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U.S. Supreme Court

United States v. Whiting Pools, Inc., 462 U.S. 198 (1983)

United States v. Whiting Pools, Inc.

No. 82-215

Argued April 19, 1983

Decided June 8, 1983

462 U.S. 198


Section 542(a) of the Bankruptcy Reform Act of 1978 (Act) requires an entity, other than a custodian, in possession of property of the debtor that the trustee in bankruptcy can use, sell, or lease under § 363 to deliver that property to the trustee. Section 543(b)(1) requires a custodian in possession or control of any property of the debtor to deliver the property to the trustee. Promptly after the Internal Revenue Service (IRS) seized respondent swimming pool firm's tangible personal property to satisfy a tax lien, respondent filed a petition for reorganization under the Act. The Bankruptcy Court, pursuant to § 543(b)(1), ordered the IRS to turn the property over to respondent on the condition that respondent provide the IRS with specified protection for its interests. The District Court reversed, holding that a turnover order against the IRS was not authorized by either § 542(a) or § 543(b)(1). The Court of Appeals in turn reversed the District Court, holding that a turnover order could issue against the IRS under § 542(a).


1. The reorganization estate includes property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization. Pp. 462 U. S. 202-209.

(a) Both the congressional goal of encouraging reorganization of troubled enterprises and Congress' choice of protecting secured creditors by imposing limits or conditions on the trustee's power to sell, use, or lease property subject to a secured interest, rather than by excluding such property from the reorganization estate, indicate that Congress intended a broad range of property, including property in which a creditor has a secured interest, to be included in the estate. Pp. 462 U. S. 203-204.

(b) The statutory language reflects this view of the scope of the estate. Section 541(a)(1) of the Act, which provides that the estate shall include "all legal or equitable interests of the debtor in property as of the commencement of the case," is intended to include any property made available to the estate by other provisions of the Act, such as § 542(a). In effect, § 542(a) grants to the estate a possessory interest in certain property of the debtor that was not held by the debtor at the commencement of reorganization proceedings. Pp. 462 U. S. 204-207.

(c) This interpretation of § 542(a) is supported by its legislative history, and is consistent with judicial precedent predating the Act.

Page 462 U. S. 199

Any other interpretation would deprive the reorganization estate of the assets and property essential to its rehabilitation effort, and thereby would frustrate the congressional purpose behind the reorganization provisions. Pp. 462 U. S. 207-208.

2. Section 542(a) authorizes the Bankruptcy Court to order the IRS to turn over the seized property in question. Pp. 462 U. S. 209-211.

(a) The IRS is bound by § 542(a) to the same extent as any secured creditor. Nothing in the Act or its legislative history indicates that Congress intended a special exception for tax collectors. 462 U. S. 209.

(b) While § 542(a) would not apply if a tax levy or seizure transferred to the IRS ownership of the property seized, the Internal Revenue Code does not transfer ownership of such property until the property is sold to a bona fide purchaser at a tax sale. Pp. 462 U. S. 209-211.

674 F.2d 144, affirmed.

BLACKMUN, J., delivered the opinion for a unanimous Court.

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