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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 02-50132

IN THE MATTER OF: PRESCRIPTION HOME HEALTH CARE, INC.,
Debtor.

UNITED STATES OF AMERICA, Internal Revenue Service,
Appellant,
versus
PRESCRIPTION HOME HEALTH CARE, INC.,
Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Western District of Texas
_________________________________________________________________
December 30, 2002
Before DAVIS, BARKSDALE, and DENNIS, Circuit Judges.
RHESA HAWKINS BARKSDALE, Circuit Judge:
The Internal Revenue Service contests the district court's
affirming a bankruptcy court's confirmation of a debtor's plan of
reorganization. The principal issue is whether the bankruptcy
court had jurisdiction to enjoin the IRS from, under 26 U.S.C. ง
6672, assessing and collecting taxes from a non-debtor officer of
the debtor corporation. INJUNCTION VACATED; REMANDED.

I.
Debtor Prescription Home Health Care, Inc., based in San
Antonio, Texas, is a provider of home health services. Edward Z.
Pena is Prescription's president and sole owner.
In August 2000, Prescription filed a petition under Chapter 11
of the Bankruptcy Code. The IRS was, by far, Prescription's chief
creditor; Prescription owed approximately $600,000 in unpaid taxes,
interest, and penalties. In fact, the IRS' impending collection
efforts motivated the filing by Prescription.
The IRS' claim included: (1) a priority claim of
approximately $470,000, consisting of (a) unemployment and payroll
taxes that Prescription, as an employer, was required to pay, and
(b) approximately $250,000 in "trust fund" taxes (income and
payroll taxes that Prescription had withheld from its employees'
wages during all of 1999 and three quarters of 2000, but had failed
to remit to the IRS); and (2) a general unsecured claim of
approximately $140,000 for penalties that had accrued on the taxes
through the date of the bankruptcy petition.
Regarding the "trust fund" portion, Internal Revenue Code งง
3102 and 3402 (26 U.S.C. งง 3102 and 3402) require employers to
withhold federal income and payroll taxes from their employees'
wages. These withheld taxes must be remitted to the IRS on a
quarterly basis, 26 U.S.C. งง 3102(b), 3403; and, while in the
possession of the employer, they are considered a "special fund in
2

trust for the United States", 26 U.S.C ง 7501. As stated,
Prescription failed to remit approximately $250,000.
In addition to Prescription's trust fund liability, Pena, as
a "responsible person", was personally liable, pursuant to 26
U.S.C. ง 6672. It is undisputed that both Prescription and Pena
were liable for the unpaid trust fund taxes.
Section 6672(a) states:
Any person required to collect, truthfully
account for, and pay over any tax imposed by
this title who willfully fails to [do so], or
willfully attempts in any manner to evade or
defeat any such tax or the payment thereof,
shall, in addition to other penalties provided
by law, be liable to a penalty equal to the
amount of the tax evaded, or not collected, or
not accounted for and paid over.
26 U.S.C. ง 6672(a) (emphasis added). This provision, designed to
deter misuse of trust funds by corporate officers, see, e.g.,
United States v. Sotelo, 436 U.S. 268, 277 n.10 (1978), is a means
of ensuring the tax is paid, e.g., Newsome v. United States, 431
F.2d 742, 745 (5th Cir.), cert. denied, 411 U.S. 986 (1973). Such
"responsible persons" liability is separate and distinct from that
imposed on the employer, and the IRS is not required to exhaust its
remedies against the delinquent employer before seeking to protect
the revenue through a ง 6672 assessment. E.g., Hornsby v. Internal
Revenue Service, 588 F.2d 952, 954 (5th Cir. 1979).
Prescription filed a plan of reorganization in January 2001
and an amended plan that April. The latter provided: Pena would
3

