TAX NEWS - JUNE 2010

New York Tax: Bankrupt IHOP owner opposes request for liquidation over taxes

A bankrupt IHOP franchisee that owns three area restaurants is opposing a request by state taxation officials to have its Chapter 11 case tossed out or converted to a Chapter 7 liquidation over unpaid taxes.

Pancake Partners LLC operates IHOPs in North Buffalo, Cheektowaga and Orchard Park, plus one in Rochester. All of them remain open for business.

Another area IHOP, on Maple Road in Amherst, is not owned by Pancake Partners and is not part of the case.

Pancake Partners LLC filed for bankruptcy in summer 2009. As of this spring, the company owed at least $53,000 in state sales taxes since the filing, according to the state Department of Taxation and Finance. The department also said a $36,500 check for a period covering September through November 2009 was dishonored.

Agency attorneys say the results demonstrate "a substantial or continuing loss or diminution of the [bankruptcy] estate and also the absence of a reasonable likelihood of rehabilitation."

A bankruptcy court judge at a hearing on Monday could decide to grant the taxation department's motion, deny it, or Pancake Partners could be given additional time to resolve the tax issue.

Christopher P. Moen, an attorney for the department, said Pancake Partners must pay taxes owed since the bankruptcy filing, which he said speaks directly to a company's economic viability. "We're saying you can't run your business using New York state sales tax revenues," he said.

Mark Schlant, an attorney for Pancake Partners, could not be reached to comment Friday. But in court documents, he said the company "intends to cure these arrearages as soon as possible and to pursue confirmation of a plan."

The company suffered cash flow problems due to expenses for repairing essential equipment, and revenue shortfalls stemming from seasonal business fluctuations and the overall economy, Schlant said.

The company was preparing to file a reorganization plan once it finished discussions with Lake Shore Savings Bank, its largest creditor, over the treatment of Lake Shore's claims in the plan, Schlant said.

L. Joseph Woodard, Pancake Partners' managing partner, expected the sale of his home in Newport Beach, Calif., will generate proceeds to cover the delinquent taxes, Schlant said. The attorney in court papers said an "acceptable offer to purchase the property" was made in late April, and parties were entering a contract.

Schlant in court documents said the house had been on the market for about a year and that Woodard had reduced the asking price several times. An online listing for the California property showed an asking price of $3.35 million.