In the News

Anthony Ilardi Helps Secure Win in Landmark Appellate Case

Third Circuit: Bankruptcy Code Doesn't Stop Taxpayer’s Change in S-Corp Status

May 23, 2013

Anthony Ilardi, Jr., a Detroit-based member of Dykema’s Taxation Practice Group, helped earn a significant appellate court victory for Barden Development Inc. (BDI) in a case that centered on whether the revocation of S corporation status—conferred upon BDI by the Internal Revenue Service after a qualified subchapter S subsidiary (QSub) of the enterprise had filed for bankruptcy—represented a “improper postpetition transfer of property” of the QSub’s bankruptcy estate.

The ruling—issued on May 21, 2013 by the U.S. Court of Appeals for the Third Circuit—means that in a bankruptcy proceeding, the parent company’s ability to change tax status cannot be challenged as a transfer of property. Many legal observers consider this a “significant” judgment in favor of entrepreneurial companies who conduct business via S corporations and QSubs. It also marks the very first time an Appellate Court has weighed in on this issue.

Ilardi notes that the Third Circuit ruling was as decisive a victory for his client as was possible. “The court rejected every one of the plaintiff’s arguments—that the QSub’s assets were 'property,' that the Bankruptcy Court’s had correctly interpreted the Bankruptcy Code Section 541(1) and that the plaintiff even had legitimate standing to oppose the revocation,” Ilardi observed. “It was a win-win-win for our side.”

To read the Third Circuit opinion in its entirety, click here.