
Washington, D. C., known as the Washington Properties.
In August 1985, the Bank and other creditors approved a
"Consolidated Plan of Reorganization." The plan required the
debtors to give up their interests in Miami Center and the proceeds
from the sale of the Washington Properties, but otherwise permitted
them to remain in business. Part V of the plan provided:
"1. A Trust is hereby declared and established on behalf of the
Debtors ... and an individual to be appointed by the Court ... is
designated as Trustee of all property of the estates of the Debtors
... , including but not limited to, Miami Center [and] the
Washington Proceeds ... , to hold, liquidate, and distribute such
Trust Property according to the terms of this Plan. The Trust shall
be known as the 'Miami Center Liquidating Trust.'
51
"2 .... [A]ll right, title and interest of the Debtors in and to
the Trust Property, including Miami Center, shall vest in the
Trustee, without further act or deed by the Debtors .... " App.
41.
The plan required the trustee to liquidate and distribute all of
the trust property to the creditors of the various bankruptcy
estates. It empowered the trustee to "[m]anage, operate, improve,
and protect the Trust Property"; to "[r]elease, convey, or assign
any right, title or interest in or about the Trust Property"; and
to perform other, similar actions.
Id., at 42. The plan said
nothing about whether the trustee had to file income tax returns or
pay any income tax due. The United States did not object to its
confirmation.
The plan took effect on October 10, 1985. The trustee appointed
by the court, respondent Fred Stanton Smith, immediately sold Miami
Center to the Bank in consideration for cash and cancellation of
the Bank's claim. The trustee then distributed these and other
assets to third-party creditors. Holywell Corporation filed a tax
return for the fiscal year ending July 31, 1985. The income for
this fiscal year included capital gains earned in the sale of the
Washington Properties. Holywell asked the trustee to pay the taxes
owed. Neither the corporate debtors nor the trustee filed federal
income tax returns for any fiscal year ending after July 31, 1985.
The income for these years included the capital gains earned in the
sale of Miami Center and interest earned by reinvesting the
proceeds.
In December 1987, the trustee sought a declaratory judgment from
the Bankruptcy Court that he had no duty to file income tax returns
or pay income tax under the federal income tax laws. The United
States and the debtors opposed the action. The Bankruptcy Court
declared that the trustee did not have to make any federal tax
returns or pay any taxes. 85 B. R. 898 (SD Fla. 1988). The District
Court, in an unreported opinion, and the Court of Appeals,
911 F.2d
1539 (CA111990), both affirmed. The United States, in No.
52
90-1484, and the debtors, in No. 90-1361, each petitioned this
Court for a writ of certiorari. We granted review. 500 U. S. 941
(1991).
II
The Internal Revenue Code ties the duty to pay federal income
taxes to the duty to make an income tax return. See 26 U. S. C. §
6151(a) ("[W]hen a return of a tax is required ... the person
required to make such return shall ... pay such tax"). We conclude
in this case that the trustee must pay the tax due on the income
attributable to the corporate debtors' property because §
6012(b)(3) requires him to make a return as the "assignee" of the
"property ... of a corporation." We further hold that the trustee
must pay the tax due on the income attributable to the individual
debtor's property because § 6012(b)(4) requires him to make a
return as the "fiduciary" of a "trust." Finally, we decide that the
United States did not excuse the trustee from these duties by
failing to object to the plan.
A
We first consider the trustee's duties with respect to the
corporate debtors. Section 6012(b)(3) provides:
"(3) Receivers, trustees and assignees for corporations
"In a case where a receiver, trustee in a case under title 11 of
the United States Code, or assignee, by order of a court of
competent jurisdiction, by operation of law or otherwise, has
possession of or holds title to all or substantially all the
property or business of a corporation, whether or not such property
or business is being operated, such receiver, trustee, or assignee
shall make the return of income for such corporation in the same
manner and form as corporations are required to make such
returns."
The parties disagree about whether the trustee in this case is a
"receiver," a "trustee in a case under title 11 of
53
the United States Code [i.
e., the Bankruptcy Code]," or
an "assignee." We hold that the trustee is an "assignee" of the
corporate debtors under § 6012(b)(3). Because the parties do not
argue that the trustee's duties would differ under another
characterization, we decline to consider whether the trustee would
qualify as a receiver or bankruptcy trustee.
The plan, as noted above, transferred the corporate debtors'
estates to respondent Smith as trustee for the Miami Center
Liquidating Trust. The respondents do not dispute that the trustee
meets the usual definition of the word "assignee" in both ordinary
and legal usage. See Webster's Third New International Dictionary
132 (1986) (defining an "assignee" as "one to whom a right or
property is legally transferred"); Black's Law Dictionary 118-119
(6th ed. 1990) (defining an "assignee" as "[a] person to whom an
assignment is made" and an "assignment" as "[t]he act of
transferring to another all or part of one's property, interest, or
rights"); cf. 26 CFR § 301.6036-1(a)(3) (1991) (defining an
"assignee for the benefit of ... creditors" as any person who takes
possession of and liquidates property of a debtor for distribution
to creditors). They argue, however, that courts have applied §
6012(b)(3) only in situations in which a person winds up the
business of a dissolving corporation, see,
e. g.,
First Nat. Bank of Greeley, Colo. v.