retain his interest in the debtor upon receipt by Prescription of
funds equal to the professional fees incurred by Prescription as of
the confirmation date; the priority portion of the IRS' claim would
be paid in full in equal quarterly installments over a six-year
period; and the general unsecured claim would be paid by pro rata
distributions from an "unsecured claims fund" over a ten-year
period, so that the IRS would receive payments equal to
approximately 47 percent of the general unsecured portion of the
claim.
The plan further provided: all payments made toward the
priority claim would be applied to the trust fund portion until
that liability had been paid in full; and, upon plan-confirmation,
all creditors would be enjoined from any act to collect from the
debtor's "management and employees" any portion of a claim against
the debtor, as long as it complied with the plan.
It is the IRS' policy not to assess the ง 6672 penalty against
a responsible person as long as the debtor is compliant with the
terms of its "bankruptcy payment plan", unless statute of
limitations concerns are present. 1 Administration, Internal
Revenue Manual (CCH) ง 1.2.1.1.5.14(6), at 3003. The limitations
period for assessing the ง 6672 liability against Pena will expire
in April 2003 (three years after Prescription filed its employment
tax returns). See Lauckner v. United States, 68 F.3d 69 (3d Cir.
1995). Therefore, if Prescription were to comply with its plan
4

until then, the period for assessing the penalty against Pena would
expire while the injunction remained in effect. In other words, if
the debtor made its payments until the end of the limitations
period, but defaulted thereafter, and the trust fund taxes had not
been paid in full, the IRS could be barred from making an
assessment against Pena. (The Government concedes that there is a
strong argument that the period should be tolled and that this
court could do so.)
The IRS objected, on a number of grounds, to confirmation of
Prescription's proposed plan. It contended, inter alia: (1) a
bankruptcy court could order plan payments to be first applied to
the trust fund portion of a tax liability only upon a showing that
such an allocation was necessary for an effective reorganization,
and Prescription had not made that showing; (2) the bankruptcy
court lacked jurisdiction to enjoin an assessment against a non-
debtor third party; and (3) the proposed injunction for the ง 6672
assessment violated the Anti-Injunction Act, 26 U.S.C. ง 7421(a).
At the confirmation hearing, Pena was asked why, for an
effective reorganization, it was necessary to designate all plan
payments to the trust fund portion and to enjoin all collection
against him. He responded: to make reorganization successful, he
would have to devote his time to the debtor's operations; and "it's
very difficult to do that when ... I realize I can be assessed
[$250,000]". When asked whether the lack of these provisions would
5

interfere with his performance on behalf of the debtor, he
answered:
It's a dark cloud hanging over me and I just
had ญ it's very distracting to realize that
being a single parent of two, an 11- and 13-
year-old, both girls, it's a lot of
responsibility on my shoulders to make sure
that I am successful in paying back the I.R.S.
and without, you know, being able to get into
the housing market.
On cross-examination, Pena confirmed that the reason Prescription
wanted plan payments first applied to the trust fund liability was
because of the "dark cloud" that would be "hanging over [Pena's]
head".
At the conclusion of the hearing, the IRS' objections were
overruled. The bankruptcy judge noted his approval of payments
being first applied to the trust fund liability: "[T]hat's an
incentive on the part of the debtor to make sure that the debtor,
in fact, performs for as long as possible", because "to the extent
the debtor does perform, then there's a positive benefit, not only
for the debtor, but also for Mr. Pena". The bankruptcy judge
determined that, to both prevent the plan's undoing and ensure the
IRS would be paid, it was appropriate to enjoin the ง 6672
assessment. He reasoned the plan would prevent Pena from being
"thrown out of this business", because if he "has the I.R.S.
chasing him around for the rest of his life, he certainly won't be
starting another one of these businesses" and "would never generate
the kind of revenue ... necessary to pay [the IRS]".
6

In June 2001, the bankruptcy court confirmed Prescription's
amended plan, with Pena being permitted to retain his interest in
Prescription for a payment of $15,000. Through what the bankruptcy
court termed a "conditional injunction", "necessary for the
successful reorganization of Prescription", the IRS was enjoined
from taking any action under ง 6672 to assess or collect any
federal employment tax liability from Pena as a responsible party,
so long as Prescription remained current on its payments (ง 6672
injunction).
The IRS appealed to district court. In December 2001, that
court affirmed the bankruptcy court's order, holding, inter alia:
(1) the debtor offered sufficient evidence (through Pena's
testimony) to show the designation of plan payments to trust fund
liability was necessary for a successful reorganization; and (2)
the Anti-Injunction Act does not prevent the bankruptcy court from
temporarily modifying the IRS' ability to collect from a
responsible person, if that is necessary to the successful
reorganization of the debtor, because the bankruptcy court, using
its broad discretionary powers under 11 U.S.C. ง 105, had
jurisdiction to enter the temporary injunction as a proceeding
related to the bankruptcy proceeding.
The district court based its holding in part on United States
v. Energy Resources Co., Inc., 495 U.S. 545 (1990), stating:
Although not directly on point, the Supreme
Court's decision in Energy Resources suggests
7

