In re Colish

• Decision Date: 23 October 2002
• Docket Number: Bankruptcy No. 197-14664-608.,Adversary No. 197-1399-608.,Adversary No. 00-01633-608.
• Citation: 289 B.R. 523
• Parties: In re Jerrie S. COLISH, Debtor. Jerrie S. Colish, Plaintiff, v. United States of America, Department of Treasury Internal Revenue Service, Defendant. United States of America, Third-Party Plaintiff, v. Jerrie S. Colish, Third-Party Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of New York

289 B.R. 523

In re Jerrie S. COLISH, Debtor.

Jerrie S. Colish, Plaintiff, v. United States of America, Department of Treasury Internal Revenue Service, Defendant.

United States of America, Third-Party Plaintiff, v. Jerrie S. Colish, Third-Party Defendant.

Bankruptcy No. 197-14664-608.

Adversary No. 197-1399-608.

Adversary No. 00-01633-608.

United States Bankruptcy Court, E.D. New York.

October 23, 2002.

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Wendy J. Kisch, Batholomew Cirenza, Department of Justice, Tax Division, Washington, D.C., for United States.

Gary C. Fischoff, Fischoff and Associates, Garden City, NY, for Debtor, Plaintiff and Third-Party Defendant.

DECISION AND ORDER

CARLA E. CRAIG, Bankruptcy Judge.

This matter comes before the Court on the complaint of Jerrie S. Colish ("Colish" or "Debtor") to have his debt to the Internal Revenue Service ("Government") for his assessed federal income tax liabilities for years 1987 through 1992 declared dischargeable under 11 U.S.C. § 523(a)(1) and, additionally, on the complaint of Government seeking a determination that Debtor's Chapter 7 discharge should be revoked pursuant to 11 U.S.C. § 727(d)(2).

Procedural History

On April 29, 1997, Debtor filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code (11 U.S.C.) and was granted a discharge of all dischargeable debts on August 19, 1997.

On August 8, 1997, Colish filed a complaint (Govt.Ex. R1.) to commence an adversary proceeding, wherein he requested that the Court issue an order declaring his assessed federal income tax liabilities for years 1986 through 1993 dischargeable under 11 U.S.C. § 523(a)(1). On September 30, 1999, the Honorable Laura Taylor Swain, to whom this case was then assigned, determined that Debtor's 1993 assessed federal income tax liabilities were non-dischargeable priority liabilities pursuant to 11 U.S.C. § 507(a)(8)(A)(ii). In the Matter of Jerrie S. Colish, 239 B.R. 670 (Bankr.E.D.N.Y.1999). Hence, the only years for which dischargeability is still in dispute are tax years 1987 through 1992.

Subsequently, on October 26, 2000, the Government commenced an adversary proceeding seeking the revocation of Debtor's Chapter 7 discharge pursuant to 11 U.S.C. § 727(d)(2) on the grounds that Debtor failed to disclose on Schedule B of the bankruptcy petition his remainder interest in a trust established by his father and that Debtor, additionally, failed to disclose and surrender to the Chapter 7 Trustee cash and other property distributions he received from the trust upon the maturing of his remainder interest. (Govt.Ex. S1.) On January 17, 2001, the Court denied the Government's motion to consolidate both adversary proceedings, but ordered that the two adversary proceedings be tried jointly. Consequently, on September 4 and 5 of 2001 and November 20, 2001, the above-entitled adversary proceedings were tried simultaneously. At the conclusion of the trial, the Court directed the parties to file post-trial briefs.

This Court has considered thoroughly all submissions, evidence, and arguments relating to this matter, and the decision rendered herein reflects such consideration.

Jurisdiction

This Court has jurisdiction over these proceedings pursuant to 28 U.S.C. §§ 151, 157 and 1334, and both these adversary proceedings are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(I) and (b)(2)(J).

Facts

Debtor's Work Experience and Education

Debtor is an attorney who holds a Juris Doctor (J.D.) degree from the University of Miami Law School and Masters of Law (LL.M.) degree in taxation from the University of Miami Law School. (T1 63.)¹ In addition to his legal education, Debtor has a "Series 7" license to sell variable securities and a license to sell life insurance products. (JPTO² ¶ 5 (4).)

Debtor has substantial work experience in both private legal practice and in the sale of securities. From 1979 through October of 1985, Debtor practiced law, advising clients on federal tax issues and corporate and partnership formations. (JPTO ¶ 7.) Later, from 1985 to 1987, Debtor was hired by Equityline Securities as its vice president and general counsel, and worked in sales, marketing, analysis, due diligence and wholesaling. (JPTO ¶ 9.)

After an extensive period of time working as an independent wholesaler of securities, from October of 1987 through November 1994 (JPTO ¶ 10.), Debtor was employed by a Wall Street securities firm, D.H. Blair, as a retail sales broker, from late 1994 to late 1996. (JPTO ¶ 10.) Subsequently, starting in late 1996 and through the time of trial, Debtor has worked with a venture capital firm, Spencer Trask. (T1 at 67.)

