OIC Cases - bankruptcy

In the Matter of Charles Peterson, Debtor, U.S. Bankruptcy Court, Dist. Neb.; BK03-40948, November 4, 2004.

MEMORANDUM

MAHONEY, Chief Judge: Hearing was held in Lincoln, Nebraska, on October 18, 2004, on the United States' motion to alter, amend, or reconsider (Fil. #144) and resistance by the debtor (Fil. #147). John Hahn appeared for the debtor, and Gerald Leedom and Ellyn Grant appeared for the Internal Revenue Service. This memorandum contains findings of fact and conclusions of law required by Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52. This is a core proceeding as defined by 28 U.S.C. §157(b)(2)(B) and (O).

This matter arises from the debtor's efforts to deal with a debt of approximately $102,000 for payroll taxes, a priority claim in this case. He proposes to make an "offer in compromise" to the Internal Revenue Service, which the IRS will not process for any taxpayer in bankruptcy. At the debtor's request, I ordered the IRS to process and consider the debtor's offer in compromise as it would for a taxpayer outside of bankruptcy. See Order of Sept. 2, 2004 (Fil. #142). The government then filed this motion to alter or amend or reconsider that order.

The Internal Revenue Code permits the Treasury Secretary to compromise any civil or criminal case arising under the revenue laws. The Secretary, through the Commissioner of Internal Revenue, has promulgated guidelines for IRS employees to follow in considering such offers, and has left to IRS discretion the decision of which offers in compromise are "processable." In accordance with such guidelines and procedures, the IRS has determined that offers in compromise from taxpayers in bankruptcy are not "processable" and will not be accepted for processing, on the basis that resolution of the claim is best accomplished in the bankruptcy case under the bankruptcy code and procedural rules.

The IRS's Office of Chief Counsel has published a notice reiterating the agency's position that in accordance with protecting the government's interests, the IRS will not accept less than is required to be repaid by the bankruptcy code unless the debtor can demonstrate that agreeing to accept less through the plan is in the government's best interest. This decision is to be made on a case-by-case basis by evaluating the reorganization plan, not a proposed offer in compromise.

In essence, the IRS takes the position that by choosing to file a Chapter 13 case, a debtor acknowledges full payment of the IRS's priority claim is required. Such a debtor may propose alternate terms for payment of the IRS claim in his or her plan. The IRS will review the plan and determine whether to object to or negotiate the proposed terms. However, the IRS has given no example of a Chapter 13 case in which it has accepted a plan that gave it less than full payment of a priority claim.

Counsel for the United States asserts that exercise of discretion on the part of the IRS in determining it will not entertain offers in compromise from those in bankruptcy is an agency action that is not subject to judicial review, and that a court order to the contrary is in the nature of a writ of mandamus.

I continue to stand by my prior ruling. I am not attempting to interfere with internal agency procedures. However, as suggested in the prior order, the debtor is not asking for special treatment or consideration contrary to law. The position taken by the IRS on this issue is set forth in a revenue procedure and in a notice from chief counsel. Neither of these carry the force and effect of law, and may not even be entitled to much deference.

Neither the Internal Revenue Code nor the Treasury Regulations contain the prohibition against accepting offers in compromise from taxpayers in bankruptcy. That provision appears in Revenue Procedure 2003-71 and is clarified in the July 12, 2004, notice from the Office of Chief Counsel.

A revenue procedure is an internal procedural guide. It represents official IRS position on a matter of procedure, but it is not mandatory. See Estate of Shapiro v. Commissioner [ 97-1 USTC ¶60,267], 111 F.3d 1010, 1017-18 (2d Cir. 1997), cert. denied, 118 S.Ct. 686 (1998). Interestingly, the Shapiro case involved a taxpayer who wanted to force the IRS to accept supplemental estate tax returns which recomputed tax liability based on annual interest payments, as provided for in the revenue procedure. The IRS argued that despite what the procedure stated, its "administratively convenient" practice was to not accept such supplemental returns from a taxpayer who was also involved in a Tax Court case, citing the difficulty of coordinating collection activities when the amount of tax liability had not been finally determined. The court found this to be a reasonable policy and ruled that the IRS was not bound by this particular revenue procedure, and thereby ruled against the taxpayer.

In Shapiro, the Second Circuit discussed the "well-established" rule that revenue procedures generally are directory, not mandatory, and are mere guidelines without the force of law. [ 97-1 USTC ¶60,267], 111 F.3d at 1017. The court also noted, however, that if a revenue procedure is properly characterized as a substantive statement instead of a procedural directive, the IRS may be required to follow it in every case. Id. "The IRS will be bound by a published rule if 1) the rule prescribes substantive rules --not interpretive rules, general statements of policy or rules of agency organization, procedure or practice, and 2) the agency promulgated the rules pursuant to a specific statutory grant of authority and in conformance with the procedural requirements imposed by Congress." Id. at 1017-1018 (quoting Ward v. Commissioner [ 86-1 USTC ¶9286], 784 F.2d 1424, 1430-31 (9th Cir. 1986)).

Because most revenue procedures are simply procedural rules promulgated by the Internal Revenue Commissioner without the need for approval by the Secretary of the Treasury, and because the revenue procedure at issue in this case states on its face that its purpose is to "explain the procedures applicable to the submission and processing of offers to compromise", it clearly is not substantive and does not have the force of law. Where an agency's interpretation is made informally, without "the rigors of notice and comment," it is not entitled to Chevron deference. Demma Fruit Co. v. Old Fashioned Enter., Inc. (In re Old Fashioned Enter., Inc.), 236 F.3d 422, 425-26 (8th Cir. 2001) (citing King v. Morrison, 231 F.3d 1094, 1096 (8th Cir. 2000)).

While cases such as Shapiro are in the IRS's favor in that the court found the IRS is not bound by the revenue procedure, it seems to me to be almost disingenuous to apply the reasoning of such cases only to the IRS's benefit. In other words, Shapiro said the IRS does not have to follow its own non-mandatory procedure. Here, the IRS wants me to enforce a non-mandatory agency procedure so it does not have to entertain the debtor's offer in compromise. I am not inclined to do so. After a considered review of the arguments made and authorities cited by the IRS, I nevertheless arrive at the same conclusion as I did previously and again follow the reasoning of Holmes v. United States (In re Holmes) [ 2003-2 USTC ¶50,685], 298 B.R. 477 (Bankr. M.D. Ga. 2003), aff'd, 309 B.R. 824 (M.D. Ga. 2004). Apparently the IRS ignored the order of the court in Holmes, even after affirmance, but the fact it was ignored does not make it bad law.

In this case, the IRS may either process an offer in compromise, which the tax code authorizes any taxpayer to submit, or take seriously its stated position that it will, in good faith, consider accepting less than the bankruptcy code requires in a Chapter 13 plan.

Separate order will be entered.

Internal Revenue Service, Appellant v. William K. Holmes, Appellee, U.S. District Court, Mid. Dist. Ga., Macon Div.; 5:03-CV-356 (CAR), March 15, 2004, Affirming BC-DC Ga., 2003-2 USTC ¶50,685.

ORDER ON APPEAL AND ORDER TO EXPEDITE APPEAL

ROYAL, District Judge: Before the Court is an appeal by the Internal Revenue Service (hereafter IRS) from the decision of the United States Bankruptcy Court dated September 12, 2003. Also before the Court is a motion by Appellee to expedite the appeal process [Tab 6]. The Court recognizes the concerns of Appellee in having this appeal process delayed and will do its best to expedite this appeal in a timely fashion. To the extent it is possible to do so, the Court HEREBY GRANTS Appellee's Motion to Expedite the Appeal.

As to the appeal itself, the Order appealed from directs Appellant IRS to consider Appellee Holmes' offer in compromise to satisfy his tax liability in the same manner as the IRS would consider any offer in compromise made by a person who is not involved in a bankruptcy proceeding. The IRS appeals this decision and directive by the Bankruptcy Court. Having considered the record, the briefs filed by both parties, and the relevant case law, this Court agrees with the Bankruptcy Court's decision. This Court finds that the Bankruptcy Court had the authority to enter this Order and further directs Appellant IRS to consider Appellee's offer in compromise. Therefore, the decision of the Bankruptcy Court is HEREBY AFFIRMED.

BACKGROUND

William K. Holmes (hereafter Appellee or Debtor) is currently a debtor in a Chapter 11 proceeding before the United States Bankruptcy Court for the Middle District of Georgia. The following events led up to his bankruptcy and to the present procedural posture of this case. Debtor owned approximately 3.2 million shares of WorldCom Stock in 2000. The stock at one time had a value of about $200,000,000.00. As WorldCom began to show signs of financial difficulty, Debtor's stock broker sold Debtor's stocks as they decreased in value in order to meet margin calls. While the sale of such stocks resulted in capital gains with accompanying tax liabilities to Debtor, Debtor did not receive cash with which to pay the tax liability because the sale proceeds went directly to pay margin debt. On July 1, 2002, Debtor filed a bankruptcy petition seeking relief under Chapter 11 for a plan of liquidation.

The Internal Revenue Service (hereafter IRS or Appellant) filed an amended proof of claim in the bankruptcy proceeding, which included a priority claim for income tax and interest totaling $9,372,245.01 and a general unsecured claim for $920,462.40 for penalties pertaining to the tax due. Debtor then submitted an offer of compromise to the IRS to pay $621,326.00 in satisfaction of the IRS' claims against him. The IRS returned the offer to Debtor and informed Debtor that they would not process the offer because they have a policy against considering any offers of compromise made by persons who are involved in pending bankruptcy proceedings.

Debtor subsequently filed with the Bankruptcy Court a motion to determine tax liability and an objection to the IRS' claim. Debtor requested that the Bankruptcy Court enter an order requiring the IRS to consider the offer of compromise based on the argument that 11 U.S.C. §525 prohibits discriminatory treatment, including the denial of consideration of offers in compromise, against debtors involved in bankruptcy. The Bankruptcy Court held a hearing and then entered an Order on September 10, 2003, requiring the IRS to consider the offer of compromise made by Debtor (hereafter Order). The Bankruptcy Court rejected Debtor's argument as to applicability of §525, holding that an offer in compromise fails to meet the statutory definition of anything which the denial of is considered discriminatory. In other words, an offer in compromise was not a "license" as Debtor argued.

However, the Bankruptcy Court followed the reasoning of a recent decision in the District Court of the Western District of Virginia, In re Macher [ 2004-1 USTC ¶50,114], 303 B.R. 798 (W.D. Vir. 2003) and held that while §525 did not authorize such a decision, §105 did. Section 105 provides that a bankruptcy court "may issue any order, process or judgment that is necessary to carry out the provisions of this title." The Bankruptcy Court in this situation held that §105 authorized their decision to direct the IRS to process and consider Debtor's offer in compromise.

The IRS, via the United States Government, entered a timely appeal to the Order of the Bankruptcy Court. The appeal contends that the Bankruptcy Court lacked subject matter jurisdiction to direct the IRS to consider the offer in compromise. The appeal also argues that forcing the IRS to consider offers in compromise from debtors involved in bankruptcy proceedings will open a Pandora's box of problems as well as violate the Anti-Injunction Act set forth at 26 U.S.C. §7421(a). Debtor timely responded to this appeal, and the IRS timely replied. It is this appeal and the related briefs that are presently before this Court for decision.

STANDARD OF REVIEW

This Court will accept a bankruptcy court's findings of fact unless those findings are clearly erroneous. See Fed. Bankr. R. 8013; In re Sublett, 895 F.2d 1381, 1383 (11th Cir. 1990); In re Club Assocs., 951 F.2d 1233, 1228 (11th Cir. 1992). A district court is not authorized to make independent findings of fact. See id. at 1384. Moreover, if a bankruptcy court's findings are "silent or ambiguous as to an outcome determinative factual question," remand to the bankruptcy court is required. Id. ( quoting Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th Cir. 1987) (internal quotes omitted)).

