Opinion
Case No. 03-32094 (DOT) Chapter 11 (Jointly Administered)
August 8, 2003
Michael C. Shepherd, HUNTON WILLIAMS LLP, Riverfront Plaza, East Tower, Richmond, Virginia, Michael J. Martineau, Trial Attorney, Tax Division, United States Department of Justice, Washington, DC, Counsel to the Debtors and Debtors in Possession.
This stipulation and agreed order (this "Stipulation and Agreed Order") is entered into by and between (a) the Internal Revenue Service (the "Service") and (b) the above-captioned debtors and debtors-in-possession (individually, a "Debtor" and collectively, the "Debtors") in this jointly administered bankruptcy case (this "Bankruptcy Case") pending in the United States Bankruptcy Court for the Eastern District of Virginia (the "Bankruptcy Court"), by and through their respective counsel. The Debtors and the Service are collectively referred to herein as the "Parties."
RECITALS
1. On March 4, 2003, (the "Petition Date"), the Debtors each filed a voluntary petition (the "Petitions") under Chapter 11 of title 11 of the United States Code (the "Bankruptcy Code").
2. Prior to the Petition Date, the Service examined the federal income tax returns of NTELOS Inc. ("NTELOS") and its consolidated subsidiaries for the tax year ended December 31, 1999, of Virginia RSA 6 Cellular Limited Partnership ("RSA 6") for the tax year ended December 31, 1999, of Virginia PCS Alliance, L.C. (the "Virginia Alliance") for the tax years ended December 31, 1998 and 1999, and of West Virginia PCS Alliance, L.C. (the "West Virginia Alliance") for its tax years ended December 31, 1998 and 1999. The Virginia Alliance and the West Virginia Alliance are TEFRA partnerships subject to the provisions of section 6221 et seq. of the Internal Revenue Code. RSA 6 is not a TEFRA partnership. A member of NTELOS' consolidated federal income tax group was the majority partner in RSA 6 during the relevant time period, and members of the consolidated federal income tax groups of NTELOS and of RB Communications, Inc. ("RB") owned in the aggregate most of the membership interests in the Virginia Alliance and the West Virginia Alliance during all relevant time periods. On September 11, 2002, the Service issued to RSA 6 and to NTELOS letters proposing adjustments to taxable income for 1999 and, in the case of NTELOS, adjustments to taxable income for 1997 as a result of a proposed reduction in a net operating loss ("NOL") carryback from 1999. NTELOS and RSA 6 timely appealed the proposed adjustments on February 27, 2003. On January 21, 2003, the Service issued to the Virginia Alliance and all of its members letters proposing adjustments to the taxable income of the Virginia Alliance (and therefore of its members) for 1998 and 1999, and on the same date issued to the West Virginia Alliance and all of its members letters proposing adjustments to taxable income for 1998 and 1999. For NTELOS and RB, the proposed adjustments would, if sustained, result in decreases in NOL carrybacks to 1996 and 1997 and thus potentially create tax liabilities for those years. Under applicable Treasury Regulations, the filing of the Petitions converted the partnership items of NTELOS and RB relating to the Virginia Alliance and West Virginia Alliance to nonpartnership items for purposes of TEFRA partnership procedures, thereby removing NTELOS and RB from such procedures. On March 21, 2003, NTELOS, RB, and the respective tax matters partners of the Virginia Alliance and the West Virginia Alliance timely appealed the proposed adjustments specified in the January 21 letters. All of the appeals described in this paragraph are pending before the Service's Appeals Office.
3. The Service filed, inter alia, the below-listed proofs of claim (collectively, the "Proofs of Claim") asserting pre-confirmation tax liabilities allegedly owing by NTELOS and RB, respectively:
a. Claim Number 607 against NTELOS: Amount Classification Description Tax Period $921,096.00 Priority Corporate Income 12/31/1996 $1,974,479.00 Priority Corporate Income 12/31/1997 $537,518.00 Priority Corporate Income 12/31/1998 $810,968.00 Priority Corporate Income 12/31/1999 $1,000.00 Priority Corporate Income 12/31/2001 b. Claim Number 608 against RB: Amount Classification Description Tax Period $459,065.00 Priority Corporate Income 12/31/1996 $13,524.00 Priority Corporate Income 12/31/1997 $1,000.00 Priority Corporate Income 12/31/1998 $1,000.00 Priority Corporate Income 12/31/2001 4. On July 8, 2003, the Debtors objected to allowance of the claims set forth in the Proofs of Claim (individually, a "Disputed Tax Liability" and collectively, the "Disputed Tax Liabilities").5. In addition to the claims set forth in the Proofs of Claims, the Service also filed proofs of claim asserting pre-petition tax liabilities allegedly owing by NTELOS Network Inc. (Claim Number 602), NTELOS NetAccess Inc. (Claim Number 603), NTELOS Cable of Virginia Inc. (Claim Number 604), NTELOS Wireless Inc. (Claim Number 605), NTELOS Cornerstone Inc. (Claim Number 606) and Roanoke and Botetourt Telephone Company (Claim Number 609) (collectively, the "Other Proofs of Claim").
