SE Waffles, LLC v. U.S. Dep't of Treasury, No. 11-6522 (6th Cir. 2012)Annotate this Case
SEW operated 113 franchise Waffle House restaurants when it filed its Chapter 11 petition in 2008. From January, 2005, to the Petition Date, SEW did not pay federal income tax withholding, social security (FICA), or unemployment (FUTA) taxes or timely file returns. During four years before the Petition Date, the IRS assessed penalties of more than $1,500,000. SEW subsequently made payments that were applied to its tax obligations and also made undesignated prepetition payments that were applied in partial satisfaction of the assessed penalties. SEW later sought recovery of prepetition tax penalty payments of $637,652.07 or an offset against the tax amounts still owed. SEW alleged that payment of these penalties provided no value to SEW; that SEW did not receive reasonably equivalent value in exchange for the Penalty Payments; that at the time that of the payments, SEW was insolvent; and cited 11 U.S.C. 548 and 544. The government argued that dollar-for-dollar reduction in SEW’s antecedent tax-penalty liabilities constituted reasonably equivalent value. SEW did not allege that the penalty obligations were themselves avoidable. The Bankruptcy court dismissed SEW’s adversary petition for failure to state a clam. The Bankruptcy Appellate Panel and Sixth Circuit affirmed.