that the bankruptcy court has broad powers to
temporarily modify the IRS's ability to
collect from a responsible person if the
modification is necessary to the successful
reorganization of the debtor. An effort by
the IRS to collect $600,000 from Pena would
most likely jeopardize the success of the
reorganization plan. The injunction, however,
does not permanently enjoin the IRS from
collecting the taxes. The injunction operates
only as long as the debtor makes timely
payments, and as such, does not violate the
Anti-Injunction Act....
United States v. Prescription Home Health Care, Inc., No. SA-01-CA-
811-EP, Slip op. at 5 (W.D. Tex. Dec. 13, 2001) (emphasis added).
II.
The IRS maintains: the bankruptcy court lacked jurisdiction
over Pena's ง 6672 liability; and, in the alternative, the Anti-
Injunction Act prohibits the ง 6672 injunction. (Because we hold
jurisdiction was lacking, we do not reach the Anti-Injunction Act
issue.) Whether the bankruptcy court can so enjoin the IRS is a
question of law, reviewed de novo. In re Bass, 171 F.3d 1016, 1021
(5th Cir. 1999) ("The holding of a bankruptcy court (or a district
court hearing an appeal from the bankruptcy court) that it has
jurisdiction is a legal determination which we review de novo.").
Concerning the IRS' contention that the bankruptcy court
lacks jurisdiction over a non-debtor's tax liability, Prescription
responds that the court had jurisdiction over Pena's ง 6672
liability because it is a proceeding "related to" Prescription's
8

reorganization. As discussed below, such "related to" language is
found in 28 U.S.C. ง 1334(b).
Under 28 U.S.C. ง 157 (b)(2)(L), jurisdiction is granted
bankruptcy courts to confirm Chapter 11 reorganization plans; it is
undisputed that the bankruptcy court had jurisdiction over
Prescription's reorganization. On the other hand, bankruptcy
courts are not courts of general jurisdiction and do not have
jurisdiction over an action between non-debtors (such as the ง 6672
action between the IRS and Pena), unless that action is "related
to" the bankruptcy. The above-referenced ง 1334(b) provides:
Notwithstanding any Act of Congress that
confers exclusive jurisdiction on a court or
courts other than the district courts, the
district courts shall have original but not
exclusive
jurisdiction
of
all
civil
proceedings arising under title 11, or arising
in or related to cases under title 11.
(Emphasis added.)
"Related to" jurisdiction has been defined quite broadly. The
usual test is whether the outcome of a proceeding could conceivably
have any effect on the estate being administered in bankruptcy.
Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1993). It is well-
established that, to be "related to" a bankruptcy, it is not
necessary for the proceeding to be against the debtor or the
debtor's property. Id. Nevertheless, "a bankruptcy court's
`related to' jurisdiction cannot be limitless". Id.
9

Notwithstanding the broad nature of the "related to"
jurisdiction, Congress, cognizant of the Government's need to
assess and collect taxes with minimal interference, has limited the
jurisdiction of the courts to review tax matters. See, e.g., Bob
Jones University v. Simon, 416 U.S. 725, 736-37 (1974) (discussing
Anti-Injunction Act); Enochs v. Williams Packing & Navigation Co.,
370 U.S. 1, 7 (1962) (same). Generally, judicial review in tax
cases is limited to review of deficiencies in the Tax Court and
refund suits in the district courts and Claims Court. See United
States v. Joe Graham Post No. 119, American Legion, 340 F.2d 474,
476-77 (5th Cir. 1965). See also Bob Jones University, 416 U.S. at
736-37; Enochs, 370 U.S. at 7. While Congress has granted somewhat
broader jurisdiction to courts in the bankruptcy context, it has
done so to allow bankruptcy courts to deal with the tax liabilities
of the debtor and the estate.
For instance, ง 505(a)(1) of the Bankruptcy Code (11 U.S.C. ง
505(a)(1)) provides: "[T]he court may determine the amount or
legality of any tax, fine, or penalty relating to a tax ... whether
or not previously assessed, whether or not paid, and whether or not
contested before and adjudicated by a judicial or administrative
tribunal...." While this provision speaks of "any tax", it grants
jurisdiction to determine the tax liabilities of the debtor and the
estate, not those of third parties (as Prescription concedes).
See, e.g., In re Brandt-Airlex Corp., 843 F.2d 90 (2d. Cir. 1988).
10

