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NOVEL THEORY--INDIRECT PARTNERS CLAIM THEY WERE OWED DUTY OF DISCLOSURE THAT TEFRA AUDIT UNDERWAY AND DECISIONS BEING REACHED

10 / 14 / 2015

In re American Housing Foundation, 2015 Bankr. LEXIS 3313 (Bankr. N.D. Tex. 9/30/15)

In this new case, the focus was on a group of indirect partners who believed that during an involuntary bankruptcy proceeding brought years earlier, the appointed Chapter 11 trustee and the management company employed by the trustee, sought out the IRS, and falsely stated that the indirect partners had been audited, and were under criminal investigation, and then reached decisions in a TEFRA audit, declaring that a certain entity (LIHTC Walden II Development, Ltd. was a 9.9% partner, knowing this to be false.  The indirect partners claim that the Chapter 11 trustee and management firm KNEW that if they informed the indirect partners, that the status of the entity as a partner would have been contested.  

Because the nature of the state court claims brought by the indirect partners implicated the integrity of the bankruptcy process, and for this reason, since the allegations are that these fiduciaries were scheming and vindictive, the matters were deemed to be "core proceedings" and the bankruptcy court refused to remand the case back to state court.