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09-3079 & 09-3177 In re: South Beach Securities, Inc.

By: dmc-admin//May 24, 2010//

09-3079 & 09-3177 In re: South Beach Securities, Inc.

By: dmc-admin//May 24, 2010//

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Bankruptcy
Tax evasion

The U.S. Trustee can object to a reorganization plan on the ground that its main purpose is to avoid taxes.

"And even if the U.S. Trustee was not a party in interest, the bankruptcy or district court, since it can hardly be thought required to approve an unlawful plan of reorganization, need not turn a deaf ear when the U.S. Trustee, or anyone else for that matter, argues the plan's unlawfulness. If in doing so the U.S. Trustee is acting ultra vires, as we very much doubt, his superiors in the Justice Department can rein him in; but even if he should be thought an officious intermeddler, this would not authorize Scattered to flout bankruptcy law. Congress has authorized the federal courts to 'issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title [the Bankruptcy Code],' and, even more pointedly, has declared that 'no provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.' 11 U.S.C. § 105(a). Consistent with this language, bankruptcy judges have considered issues of tax avoidance on their own initiative. In re Hartman Material Handling Systems, Inc., 141 B.R. 802, 808-09 and n. 10 (Bankr. S.D.N.Y. 1992); In re Maxim Industries, Inc., 22 B.R. 611 (Bankr. D. Mass. 1982); cf. In re Economy Cast Stone Co., 16 B.R. 647, 650 (Bankr. E.D. Va. 1981). As Hartman explained, 'this Court cannot fairly consider plan confirmation . . . and ignore the obvious tax avoidance question. Congress has given the bankruptcy courts the responsibility for determining whether a reorganization plan is proper, including tax considerations.' 141 B.R. at 809."

Affirmed.

09-3079 & 09-3177 In re: South Beach Securities, Inc.

Appeals from the United States District Court for the Northern District of Illinois, Lefkow, J., Posner, J.

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