In contrast, conclusions of law, including a bankruptcy court's interpretation and application of the Bankruptcy Code, are reviewed de novo. See In re Chase & Sanborn Corp., 904 F.2d 588, 593 (11th Cir. 1990). As such, this Court is not required to give any deference to a bankruptcy court's interpretation of law or its application of the law to the facts. Goerg v. Parungao, 930 F.2d 1563, 1566 (11th Cir. 1991).

DISCUSSION

I. Appellee's Contention that this Court Lacks Jurisdiction Over the Appeal

In its brief, Appellant states that this Court has jurisdiction over this appeal under 28 U.S.C. §158 (a)(1) which states that the District Court may hear appeals only from "final judgments, orders, and decrees." Appellee argues in his response brief that this Court lacks jurisdiction over the appeal because the judgment made in the Bankruptcy Court is not "final." This argument is not persuasive to the Court.

In his Motion to Determine Tax Liability, the only relief Appellee sought was for the Bankruptcy Court to direct Appellant to consider the offer in compromise. That relief was granted, and therefore this was a final judgment. The Eleventh Circuit very clearly stated in In re Saber, 264 F.3d 1317, 1324 (11 ^th Cir. 2001), that "a final judgment gives one party what they want --the plaintiff either receives the relief [he] sought or the defendant receives a judgment ending the controversy." Here, Appellee got what he asked for in the Bankruptcy Court. This Court finds that this was a final judgment, and the appeal is properly before this Court for decision.

II. Appellant's Argument that Bankruptcy Court Lacked Subject Matter Jurisdiction to Enter Its Order

From its reading of 11 U.S.C. §525, the Court agrees with the Bankruptcy Court's determination that this statute does not authorize the Bankruptcy Court to direct Appellant to consider an offer in compromise from a debtor involved in bankruptcy proceedings.

As to 11 U.S.C. §105, which states that a bankruptcy court "may issue any order, process or judgment that is necessary to carry out the provisions of this title," this Court is inclined to agree with the Bankruptcy Court's reading of that statute, especially in light of the clear reasoning for this position outlined by sister courts in other jurisdictions. Appellant's arguments to the contrary are not persuasive.

First, Appellant outlines how a debtor's tax liabilities are non-dischargeable under 11 U.S.C. §523 or §1141 because they are claims for priority tax, resulting interest, and related penalties. Appellant argues that these are rights afforded to creditors by the Bankruptcy Code that the Bankruptcy Court is trying to abridge by its Order. This Court fails to see how the Bankruptcy Court is attempting to abridge any right afforded to Appellant. There is no argument made by any party to discharge any tax liability under any Bankruptcy Code provision. Debtor is asking for Appellant to consider discharging a portion of his tax liability under the IRS' own offer in compromise provision set forth in the Internal Revenue Code at I.R.C. §7122. The Order of the Bankruptcy Court merely insists that Appellant IRS apply the same guidelines applicable to other taxpayers to debtors involved in bankruptcy when assessing these offers in compromise. This Court finds no merit to the argument that the Bankruptcy Court is attempting to abridge rights afforded to Appellant as a creditor of Appellee.

Second, Appellant argues that the Bankruptcy Court overstepped the bounds of §105 because its Order was not entered in furtherance of a "provision of this title" and, therefore, is outside the subject matter jurisdiction of the Bankruptcy Court. In its review of the Bankruptcy Court's Order and the other pertinent law, this Court finds that §105 has been granted a broad reading by most courts and even by the government when such a reading suited its purpose. See generally, Young v. U.S. [ 2002-1 USTC ¶50,257], 535 U.S. 43 (2002); In re Morgan [ 99-2 USTC ¶50,712], 182 F.3d 775 (11 ^th Cir. 1999); In re Jove Engineering, Inc. [ 96-2 USTC ¶50,469], 92 F.3d 1539 (11 ^th Cir. 1996). Section 105 states that the bankruptcy court has the discretion to issue any order that is necessary and appropriate to carry out the provisions of this title. "The broad term 'any' is only limited to those orders that are 'necessary and appropriate' to carry out the Bankruptcy Code." In re Jove Engineering, Inc. [ 96-2 USTC ¶50,469], 92 F.3d at 1554.

This Court agrees with the reasoning of the Bankruptcy Court, its reliance on Macher, and the broad reading afforded to §105 by other courts. This Court finds that the negotiation process outlined in §1129 of the Bankruptcy Code is sufficient as a provision of the Bankruptcy Code for the purposes of the Bankruptcy Court's Order pursuant to §105. The lower court cited this provision in a footnote but also speaks about the provision throughout its Order, mentioning the "negotiation process" and the need to "'work something out'" with Appellant. The Order of the Bankruptcy Court was crafted with the intent to be within the bounds of §105. It was meant to carry out this negotiation process provision and the goal behind it which is central to the purpose and function of the Bankruptcy Code, to provide an individual with a way and means to work out his or her financial difficulties. This Court finds that the Bankruptcy Court was within its subject matter jurisdiction, as afforded it by §105, to enter the Order in question and affirms the decision of the Bankruptcy Court on this matter.

III. Appellant's Argument that Forcing IRS to Consider Appellee's Offer in Compromise Violates the Anti-Injunction Act

Appellant states that the Bankruptcy Court cannot force the IRS to accept an offer in compromise as this would violate the Anti-Injunction Act, 26 U.S.C. §7421. This argument reflects a generally accepted principle in the courts that have specifically addressed this issue. See generally, In re American Bicycle Association [ 90-1 USTC ¶50,104], 895 F.2d 1277, 1280 (9 ^th Cir. 1990); Addington v. U.S. [ 99-1 USTC ¶50,441], 75 F.Supp.2d 520, 524 (S.D. W. Va. 1999); In re Davidson, 156 B.R. 600, 602 (Bankr. E.D.Ark. 1993). However, Appellant's argument concerning the Anti-Injunction Act is misplaced. The Bankruptcy Court, in its Order, did not force the IRS to accept an offer in compromise and even specifically acknowledged that it does not have the power to do so. The Bankruptcy Court only directed the IRS to consider or process Debtor's offer in compromise. Consider and accept are not synonymous.

Furthermore, Appellant presents what it deems to be a scary picture of what the "handwriting on the wall" might say if the IRS is forced to consider these offers in compromise by debtors involved in bankruptcy proceedings. Appellee states that "this entire portion of the Government's argument relates to the fear of a contingency that, in line with the Bankruptcy Court's understanding of the law, is unfounded." [Tab 9]. The Court agrees with Appellee on this point. Appellant is arguing for future possibilities that have no basis in fact or law. The Court is not moved by this argument and, thus, maintains its position in affirming the Bankruptcy Court's order.

CONCLUSION

The Court finds that it does have jurisdiction over the present appeal. As to the merits of the appeal itself, the Court finds that the Bankruptcy Court made a correct interpretation of the law and will not disturb its findings of fact. The Court also finds that Appellant's arguments surrounding the possible future effects of the Bankruptcy Court's decision and the connection with the Anti-Injunction Act are misplaced and misleading. Accordingly, the Court finds that the decision of the Bankruptcy Court is HEREBY AFFIRMED.

SO ORDERED.

In re Roland Harry Macher, Debtor. United States of America, Appellant v. Roland Harry Macher, Appellee, U.S. District Court, West. Dist. Va., Roanoke Div.; 00-03659-WSR-11, December 2, 2003.

Affirming a BC-DC Va. decision, 2003-2 USTC ¶50,537.

MEMORANDUM OPINION

KISER, Senior District Judge: Before this court is the appeal of the United States ("Government" or "IRS"), pursuant to 28 U.S.C. §158(a), from an order of the United States Bankruptcy Court for the Western District of Virginia. By a May 29, 2003, order and corrected opinion of June 5, 2003, the Bankruptcy Court directed the United States to process Debtor Macher's offer in compromise as part of his proposed Chapter 11 reorganization plan. The parties stipulated to the relevant facts, and for the reasons stated below, I agree with the legal conclusions and result reached by the Bankruptcy Court. I therefore affirm the Bankruptcy Court's order and direct the IRS to consider Macher's plan. This court is not empowered to dictate that the IRS accept any plan which calls for Macher to pay less than 100% of the IRS's priority claim arising from trust fund taxes improperly diverted by Macher. However, a reasonable reconciliation of internal IRS policy with the "fresh start" policy of the Bankruptcy Code must resist the Government's refusal to process and consider, and its summary rejection of, a Chapter 11 debtor's reorganization plan which proposes a compromise payment of his tax deficiency.

I. Factual Background

The parties stipulated to the following facts. Roland Macher filed a Chapter 11 petition on November 9, 2000. The Internal Revenue Service holds a priority claim of over $273,000 in payroll taxes Macher collected from employees in trust to pay over to the IRS, but instead diverted to other uses. Macher is now the debtor-in-possession of the underlying business.

Macher's Second Amended Plan provided for the IRS's priority claim to be paid at twenty cents on the dollar at 8% p.a. interest over five years. The IRS filed an objection to the Plan and demanded full payment. At the confirmation hearing, the Assistant United States Attorney representing the IRS advised the Bankruptcy Court that Macher's proposed payment constituted an "offer in compromise" from a debtor in bankruptcy which the IRS would not consider. Section 5.8.3.2.1(1)(B) of the current IRS manual provides: "An offer [in compromise] will not be considered during a bankruptcy proceeding." Though not explicitly stated in the parties' briefs, it appears, and I accept as fact for the purposes of this disposition, that a reorganization of the underlying business is a practical impossibility if the IRS does not compromise its priority tax claim.

In the Bankruptcy Court proceedings, counsel extensively briefed the IRS's stated policy not to consider offers in compromise from debtors in terms of whether it violated (1) Bankruptcy Code §525 which prevents certain classes of governmental discrimination (such as in licensing and chartering) against persons who are, or have been debtors under the Bankruptcy Act, or (2) the "fresh start" objectives of the Bankruptcy Code.

In its memorandum opinion, the Bankruptcy Court rejected the §525 grounds for obligating the IRS to consider Macher's offer, a decision neither party questions on appeal. However, the Bankruptcy Court concluded that the IRS could not dismiss Macher's offer in compromise without processing and considering it, as the IRS does with offers in compromise from nondebtors. The Bankruptcy Court reasoned that the IRS policy embodied in IRS Manual §5.8.3.2.1(1)(B) "directly conflicts with the policies underlying the Bankruptcy Code in general and the reorganization provisions of Chapter 11 in particular" for four reasons.

First, the issue is not whether the debtor can compel the IRS to accept his offer (which he cannot), but whether the IRS at least ought to give a debtor's offer in compromise the same consideration as a nondebtor's offer (which it should). Second, just as a nondebtor's offer does not mean that the taxpayer does not owe the back taxes, but simply that he will be unable to pay them in a reasonable amount of time, the IRS should consider a debtor's offer not as a contention that a portion of the taxes are dischargeable, but simply as a recognition of what he can pay. Third, the IRS's stated policy makes a "fresh start" impossible because a debtor cannot obtain a Chapter 11 discharge of his dischargeable obligations without the IRS's approval of a plan, yet the IRS will not even consider an offer in compromise from a debtor. Fourth, honoring a policy which precludes the government from even entering into negotiations "seems at odds with common sense" and "puts the government at cross-purposes with the beneficial purposes underlying the reorganization provisions of Chapter 11."

