In re Swenson

• Decision Date: 09 January 2008
• Docket Number: Adversary No. 05-02530-C.,Bankruptcy No. 05-33004-C-7.
• Parties: In re Jeffrey W. and Laurie D. SWENSON, Debtors. United States of America, Plaintiff, v. Jeffrey W. Swenson; Laurie D. Swenson; Warren E. Swenson; and Vicky L. Senella, Defendants.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California

381 B.R. 272

In re Jeffrey W. and Laurie D. SWENSON, Debtors.

United States of America, Plaintiff, v. Jeffrey W. Swenson; Laurie D. Swenson; Warren E. Swenson; and Vicky L. Senella, Defendants.

Bankruptcy No. 05-33004-C-7.

Adversary No. 05-02530-C.

United States Bankruptcy Court, E.D. California, Sacramento Division.

January 9, 2008.

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Mark E. Huber, Roseville, CA, for Debtors.

Adam F. Hulbig, U.S. Department of Justice, G. Patrick Jennings, Washington, DC, for Plaintiff.

Richard Todd Luoma, Sacramento, CA, W. Steven Shumway, Roseville, CA, for Defendants.

FINDINGS OF FACT & CONCLUSIONS OF LAW

RICHARD T. FORD, Bankruptcy Judge.

INTRODUCTION

On December 30, 2005, the Plaintiff, United States of America, filed its Complaint to deny a discharge to the Defendants Jeffrey and Laurie Swenson, to deny a discharge of certain taxes, and to prevent Warren and Vicky Swenson from dissipating the debtors' personal residence at 2809 Club Drive, Rocklin, California, during the pendency of this proceeding. An answer was filed and, over a period of time, discovery was conducted and this matter was set for trial in the above entitled Court. In addition, Gerald Ainsworth, the Trustee in Bankruptcy for Jeffrey and Laurie. Swenson filed a separate Adversary Proceeding No 07-02083 on April 9, 2007 seeking a judgment compelling Warren Swenson and Vicky Senella (the Debtors' father and step-mother) to turn over the real property at 2809 Club Drive; for a judgment declaring that the Trustee, on behalf of the Bankruptcy Estate, holds 100% of both the legal and equitable title to the 2809 Club Driver property; and for such other relief as the court seems proper. During the trial the Trustee alleged that certain evidence against Warren Swenson and Vicky Senella shows what amounts to a fraudulent transfer.

The trial commenced and took place on October 1-2, 2007. At the beginning of the trial all parties and counsel agreed that both adversary proceedings (05-2530 and 07-2083) would be consolidated procedurally in that all evidence received by witnesses, by declarations, and by written documents, would be considered in both adversary proceedings and the Court's Findings of Fact and Conclusions of Law and Judgments would be prepared and entered separately, Any Conclusions of Law herein that are more "properly characterized as Findings of Fact, shall be treated as Findings of Fact. Any Findings of Fact herein that are more properly characterized as Conclusions of Law, shall be treated as Conclusions of Law.

At the close of trial the Court ordered that the parties, through their counsel, prepare and submit their proposed Findings of Fact and Conclusions of Law for the Court to review and consider. In addition the Court ordered that each party would have two weeks to prepare and submit their objections to the Findings prepared by the opposing parties. This was completed and the Court has read each proposed finding and each objection submitted by the parties. The Court has also considered the transcript of the proceedings and the Court's own recollection of the testimony of the parties who testified. As was pointed out to the parties at the close of the testimony, it seemed that the burden of proof in this case would be extremely important. All parties agreed that the Plaintiffs had the burden on all of the issues set forth in the complaints and the burden of proof is by a preponderance of evidence standard.

JURISDICTION

The Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52. Jurisdiction exists pursuant to 28 U.S.C. § 1334. Venue is proper under 28 U.S.C. § 1409(a) The District Court has generally referred these matters to the Bankruptcy Court for hearing pursuant to 28 U.S.C. § 157(a) and United States District Court, Eastern District of California, General Orders 182 and 223. This is a core proceeding within the meaning of 28 U.S.C. 157(b)(2)(A)(E)(H)(I)(J) & (O). The specific issues raised are set forth in the Conclusions of Law.

FINDINGS OF FACT

I. Procedural Background

1. Debtors Jeffrey and Laurie Swenson ("debtors") presently reside at 2809 Club Drive Road, Rocklin, California ("Club Drive Residence").

2. On September 28, 2005, debtors filed their Voluntary Petition under Chapter 7 of the United States Bankruptcy Code (11 U.S.C.) with this Court.

3. This is debtors' second, bankruptcy filing under Chapter 7; their first petition was filed on August 19, 1994, with the U.S. Bankruptcy Court for the Central District of California. See October 1, 2007, Trial Transcript ("10/1 Trial Tr.") at 111:5-9; see also U.S. Ex. 32, Alternate Direct Testimony of IRS Revenue Officer Charles E. Duff ("Duff Direct") at ¶ 58.