Accordingly, ง 505(b) states that a trustee "may request a
determination of any unpaid liability of the estate for any tax
incurred during the administration of the case"; ง 505(c) states:
"Notwithstanding
[the
automatic
stay
provision],
after
determination by a court of a tax under this section, the
governmental unit charged with responsibility for collection of
such tax may assess such tax against the estate, the debtor, or a
successor to the debtor, as the case may be, subject to any
otherwise applicable law". (Emphasis added.)
Prescription seems to contend (and the bankruptcy and district
courts apparently accepted) that the bankruptcy court had "related
to" jurisdiction over Pena's ง 6672 tax liability because, as the
district court stated, assessment against Pena would "most likely
jeopardize the success of the reorganization plan". We disagree.
First, it is well established that a more specific statute
controls over a more general one. E.g., Bulova Watch Co. v. United
States, 365 U.S. 753, 758 (1961). Thus, the general "related to"
jurisdiction of ง 1334(b) does not circumvent the specific grant of
jurisdiction to the bankruptcy court to determine tax liabilities.
Under Prescription's reading of "related to" jurisdiction, all tax
matters could be adjudicated by the bankruptcy court if they could
conceivably affect the debtor's estate. Such a reading would
render superfluous ง 505's grant of jurisdiction to determine the
tax liabilities of the debtor or the estate.
11

Moreover, even if the ง 6672 assessment would jeopardize the
success of the plan, this cannot be sufficient to confer "related
to" jurisdiction. As the IRS points out, the theory that a
bankruptcy court has jurisdiction to enjoin any activity that
threatens the debtor's reorganization prospects would permit the
bankruptcy court to intervene in a wide variety of third-party
disputes. For example, the bankruptcy court would have
jurisdiction over any action (however personal) against key
corporate employees, if they were willing to state that their
morale, concentration, or personal credit would be adversely
affected by that action.
Sister circuits that have addressed directly whether
bankruptcy courts have jurisdiction over the tax liabilities of
non-debtors have held they do not. The Eleventh Circuit, in United
States v. Huckabee Auto Co., 783 F.2d 1546 (11th Cir. 1986),
rejected an injunction designed to prevent a ง 6672 assessment
against the debtor's corporate officers. There, as here, the
bankruptcy court based its injunction on a finding that payment of
the penalty would adversely affect the reorganization; that finding
was based on testimony by the responsible persons.
The district court reversed the bankruptcy court. In
affirming, the Eleventh Circuit held that bankruptcy courts have no
jurisdiction over tax liabilities of non-debtors, even if they have
some role in the debtor corporation or if the ง 6672 assessment
12

might have some adverse affect on the reorganization. Id. at 1549
("[t]he jurisdiction of the bankruptcy courts ... does not ...
extend to the separate liabilities of taxpayers who are not debtors
... [i]t is therefore irrelevant that the penalty, if assessed,
will adversely affect the corporate debtor's reorganization").
Likewise, Prescription's "related to" position was squarely
rejected by the Third Circuit in Quattrone Accountants, Inc. v.
IRS, 895 F.2d 921 (3d. Cir. 1990), which held that the broad
definition of ง 1334 "related to" jurisdiction cannot be used in
relation to a Chapter 11 reorganization to extend the bankruptcy
court's jurisdiction over a non-debtor's ง 6672 liability. The
Third Circuit noted that the "responsible person" liability of the
corporation's part owner and principal officer was "entirely
separate and distinct from the debtor's liability to the IRS" and
concluded that the officer's ง 6672 liability was not "related to"
the corporation's bankruptcy within the meaning of ง 1334(b). Id.
at 926-27. Although it recognized that if the non-debtor were
assessed and paid the ง 6672 liability, the amount the debtor owed
the IRS would decrease, it reasoned that this did not constitute a
"conceivable effect" on the estate, given the contingent nature of
the payment and the joint and several nature of the debt. Id.
Finally, in a non-ง 6672 context, the Second Circuit, in In re
Brandt-Airflex Corp., held that ง 505(a) "does not confer
bankruptcy court jurisdiction over non-debtors". 843 F.2d at 96
13