With these reasons as its foundation, the Bankruptcy Court entered an order "requiring the United States to process and consider the Debtor's offer in compromise of his tax liabilities." Though the Bankruptcy Court was silent as to the statutory basis on which it founded its decision, the parties on appeal agree that the Bankruptcy Court was invoking its broad equitable powers under 11 U.S.C. §105(a), which provides that a bankruptcy court "may issue any order, process, or judgment that is necessary to carry out the provisions of this title."

II. Analysis of Arguments on Appeal

The United States appeals the Bankruptcy Court's ruling on two grounds. I address each in turn under a de novo standard of review. In re Johnson, 960 F.2d 396, 399 (4th Cir. 1992).

A. Jurisdiction of Bankruptcy Court

The IRS argues that the Bankruptcy Court exceeded its equitable powers under §105 because that section's general grant of power and general Bankruptcy Code "fresh start" policy should not defeat the specific balance regarding debtor tax collection made by Congress in §1129(a)(9) and §1129(a)(7). In the Government's view, because §1129(a)(9)(C) requires that 100% of priority tax claims be paid through a Chapter 11 plan while §1129(a)(7) indicates that non-priority tax claims need not be paid in full, a bankruptcy court is not empowered to upset the congressional balance by requiring the IRS to consider offers in compromise of priority tax claims proposed by a debtor.

The Government's contention that it is "`abundantly clear' from the express language of the Bankruptcy Code that Congress meant to bar confirmation of Chapter 11 reorganization plans that do not pay 100% of priority claims," quoting Johnson v. Edinboro State College, 728 F.2d 163, 164 (3d Cir. 1984), overstates the policy of §1129(a)(9) and misconstrues the issue here. Section 1129(a)(9) begins with the qualifier: "Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim...." The strictures of §1129(a)(9)(C) --that priority tax claims be paid in full and within six years of the date of assessment --apply only if the claimant does not agree to a different treatment. See 15 Collier on Bankruptcy ¶TX4.05[4][c] (Rel.84, Dec. 2002). Therefore, Congress meant to bar Chapter 11 plans only when the claim holder does not agree to an alternative treatment of the claim. To be sure, Congress has denied courts the power to confirm, over the objection of a claim holder, a Chapter 11 plan that does not pay 100% of priority claims within the conditions set by §1129(a)(9)(C). However, given the introductory qualifier of §1129(a)(9), the Bankruptcy Code's "fresh start" principle, and the common sense realities of bankruptcy reorganizations, the more reasonable conclusion is that Congress has contemplated a spirit of negotiation in §1129(a)(9), and not the mechanical refusal by the IRS to consider offers in compromise proposed by debtors.

Indeed, in both its main brief and reply brief the Government indicates that the IRS recognizes the flexibility of §1129(a)(9) and its authority to compromise priority tax claims. Further, a close reading of the Johnson case, which the Government quotes at length, supports the proposition that the holders of non-dischargeable claims retain the flexibility to negotiate with debtors and should consider debtors' repayment proposals.

The IRS states that its practice is to be flexible in negotiating with debtors "under appropriate circumstances." As an example of this flexibility, in its main brief the IRS indicates that when appropriate it will extend the repayment period beyond the six years provided in §1129(a)(9)(C). In support of this proposition, the Government cites IRS Manual §25.17.11.5.2(8) which states: "In certain rare cases, a deficient plan may provide the best alternative if collection through liquidation or dismissal would be less that the amount proposed in the plan." This provision indicates that the IRS not only can agree to extend §1129(a)(9)(C)'s deadline, but that the IRS has the discretion to negotiate a less-than-100% repayment of a priority tax claim. By steadfastly invoking IRS Manual §5.8.3.2.1(1)(B) to refuse to consider Macher's reorganization plan and arguing that "[p]ayment of 100% of priority taxes is a statutory prerequisite to confirmation," the IRS has no way of ascertaining whether liquidation or the proposed compromise is more advantageous.

In its reply brief, the Government cites IRS Manual §25.17.11.5.2(7) for the proposition that when a Chapter 11 plan proposes less-than-full payment, there is to be no negotiation. IRS Manual §25.17.11.5.2(7) reads: "If the plan does not meet the minimum requirements for payment under the Bankruptcy Code, or there are other serious concerns, [the IRS employee] should advise the debtor's attorney of the deficiencies and negotiate an acceptable plan. The changes would then be included in an amended plan or in the order confirming the plan." The Government interprets this language as "emphasi[zing] ... negotiation, not in the sense of compromise, but rather in the sense of expressing a preference to obtain an acceptable plan that meets the requirements of 11 U.S.C. §1129 without resorting to judicial intervention...." In the context of a bankruptcy reorganization, the crabbed definition of "negotiate" as tolerating no compromise alone strains reasonableness; and the Government's interpretative logic ultimately fails by repeating the error of ignoring §1129(a)(9)'s qualifying language. As shown above, the IRS erroneously takes the "requirements of 11 U.S.C. §1129(a)(9)" to mandate full payment of its priority claims within six years of assessment. Under a proper reading of §1129(a)(9) --one that recognizes a claim holders' authority to agree to compromise treatment of their claims in a reorganization plan --the term "negotiate" in IRS Manual §25.17.11.5.2(7) can recapture its plain meaning of "to confer with another so as to arrive at the settlement of some matter." Webster's Ninth New Collegiate Dictionary (1984).

Also in its reply brief, the Government argues that "in this case [the IRS] acted no differently than any other rational priority creditor would" in objecting to the confirmation of a Chapter 11 plan that proposed a 20% payment of its non-dischargeable claim. The IRS's invocation of IRS Manual §5.8.3.2.1(1)(B) to reject Macher's reorganization plan without considering its terms in light of Macher's financial condition and the liquidation value of the relevant assets is indicative of a reflex action and belies the Government's contention that it was acting "rationally." It may well be that the IRS has determined through repeated dealings with similarly situated debtors that the increased informational, processing, and opportunity costs of considering offers in compromise in Chapter 11 plans exceeds its marginal increase in recuperation through case-by-case determinations, and thus may be considered "rational" in a systemic way. However, the IRS has offered no evidence in this vein, so it is a question I do not reach in this case.

A preference for negotiated settlement over litigation undergirded the Johnson decision on which the Government heavily relies in explicating the congressional balance between the Bankruptcy Code's "fresh start" policy and statutes governing collection actions of non-dischargeable claims. In Johnson, the debtor argued that the Bankruptcy Code prohibited his school's policy of denying the issuance of diplomas and academic transcripts to bankruptcy debtors who owed non-dischargeable student loans. The Third Circuit disagreed, noting that "it is abundantly clear from both the legislative history and the text of the Bankruptcy Code itself that Congress meant to bar the discharge of educational loans like those Johnson received...." Johnson, 728 F.2d at 164. However, in a point the Government fails to note, the college's policy which the Third Circuit determined was not nullified by the Bankruptcy Code, was to withhold the documents from "students who have made no payments on their educational loans, [and] have not approached the college to arrange a more flexible repayment schedule ...." Id. at 166 (emphasis added). Here, through his reorganization plan, Macher is proposing an alternative repayment schedule that offers a twenty-cents-on-the-dollar payment. Unlike in Johnson, Macher has not ignored his debt; rather he is actively trying to negotiate a reorganization within the rules prescribed by the Bankruptcy Code. Therefore, at best the Government's reliance on Johnson is misplaced; at worst Johnson undercuts the Government's position by suggesting that the Bankruptcy Code contemplates a regime in which creditors negotiate with debtors, and does so even in regards to non-dischargeable claims.

Considering §1129(a)(9)'s flexibility to compromise priority tax claims, the contradictory policies of the Internal Revenue Manual, and the "fresh start" principle of the Bankruptcy Code, I agree with the Bankruptcy Court's judgment that its equitable powers under §105 extend to requiring the IRS to at least consider debtors' Chapter 11 plans, and that it was appropriate to order the IRS to process Macher's plan.

B. Anti-Injunction Act

The IRS argues that the Bankruptcy Court's order violates the Anti-Injunction Act of the Internal Revenue Code, which states: "[Except for provisions not relevant here], no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." 26 U.S.C. §7421. In the IRS's view, the Anti-Injunction Act prevents courts from interfering with the assessment and collection procedures of the Internal Revenue Code.

I am not convinced that a court order directing the IRS to consider a debtor's offer in compromise as it does offers from nondebtors constitutes an injunction under the Anti-Injunction Act. The automatic stay provisions of Bankruptcy Code §362 apply to priority tax claims held by the IRS, and thus enjoin the IRS from collecting trust fund taxes from debtors. As long as the automatic stay is in place, the Anti-Injunction Act poses no threat to a bankruptcy court's jurisdiction "to enjoin the assessment and/or collection of taxes in order to protect its jurisdiction, administer the bankrupt's estate in an orderly and efficient manner, and fulfill the ultimate policy of the Bankruptcy Act." Bostwick v. United States [ 75-2 USTC ¶9630], 521 F.2d 741, 744 (8th Cir. 1975).

Three types of cases highlight the potency of bankruptcy protection, and support the interpretation that the reach of the Anti-Injunction Act does not penetrate an automatic stay: (1) cases outside of bankruptcy in which a party must defeat application of the Anti-Injunction Act in order to avoid financial ruin; (2) cases in bankruptcy, but which concern matters beyond the automatic stay's protection; and (3) cases in bankruptcy involving non-debtor officers of debtor corporations.

The first set of cases is controlled by the Supreme Court case of Enochs v. Williams Packing & Navigation Co. [ 62-2 USTC ¶9545], 370 U.S. 1 (1962). Though the business in Enochs had not yet sought bankruptcy protection, it was undisputed both that the business would be ruined were the Government able to collect all the diverted trust fund taxes owed, and that the owner himself did not have the funds to pay the tax. Id. at 2. Notwithstanding this state of affairs, the Court determined that the Anti-Injunction Act barred courts from enjoining the Government from collecting. Id. at 6 (noting that a suit for an injunction may not be entertained "merely because collection would cause an irreparable injury, such as the ruination of the taxpayer's enterprise"). Here, all the essential facts but one are the same as in Enochs. In both cases, a judgment proof owner of a struggling business improperly diverted withholding taxes to operate the business and then sought to enjoin federal tax collection authorities from collecting the full amount due. However, unlike Enochs, the present case is in the context of a bankruptcy proceeding, and the Government has not cited, nor I have I been able to locate, a single case that applies the Anti-Injunction Act to restrict a bankruptcy court's ability to administer a bankruptcy estate under §362 protection.

Illustrative of the second class of cases is In re: Heritage Village Church and Missionary Fellowship ("PTL Club") [ 88-2 USTC ¶9476], 851 F.2d 104 (4th Cir. 1988). The Fourth Circuit in PTL Club determined that the Anti-Injunction Act precluded the bankruptcy court from enjoining the IRS from revoking the debtor's tax-exempt status precisely because that status was beyond the reach of the automatic stay. Id. at 105. Observing that "[t]here is no express provision in the Bankruptcy Code indicating congressional intent that the Code supersede the Anti-Injunction Act," id., the Fourth Circuit "decline[d] to create an exception to the Act in the absence of express congressional intent." Id. at 106. The Fourth Circuit accepted the bankruptcy court's finding that the revocation of the PTL Club's tax-exempt status would terminate all of PTL Club's reorganization efforts, a "harm [that] would certainly justify a preliminary injunction if the court had jurisdiction to issue one." Id. However, because "revocation of PTL's tax-exempt status [was] not an `act to collect, assess, or recover' taxes," the automatic stay afforded PTL no protection. Id. at 105 (citing 11 U.S.C.A. §362(a)(6)).

