Battling the IRS can be frustrating to attorneys who do not understand the “notice” requirements that specifically relate to the IRS. Notice rules relating to general creditors are not the same as notice rules relating to the IRS.
So what are the “Notice” rules relating to the IRS and what is the impact of failing to provide proper notice? That issue was addressed in In re Rosen, 542 B.R. 177 (Bankr. E.D.PA 2015).
In Rosen, the Chapter 7 trustee for the debtor’s estate filed a motion against the IRS for contempt for failing to comply with a subpoena, sanctions, and to compel the IRS to produce documents. The IRS resisted. The Trustee served the IRS, but admitted that the trustee failed to serve the U.S. Attorney’s Office or the U.S. Attorney General.
The Rosen court addressed the “Notice” issue relating to the contempt portion of the motion and reserved judgment to a later date on the sanctions issue and document production issue. The court noted that Rule 45(g) of the Federal Rule of Civil Procedure provided the basis upon which the trustee was seeking the contempt order for failure to respond to the subpoena. The court also noted that Rule 45(g) requires proper service as a prerequisite to the entry of an order of contempt. Id. at 179. A party can only be held in contempt for the failure to respond to a subpoena only if that party was property served with that subpoena.
So the obvious question is what constitutes proper service upon the IRS? The answer is found in Rule 7004(b)(5) of the Federal Rules of Bankruptcy Procedure. Rule 7004 provides that service upon the IRS may be accomplished by mailing a copy of the subpoena and any motion to the following parties: (1) the United States attorney for the district in which the bankruptcy case is pending; (2) the Attorney General of the United States at Washington, D.C.; and (3) the IRS.
The Rosen court found that the trustee had failed to serve the subpoena and failed to serve the motion for contempt upon the US Attorney and the US Attorney General. The fact that the IRS had actual notice did not obviate the requirement of proper notice. As such the Rosen court held that the trustee’s failure to comply with the notice requirements of Rule 7004(b)(5) prevented the court from holding the IRS in contempt. The motion for contempt was denied.
Practice Pointer: Attorneys must spend the time to read the Bankruptcy Rules. Relying upon the rules applicable to general creditors is insufficient when dealing with the IRS. The IRS is afforded special protections not afforded to general creditors.
For follow-up questions, contact attorney Robert V. Schaller by clicking here.