In re Majestic Star Casino, Limited Liability Corporation
United States Court of Appeals for the Third Circuit
716 F.3d 736 (2013)
Barden's wholly owned company BDI held S-corporation status for tax purposes, making its subsidiary Majestic Star Casino II (Majestic) (plaintiff) a qualified subchapter S subsidiary (QSub), letting both entities avoid corporate-level federal tax; after Majestic filed Chapter 11, Barden successfully petitioned the IRS to revoke BDI's S-corporation status, which automatically stripped Majestic of its QSub status and subjected it to federal taxation. Majestic sued, alleging this revocation was an unlawful post-petition transfer of estate property, and the bankruptcy court agreed, ordering Barden and the IRS to reinstate both entities' tax statuses; the case was certified for direct appeal.
Whether a business debtor's tax classification, which the debtor itself has no control over and can be unilaterally revoked by its shareholder, constitutes property of the debtor's bankruptcy estate.