## Facts

- Whiting Pools, Inc. failed to pay approximately $92,000 in federal employment taxes after assessment and demand.
- The Internal Revenue Service filed a tax lien and seized the company’s tangible personal property (including equipment, vehicles, inventory, and supplies) under its levy authority.
- The seized property was worth substantially more as part of the operating business than in liquidation.
- The day after the seizure, Whiting Pools filed a Chapter 11 petition and continued operating as debtor in possession.
- The United States sought a ruling that bankruptcy protections did not bar its collection efforts or, alternatively, relief to conduct a tax sale.
- Whiting Pools sought an order requiring the IRS to return the seized property to the bankruptcy estate, subject to protections for the IRS’s interest.

## Issues

1. Whether a Chapter 11 estate under 11 U.S.C. § 541 includes property seized prepetition by a secured creditor, including the IRS.
2. Whether 11 U.S.C. § 542(a) authorizes a bankruptcy court to order the IRS to turn over property it seized before the bankruptcy filing.
3. Whether the IRS’s levy and seizure powers exempt it from turnover because the levy purportedly transfers ownership to the government.

## Decision

- The Supreme Court unanimously affirmed the judgment requiring turnover.
- The Court held that the Chapter 11 estate includes property of the debtor seized by a creditor before the petition is filed, so long as the debtor retains legal or equitable interests at commencement of the case.
- The Court held that § 542(a) authorizes a bankruptcy court to order the IRS to deliver seized property to the estate when the debtor in possession may use, sell, or lease it under § 363.
- The Court concluded that an IRS levy does not itself transfer ownership; ownership passes, if at all, only upon a properly conducted tax sale.
- The Court emphasized that the IRS’s lien rights are protected in bankruptcy through “adequate protection” and related secured-creditor provisions.

## Legal Principles

- The definition of “property of the estate” under § 541 is broad and includes debtor property subject to secured interests, including property seized prepetition when the debtor retains legal or equitable interests.
- Section 542(a) grants the estate a right to obtain possession of certain debtor property held by third parties, including governmental entities, when the property is usable under § 363.
- A federal tax levy creates a possessory enforcement mechanism but does not, by itself, divest the taxpayer of all ownership interests prior to sale.
- Secured creditors’ interests are protected in reorganization primarily through limits on the estate’s use of collateral and through “adequate protection,” rather than by excluding collateral from the estate.

## Conclusion

The Court held that property seized prepetition by the IRS remains part of the Chapter 11 estate and must be turned over under § 542(a) for use in reorganization, provided the IRS receives adequate protection of its secured claim.


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