Schafer and Weiner Prevails Over IRS Objections To Preserve Administrative Creditor Payments

April, 2021

John Stockdale, Jr. represented a mail and caging company servicing the nonprofit fundraising sector in its chapter 11 bankruptcy case.  The bankruptcy case was dismissed when the Debtor was unable to pay its operating expenses and continued its prepetition nonpayment of withholding taxes due the IRS during the bankruptcy case.  As a result, the IRS sought to recover the unpaid taxes from administrative creditors that the Debtor paid during the bankruptcy case.  Schafer and Weiner successfully fended off the IRS’s efforts in the bankruptcy court leading to two published decisions addressing the effects of dismissal of a chapter 11 case.  The IRS appealed to the district court where, again, Schafer and Weiner overcame the IRS’s arguments in two lengthy unpublished decisions.  The IRS appealed again to the Sixth Circuit Court of Appeals.  After preliminary maneuvering and mediation, however, the IRS admitted defeat and voluntarily dismissed the appeal letting the victories below stand, which allows the administrative creditors to retain their post-petition payments.