Irwin Financial trustee and FDIC settle tax refund ownership dispute

By Caroline Salls

Pittsburgh, Feb. 5 - Irwin Financial Corp. Chapter 7 trustee Elliott Levin requested court approval of a tax refund dispute settlement with the Federal Deposit Insurance Corp., according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of Indiana.

The FDIC is the receiver for Irwin Union Bank, FSB and Irwin Union Bank and Trust Co.

In May 2010, the bankruptcy court approved an agreement that addressed how disputed tax refunds would be escrowed. Under that agreement, all tax refunds received or to be received by the trustee on account of the federal consolidated and state consolidated returns filed by Irwin Financial were required to be immediately deposited in a segregated interest-bearing account and held by the trustee pending a determination of the disposition of the funds.

The trustee said $48.2 million has been deposited in the segregated tax refund account. No tax refunds have been received by the FDIC since Irwin's bankruptcy filing.

The FDIC claims that the tax refunds belong to the banks and are property of the receiver, and Levin contends that the refunds belong to the company and are property of its bankruptcy estate, the motion said.

In addition to the $48.2 million in the tax refund account, the trustee said he is in possession of $2.41 million of miscellaneous funds for which ownership is disputed between the trustee and receiver.

Levin said the FDIC filed a claim in February 2010, which it believes may be in excess of $125.89 million. Of that amount, the receiver alleged that more than $109.79 million related to a capital maintenance commitment is entitled to priority treatment.

The trustee filed an adversary proceeding in 2011 claiming company ownership of the tax refunds in question.

Settlement terms

Under the proposed settlement:

• The trustee, on behalf of the Irwin estate, will receive 25% of the tax refunds, and the FDIC-receiver will receive 75%. This includes tax refunds currently being held in the segregated account plus interest and any further tax refunds received by the trustee or the receiver in connection with the affiliated group;

• The estate will be entitled to 100% of the miscellaneous disputed funds, plus interest;

• The FDIC-receiver will withdraw its proof of claim with prejudice; and

• A receivership action and the tax refund adversary and avoidance adversary will be dismissed with prejudice.

Columbus, Ind.-based Irwin Financial is the bank holding company of Irwin Union Bank and Trust and Irwin Union Bank, F.S.B. The company filed for bankruptcy on Sept. 18, 2009. Its Chapter 7 case number is 09-13852.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.