Fernando Anthony Edwards and Sharon Yvette de Edwards

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26 	1In the alternative, the debtors assert that the IRS was
estopped from attempting to levy against these payments. 	However,
as set forth in the IRS’s opposition, an estoppel against the IRS
cannot be established under these circumstances.
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 08-41073 T
Chapter 11
SHARON YVETTE DE EDWARDS,
FERNANDO ANTHONY EDWARDS,
Debtors-in-Possession.
__________________________________/
MEMORANDUM OF DECISION RE EMERGENCY MOTION AND ORDER THEREON
The 	above-captioned 	debtors 	filed 	a 	petition 	seeking 	relief
under chapter 11 of the Bankruptcy Code on March 7, 2008. 	On March
3, 2009, they filed an emergency motion to enforce the automatic stay
to 	force 	the 	IRS 	to 	stop 	levying 	against 	payments 	made 	to 	Mrs.
Edwards’ 	medical 	practice 	by 	third 	party 	payors. 1 	A 	trial 	was
conducted on the motion on March 12, 2009, at which time the motion
was taken under submission.
Pending 	its 	ruling 	on 	the 	motion, 	the 	Court 	declined 	to 	order
the IRS to release the levy recently made. 	However, it directed the
Signed: March 16, 2009
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
March 16, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-41073 Doc# 120 Filed: 03/16/09 Entered: 03/16/09 14:43:40 Page 1 of
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2The debtors have been in chapter 11 for a year now. 	They are
currently in default of their deadline for filing a plan and
disclosure statement. 	The deadline was January 31, 2009. 	Although
they asked for an extension of the deadline, a creditor filed an
objection to the request. 	Debtors have not yet noticed a hearing
on the objection. 	A hearing on the Court order to show cause re
conversion or dismissal is scheduled for March 16, 2009. Their
bankruptcy counsel has recently withdrawn from representing them.
The debtors’ reorganization prospects do not appear promising. 	The
Court’s ruling on this motion does not eliminate the possibility
that the Court will order the case converted or dismissed on March
16, 2009.
3Some years earlier, Sharon had operated as a sole
proprietorship which had its own EIN: i.e., 68-0164682 (the “Old
Personal EIN”).
2
IRS 	not 	to 	make 	any 	new 	levies 	until 	the 	Court 	issued 	its 	ruling.
Set forth below are the Court’s findings and conclusions with respect
to the motion. 2
FINDINGS AND CONCLUSIONS
Mrs. 	Edwards 	(“Sharon”) 	is 	a 	physician 	who, 	prior 	to 	the
commencement of this chapter 11 case, operated through a professional
corporation 	(the 	“PC”). 	The 	PC 	has 	a 	corporate 	employer
identification number (“EIN”): i.e., 68-0377910 (“the PC EIN”). 3 	The
PC has contracts with third party payors, such as insurance companies
and HMOs.
Prior 	to 	the 	commencement 	of 	this 	bankruptcy 	case, 	the 	PC
generated substantial tax debts to the Internal Revenue Service (the
“IRS”). 	The IRS has assessed these delinquent taxes and holds a lien
securing 	the 	tax 	obligation 	against 	the 	PC’s 	assets, 	including 	its
accounts 	receivable 	and 	equipment. 	The 	PC 	has 	not 	filed 	for
bankruptcy protection.
Case: 08-41073 Doc# 120 Filed: 03/16/09 Entered: 03/16/09 14:43:40 Page 2 of
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26 	4No explanation was given as to why Sharon did not simply use
the Old Personal EIN to renegotiate these contracts.
3
Immediately after filing the chapter 11 petition, without hiring
new 	employees 	or 	acquiring 	new 	equipment, 	Sharon 	attempted 	to
commence 	operating 	her 	practice 	as 	a 	sole 	proprietorship. 	To 	do
this, she opened a debtor-in-possession bank account in her own name.
On 	the 	account 	agreement, 	she 	designated 	the 	business 	as 	a 	sole
proprietorship and listed her social security number. 	However, she
also listed the PC EIN.
With 	her 	husband’s 	assistance, 	immediately 	after 	filing 	the
chapter 11 petition, Sharon also attempted to obtain a new EIN as a
sole 	proprietorship. 	Her 	first 	attempt 	to 	do 	so 	was 	by 	filing 	an
application electronically. 	The application listed the business as
a sole proprietorship. However, in box 18 of the application, which
asks 	the 	applicant 	“entity” 	to 	list 	any 	EIN 	previously 	received,
Sharon again listed the PC EIN. 	For reasons that are not clear, no
new personal EIN was issued to her.
Somewhat later, Sharon’s husband filled out an application for
an 	EIN 	for 	Sharon’s 	sole 	proprietorship 	in 	person, 	handwriting 	the
application and handing it to a clerk at the IRS office. 	The Court
was 	not 	supplied 	with 	a 	copy 	of 	this 	application. 	However, 	it 	is
reasonable to conclude that the contents of the application were the
same 	as 	the 	online 	application 	submitted 	earlier. 	Again, 	no 	new
personal EIN was issued.
Without 	a 	new 	personal 	EIN, 	Sharon 	was 	apparently 	unable 	to
renegotiate the contracts with her third party payors. 4 	As a result,
Case: 08-41073 Doc# 120 Filed: 03/16/09 Entered: 03/16/09 14:43:40 Page 3 of
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5She did file one quarterly report, which 	listed the PC EIN.