4. On December 30, 2005, the United States filed the instant adversary Complaint against debtors seeking an adjudication and determination of the following claims:

(i) that debtors' tax debts for tax years 1993 through 2004 are excepted from discharge, pursuant, to 11 U.S.C. § 523(a)(1)(C), because they willfully attempted to evade or defeat such tax;

(ii) that debtors' personal residence, although titled in the names of nominee relatives, is in fact owned by debtors and constitutes property of the bankruptcy estate;

(iii) that, pursuant to 11 U.S.C. § 727(a)(2); debtors' discharge should be denied because debtors concealed ownership of their personal residence from creditors, including the United States;

(iv) that, pursuant to 11 U.S.C. § 727(a)(4), debtors' discharge should be denied because debtors, made a false oath in omitting, their personal residence from their schedules;

(v) that, pursuant to 11 U.S.C. § 507(a)(8), debtors' tax liabilities for tax years 2002, 2003, and 2004, constitute non-dischargeable priority claims because such liabilities concern taxable years for which a return was due three (3) years before the date of the filing of debtors' bankruptcy petition; and (vi) that defendants Warren Swenson and Vicky Senella, be enjoined from dissipating debtors' personal residence during the pendency of this proceeding.

5. On May 3, 2006, the Internal Revenue Service ("IRS") filed a Proof of Claim identifying the federal income tax liabilities assessed against debtors for tax years 1993 through 2004 inclusive, among other federal tax liabilities. See U.S. Ex. 13, IRS Proof of Claim (as amended on May 9, 2006).

6. A bench trial of this matter was conducted on October 1, 2007, and October 2, 2007.

7. The United States and defendants Warren Swenson and Vicky Senella separately presented their direct cases through alternate direct testimony (as required by the Court's June 5, 2007 Order in this case and Local Rule 9017-1), live testimony, and exhibits. The debtors chose not to file their alternate direct testimony and exhibits with the Court relying on the government to prove their case by the appropriate burden of proof.

II. Relationships of the Defendants

8. Debtors Jeffrey Swenson and Laurie Swenson are husband and wife.

9. Defendants Warren Swenson and Vicky Senella are husband and wife.

10. Warren Swenson is Jeffrey Swenson's father.

11. Vicky Senella is Laurie Swenson's sister.

III. Debtors' Tax History

12. As of October 1, 2007, the first day of trial in this case, debtors' federal income tax liabilities (Form 1040) for tax years 1993 through 2004 inclusive (hereinafter, the "tax years at issue") totaled $981,249, including accrued statutory interest. See U.S. Ex. 32, Duff Direct at 115.

A. Non-Payment & Non-Compliance

13. During the tax years at issue, Jeffrey Swenson owned and operated a successful carpet installation business, although they had some problems, intentional or otherwise, in paying all their bills including tax bills. The debtors reported adjusted gross income in excess of $1.1 million. See U.S. Ex. 1, Forms 4340, Certificates of, Assessments, Payments, and Other Specified Matters for Jeffrey W. & Laurie D. Swenson for federal income taxes (Form 1040) for tax years 1993 through 2004. ("Forms 4340"); see also U.S. Ex. 32, Duff Direct at ¶ 6 (chart).

14. Debtor Laurie Swenson was previously employed as a retail clerk, but she has not been employed since 1994. See October 2, 2007, Trial Transcript ("10/2 Trial Tr.") at 3:15-16.

15. Other than four or five payments under $400.00, the Debtors did not make any other voluntary payments towards their federal tax debts during the twelve tax years at issue, and they have yet to pay any of the balance of their huge reported liabilities. See U.S. Ex. 32, Duff Direct at ¶ 6.

16. In addition, debtors late-filed eight out of the twelve income tax returns due for this period. Id.

17. Debtors' pattern of late-filing their federal income tax returns is continuing. For example, debtors have not yet filed their 2005 return, which was required (under an extension) to be filed, by October 15, 2006. Id. at ¶ 5.

18. At all relevant times, debtors have been aware of the duty to file tax returns and the deadlines for doing so. See 10/1 Trial Tr. at 134:23-135:10; see also U.S. Ex. 32, Duff Direct at ¶ 6 19. Debtors are aware that they are required to pay the full amount of taxes reported as due on the tax return at the time of filing. See 10/1 Trial Tr. at 136:13-19.

20. At times, debtors have chosen not to read letters received from the IRS about their federal income tax liabilities. Id. at 139:16-19.

21. At times, debtors have chosen not to read transmittal letters sent by their tax return preparer, Gary Wurst. Id. at 141:2-4. Among other things, these transmittal letters advise the debtors to "review the [income tax] returns carefully to ensure that there are no omissions or misstatements of material facts." See, e.g., U.S. Ex. 21, 2003 Income Tax Return (Form 1040).

22. Because he is self-employed, Jeffrey Swenson is required to make estimated tax payments throughout the...