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Bankruptcy & Collections Unit

Unit Description

Overview
Legal Services Provided
Numbers/Trends
Significant Cases

Contact:
800 Fifth Avenue, Suite 2000
Seattle, WA 98104
E-mail


Overview

The Bankruptcy and Collections Unit (BCU) is comprised of three attorneys and four professional staff.  The unit encourages voluntary compliance with the state’s tax laws by supporting the efforts of state agencies to aggressively pursue money owed to the state.  Most of the money is owed for delinquent sales and business and occupation taxes, industrial insurance premiums and unemployment fund contributions.  The BCU gives priority to representing the departments of Revenue, Labor & Industries and Employment Security in bankruptcy cases. 

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Legal Services Provided

The BCU’s principal legal activity involves representing the state tax agencies in federal bankruptcy courts nationwide.  The BCU also files a significant number of collection actions against the bonds of contractors who are delinquent in tax payments.  The BCU appears in superior court to defend the priority of state liens and to assert claims against funds retained by government entities under public works contracts.  The BCU also devotes substantial resources to training tax agency personnel who handle bankruptcy and collections claims.

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Numbers/Trends

The BCU has handled a total of 23,001 bankruptcy and collection cases on behalf of the state since the unit was created in 1993, collecting more than $176.7 million, including $126.8 million in payments made, $14.3 million in claims successfully defended and $35.5 million in future payments to be made to the state under court orders.  As of August 2012, the BCU had 606 active cases with more than $6.3 million in pending agency claims. 

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Significant Cases

Contractor Bond Cases:   Contractors who do business in this state must obtain a surety bond or open an assigned savings account to protect the homeowner.  The state tax agencies can collect unpaid taxes against a portion of this bond by filing a lawsuit against the surety company or the contractor’s bank account.  The BCU opened 629 contractor bond files during FY2012 and recovered in excess of $2 million. 

ARC Venture Holdings, Inc.  a chapter 7 Trustee filed a preference action against Revenue seeking the return of $818,568.01 paid by the debtor during the 90 days before the bankruptcy case was filed.  Asserting a defense under the Supreme Court decision of Begier, the motion was argued in Minneapolis where the judge took the matter under advisement, indicating that she was inclined to agree with the state that it could keep the taxes paid but not the penalties.  A settlement was then reached with the Trustee whereby Revenue retained all of the taxes paid ($710,568.01), the Trustee was paid $85,000 of the penalties, and the state retained $23,000 of the penalties. 

Ebenal General: Ebenal entered into a public work contract with Western Washington University to build an addition to Buchanan Towers.  Ebenal had financial problems and Western terminated the contract for cause.  Safeco as surety completed the project and as a result of claims paid held an assignment for all of Ebenal’s accounts receivable (unpaid progress payments).  In settlement of all claims WWU paid Safeco $1.7 million.  Unfortunately, Western disbursed both the withheld progress payment and the corresponding sales tax to Safeco at the time of settlement.  Safeco, assuming all funds were unpaid progress payments, failed to remit the sales tax of $147,900 to Revenue.  When Revenue received the Notice of Completion from Western, it became apparent that the sales tax had been improperly disbursed to the surety.  BCU contacted Safeco’s counsel and after discussion, Safeco remitted $147,900 to Revenue. 

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