United States,
86 F.2d 938,942 (CAlO 1936), or a person stands in the place of
management in operating the day-to-day business of a distressed
corporation, see,
e. g., Louisville Property Co. v.
Commissioner, 140 F.2d 547, 548 (CA6 1944). They conclude
that § 6012(b)(3) cannot apply to the trustee in this case because
he did neither. We find this argument unpersuasive.
Nothing in § 6012(b)(3) suggests that the word "assignee" is
limited in the manner proposed by the respondents. The statute does
not make dissolution necessary; it applies whether the corporation
transfers "all" or "substantially all" of its property. It does not
require the assignee to manage the corporation's business after the
transfer of property; it
54
expressly requires the assignee to make a return "whether or not
[the assigned] property or business is being operated."
Ibid. We therefore conclude that § 6012(b)(3) applies to the
trustee in this case. As the assignee of "all" or "substantially
all" of the property of the corporate debtors, the trustee must
file the returns that the corporate debtors would have filed had
the plan not assigned their property to the trustee.
B
We next consider the trustee's duties with respect to the
individual debtor, Theodore B. Gould. The parties agree that §
6012(b)(3) does not require the trustee to file a return as the
"assignee" of Gould's estate because the section applies only to
the assignee of the property of a corporation. Section §
6012(b)(4), however, provides:
"(4) Returns of estates and trusts
"Returns of an estate, a trust, or an estate of an individual
under chapter 7 or 11 of title 11 of the United States Code shall
be made by the fiduciary thereof."
The United States argues that the trustee must file under §
6012(b)(4) as the fiduciary of Gould's Chapter 11 "estate." The
debtors join the United States' argument and also contend in the
alternative that the trustee must file under the section as the
fiduciary of a "trust." The respondents insist that the trustee is
not acting as the fiduciary of either a bankruptcy estate or a
trust within the meaning of § 6012(b)(4). Accordingly, they assert,
the section does not require the trustee to file a return on behalf
of Gould. We agree with the debtors that the trustee must file a
return because he is the fiduciary of a trust of an individual.
The parties agree that Gould originally served as the fiduciary
of his own bankruptcy estate when he became debtor in possession.
See 11 U. S. C. § 1107(a). At confirmation, according to the United
States, the bankruptcy plan substituted the trustee for Gould but
did not alter the bankruptcy
55
estate. In other words, the United States argues, the trustee
took Gould's place as the fiduciary of "an estate of an individual
under chapter ... 11." The United States points out that the
Bankruptcy Code explicitly provides that a fiduciary may hold and
administer property of the estate after confirmation of the plan,
see 11 U. S. C. § 1123(b)(3), and that nothing prohibits the
substitution of a third-party trustee for the debtor in possession.
The United States, therefore, maintains that the trustee must file
a return under § 6012(b)(4).
Whether or not the Bankruptcy Code permits a plan to place a new
fiduciary in charge of an estate after confirmation, as the United
States contends, we do not believe that a mere substitution
occurred in this case. The plan, as quoted above, "declared and
established" the new Miami Center Liquidating Trust. It then vested
all of the assets of Gould's estate to respondent Smith as trustee.
The plan did not simply substitute the trustee for Gould as the
fiduciary of the estate. Rather, it created a separate and distinct
trust holding the property of the estate and gave the trustee
control of this property. The Bankruptcy Code expressly permits
this arrangement. See § 1123(a)(5)(B) (authorizing a plan to
transfer "all or any part of the property of the estate to one or
more entities, whether organized before or after the confirmation
of such plan"). The trustee, therefore, is not acting as the
fiduciary of Gould's bankruptcy estate.
The trustee, nonetheless, must make a return. Section
6012(b)(4), as the debtors assert, applies to the fiduciary of a
trust as well as the fiduciary of a bankruptcy estate. We see no
way for the respondents to deny that the Miami Center Liquidating
Trust is a "trust" and that respondent Smith is its "fiduciary." A
Treasury Regulation states:
"Certain organizations which are commonly known as liquidating
trusts are treated as trusts for purposes of the Internal Revenue
Code. An organization will be considered a liquidating trust if it
is organized for the
56
primary purpose of liquidating and distributing the assets
transferred to it, and if its activities are all reasonably
necessary to, and consistent with, the accomplishment of that
purpose." 26 CFR § 301.7701-4(d) (1991).
The Miami Center Liquidating Trust clearly fits this
description. The plan not only describes the entity as a trust, but
also created it for the express purpose of liquidating Gould's
estate and distributing it to creditors.