Regarding the third set of cases indicating that the Anti-Injunction Act does not penetrate the automatic stay, the IRS correctly notes that the Anti-Injunction Act has been applied to block bankruptcy courts from enjoining the Government's collection attempts from non-debtor individuals when the corporate debtor had misappropriated withholding taxes. See 26 U.S.C. §6672 (providing for a 100% "responsible officer penalty" in such situations). This is as it should be --bankruptcy courts do not have jurisdiction over a debtor corporation's officers. See In re: Pierce Coal & Constr., Inc. [ 85-1 USTC ¶9419], 49 B.R. 779, 780 (Bankr. N.D. W.V. 1985) ("Bankruptcy does not provide a haven for a bankrupt corporate debtor's officers who have failed in their corporate duties."). In Matter of LaSalle Rolling Mills, Inc., the Seventh Circuit relied upon the Anti-Injunction Act to defeat the claim of a debtor-in-possession that the Government should be barred from seeking "responsible officer penalties" from the owners because such penalty would block any possibility that the business could successfully reorganize. [ 87-2 USTC ¶9592], 832 F.2d 390, 392 (7th Cir. 1987). The court noted the different treatment §362 gives certain acts by the IRS to conclude that "Congress is capable of creating ... `bankruptcy exception[s]."' Id. at 394 (noting that §362(a)(8) applies the automatic stay to actions in the United States Tax Court while §362(b)(8) indicates that the automatic stay does not apply to "the issuance to the debtor by a governmental unit of a notice of tax deficiency"). Congress has not created an "Anti-Injunction Act exception" to the automatic stay, no court has yet recognized one, and I decline to declare one in this case.

The Anti-Injunction Act is indeed a powerful tool in the IRS arsenal, but one could not reasonably maintain, as the Government's logic would lead one to conclude, that it can penetrate a §362 injunction. When, as here, a §362 injunction is in place and the IRS has filed a proof of claim against the relevant debtor-in-possession, the IRS must act in accordance with the Bankruptcy Code and the reasonable interpretations of its underlying policy as applied by bankruptcy courts. Thus clear of Anti-Injunction Act-based interference, the Bankruptcy Court's determination that the IRS must process and consider Macher's Chapter 11 reorganization falls within its broad §105 powers.

III. Conclusion

The Government relies on the exercise of a reductio ad absurdum: Because the IRS cannot be forced to accept less than 100% payment of a priority tax claim, its logic goes, the IRS can refuse to consider debtors' reorganization plans that provide for less than full payment of the claim. This policy not only upends the "fresh start" and rehabilitative goals of bankruptcy, it seals off the IRS from exercising its discretionary authority to negotiate such valid claims under Bankruptcy Code §1129(a)(9). Therefore, I find that the Bankruptcy Court acted within its authority when it directed the IRS to process and consider Macher's reorganization plan as it would an offer in compromise from a nondebtor. Accordingly, I AFFIRM the decision below.

The IRS has announced its nonacquiescence with respect to In re Macher, in which a federal district court upheld a bankruptcy court's order compelling the IRS to consider an individual debtor's offer in compromise. The district court found that the IRS's policy of mechanically rejecting a debtor's offer in compromise did not allow the "fresh start," generally promoted by the bankruptcy laws. The district court also found that the IRS's rejection of such offers contradicted the IRS's general practice of being flexible in negotiating with debtors, Nonacquiescence Announcement, I.R.B. 2004-32, August 9, 2004.

In re 1900 M Restaurant Associates, Inc., Debtor; 1900 M Restaurant Associates, Inc., Plaintiff v. United States of America, Defendant,
U.S. Bankruptcy Court, Dist. D.C.; 03-00717, January 24, 2005.

JUDGMENT

DECISION REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

The plaintiff, 1900 M Restaurant Associates, Inc., is the debtor in the case, pending under chapter 11 of the Bankruptcy Code (11 U.S.C.), to which this adversary proceeding relates. Its complaint seeks an order compelling the United States of America to have its Internal Revenue Service ("IRS") consider under § 7122(a) of the Internal Revenue Code (26 U.S.C.) an offer-in-compromise submitted by the debtor to the IRS on IRS Form 656 in January 2004, after the commencement of the bankruptcy case, but before the filing of any proposed chapter 11 plan. (The offer-in-compromise proposed a schedule of payments to the IRS in satisfaction of its claims for less than the full amount of those claims.) The complaint also seeks a declaration that the IRS's policy to refuse to consider offers-in-compromise submitted on Form 656 during the pendency of a case under chapter 11 of the Bankruptcy Code, and the IRS's refusal to consider the January 2004 offer-in-compromise based on that policy, constitute discrimination in violation of 11 U.S.C. § 525(a). Upon consideration of the parties' cross-motions for summary judgment, the court will dismiss the proceeding.

Section 7122(a) of the Internal Revenue Code provides:

(a) AUTHORIZATION. --The Secretary may compromise any civil or criminal case arising under the internal revenue law prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

An offer to compromise a tax liability pursuant to § 7122 "must be submitted according to the procedures, and in the form and manner, prescribed by the Secretary" (26 C.F.R. § 301.7122-1(d)(1)), and "[t]he IRS may ... return an offer to compromise a tax liability if it determines that the offer was submitted solely to delay collection or was otherwise nonprocessable" (26 C.F.R. § 301.7122-1(d)(2) (emphasis added)). The procedural details regarding offers-in-compromise have been left to Rev. Proc. 2003-71. Generally, offers-in-compromise may be submitted on IRS Form 656, the form the debtor employed here. However, the Revenue Procedure directs IRS personnel to treat any such offer-in-compromise as "nonprocessable" if a bankruptcy case of the taxpayer is pending. As set forth in IRS Chief Counsel Notice 2004-25 (July 12, 2004), the IRS "considers payment proposals submitted by taxpayers in bankruptcy through the plan confirmation process." Instead of employing what the Chief Counsel Notice refers to as "the bulk processing operations established for the high volume of administrative offers-in-compromise received by the Service," the Notice indicates that the IRS vests in employees of the IRS's office which handles insolvency matters the responsibility "to consider payment proposals, usually in the form of a proposed plan, regarding the payment of the Service's claims in a bankruptcy case." The Notice lays out several factors for IRS insolvency employees to consider in making a discretionary determination regarding whether to accept a plan that provides less than what is statutorily required to be paid under the Bankruptcy Code. Among the criteria which the Notice indicates are to be employed is "whether creditors with the same priority, such as state taxing authorities, are accepting less than full payment of their claims."

In compliance with the Revenue Procedure, the IRS returned the debtor's January 2004 Form 656 offer-in-compromise as nonprocessable. Subsequently the debtor filed a proposed amended plan of reorganization which assumes that its offer-in-compromise will be processed and which incorporates alternative terms in the event that the offer-in-compromise is not accepted. The IRS, through the Department of Justice, has objected to confirmation of the debtor's proposed plan.

In seeking to compel processing of its offer-in-compromise, the debtor relies on 11 U.S.C. § 525(a) which provides in relevant part that:

a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, [or] ... discriminate with respect to such a grant against ... a person that is ... a debtor under this title ... solely because such ... debtor is ... a debtor under this title ....

[Emphasis added.] Based on Macher v. United States (In re Macher), 2003 WL 23169807 (Bankr. W.D. Va.), aff'd sub nom. United States v. Macher (In re Macher), 303 B.R. 798 (W.D. Va. 2003), and Holmes v. United States (In re Holmes), 298 B.R. 477 (Bankr. M.D. Ga. 2003), aff'd sub nom. IRS v. Holmes, 309 B.R. 824 (M.D. Ga. 2004), the court concludes that 11 U.S.C. § 525(a) does not apply to the IRS's refusal to consider an offer-in-compromise under § 7122 during the pendency of a bankruptcy case. But see Mills v. United States (In re Mills), 240 B.R. 689 (Bankr. S.D. W.Va. 1999); Chapman v. United States (In re Chapman), 1999 WL 550793 (Bankr. S.D. W.Va. 1999).

To elaborate, the debtor's asserted "right to submit an offer-in-compromise" on Form 656 is not a "license, permit, charter, or franchise" within the ordinary meaning of those words. Nor is it a "grant" within any of the ordinary meanings of that word as discussed in Stoltz v. Brattleboro Hous. Auth. (In re Stoltz), 315 F.3d 80, 89-90 (2nd Cir. 2002), ¹ and certainly not a grant similar to a "license, permit, charter, [or] franchise" as required by § 525(a).

The government's compromise of tax claims, a modification of debt obligations, is similar to the governmental programs for extensions of credit which were held not to fall within the categories of § 525(a) in Watts v. Pennsylvania Hous. Fin. Co. (In re Watts), 876 F.2d 1090 (3d Cir. 1989), and Toth v. Michigan State Hous. Dev. Auth., 136 F.3d 477 (6th Cir.), cert. denied, 524 U.S. 954 (1998). The debtor's reliance on Stoltz is misplaced because Stoltz involved revocation of a public housing lease, a clear property right, that qualified as a "grant" in the ordinary sense of that word. ² Accordingly, the debtor is entitled to no relief under § 525(a).

III

The debtor alternatively seeks an order under 11 U.S.C. § 105(a) compelling the IRS to consider its Form 656 offer-in-compromise. Section 105(a) provides in relevant part that "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." To the extent that the debtor is invoking the remedy of mandamus, the relief it seeks is inappropriate.

As noted in the legislative history to § 105(a), the statute:

is similar in effect to the All Writs Statute, 28 U.S.C. 1651 .... The section is repeated here for the sake of continuity from current law and ease of reference, and to cover any powers traditionally exercised by a bankruptcy court that are not encompassed by the All Writs Statute.

H.R. Rep. 95-595, 95th Cong., 1st Sess., at 316-17 (1977), reprinted in 1978 U.S.Code Cong. & Ad. News 5963, 6273-74. ³ To the extent the debtor seeks to compel performance of an alleged duty, the relief the debtor seeks is in the nature of mandamus. See Georges v. Quinn, 853 F.2d 994, 995 (1st Cir. 1988); United States v. Brock (In re Wingreen Co.), 412 F.2d 1048, 1051 (5th Cir. 1969). The writ of mandamus is one of the writs that have traditionally been available under the All Writs Statute. See Norton v. Southern Utah Wilderness Alliance, 542 U.S. _____, _____, 124 S.Ct. 2373, 2379 (2004). Accordingly, to the extent appropriate, mandamus may be granted under 11 U.S.C. § 105 as well.

Although there is also a specific mandamus statute applicable to officers and agents of the United States, 28 U.S.C. § 1361, that provision was enacted as part of the Mandamus and Venue Act of 1962 which was intended to make the use of the remedy more readily available by, for example, not limiting mandamus actions to the district in which the agency's head resided. See Stafford v. Briggs, 444 U.S. 527, 535 (1980). Accordingly, decisions which deny mandamus on general mandamus principles under § 1361 are equally applicable to requests for relief in the nature of mandamus under the All Writs Statute or its bankruptcy analog, 11 U.S.C. § 105.

As observed in Consolidated Edison Co. of New York, Inc. v. Ashcroft, 286 F.3d 600, 605 (D.C. Cir.), cert. denied, 537 U.S. 1029 (2002):

"[A] 'drastic' remedy, 'to be invoked only in extraordinary situations,'" In re Papandreou, 139 F.3d 247, 249 (D.C. Cir. 1998) ( quoting Kerr v. U.S. Dist. Court, 426 U.S. 394, 402, 96 S.Ct. 2119, 2123, 48 L.Ed.2d 725 (1976)), mandamus is inappropriate except where a public official has violated a "ministerial" duty. Such a duty must be "so plainly prescribed as to be free from doubt and equivalent to a positive command.... [W]here the duty is not thus plainly prescribed, but depends on a statute or statutes the construction or application of which is not free from doubt, it is regarded as involving the character of judgment or discretion which cannot be controlled by mandamus." Wilbur v. United States, 281 U.S. 206, 218-19, 50 S.Ct. 320, 324-25, 74 L.Ed. 809 (1929).

