In re Sussman
| Citation | 289 F.2d 76 |
| Decision Date | 03 April 1961 |
| Docket Number | No. 13398.,13398. |
| Parties | In the Matter of David SUSSMAN and Charles Sussman, individually and as co-partners, trading as Charles Company, Bankrupts. Melvin Talus, John T. Durnin and Harry S. Mayer, Trustees, Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (3rd Circuit) |
Alexander N. Rubin, Philadelphia, Pa. (Goff & Rubin, Philadelphia, Pa., on the brief), for appellants.
William Shapiro, Philadelphia, Pa., for appellees.
Before BIGGS, Chief Judge, and STALEY and HASTIE, Circuit Judges.
The bankrupt, Charles Sussman, was a partner in a business which sustained heavy losses in the early months of 1956. Sussman individually, as well as the partnership, filed a petition in bankruptcy on June 7, 1956.
For the calendar years 1954 and 1955, Sussman had paid income taxes pursuant to joint returns filed by him and his wife. Mrs. Sussman had no income. The 1956 business reverses, which caused Sussman's bankruptcy in June, also resulted, at the end of the year, in a situation in which a proper income tax return for the calendar year would show a substantial net loss. Accordingly, in March, 1957, the trustee in bankruptcy filed an application on behalf of the bankrupt for a tentative carry-back adjustment for the years 1954 and 1955 as justified by the bankrupt's demonstrated substantial net operating loss for the calendar year 1956. In July, 1957, this claim was allowed and a refund check was delivered to the trustee. Thereafter, the bankrupt and his wife sought in the bankruptcy proceeding to compel the trustee to surrender this refund to them. The referee so directed and the district court affirmed the referee's order. This appeal followed.
The controlling provisions of the Bankruptcy Act appear in Section 70, sub. a, 11 U.S.C.A. § 110, sub. a. That section provides, in relevant part,1 as follows:
"(a) The trustee of the estate of a bankrupt * * * shall in turn be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title * * * to all of the following kinds of property wherever located * * * (5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded, or sequestered: * * * (6) rights of action arising upon contracts, or usury, or the unlawful taking or detention of or injury to his property * * *."
It is not disputed that the "rights of action" which pass to the trustee under the above quoted language of Section 70, sub. a include accrued and immediately determinable and enforceable claims for tax refunds or rebates which the bankrupt himself had or could have asserted against the United States at the time his petition in bankruptcy was filed. Chandler v. Nathans, 3 Cir., 1925, 6 F.2d 725; cf. Hoffman v. United States, D.C.S.D. N.Y.1940, 32 F.Supp. 939. But in this connection it is important to keep in mind that such a right of action for a tax refund is created and defined by the statutes in which the United States authorizes a taxpayer to assert such a claim. In the present situation the statutory basis of a loss carry-back claim, as the court below has properly pointed out, is a taxpayer's economic experience for a unit of time, an entire taxable year. This is clear because the net operating loss upon which any claim for a carry-back must be based is the excess of allowable deductions over the taxpayer's gross income as computed in a tax return for a taxable year. Int.Rev.Code § 172 (c), 26 U.S.C.A. § 172(c). Thus, the statutory scheme precludes the existence of any carry-back claim until the end of a taxable year.
It has already been stated that Sussman's taxable year was the calendar year. There is no provision in law that bankruptcy terminates a taxable year. Therefore, when Sussman filed his bankruptcy petition he had no "right of action" against the United States for the trustee to acquire under Section 70, sub. a(5) or (6).
More generally, paragraph 70, sub. a (5) provides that the trustee shall acquire the "title" of the bankrupt to all "property" which is subject to assignment by the...
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...vests in his trustee by operation of the bankruptcy law." Counsel for the bankrupt argues that the opinion in the case of In re Sussman, (3 Cir. 1961) 289 F.2d 76 is determinative of the question here presented, and that under the holding in such case, the trustee herein acquired no right t......
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