Justice Department seeking to block PAA reorganization
The bankrupt Pittsburgh Athletic Association’s reorganization plan has hit a major snag.
The U.S. Justice Department has filed an objection to the plan, arguing that the PAA wrongly assumes it won’t owe federal income taxes on the planned sale of its Oakland clubhouse to Shadysidebaseddeveloper Walnut Capital.
The $11.9 million sale is the cornerstone of the club’s reorganization plan, which calls for using the proceedsto fully repay creditors.
In an 11-page document filed with bankruptcy court last week, the government contends the transaction likely would be taxable, with the tab amounting to morethan $2 million.
The reorganization plan, which the club filed on Dec. 22, “does not include the payment of any administrative taxes,” the government wrote. “As such, it leaves the debtors potentially liable for a multimillion-dollar tax liability withno means of paying it.”
“Of course, it is too early to say what the total tax liability will be, as the debtors may have other potentially taxable transactions in tax year 2018,” the Justice Departmentwrote.
The club can seek a tax ruling from the IRS after filing its 2018 return,the department said.
The PAA’s bankruptcy attorney, Jordan Blask, declined commentMonday.
The club had hoped to win bankruptcy court approval for the reorganization plan and to complete the sale to Walnut Capital by late February, paving the way for creditors to be repaid.
The once-prestigious social club filed for Chapter 11 bankruptcy protection in May amid declining membership and a growing pile of bills. Operations at its Fifth Avenue clubhouse were suspended in April after the water and electricity were cut off because of tens of thousands of dollars in overdue utility bills.
Walnut Capital emerged in September as the winning bidder to rescue the PAA by buying and redeveloping the aging structure, which opened in 1911 and is listed on the National Register of Historic Places.
The developer has said it is planning offices on the upper floors of the five-story building, and retail or restaurants on the first level. Renovations are expected to take 20 to 24 months.
The deal calls for the PAA to retain a 5 percent interest in the property and would set aside office, restaurant and other space for the club’s activities.
A status conference in the case is set for Tuesday before bankruptcyJudge Jeffrey A. Deller.