And as observed in Power v. Barnhart, 292 F.3d 781, 784 (D.C. Cir. 2002):

The "remedy of mandamus is a drastic one, to be invoked only in extraordinary circumstances." Mandamus is available only if: "(1) the plaintiff has a clear right to relief; (2) the defendant has a clear duty to act; and (3) there is no other adequate remedy available to plaintiff." The party seeking mandamus "has the burden of showing that 'its right to issuance of the writ is clear and indisputable.'"

(Citations omitted.) See also Heckler v. Ringer, 466 U.S. 602, 616 (1984) (clear nondiscretionary duty required).

The IRS owes no clear duty to the debtor under § 7122 to process an offer-in-compromise submitted on Form 656 which its Revenue Procedure has specifically treated as nonprocessable when a bankruptcy case of the taxpayer is pending. Section 7122 does not command the Secretary to consider an offer-in-compromise; it only provides that the Secretary or the Department of Justice, as the case may be, may compromise a civil tax liability. The discretion vested in the Secretary to compromise carries with it the discretion not to exercise the Secretary's discretion. See United States v. Smith, Barney, Harris, Upham and Co., 45 AFTR2d 80-1105, 80-1 USTC ¶ 9108 (S.D.N.Y. 1979) ("[T]he decision whether to discuss settlement and whether to issue a summons is a discretionary one that cannot be compelled by the court." (Citation omitted.)); Carroll v. IRS, 14 AFTR2d 5564; 64-2 USTC ¶ 9687 (E.D.N.Y. 1964) ("The decision to accept or reject a compromise offer by its nature involves the discretion of administrative authority and can not be compelled by any action for a mandatory injunction."). See also Horton Homes, Inc. v. United States, 936 F.2d 548, 554 (11th Cir. 1991) (except in a case of invidious discrimination which violates the Constitution, "judicial review of IRS's exercise or nonexercise of discretion under section 6404(e)(1) [providing that the Secretary may abate an assessment of interest] is not available" (emphasis added)); ⁴ United States v. Williams, 514 U.S. 527, 537 n.9 (1995) ("§ 6325(b)(3) [Secretary's discretionary authority to issue a certificate of discharge] presents no question of administrative exhaustion as a prelude to judicial review, for that 'remedy' lies entirely within the Government's discretion."); E.J. Friedman Co. v. United States, 6 F.3d 1355, 1358, 1359 (9th Cir. 1993) (decision whether to discharge lien as valueless is within Secretary's discretion and accordingly unreviewable under Administrative Procedure Act and a bar to quieting title in a 28 U.S.C. § 2410 action on the basis of valuelessness).

Although Mills, 240 B.R. at 696, held that consideration of offers-in-compromise is a non-discretionary duty, it relied on a subsequently discredited statement, purely unnecessary dictum, in United States v. Garden State National Bank, 465 F. Supp. 437 (D.N.J.), aff'd, 607 F.2d 61 (3d Cir. 1979). Garden State was a summons enforcement proceeding in which the district court addressed the issue of good faith regarding issuance of the summonses by the IRS during an ongoing criminal investigation, and testimony that if a taxpayer requests a settlement conference, the taxpayer:

will at most be allowed to come in, and will be listened to, but no negotiations will be engaged in until after the investigation has been completed, and the internal reviews that follow have resulted in a decision (arrived at unilaterally by IRS and not by negotiation) not to refer [the case] to the Department of Justice [for criminal prosecution].

Garden State, 465 F. Supp. at 439. It was in that context that the court stated that "[w]hile the grant of authority to compromise does not command that a compromise agreement be reached, it does imply a mandate to negotiate, to make the effort, to explore the potential for compromise before deciding unilaterally whether or not to refer [the case to the Department of Justice for criminal prosecution]." Garden State, 465 F. Supp. at 439-40. As the district court itself recognized, the statement was unnecessary to its decision because the taxpayer had made no offer. On appeal, the court of appeals declined to adopt this dictum, affirming on different grounds, and expressly held that "the refusal of the Service to enter into compromise negotiations, standing alone, does not amount to 'bad faith.'" Garden State, 607 F.2d at 73. ⁵ The court of appeals thus implicitly recognized that there are circumstances in which the Secretary ought to be able to exercise discretion not to consider an offer-in-compromise. Subsequently, the court in Smith, Barney, 45 AFTR2d 80-1105, 80-1 USTC ¶ 9108, criticized Garden State as "logically, practically, and legally unsound," ⁶ and recognized the nonreviewable discretionary nature of the Secretary's settlement authority. The Mills decision fails to acknowledge Smith, Barney, and is otherwise unpersuasive in placing reliance on the district court's misguided dictum in Garden State.

In exercising the statutory discretion of § 7122(a), the Secretary is generally free to specify what types of offers will be processed. See Boulez v. Commissioner, 810 F.2d 209 (D.C. Cir.), cert. denied, 484 U.S. 896 (1987) (Secretary could refuse by regulation to consider oral offers-in-compromise). 26 U.S.C. § 7122(c)(1) requires the Secretary to prescribe guidelines for IRS personnel "to determine whether an off-in-compromise is adequate and should be accepted to resolve a dispute." The Secretary has viewed the issue of adequacy as including the issue of whether an offer-in-compromise is processable: an offer to compromise a tax liability pursuant to § 7122 "must be submitted according to the procedures, and in the form and manner, prescribed by the Secretary" (26 C.F.R. § 301.7122-1(d)(1)), and "[t]he IRS may ... return an offer to compromise a tax liability if it determines that the offer was submitted solely to delay collection or was otherwise nonprocessable" (26 C.F.R. § 301.7122-1(d)(2) (emphasis added)).

The details of what offers-in-compromise are nonprocessable has been left to Rev. Proc. 2003-71, § 5 ("When an Offer Becomes Pending and Return of Offers"), 2003-36 I.R.B. 517, and it makes clear that an offer-in-compromise is nonprocessable when a bankruptcy case is pending. ⁷

The only statutory limitations on the Secretary's discretion under § 7122(a) arise implicitly from three parts of 26 U.S.C. § 7122(c):

The first of these is the command of § 7122(c)(2)(B) that the Secretary's guidelines for determining whether an offer-in-compromise is adequate and should be accepted must, in effect, direct IRS personnel not blindly to apply standard allowances prescribed under the guidelines for basic living expenses. ⁸ This implicitly means that the Secretary has no discretion to treat an offer as nonprocessable solely because the offer proposes not to follow the guidelines' standard allowances for basic living expenses.

The second is the command of § 7122(c)(3)(A) that IRS personnel "shall not reject an offer-in-compromise from a low-income taxpayer solely on the basis of the amount of the offer." This implicitly requires that the IRS not treat an offer-in-compromise as nonprocessable solely because it fails to propose payment of some minimum amount.

Finally, § 7122(c)(3)(B) provides that in the case of an offer-in-compromise which relates only to issues of liability of the taxpayer, "(ii) the taxpayer shall not be required to provide a financial statement." Accordingly, such an offer-in-compromise could not be treated as nonprocessable solely because it lacked a financial statement.

Except for those implicit restrictions, however, the statute is silent regarding what offers the Secretary may treat as nonprocessable. Plainly the decision under the Revenue Procedure not to process an offer-in-compromise submitted when a taxpayer is in bankruptcy does not run afoul of those restrictions.

That administrative review and administrative appeal rights exist under § 7122(d) with respect to any rejection of a proposed offer-in-compromise does not alter this analysis. Under 26 C.F.R. § 301.7122-1(f)(5)(ii), a regulation which has the force of law, treating an offer as nonprocessable is not the same thing as rejecting a processable offer-in-compromise. The IRS was completely within the limits of its permissible discretion in refusing to process an offer-in-compromise that was presented in a vacuum without a chapter 11 plan having been filed. ⁹

Although Chavez v. United States, 93 AFTR2d 2004-2386 (W.D. Tex. 2004), held that the IRS's decision to return an offer as nonprocessable was reviewable to determine whether it was an abuse of discretion, it did so under specific statutory authority, 26 U.S.C. § 6630(d)(1), which vested the district court with authority to review the IRS's decision to proceed with levy, including in that regard review of the administrative consideration of offers-in-compromise as a factor in deciding to proceed with levy. Section 6630 has not been invoked here (and will not likely become applicable while the bankruptcy case is pending because the automatic stay of 11 U.S.C. § 362(a) has barred the IRS from proceeding with enforcement of its tax claims by levy). With the only statutory provision that provides for judicial review of decisions regarding offers-in-compromise being inapplicable at this juncture, this court ought not review the IRS's discretionary decision to treat as nonprocessable the debtor's attempted offer-in-compromise. Cf. Ballhaus v. I.R.S., 341 F. Supp. 2d 1145 (D. Nev. 2004) (only Tax Court is vested with statutory authority to review Secretary's discretionary authority to abate interest); Beall v. United States, 336 F.3d 419, 427 n.9 (5th Cir. 2003) (even though district court may review Secretary's refusal to abate interest in a refund suit under 28 U.S.C. § 1346 and 26 U.S.C. § 7422, the Administrative Procedure Act, and implicitly, mandamus, are not appropriate vehicles for such review).

Moreover, even if review were available, the court would not view as an abuse of discretion the IRS's decision to treat the debtor's offer-in-compromise as nonprocessable when the debtor is in bankruptcy. When a bankruptcy case is pending, the IRS rationally can determine that it is inappropriate to assay the treatment of the IRS's claims of offer-in-compromise procedures in isolation from the terms of a proposed plan and from the plan confirmation process. This is particularly true when the offer-in-compromise, as here, does not include all of the terms of any proposed plan. Even when a taxpayer's offer-in-compromise includes a proposed plan, the debtor is not in a position to guarantee that it can honor an acceptance of the offer-in-compromise because a proposed plan's effectiveness is contingent on confirmation of the plan by the bankruptcy court. Moreover, if a plan is unsatisfactory, and referred on that basis to the Department of Justice for objection, the IRS loses jurisdiction to accept the offer-in-compromise. It makes sense for the IRS to decide that the treatment of the IRS's claims in bankruptcy must be addressed by the IRS by way of the plan confirmation process instead of the ordinary offer-in-compromise procedure.

The Chavez court viewed the Internal Revenue Manual provision regarding returning an offer-in-compromise as inconsistent with 26 C.F.R. § 301.7122-1(b)(3)(iii) which set forth grounds for rejection that mirror the Internal Revenue Manual's standard for returning (and treating as no longer processable) an offer-in-compromise based on a taxpayer's continuing failure to comply with ongoing obligations to file tax returns and make timely deposits of employment taxes. Treating an offer-in-compromise as nonprocessable when the taxpayer is in bankruptcy does not conflict with any part of 26 C.F.R. § 301.7122-1.