4
she 	continued 	to 	submit 	billings 	and 	receive 	payments 	using 	the 	PC
EIN. 	Because 	the 	IRS 	considered 	these 	payments 	assets 	of 	the 	PC,
which 	was 	not 	in 	bankruptcy, 	rather 	than 	assets 	of 	the 	bankruptcy
estate, 	the 	IRS 	continued 	to 	levy 	on 	the 	payments 	after 	bankruptcy
and to apply the proceeds to the debts of the PC.
Sharon hired special tax counsel who, together with the debtors’
bankruptcy 	counsel, 	attempted 	to 	assist 	the 	debtors 	in 	resolving
their disputes with the IRS. 	The IRS agreed to a moratorium on all
levies 	until 	the 	end 	of 	October 	2008 	so 	that 	the 	payment 	history
could 	be 	developed 	and 	analyzed. 	In 	fact, 	the 	IRS 	delayed 	levying
until 	late 	February 	2009. 	When 	the 	IRS 	again 	began 	to 	levy 	on 	the
payments from third party payors, ostensibly to the PC, this motion
was 	filed. 	In 	the 	mean 	time, 	Sharon 	has 	failed 	to 	pay 	any 	of 	her
post-petition taxes. 5
Recently, Sharon obtained a new personal EIN (the “New Personal
EIN”). 	She is in the process of negotiating new contracts with the
third 	party 	payors 	so 	that 	she 	may 	bill 	and 	receive 	payments 	using
the 	New 	Personal 	EIN. 	She 	estimates 	that 	this 	process 	will 	be
complete 	in 	45 	days. 	She 	acknowledges 	that 	the 	IRS 	is 	free 	to
foreclose 	on 	the 	medical 	equipment 	she 	is 	using 	in 	her 	sole
proprietorship 	and 	that 	a 	portion 	of 	her 	third 	party 	payments 	are
attributable 	to 	the 	value 	of 	the 	equipment. 	She 	also 	acknowledges
that any post-petition levies on payment by third party payors made
post-petition 	but 	based 	on 	services 	provided 	pre-petition 	were
Case: 08-41073 Doc# 120 Filed: 03/16/09 Entered: 03/16/09 14:43:40 Page 4 of
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5
properly 	made 	and 	may 	be 	applied 	to 	the 	tax 	debt 	of 	the 	PC. 	The
Court has not been given sufficient evidence to place a value on the
equipment, to assess what portion of the payments are attributable to
the equipment, or to determine what portion of the payments are based
on services provided pre- as opposed to post-petition.
The IRS contends that Sharon’s post-petition operations have not
been 	sufficiently 	profitable 	to 	permit 	her 	to 	pay 	her 	expenses 	and
service 	the 	post-petition 	tax 	debt 	of 	her 	sole 	proprietorship.
Sharon 	disputes 	this 	contention. 	However, 	the 	parties 	have 	not
provided 	the 	Court 	with 	a 	sufficient 	record 	to 	permit 	the 	Court 	to
resolve 	this 	dispute. 	However, 	one 	thing 	is 	clear, 	Sharon 	has
operated 	her 	practice 	for 	at 	least 	six 	months 	without 	making 	any
payments to the IRS despite the fact that there have been no levies
during that time.
The 	Court 	will 	give 	the 	debtors 	30 	days 	to 	file 	the 	post-
petition federal tax reports for the sole proprietorship and to pay
all post-petition tax debt. 	During that time, the IRS is ordered to
forbear 	from 	levying 	based 	on 	any 	post-petition 	tax 	delinquencies.
The 	IRS 	is 	free 	to 	retain 	any 	funds 	obtained 	as 	a 	result 	of 	the
recent 	levy 	but 	must 	apply 	the 	funds 	to 	the 	tax 	debt 	of 	the 	sole
proprietorship for the time being.
Good cause appearing, based on the foregoing, it is hereby
ORDERED that:
1. 	The motion to enforce the automatic stay against the IRS is
granted in part and denied in part.
Case: 08-41073 Doc# 120 Filed: 03/16/09 Entered: 03/16/09 14:43:40 Page 5 of
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2. 	The 	motion 	is 	denied 	to 	the 	extent 	it 	requests 	an 	order
directing the IRS to release its recent levy on funds paid by third
party payors to Sharon’s medical practice.
3. 	The 	motion 	is 	granted 	to 	the 	extent 	it 	requests 	an 	order
directing 	the 	IRS 	to 	forbear 	making 	any 	further 	levies. 	However,
this order will expire on April 12, 2009 unless by that date Sharon
has 	filed 	all 	post-petition 	federal 	tax 	reports 	and 	paid 	all 	post-
petition federal taxes on account of the practice.
END OF DOCUMENT
Case: 08-41073 Doc# 120 Filed: 03/16/09 Entered: 03/16/09 14:43:40 Page 6 of
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COURT SERVICE LIST
Fernando Anthony Edwards
Sharon Yvette de Edwards
715 Castle Rock Road
Walnut Creek, CA 94598
Cynthia Stier
Assistant United States Attorney
9 th Floor Federal Building
450 Golden Gate Ave., Box 36055
San Francisco, CA 94102
Case: 08-41073 Doc# 120 Filed: 03/16/09 Entered: 03/16/09 14:43:40 Page 7 of
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