An ABI Committee Newsletter
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| Vol 20, Num 1 | August, 2025
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by
Brandon E. Lira, Stoel Rives LLP (Seattle)
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Following the ratification of the Constitution in 1788, Benjamin Franklin famously wrote that “[o]ur new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Franklin’s second certainty is assured by the Constitution’s Taxing Clause, which the Supreme Court has concluded “is exhaustive and embraces every conceivable power of taxation.” But what good is the right to assert a tax against a debtor in bankruptcy — however expansive it may be — if left unexercised to the detriment of other parties in interest? A recent decision from the U.S. Bankruptcy Court for the Northern District of Illinois teaches that the answer may be nothing.
Johnson Publishing Co., famous for its publication of Ebony and Jet magazines as well as its
influence on American culture, began to struggle during the Great Recession. After its attempts to adapt by spinning off various divisions and reducing its real estate holdings proved unsuccessful, JPC filed for chapter 7 liquidation on April 9, 2019. Following years of litigation, the “last issue” holding up distributions to creditors was the question of the Internal Revenue Service’s right to assert tax-penalty claims on account of the debtor’s failure to properly document its foreign transactions during several pre-petition tax years.
For reasons that are unclear, the IRS had participated in the bankruptcy case in various ways but had otherwise “refused” the liquidating trustee’s “repeated requests” for clarity on its stance about the possible tax penalties. The liquidating trustee therefore sought to break the logjam by moving for the entry of an order
estimating the value of the IRS’s claim pursuant to § 502(c) of the Bankruptcy Code. Under that provision, a bankruptcy court may estimate claims by “whatever method is best suited to the particular contingencies at issue,” as long as the underlying purposes of the Bankruptcy Code are not contravened and due regard is given to otherwise applicable law.
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