Chavez also pointed to the fact that the Internal Revenue Manual does not have the force of law, as is true of Revenue Procedures as well, but not true of 26 C.F.R. § 301.7122-1. That observation was necessary to support the determination in Chavez that an Internal Revenue Manual provision may not override a Treasury Regulation, but it does not alter the analysis here. It was entirely appropriate for the Secretary to leave the issue of nonprocessability to a Revenue Procedure instead of a Treasury Regulation. Section 7122 charges the Secretary to prescribe "guidelines," not "regulations," in contrast to other provisions of the Internal Revenue Code (such as 26 U.S.C. §§ 1(g)(7)(C); 1(g)(7)(h)(9); 21(f); 23(i); and 4462(i)(4)) which require the Secretary to prescribe regulations. ¹⁰ The Revenue Procedure provision at issue, requiring offers-in-compromise to be treated as nonprocessable when the taxpayer is in bankruptcy, was thus duly promulgated, and does not conflict with either 26 U.S.C. § 7122 or 26 C.F.R. § 301.7122-1.

In conclusion, the court cannot find that treating offers-in-compromise as nonprocessable in bankruptcy violates a clear nondiscretionary duty on the part of the IRS. Accordingly, mandamus is unavailable to compel the IRS to process the debtor's offer-in-compromise.

C.

Mandamus is also unavailable on an alternative ground. As held in DRG Funding Corp. v. Secretary of HUD, 76 F.3d 1212, 1216 (D.C. Cir. 1996), "[m]andamus is an extraordinary remedy, available only if other relief is inadequate." [Citation omitted.] The debtor has proposed a plan of reorganization. The IRS, to protect its interests, evaluated the plan and decided to request the Department of Justice to object to the plan. Through that process, the debtor has already received a decision regarding the acceptability to the IRS of the treatment the debtor proposes. Because the debtor has already achieved a decision regarding the acceptability of the treatment his plan proposes for the IRS's claims, he has achieved his end in filing an offer-in-compromise, and mandamus is inappropriate. Power v. Barnhart, 292 F.3d at 787. That the end was achieved by the processing of the debtor's proposed plan, instead of by processing of an offer-in-compromise (by an office with less experience with bankruptcies), is of no consequence. As discussed in Power v. Barnhart, 787-88, the court in Northern States Power Co. v. U.S. Dep't of Energy, 128 F.3d 754 (D.C. Cir. 1997), declined to grant mandamus because contractual remedies under a standard contract between the parties afforded the plaintiff "another potentially adequate remedy" if the agency failed timely to perform an unconditional statutory duty. Northern States, 128 F.3d at 759. It follows that a decision on the acceptability of the debtor's plan achieved by processing of its proposed plan was an adequate remedy to achieve the end the debtor desired, even though not employing the means the debtor desired. See Powers v. Barnhart, 292 F.3d at 787 ("were we to define the means to the end as the end itself, we would simply write the third prong out of the mandamus test.").

The debtor is still free to discuss compromise on modified terms with the Department of Justice, or to attempt to obtain confirmation of a plan in accordance with the requirements of the Bankruptcy Code. If the debtor's plan does not pass muster under those requirements, the government's refusal to accept that treatment has not deprived the debtor of any relief to which it is entitled. If confirmation is denied, leading to a dismissal, the debtor may take steps, as in Chavez, to obtain administrative review under 26 U.S.C. § 6330(d)(1) of any IRS decision to proceed with levy instead of compromising.

In the midst of the pendency of this adversary proceeding, the debtor has proposed a plan to which the IRS, through the Department of Justice, has objected. Upon objecting to the debtor's plan on behalf of the IRS, the Department of Justice is vested with the authority to compromise under § 7122, and it obviously can insist on negotiating the terms of a plan in a fashion different than the use of Form 656, as 26 C.F.R. § 301.7122-1 does not apply to the Department of Justice. See In re Matter of Grand Jury Applicants (C. Schmidt & Sons. Inc.), 619 F.2d 1022, 1028 (3d Cir. 1980); Hartzog v. United States, 6 Cl.Ct. 835 (1984); Blackmon & Assocs., Inc. v. United States, 409 F.Supp. 1264, 1265 (N.D. Tex. 1976). Because the IRS no longer has authority to approve a compromise of the debtor's tax liabilities, an order to compel it to process the Form 656 would be a pointless exercise. For this additional reason, mandamus is inappropriate at this stage.

E.

Similarly, 11 U.S.C. § 1129(a)(9)(C) imposes no nondiscretionary duty on the IRS to process offers-in-compromise. Section 1129(a)(9)(C) specifies a treatment a plan must accord certain tax claims of the IRS unless the IRS agrees to a different treatment. Obviously the IRS has complete discretion to decide whether to agree to such different treatment or whether even to consider agreeing to such different treatment. In any event, the plan process is an adequate alternative remedy available to the debtor to obtain the IRS's position in the case.

In conclusion, mandamus is inappropriate here. When a taxpayer becomes a debtor in a chapter 11 bankruptcy case, the Secretary has concluded, pursuant to an exercise of discretion embodied in the applicable Revenue Procedure, that the best interests of the government warrant addressing the treatment of the government's tax claims in the context only of considering a proposed plan, and to return any Form 656 offers-in-compromise as nonprocessable. This discretionary decision under 26 U.S.C. § 7122 and 11 U.S.C. § 1129(a)(9)(C) is not to be countermanded by the employment of the mandamus remedy which is limited to compelling the performance of strictly ministerial duties, and which is unavailable when, as here, an alternative adequate remedy (the plan confirmation process) is available to learn the IRS's position.

The debtor properly observes that in invoking § 105(a), it is not confined to seeking mandamus relief. It urges that the requested order is necessary to the plan confirmation process because it will allow the debtor to obtain a tax repayment agreement that will permit it to formulate a chapter 11 plan. Accordingly, the debtor urges that the requested relief is justified under § 105(a), not as mandamus relief, but as necessary to facilitate reorganization.

In Macher, 303 B.R. at 802, the district court concluded that the fact that § 1129(a)(9)(C) contemplates that the IRS may agree to less than full payment of claims, combined with "the Bankruptcy Code's 'fresh start' principle, and the common sense realities of bankruptcy reorganizations," require that the IRS not refuse to consider an offer-in-compromise. Accord, Holmes, 309 B.R. at 828; In re Peterson, 317 B.R. 532, 534 (Bankr. D. Neb. 2004) (following Holmes). This court respectfully declines to follow those decisions, and rejects the debtor's argument. Specifically, none of the three grounds invoked by Macher justify its conclusion that § 105 relief of the character sought here is appropriate.

First, "the common sense realities of bankruptcy reorganizations" referred to by Macher warrant allowing the IRS to treat Form 656 offers-in-compromise as nonprocessable once a chapter 11 bankruptcy case intervenes. Macher and its progeny fail fully to consider the dynamic which arises from a bankruptcy case and which warrants the IRS being allowed to address treatment of its claims other than through the Form 656 offer-in-compromise process that is divorced from the realities of that dynamic. The Chief Counsel Notice makes clear the IRS's willingness, principally in the context of addressing a proposed plan, to consider agreeing to payment of less than the full amount of its tax claims. That Notice lays out sound policy grounds for the IRS's decision (and for bankruptcy courts' not countermanding that decision) to address treatment of its tax claims in a chapter 11 case principally in the context of a proposed plan instead of Form 656 offers-in-compromise.

As recognized by 11 U.S.C. § 1112(a)(4) and (5), the ultimate goal of such a case generally ought to be to achieve a confirmed plan, and chapter 11 plans present an entirely different dynamic than exists outside of a bankruptcy case. Addressing a proposed compromise of tax claims in a chapter 11 case in a context other than the new playing field that arises from the commencement of that case would be to consider the IRS's interests in a vacuum. Principally, the IRS will prudently wish to consider compromise in the context of a proposed plan. ¹¹ Among factors a creditor may consider in electing to agree to a proposed plan are the specific treatment of its claim, and the treatment of other creditors' claims (such as whether such claims are being paid more generously or more quickly), as well as the feasibility of the plan, and default provisions. Those issues cannot be assessed without a proposed plan. The chapter 11 process enables creditors to assess a proposed plan, ¹² and affords procedures for a creditor's participation in the plan confirmation process. ¹³ To require the IRS to process a Form 656 offer-in-compromise, particularly one which utterly fails to set forth terms of a proposed chapter 11 plan, is neither "necessary or appropriate to carry out the provisions of [the Bankruptcy Code]" as required to grant § 105(a) relief.

Moreover, § 105(a) does not confer on a bankruptcy court a license to impose on a creditor restrictions regarding how that creditor shall address its rights in a bankruptcy case according to the bankruptcy court's views of the "common sense realities of bankruptcy reorganization";

[S]ection 105(a) does not provide bankruptcy courts with a roving writ, much less a free hand. The authority bestowed thereunder may be invoked only if, and to the extent that, the equitable remedy dispensed by the court is necessary to preserve an identifiable right conferred elsewhere in the Bankruptcy Code. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988) (explaining that a bankruptcy court's equitable powers "can only be exercised within the confines of the Bankruptcy Code"); Noonan v. Sec'y of HHS (In re Ludlow Hosp. Soc'y, Inc.), 124 F.3d 22, 27 (1st Cir. 1997) (similar).

Jamo v. Katahdin Fed. Credit Union (In re Jamo), 283 F.3d 392, 403 (1st Cir. 2002) (bankruptcy court lacked power to modify a reaffirmation agreement or compel the parties to enter into a judicially-crafted reaffirmation agreement). Cf. Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 332 (1999)("the equitable powers conferred by the Judiciary Act of 1789 did not include the power to create remedies previously unknown to equity jurisprudence."). ¹⁴ The "common sense realities of bankruptcy reorganization" are not an identifiable right in the Bankruptcy Code. Although a debtor has a right to attempt to obtain a confirmed chapter 11 plan, the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure set forth the tools that the debtor may employ in that endeavor and correspondingly the rights of creditors in deciding whether to agree to or contest such a plan. To restrict a creditor in how it addresses the treatment of its claims which will be the subject of a plan, would not be "to carry out the provisions of [the Bankruptcy Code]" but the exact opposite by depriving that creditor of opportunities afforded it by the Bankruptcy Code. As the Supreme Court has recognized:

Where a statute specifically addresses the particular issue at hand, it is that authority, and not the All Writs Act, that is controlling. Although that Act empowers federal courts to fashion extraordinary remedies when the need arises, it does not authorize them to issue ad hoc writs whenever compliance with statutory procedures appears inconvenient or less appropriate.

Pennsylvania Bureau of Correction v. U.S. Marshals Serv., 474 U.S. 34, 43 (1985). To confine the Secretary to the ordinary offer-in-compromise program would not carry out provisions of the Bankruptcy Code but would instead confer on the debtor a new procedural weapon not found in the Bankruptcy Code.

B.

Second, the "fresh start" principle is no basis for commanding the IRS to process a Form 656 offer-in-compromise in a vacuum divorced from consideration of a proposed plan. The so-called "fresh start" is not a specific statutory provision. Instead, certain provisions are viewed as giving the debtor certain "fresh start" relief, as in the case of the Bankruptcy Code's anti-discrimination provision already discussed ( § 525(a)) and the Bankruptcy Code's discharge and exemption provisions ( see 11 U.S.C. §§ 522, 524, and 1141(d)(1)). Those provisions, however, are limited in scope and are not a license to employ § 105(a) to create additional "fresh start" relief out of whole cloth without statutory authorization. Again, as Jamo, 283 F.3d at 403, demonstrates in addressing the "fresh start" topic of reaffirmation agreements, § 105(a) is not a roving commission to do equity as the court sees fit, but instead must be tied to carrying out specific provisions of the Code.

As already demonstrated, § 525(a) (one of the statutory forms of "fresh start" relief) is unavailable to entitle the debtor to "fresh start" relief in the form of barring the IRS from treating Form 656 offers-in-compromise as nonprocessable once bankruptcy intervenes. It would be entirely inappropriate to seize on the "fresh start" principles that underlie § 525(a) and to expand the reach of those principles beyond the carefully limited relief afforded by § 525(a).

