Trustee Tests New Tactic in Construction Bankruptcy

Samantha Joseph | September 20, 2016

A debtor in a bankruptcy case is fighting back against an unusual maneuver that would allow trustees to boost their clawback authority in cases that involve unpaid federal taxes.

Construction executive Donald Kipnis, whose defunct Miller & Solomon General Contractors Inc. built the $150 million Downtown Dadeland project, filed a Chapter 11 bankruptcy petition in 2014 and later converted to Chapter 7. The IRS filed a proof of claim for more than $1.91 million.

Under Florida law, a bankruptcy trustee acting on behalf of unsecured creditors can typically look back four years to pursue collection.

But Barry Mukamal, the Chapter 7 trustee in Kipnis’ case, wants to get hold of an asset he claims that Kipnis fraudulently transferred about 11 years ago during an IRS investigation. Mukamal alleges that in 2005, while the IRS was pursuing a nearly $1.05 million deficiency for two tax years, Kipnis transferred a luxury Brickell Avenue condominium in a premarital settlement agreement that the trustee contends was designed to evade creditors.

The transfer date puts the transaction outside Florida’s four-year statute of limitation, but the trustee used an unusual maneuver—filing two adversary proceedings and stepping into the shoes of the IRS, which has powers beyond the time limits set by state law for bankruptcy proceedings.

“This is a bit of a game changer for trustees working to bring assets into an estate for the benefit of all creditors,” said Corali Lopez-Castro of Kozyak Tropin & Throckmorton in Miami, an attorney for Mukamal.

Neither side disputes the tax collection agency’s extended reach, but they disagree on its span. Mukamal claims federal law and U.S. Supreme Court precedent allow a 10-year recovery period from the date of the IRS proof of claim. Kipnis says the window is much smaller—six years to pursue fraudulent transfers.

The trustee won the first round of sparring in August and survived a motion to dismiss before U.S. Bankruptcy Judge Robert Mark.

Mark ruled that federal law allows the IRS to pursue tax collections for 10 years from the assessment date, unfettered by states’ statutes of limitations.

“You can see what a powerful tool this can be for a trustee to recover money for a bankruptcy estate,” said Lopez-Castro, who teamed with fellow Kozyak Tropin partner David Samole to represent Mukamal.

But Kipnis’ attorney, Peter Russin of Meland Russin & Budwick in Miami, said the ruling failed to consider a federal statute that specifically governs the IRS’ pursuit of alleged fraudulent transfers. That law, the Federal Debt Collections Procedure Act, provides a six- year window, according to the motion.

“The trustee doesn’t get to use any greater rights than the IRS,” Russin said.

A hearing and briefing on Kipnis’ motion for reconsideration is for Oct. 19. If Mark’s ruling stands, the case will proceed to trial on Mukamal’s claims of fraudulent transfer.

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