6. On July 8, 2003, the Debtors objected to allowance of the claims set forth in the Other Proofs of Claim on the basis that the claims set forth therein (i) had been paid in full either prior to the Petition Date or pursuant to an order entered in this Bankruptcy Case or (ii) were otherwise disputed.
7. The Debtors filed the Debtors' Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code dated July 1, 2003 (as it may subsequently be amended, the "Plan"), which provides that the Disputed Tax Liabilities will be paid in accordance with section 1129(a)(9)(C) to the extent the Disputed Tax Liabilities are allowed unsecured priority tax claims in accordance with sections 502 and 507(a)(8) of the Bankruptcy Code. A hearing on confirmation of the Plan is scheduled to be held on August 11, 2003, at 2:00 p.m.
STIPULATION
NOW THEREFORE, in order to resolve (i) the Debtors' objections to the Other Proofs of Claim, (ii) the dispute with respect to the allowance of the Disputed Tax Liabilities and (iii) the treatment of the Disputed Tax Liabilities under the Plan, the Parties stipulate and agree as follows:
a. The Service hereby withdraws the Other Proofs of Claim, and the Debtors hereby withdraw their objections to the Other Proofs of Claim.
b. In accordance with 28 U.S.C. § 1334(b) and notwithstanding section 505(a) of the Bankruptcy Code, the Disputed Tax Liabilities shall be determined administratively or in a judicial forum in the manner in which such Disputed Tax Liabilities would have been resolved had this Bankruptcy Case not been commenced.
c. Upon final determination or resolution (including a consensual resolution mutually agreed to by the Parties) of the Disputed Tax Liabilities (a "Resolution"), the amount, if any, that is determined to be due and owing from NTELOS or RB, respectively, or any of the Debtors, shall be paid in accordance with the terms of the Plan, or as otherwise agreed to by the Debtors and the Service in accordance with section 1129(a)(9) of the Bankruptcy Code; provided, however, that any interest payable with respect to the Disputed Tax Liabilities shall be payable at the rate of interest applicable pursuant to section 6621 of the Internal Revenue Code; provided further, however, that the Debtors' liability, if any, for interest shall be suspended on any Disputed Tax Liabilities for the period from the Petition Date until the date of entry of an order confirming the Plan.
d. The terms of any Resolution shall be set forth in an agreed order endorsed by both counsel to the Debtors and counsel to the Service resolving the Debtors' objections to the Proofs of Claim, which shall be tendered to the Bankruptcy Court for entry. The terms of any Resolution set forth in such agreed order shall be binding upon the Debtors and the Service, and the merits of the dispute underlying such Resolution shall not be subject to review in the Bankruptcy Court. The terms of a Resolution of less than all of the Disputed Tax Liabilities may be set forth in an agreed order separate from that setting forth the Resolution of one or more other Disputed Tax Liabilities.
e. In the event that a Debtor from which a Disputed Tax Liability is found to be due and owing pursuant to the terms of this Stipulation and Agreed Order (i) files a subsequent voluntary petition under either chapter 7 or chapter 11 of the Bankruptcy Code, or (ii) has an involuntary case commenced against it under chapter 7 or chapter 11 of the Bankruptcy Code, and thereby commences or has commenced against it a later bankruptcy case (a "Later Case"), the classification of such Disputed Tax Liability as an unsecured priority claim or general unsecured claim as determined in such Later Case shall be unaffected by the terms of this Stipulation and Agreed Order.
f. In no event shall this Stipulation and Agreed Order constitute or be deemed a waiver of the discharge conferred upon the Debtors pursuant to section 1141(d)(1) of the Bankruptcy Code upon confirmation of a plan with respect to any Disputed Tax Liability asserted in the Proofs of Claim or any other pre-confirmation tax liability otherwise capable of being asserted by the Service in this Bankruptcy Case, except that the Parties agree such discharge is waived with respect to a Debtor's federal income tax liability for any taxable period ending after December 31, 2001, if the federal income tax return of such Debtor (or, in the case of a consolidated return, the common parent of the consolidated group) for the period was not filed before July 1, 2003.
g. Except as set forth herein, the respective rights of the Parties are preserved, including the right of setoff.
h. The Parties shall use their best efforts to obtain Bankruptcy Court approval of the terms of this Stipulation and Agreed Order as soon as practicable. In the event the Bankruptcy Court declines to enter this Stipulation and Agreed Order, this Stipulation and Agreed Order shall be null and void and the Parties shall be restored to their respective positions as if this Stipulation and Agreed Order had not been entered into, except that the Service shall be allowed thirty (30) days from the date of the Bankruptcy Court's denial of approval of the terms of this Stipulation and Agreed Order to file a response to the Debtors' objection to the Proofs of Claim.
i. This Stipulation and Agreed Order may be executed in counterparts, any of which may be transmitted by facsimile, and each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
j. The Bankruptcy Court shall retain jurisdiction over the Parties with respect to the implementation of this Stipulation and Agreed Order.