C.

From the foregoing, it is readily evident that the IRS's discretionary authority under § 1129(a)(9)(C) to agree to less than full payment of its claims is not an identifiable Bankruptcy Code right of a debtor which warrants § 105(a) relief of the character sought here. The right rests in the IRS, not the debtor, and the relief sought here is neither necessary or appropriate to carry out that statutory right, and would impose on the IRS a nonexistent duty unenforceable by way of mandamus. The IRS should be allowed to exercise its discretion under § 1129(a)(9)(C), without interference by the court in how the IRS decides to approach that right. Cf. Norwest Bank, 485 U.S. at 207 (decision of class of unsecured creditors to accept or reject plan "is for the creditors to make in the manner specified by the Code. 11 U.S.C. § 1126(c)." )

The debtor can point to no identifiable right conferred by the Bankruptcy Code whose preservation warrants requiring the IRS to process an offer-in-compromise in a vacuum divorced from an actual proposed plan. A debtor has no right to have the IRS agree to a treatment of its claims less favorable than what is required by the Bankruptcy Code, and no right to compel the IRS to consider agreeing to such treatment in a vacuum devoid of an actual proposed plan. The Bankruptcy Code and Federal Rules of Bankruptcy Procedure themselves set forth the procedures by which a debtor may attempt to obtain a confirmed plan, and the IRS has not acted contrary to those provisions. Indeed, it has made clear that it is in the context of those procedures that it will address the treatment to which its claims will be subjected.

A court may (or may not) have the inherent authority to order parties to attempt to negotiate acceptable terms of a plan, but I need not decide that issue. ¹⁵ Assuming that such a power exists, it does not extend to directing a creditor to consider a compromise of how much of its claims are to be paid under a nonbankruptcy offer-in-compromise program in isolation from the plan confirmation process. The Chief Counsel Notice prescribes consideration by IRS insolvency employees of a debtor's proposed plan, submitted in accordance with bankruptcy procedures, to determine whether it is in the IRS's best interests. A court ought not impose on the IRS instead the ill-fitted offer-in-compromise procedures the IRS utilizes outside of bankruptcy.

The IRS ought not be treated differently than any other creditor in enjoying freedom to choose how it will deal with debtors in bankruptcy. Consider the following example. A private mortgagee has a unit which administers a mortgage default workout program outside of bankruptcy, but bars that unit from processing workout proposals once bankruptcy intervenes, and requires that consideration of treatment of its mortgage once bankruptcy intervenes will be addressed by a special bankruptcy unit and in the context of its rights under the Bankruptcy Code, not solely under the criteria that exist outside of a bankruptcy case. Section 105(a) would be no basis for commanding the mortgagee to have its workout unit process a workout proposal under the criteria that exist outside bankruptcy, and it ought similarly not be employed against the IRS in the fashion the debtor seeks here.

This is reinforced by the character of the United States' form of government. A bankruptcy court, as a part of the judicial branch of government, and in the absence of clear legislative authority to do so, ought to be loathe to interfere with the conduct in a bankruptcy case of a unit of the executive branch of government in protecting its interest in bankruptcy, particularly when that unit is charged with collecting the public fisc.

The courts that have employed § 105(a) against the IRS to command it to process Form 656 offers-in-compromise may have done so on a gut reaction that it is unfair discriminatory treatment for the IRS, as a governmental unit, to deprive a debtor of an opportunity the debtor would have outside of bankruptcy. However, unfair discriminatory treatment of a debtor is the topic that § 525(a) addresses, and as already demonstrated, § 525(a) does not bar the differing treatment the IRS accords debtors in and outside bankruptcy. Just as a private creditor ought not be straight-jacketed by a grant of relief of the kind that the debtor seeks here, the IRS ought not be either.

For the foregoing reasons, the court will enter a judgment dismissing this adversary proceeding on the merits.

¹ For the sake of brevity, the court incorporates by reference the Stoltz opinion's discussion of the ordinary meaning of the word "grant."

² However, it is debatable (as discussed in the dissenting opinion) whether the lease was a grant similar to a "license, permit, charter, [or] franchise" as required by § 525(a). Stoltz, 315 F.3d at 95-96 (dissenting opinion). Moreover, it is debatable whether a public housing authority's exercise of its in rem rights as a creditor to evict the debtor under a public housing lease, instead of denying the debtor the right to obtain a public housing lease, comes within § 525(a). See In re Valentin, 309 B.R. 715 (Bankr. E.D. Pa. 2004); In re Bacon, 212 B.R. 66 (Bankr. E.D. Pa. 1997).

³ 28 U.S.C. § 1651(a) provides:

The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.

⁴ See also Carlson v. United States (In re Carlson), 126 F.3d 915, 920 (7th Cir. 1997), cert. denied, 523 U.S. 1060 (1998) (holding that an abatement of interest under § 6404(e)(1) is within the sole authority of the Secretary of the Treasury, "and as such it is beyond the scope of judicial review" (citations omitted)). Although Horton Homes remains good law for the general principle that, unless the statute provides otherwise, the Secretary's nonexercise of discretion is not subject to judicial review, it has been superseded by a 1996 amendment to the statute. Review by the Tax Court of the Secretary's decision not to abate interest is now available under 26 U.S.C. § 6404(h). See Miller v. Commissioner of Internal Revenue, 310 F.3d 640 (9th Cir. 2002). Some courts hold that in light of that amendment, the Secretary's decision is also reviewable in a refund suit in the district court. See Beall v. United States, 336 F.3d 419 (5th Cir. 2003).

⁵ See also Garden State, 607 F.2d at 66 n.7 ( "We reject any suggestion that enforcement may be granted or denied wholly upon the basis of a taxpayer's request or lack of request for a compromise conference, or wholly upon the availability or unavailability of a compromise negotiation conducted with I.R.S.").

⁶ Indeed, the same district judge who wrote the decision in Garden State appears to have retreated from his dictum because he later observed that what he said in Garden State "was said by way of hope or expectation that ... the comments might induce both taxpayers and I.R.S. to undertake good faith negotiations for resolution of any disagreement ....". "Pseudonym Taxpayer" v. Miller, 497 F. Supp. 78, 79 (D.N.J. 1980).

⁷ The Revenue Procedure's § 5 ( "When an Offer Becomes Pending and Return of Offers") addresses what offers to compromise tax liabilities are nonprocessable. Section 5.01 of the Revenue Procedure provides that one of the minimum requirements making an offer-in-compromise processable is that "the taxpayer is not in bankruptcy." In turn, § 5.03 provides that an offer not meeting this or other minimum requirements is not processable.

⁸ To explain in greater detail, § 7122(c)(1) requires the Secretary to "prescribe guidelines for [IRS personnel] to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute." In turn, § 7122(c)(2)(A) requires that "[i]n prescribing guidelines ..., the Secretary shall develop and publish schedules of national and local allowances designed to provide that taxpayers entering into a compromise have an adequate means to provide for basic living expenses." Then, § 7122(c)(2)(B) requires that the Secretary's guidelines must "provide that [IRS personnel] shall determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules published under subparagraph (A) is appropriate and shall not use the schedules to the extent such use would result in the taxpayer not having adequate means to provide for basic living expenses." [Emphasis added.]

⁹ If the IRS accepts a debtor's proposed plan which proposes less than full payment of the IRS's claims, and the plan is confirmed, the result is a compromise for which the authority to compromise is § 7122(a). However, the plan is not an offer-in-compromise because a plan becomes a binding compromise through the plan confirmation process, not through the IRS's having accepted the plan. It would not make sense, given the time limits for objecting to plans, to treat a plan itself as an offer-in-compromise with the delays that would arise from administrative review and administrative appeal under § 7122(d). The issue is an academic one here because the IRS has referred the debtor's plan to the Department of Justice for objection, thus depriving the IRS of any further ability to act under § 7122(a).

¹⁰ Section 4462(i)(4) is particularly instructive because it requires the Secretary to prescribe regulations, not guidelines, governing settlements of certain excise tax claims.

¹¹ The IRS also negotiates treatment of its claims in the context of other specialized aspects of bankruptcy such as a debtor's requests under 11 U.S.C. § 363 to use cash collateral or to sell IRS collateral free and clear of liens.

¹² The bankruptcy courts require debtors-in-possession to file operating reports in a chapter 11 case in part to allow interested parties to assay the feasibility of a proposed plan. To obtain confirmation of a plan, the debtor generally must file a disclosure statement under 11 U.S.C. § 1125 which provides information which permits creditors to make informed judgments regarding voting on the plan.

¹³ Under 11 U.S.C. § 1129(a)(9)(C), the IRS can choose to agree or not agree to the treatment of its allowed claims entitled to priority under 11 U.S.C. § 507(a)(8). Under 11 U.S.C. § 1126, the IRS can vote to accept the plan or to reject the plan with respect to its non-priority tax claims (that is, any claims in a class of allowed secured claims or a class of allowed unsecured claims not entitled to priority). The IRS can also elect, as occurred here, to request the Department of Justice to object under F.R. Bankr. P. 3020(b) to the debtor's plan.

¹⁴ In Grupo Mexicano, the Court held that the equity jurisdiction conferred on federal courts does not empower a court to freeze assets for the benefit of a creditor.

¹⁵ The strongest case for arguing that such a power exists is when the parties have appeared through counsel in the case and the order is directed to the attorneys as officers of the court.

Internal Revenue Service, Appellant v. William K. Holmes, Appellee., U.S. District Court, Mid. Dist. Ga., Macon Div.; 5:03-CV-356 (CAR), March 15, 2004., Affirming BC-DC Ga.,]

As to the appeal itself, the Order appealed from directs Appellant IRS to consider Appellee Holmes' offer in compromise to satisfy his tax liability in the same manner as the IRS would consider any offer in compromise made by a person who is not involved in a bankruptcy proceeding. The IRS appeals this decision and directive by the Bankruptcy Court. Having considered the record, the briefs filed by both parties, and the relevant case law, this Court agrees with the Bankruptcy Court's decision. This Court finds that the Bankruptcy Court had the authority to enter this Order and further directs Appellant IRS to consider Appellee's offer in compromise. Therefore, the decision of the Bankruptcy Court is HEREBY AFFIRMED.

STANDARD OF REVIEW

CONCLUSION

Chief Counsel Notice: CC-2004-025: Bankruptcy : Offers in compromise . -2004-25, July 12, 2004

Department       Internal         Office of        Notice

of the           Revenue          Chief Counsel

Treasury         Service

Purpose

This Notice explains the Service's policy of returning administrative offers in compromise as nonprocessable to taxpayers currently in a bankruptcy proceeding. Additionally, this Notice provides clarification regarding the Service's authority to acquiesce in treatment of its claims in bankruptcy cases that is less favorable than that provided for under the Bankruptcy Code.

Discussion

The Service's authority to compromise tax liabilities is provided by I.R.C. § 7122(a), which states as follows:

(a) AUTHORIZATION. --The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

The decision to compromise, including whether to consider a compromise and how much to accept, is within the Service's discretion. See Treas. Reg. § 301.7122-1(a). It has been the Service's long-standing policy to compromise cases only when settlement furthers the best interests of both the taxpayer and the Government. See Policy Statement P-5-100 (approved Jan. 30, 1992), reprinted in IRM 1.2.1.5.18. See also Policy Statement P-5-89 (approved July 26, 1960), reprinted in IRM 1.2.1.5.16.