At the time of trial, Debtor resided in a rented 4-bedroom apartment in Brooklyn, New York and had resided there since June 1993. (JPTO ¶ 32) From 1988 to 1993, Debtor resided in a rented apartment in Pennsylvania. Debtor leased a 1986 Buick Skylark from 1986 to 1991. (JPTO ¶ 31.)

Debtor's Expenses and Lifestyle

From 1986 to 1998, other than normal living expenses, Debtor's expenses mainly consisted of: 1) child support payments pursuant to a marriage settlement agreement, 2) tuition payments for private school education for his four children, and 3) charitable contributions and gifts made to his ex-wife and friends.

Pursuant to a marriage settlement agreement ("Agreement"), dated March 28, 1988, Debtor and his wife became legally separated. Debtor has four children. Under the terms of the Agreement, Debtor agreed to pay $375 per month, per child as support. (Debtor's Ex. 2 ¶ 7.) The Agreement further provides increases in the amount of support annually in the amount of "one-half of the excess of his net income from all sources over Sixty-Thousand ($60,000) Dollars" and that child support in no instance shall exceed $600 per month per child. (Debtor's Ex. 2 ¶ 7.) However, the $600 maximum allowance per month per child apparently could be modified "provided that the needs of the children...require more." Furthermore, pursuant to ¶ 8 of the Agreement, Debtor was to pay for his children's college expenses provided that he was financially able to do so.³ Nothing in the Agreement required the Debtor to fund the cost of private elementary or secondary school education.

Nevertheless, beginning in 1986 and continuing on through 1999, Debtor paid for his children's private school education. (T1 at 113, 124.) Although all four children graduated from Abrams Hebrew Academy in Yardley, Pennsylvania, one daughter attended boarding school (T2 at 45, 76) and one son went to public high school for two years. (T1 at 124.) The tuition at the private schools amounted to $16,000 in 1986, and steadily rose throughout the period at issue, reaching $33,000 in 1992. The tuition remained relatively constant from 1992 to 1997 at $33,000, before increasing substantially in 1998 to $48,500 due to one of Debtor's children attending college.⁴

Furthermore, commencing in 1989 and continuing through 1998, Debtor made charitable contributions. (T2 at 20-21.) The contributions varied significantly from year to year, ranging from a low of $1,774 in 1997 to a high of $15,962 in 1993. (Govt. Ex. D3 through D12.)

In addition, Debtor gave substantial sums of money to close friends and his ex-wife. In 1998, Debtor gave his ex-wife $12,500. (Govt. Ex. PP; T2 93.) It was initially given as a loan, but later the Debtor forgave the loan, and it became a gift. (T2 at 93.) Debtor also felt responsible for the losses incurred by three friends who had invested and lost money on Debtor's advice. (T1 at 182-183.) As a result, Debtor gave three $20,000 nonrecourse loans each to the three friends.⁵ Repayment was solely conditioned on the successful investment of the loans. (T1 at 182-183.)

Tax Return Filings: 1987-1998

On October 12, 1988, Debtor filed late his federal income tax return for the 1987 tax year in which he made a payment of $2,302 through employer withholding. (Govt.Ex. A1-A2.) His return reflected that he owed tax in the amount of $11,675, inclusive of interest and penalties, thus leaving a deficiency of $9,373. Id.

On April 15, 1989, Debtor timely filed his federal income tax return for the 1988 tax year in which he failed to make any payment. His return reflected that he owed tax in the amount of $6,579, inclusive of interest and penalties, thus leaving a deficiency in such amount. Id.

On March 18, 1991, Debtor filed late his federal income tax return for the 1989 tax year in which he made estimated payments of $3,250. His return reflected that he owed tax in the amount of $27,315, inclusive of penalties and interest, leaving a deficiency of $24,065. Id.

On June 3, 1991, Debtor timely filed his federal income tax return for the preceding year in which he made estimated payment of $100. His return reflected that he owed tax in the amount of $25,050, inclusive of interest and penalties, leaving a deficiency of $24,950. Id.

On April 10, 1992, Debtor timely filed his federal income tax return for the preceding year in which he did not make any payments. His return reflected that he owed tax in the amount of $16,207, inclusive of interest and penalties, leaving a deficiency in such amount. Id.

On April 15, 1993, Debtor timely filed his federal income tax return for the preceding year in which he made an estimated payment of $11,310. His return reflected that he owed tax in the amount of $27,042, leaving a deficiency of $15,732. Id.

On April 15, 1994, Debtor timely filed his federal income tax return for the preceding year in which he failed to make any payment. His return reflected that he owed tax in the amount of $38,913. Id.

On April 15, 1995, Debtor timely filed his federal income tax return for the preceding year in which he made an estimated payment of $9,250. His return reflected that he owed tax in the amount of $25,462, inclusive of interest and penalties, leaving a deficiency of $16,212. Id.

On April...