("ง 505(a) was certainly not intended to allow bankruptcy courts to
determine the validity of literally any tax, no matter who owes
it") (emphasis in original). That case addressed the liability of
a payroll financier for a debtor's withholding taxes under 26
U.S.C. ง 3505; the bankruptcy court "did not have the jurisdiction
to determine the ง 3505 liability of" the financier, because he was
"a non-debtor". Id.
In the light of these adverse holdings, Prescription asserts
that Energy Resources, which post-dates Huckabee Auto, Quattrone,
and Brandt-Airflex, controls. As explained supra, the district
court relied upon Energy Resources, "although [noting it is] not
directly on point".
Energy Resources recognized the broad equitable powers
accorded bankruptcy courts under 11 U.S.C. งง 105(a) and 1123(b)(6)
(then (b)(5)). Section 105(a) provides: "The court may issue any
order, process, or judgment that is necessary or appropriate to
carry out the provisions of this title". Section 1123(b)(6) grants
bankruptcy courts authority to approve reorganization plans
including "any ... appropriate provision not inconsistent with the
applicable provisions of this title". See also 11 U.S.C. ง 1129.
Energy Resources stated: "These statutory directives are
consistent with the traditional understanding that bankruptcy
courts, as courts of equity, have broad authority to modify
creditor-debtor relationships". 495 U.S. at 549. It held that the
14

bankruptcy court's equitable powers included sufficient authority
to approve a Chapter 11 reorganization plan that required plan
payments by the debtor to the IRS to be first allocated to the
trust fund portion of the IRS' claim, where necessary to ensure the
success of the plan. Id. As noted, the district court, in
determining that the bankruptcy court had "related to" jurisdiction
to enter the injunction, based its holding primarily on the broad
equitable powers of 11 U.S.C. ง 105, as interpreted in Energy
Resources.
Energy Resources, however, addressed only the allocation of
payments in a reorganization plan, specifically whether they could
be first allocated to trust fund liability (an issue the IRS raised
before the bankruptcy and district courts but has elected not to
appeal). Energy Resources did not discuss a bankruptcy court's
jurisdiction over non-debtor tax liabilities. Nothing in Energy
Resources suggests that bankruptcy courts have jurisdiction to
determine the tax liabilities of non-debtors.
As in Huckabee Auto, Quattrone, and Brandt-Airflex, Pena is
not a debtor in the bankruptcy proceeding. (In fact, he has not
intervened or even sought to intervene in this proceeding.) The
bankruptcy court lacked jurisdiction over his ง 6672 tax liability.
In the alternative, Prescription urges that, even if the
bankruptcy court did not have jurisdiction to determine Pena's tax
liability, the ง 6672 injunction is nonetheless valid because it
15

does not determine such liability. The thrust of this assertion
seems to be that, because the injunction is temporary and
conditional (with the IRS retaining the right to employ ง 6672
against Pena should Prescription fail to make its payments), the
injunction may postpone, but does not determine, Pena's tax
liability.
We disagree. As the Eleventh Circuit noted in Huckabee Auto,
ง 6672 liability is tax liability, "assessed and collected in the
same manner as taxes". 783 F.2d at 1549 (quoting 26 U.S.C. ง
6671(a)). By enjoining the IRS from employing ง 6672 against Pena,
the bankruptcy court effectively determined that Pena could not be
held liable for the ง 6672 taxes. That Pena could again become
subject to such liability at some point in the future, if
Prescription defaults, does not alter the fact that, in essence,
the bankruptcy court held Pena's current ง 6672 liability to be
zero. Moreover, the contention that the injunction is temporary
and conditional (and thus will not necessarily determine Pena's tax
liability) does not alter that the bankruptcy court, by entering
the injunction, exceeded its jurisdiction by adjudicating Pena's
tax liability at all.
III.
For the foregoing reasons, the ง 6672 injunction is VACATED
and this case is REMANDED to the district court for remand to the
16

bankruptcy court for such further proceedings, consistent with this
opinion, as may be necessary.
INJUNCTION VACATED; REMANDED
17