The Commissioner is charged with the power to administer and supervise the execution and application of the Internal Revenue Code. See I.R.C. § 7803(a)(2). Pursuant to that authority, the Commissioner has developed criteria for determining the types of cases that may be compromised under the Service's administrative offer in compromise procedures. The Commissioner has determined that certain cases are not appropriate candidates for compromise under the Service's administrative procedures and that offers submitted in these cases will not be accepted for processing, but rather will be returned to the taxpayer. Treasury Regulation § 301.7122-1(d)(2) provides that if an offer does not contain sufficient information, was submitted solely to delay collection, or is "otherwise nonprocessable," the Service will return the offer to the taxpayer. An offer will be returned as "nonprocessable" unless the following requirements are met: (1) the offer is submitted on the proper version of Form 656 and Form 433-A or B, as appropriate; (2) the taxpayer is not in bankruptcy; (3) the taxpayer has complied with all filing and payment requirements listed in the instructions to Form 656; (4) the taxpayer has enclosed the application fee, if required; and (5) the offer meets any other minimum requirement established by the Service. See Rev. Proc. 2003-71, 2003-36 I.R.B. 517.

In the case of taxpayers in bankruptcy, the Commissioner has determined that processing such compromises under the Service's administrative offer in compromise procedures is not in the Government's best interests. When a taxpayer is in bankruptcy, the resolution of a taxpayer's Federal tax liabilities is best accomplished in the context of the bankruptcy proceeding and in accordance with applicable bankruptcy law and procedures. Timeframes for the consideration of claims and payment proposals in a bankruptcy case do not mesh with the bulk processing operations established for the high volume of administrative offers in compromise received by the Service. Rather than trying to integrate processes that are inherently incompatible, the Service considers payment proposals submitted by taxpayers in bankruptcy through the plan confirmation process.

Employees of the Service's Insolvency function are responsible for protecting the Service's interests in bankruptcy cases and are the first to consider payment proposals, usually in the form of a proposed plan, regarding the payment of the Service's claims in a bankruptcy case. See IRM 25.17.1.3 and 25.17.3.2. Insolvency employees are charged with processing bankruptcy cases fairly and efficiently, in a manner that balances the interests of the debtor and the Government, while also attempting to collect the proper amount of tax. See IRM 25.17.1.3(5).

Under provisions of the Bankruptcy Code, a plan cannot be confirmed unless it provides for the full payment of the Service's priority tax claims, or the Service agrees to different treatment. See 11 U.S.C. §§ 1129(a)(9)(C), 1222(a)(2), and 1322(a)(2). The Service's discretion to acquiesce in less favorable treatment of its priority claims is not a valid basis for ordering the Service to alter its administrative offer in compromise program to accommodate taxpayers in bankruptcy. Court orders directing the Service to alter the processes by which it administers its authority to compromise as well as the processes by which it administers its interests as a creditor in bankruptcy are in the nature of writs of mandamus and go beyond the authority granted to bankruptcy courts under section 105 of the Bankruptcy Code.

Courts will not compel Service employees to perform acts where there is no showing of a clear right to the relief sought, and no clearly defined duty to do the act in question. See, e.g., Georges v. Quinn, 853 F.2d 994 (1^st Cir. 1988) (taxpayer not entitled to order compelling the Service to use delinquently-filed tax returns in place of substitute returns created and used by the Service in assessing his tax deficiency); Stang v. Internal Revenue Service, 788 F.2d 564 (9^th Cir. 1986) (mandamus jurisdiction did not exist where the Service did not owe the plaintiff a nondiscretionary duty to assess his taxes on demand); Wingreen Co. v. United States, 412 F.2d 1048 (5^th Cir. 1969) (viewing an order directing the Service to audit a debtor's books and records as one in the nature of mandamus, the district court was without jurisdiction to enter the order because the Service owed no duty to the trustee to make the determination he sought); Short v. Murphy, 512 F.2d 374 (6^th Cir. 1975) (mandamus relief properly denied where the court determined that furnishing additional information sought by the taxpayer was discretionary, not mandatory or ministerial).

Consistent with its responsibility to protect the Government's interests, the Service will not accept less than what is statutorily required to be paid under the Bankruptcy Code unless the taxpayer demonstrates that agreeing to receive less under a bankruptcy plan is in the Government's best interests. This is a discretionary determination to be made in the context of the particular bankruptcy case, through consideration of a proposed bankruptcy plan, and not through the Service's administrative offer in compromise procedures. In order to be considered, the plan may not provide for the payment of claims with lower priority than those of the Service, and all income that is not necessary for the health and welfare of the debtor's family or the production of income must be committed to the plan. In addition, other factors that may be considered in determining whether it is in the Government's best interest to accept less favorable treatment than is statutorily required under the Bankruptcy Code include, but are not limited to:

whether the taxpayer has the ability to pay the Service's claims as required under the Bankruptcy Code, whether the taxpayer is in compliance with tax return filing requirements, the extent of the taxpayer's previous noncompliance with filing and payment requirements, whether creditors with the same priority, such as state taxing authorities, are accepting less than full payment of their claims, whether the Service would receive more if the bankruptcy case is dismissed or converted to a Chapter 7 liquidation, the amount of time remaining on the statute of limitations for collection, whether there is anything precluding the debtor from dismissing the bankruptcy case and submitting an administrative offer in compromise (e.g., is the Service the only creditor in the case), andwhether the tax liabilities are nondischargeable.

The taxpayer has the burden of demonstrating that it is in the Government's best interest to accept less favorable treatment than is statutorily required in a bankruptcy case.

Offers in compromise submitted on Forms 656 by taxpayers who are currently in bankruptcy will continue to be returned as nonprocessable under the procedures set forth in Rev. Proc. 2003-71 and IRM 5.8 et seq. Payment proposals submitted by taxpayers in bankruptcy will be considered by Insolvency employees in the context of their review of proposed plans, subject to the time constraints and other factors that are unique to bankruptcy litigation, and will be accepted when it is in the interest of the United States to do so.

Questions about this Notice should be directed to Collection, Bankruptcy & Summonses, Branch 2 at 622-3620.

/s/

DEBORAH A. BUTLER

Associate Chief Counsel

(Procedure & Administration)

A federal district court upheld a bankruptcy court order compelling the IRS to consider an individual debtor's offer in compromise. The bankruptcy court properly reasoned that the IRS could not dismiss the debtor's offer without processing and considering it, as the IRS does with nondebtor offers. The court reasoned that the offer was not submitted as a request for a discharge of taxes but, rather, as a reflection of what the debtor was able to pay. The IRS's policy of mechanically disregarding the debtor's offer in compromise did not allow a "fresh start," as generally promoted by the Bankruptcy laws. Moreover, the rejection of such offers contradicted the IRS's general practice of being flexible in negotiating with debtors. The court rejected the government's claim that the order exceeded the bankruptcy court's jurisdiction pursuant to sections 1129(a)(9) and 1129(a)(7) of the Bankruptcy Code. It was determined that Congress only intended to bar consideration of offers during Chapter 11 proceedings where a debtor did not agree to different treatment of his claim. Finally, the court was not persuaded that the order violated the Anti-Injunction Act.

MEMORANDUM OPINION

KISER, Senior District Judge: Before this court is the appeal of the United States ("Government" or "IRS"), pursuant to 28 U.S.C. §158(a), from an order of the United States Bankruptcy Court for the Western District of Virginia. By a May 29, 2003, order and corrected opinion of June 5, 2003, the Bankruptcy Court directed the United States to process Debtor Macher's offer in compromise as part of his proposed Chapter 11 reorganization plan. The parties stipulated to the relevant facts, and for the reasons stated below, I agree with the legal conclusions and result reached by the Bankruptcy Court. I therefore affirm the Bankruptcy Court's order and direct the IRS to consider Macher's plan. This court is not empowered to dictate that the IRS accept any plan which calls for Macher to pay less than 100% of the IRS's priority claim arising from trust fund taxes improperly diverted by Macher. However, a reasonable reconciliation of internal IRS policy with the "fresh start" policy of the Bankruptcy Code must resist the Government's refusal to process and consider, and its summary rejection of, a Chapter 11 debtor's reorganization plan which proposes a compromise payment of his tax deficiency.

I. Factual Background

The parties stipulated to the following facts. Roland Macher filed a Chapter 11 petition on November 9, 2000. The Internal Revenue Service holds a priority claim of over $273,000 in payroll taxes Macher collected from employees in trust to pay over to the IRS, but instead diverted to other uses. Macher is now the debtor-in-possession of the underlying business.

Macher's Second Amended Plan provided for the IRS's priority claim to be paid at twenty cents on the dollar at 8% p.a. interest over five years. The IRS filed an objection to the Plan and demanded full payment. At the confirmation hearing, the Assistant United States Attorney representing the IRS advised the Bankruptcy Court that Macher's proposed payment constituted an "offer in compromise" from a debtor in bankruptcy which the IRS would not consider. Section 5.8.3.2.1(1)(B) of the current IRS manual provides: "An offer [in compromise] will not be considered during a bankruptcy proceeding." Though not explicitly stated in the parties' briefs, it appears, and I accept as fact for the purposes of this disposition, that a reorganization of the underlying business is a practical impossibility if the IRS does not compromise its priority tax claim.

In the Bankruptcy Court proceedings, counsel extensively briefed the IRS's stated policy not to consider offers in compromise from debtors in terms of whether it violated (1) Bankruptcy Code §525 which prevents certain classes of governmental discrimination (such as in licensing and chartering) against persons who are, or have been debtors under the Bankruptcy Act, or (2) the "fresh start" objectives of the Bankruptcy Code.

In its memorandum opinion, the Bankruptcy Court rejected the §525 grounds for obligating the IRS to consider Macher's offer, a decision neither party questions on appeal. However, the Bankruptcy Court concluded that the IRS could not dismiss Macher's offer in compromise without processing and considering it, as the IRS does with offers in compromise from nondebtors. The Bankruptcy Court reasoned that the IRS policy embodied in IRS Manual §5.8.3.2.1(1)(B) "directly conflicts with the policies underlying the Bankruptcy Code in general and the reorganization provisions of Chapter 11 in particular" for four reasons.

First, the issue is not whether the debtor can compel the IRS to accept his offer (which he cannot), but whether the IRS at least ought to give a debtor's offer in compromise the same consideration as a nondebtor's offer (which it should). Second, just as a nondebtor's offer does not mean that the taxpayer does not owe the back taxes, but simply that he will be unable to pay them in a reasonable amount of time, the IRS should consider a debtor's offer not as a contention that a portion of the taxes are dischargeable, but simply as a recognition of what he can pay. Third, the IRS's stated policy makes a "fresh start" impossible because a debtor cannot obtain a Chapter 11 discharge of his dischargeable obligations without the IRS's approval of a plan, yet the IRS will not even consider an offer in compromise from a debtor. Fourth, honoring a policy which precludes the government from even entering into negotiations "seems at odds with common sense" and "puts the government at cross-purposes with the beneficial purposes underlying the reorganization provisions of Chapter 11."

With these reasons as its foundation, the Bankruptcy Court entered an order "requiring the United States to process and consider the Debtor's offer in compromise of his tax liabilities." Though the Bankruptcy Court was silent as to the statutory basis on which it founded its decision, the parties on appeal agree that the Bankruptcy Court was invoking its broad equitable powers under 11 U.S.C. §105(a), which provides that a bankruptcy court "may issue any order, process, or judgment that is necessary to carry out the provisions of this title."

II. Analysis of Arguments on Appeal

The United States appeals the Bankruptcy Court's ruling on two grounds. I address each in turn under a de novo standard of review. In re Johnson, 960 F.2d 396, 399 (4th Cir. 1992).

A. Jurisdiction of Bankruptcy Court

B. Anti-Injunction Act

III. Conclusion