Respondent Smith, moreover, acted as the fiduciary of this
trust. The Internal Revenue Code defines "fiduciary" as a
"guardian, trustee, executor, administrator, receiver, conservator,
or any person acting in any fiduciary capacity for any person." 26
U. S. C. § 7701(a)(6). A Treasury Regulation further specifies:
"'Fiduciary' is a term which applies to persons who occupy
positions of peculiar confidence toward others, such as trustees,
executors, and administrators. A fiduciary is a person who holds in
trust an estate to which another has the beneficial title or in
which another has a beneficial interest, or receives and controls
income of another, as in the case of receivers." 26 CFR §301.7701-6
(1991).
The bankruptcy plan, as noted above, assigned the property of
Gould's estate to the trustee and gave him powers consistent with
this definition. Smith therefore acted as the fiduciary of a trust
within the meaning of § 6012(b)(4).
The respondents raise two principal objections to this
conclusion. First, they argue that Gould must pay the Miami Center
Liquidating Trust's income taxes under the so-called "grantor
trust" rules in the Internal Revenue Code. See 26 U. S. C. §§
671-677. They note, in particular, that Treasury Regulation §
1.677(a)-1(d) specifies that "a grantor is, in general, treated as
the owner of a portion of a trust whose in-
57
come is ... applied in discharge of a legal obligation of the
grantor." 26 CFR § 1.667(a)-1(d) (1991). They assert that Gould is
the grantor of the liquidating trust and that, under this
regulation, he owns the trust's income and must pay taxes on it. To
support this position, the respondents cite
In re Sonner, 53
B. R. 859 (ED Va. 1985), which applied the grantor trust provisions
to a postconfirmation liquidating trust.
While we express no opinion on the results in
Sonner, the
facts are distinguishable. In
Sonner, the property of the
bankruptcy estate by the terms of the plan appears to have revested
in the debtor upon confirmation. The debtor pursuant to a plan then
placed some of this property in a trust created to pay his
creditors. Under these circumstances, the Bankruptcy Court
concluded, the debtor had created a grantor trust under Treasury
Regulation § 1.677(a)-1(d). See
Sonner, supra, at 860, 864.
In this case, however, the property of Gould's bankruptcy estate
did not revest in Gould. The plan, instead, placed all of the
estate's property directly in the Miami Center Liquidating Trust.
Gould himself did not contribute anything to the trust, and we thus
fail to see how the respondents can characterize him as the
grantor.
Second, the respondents argue that the trustee did not act as a
fiduciary because he had almost no discretion in performing his
duties under the plan. They assert that the trustee merely acted as
a "disbursing agent" who distributed liquidated funds to the
creditors. As the dissenting judge noted below, labels and
characterizations cannot alter the trustee's status for the purpose
of the tax law. 911 F. 2d, at 1547. Because the liquidating trust
is a trust under the Internal Revenue Code and because respondent
Smith's duties under the plan satisfy the description of a
fiduciary in
58
the regulations, the restrictions on the trustee's discretion do
not remove him from coverage under § 6012(b)( 4). *
C
The respondents finally assert that the trustee may ignore the
duties imposed by §§ 6012 and 6151 because the Chapter 11 plan does
not require him to pay taxes. They note that § 1141(a) of the
Bankruptcy Code states that "the provisions of a confirmed plan
bind ... any creditor" whether or not the creditor has accepted the
plan. They conclude that § 1141(a) precludes the United States, as
a creditor, from seeking payment of any taxes. They add that the
United States should have objected to the plan if it had wanted a
different result. We disagree.
The United States is not seeking from the trustee any taxes that
became due prior to his appointment. See Reply Brief for United
States 13, n. 16. It simply asserts that the trustee, after his
appointment, must make tax returns under § 6012(b) in the same
manner as the assignee of the property of any corporation or the
trustee of any trust. No tax liability becomes due under § 6151
until the time required for making those returns. See
Hartman v.
Lauchli, 238 F.2d
881, 887 (CA8 1956);
Pan American Van Lines v.
United
States, 607 F.2d
1299, 1301 (CA9 1979). Even if § 1141(a) binds creditors of the
corporate and individual debtors with respect to claims that arose
before confirmation, we do not see how it can bind the United
States or any other creditor with respect to postconfirmation
claims. Cf. 11 U. S. C. § 101(10)
*The respondents also argue that the trustee does not have to
pay taxes because the petitioners conceded in the Bankruptcy Court
that "the trust is not a separate taxable entity." 85 B. R. 898,
900 (SD Fla. 1988). This "concession" cannot help the respondents.
The petitioners asserted that the trust was not a separate taxable
entity when they argued that the plan did not create a new trust
but instead simply substituted the trustee for Gould as the
fiduciary of the bankruptcy estate. If the respondents accept this
position, which we reject above, then they would have to agree that
respondent Smith has to make a return as the fiduciary of an
estate.
59
(1988 ed., Supp. II) (defining "creditor" as used in § 1141(a)
as an entity with various kinds of preconfirmation claims). For
these reasons, the judgment of the Court of Appeals is
Reversed.
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