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February 21, 2025

A District Court Decision Implies that Marshaling Is Impermissible in Bankruptcy

The circuits are split on whether a bankruptcy court can compel marshalling by the IRS.

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Opinion Link

View Opinion

https://abi-opinions.s3.us-east-1.amazonaws.com/US+v+Ries.pdf

Case Details

Case Citation

U.S. v. Ries, 24-146 (N.D. Tex. Feb. 10, 2025)

Case Name

U.S. v. Ries

Case Type

Court

5th Circuit

Texas

Texas Northern District

Bankruptcy Tags

Claims

Bankruptcy Taxation

Govt. Claims/Sovereign Immunity

Comments

Submitted by Robert Lawless on February 21, 2025

The second part of the opinion about the application of the Anti-Injunction Act is unfortunate and hopefully will be received for the dicta it is. Of course, there are many ways the Bankruptcy Code raises "hurdles to the tax collection ability" of the IRS to collect taxes, with the automatic stay and discharge injunction being two examples. The cases the court cites generally are about the ability of the bankruptcy court to use section 105 to enjoin tax collection against a nondebtor, often a principal of the debtor.

Submitted by Thomas Salerno on February 21, 2025

An unfortunate and short-sighted opinion to be sure. This creates a windfall for the debtor at the expense of the unsecured creditors, with no real economic downside to the IRS had marshalling been required.