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Appvion – Internal Revenue Service Objects to Plan on Multiple Tax-Related Issues

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August 2, 2018 – The Internal Revenue Service (“IRS”) filed an objection to Appvion’s Second Amended Joint Combined Disclosure Statement and Chapter 11 Plans of Liquidation [Docket No. 836]. Objecting strenuously on multiple grounds, the IRS [Docket No. 940] asserts, “The Debtors have not yet filed all of their federal tax returns. The United States objects to the confirmation of the Plan unless and until all federal tax returns are filed….The United States objects to Article XII of the Plan to the extent that the Plan injunctions extend to the post-confirmation actions taken on account of or on behalf of the Liquidating Trust. The United States objects to the Plan to the extent it fails to preserve the setoff and recoupment rights of the IRS. Confirmation of a plan does not extinguish setoff claims when they are timely asserted….The United States objects to Articles V(A) and X(J) of the Plan to the extent the Plan fails to provide for the payment of interest on IRS administrative expense claims. The United States objects to Article X(K) of the Plan which deems distributions made after the Effective Date to be made on the Effective Date….The United States objects to the Plan to the extent that the Debtors seek any prospective tax relief, including, but not limited to: the characterization and treatment of any transaction authorized by or contemplated by the Plan or the characterization and valuation, for tax purposes, of any assets of the Bankruptcy Estate. The United States objects to Article V(A) of the Plan to the extent the Plan purports to set an administrative claims bar date for taxes described in 11 U.S.C. Section 503(b)(1)(B) and (C) in violation of Section 503(b)(1)(D) of the Bankruptcy Code….The United States objects to the treatment of its claims in Article XII as a Bankruptcy Rule 9019 settlement. Here, the Debtors are not settling their own claims but instead are attempting to “settle” without consent the unknown claims of unknown creditors without providing adequate notice. The treatment and payment of claims under the Plan is the antithesis of settlement. Settlement is the consensual agreement between two or more parties to resolve a dispute. By virtue of the Plan process, the United States does not waive sovereign immunity and has not consented to the compromise or settlement of its claims or causes of action, and this provision is unfairly prejudicial to the rights of the United States.”

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