Wood, In re, 88-3252

• Decision Date: 02 March 1989
• Docket Number: No. 88-3252,88-3252
• Citation: 866 F.2d 1367
• Parties: -851, 89-1 USTC P 9283, 19 Bankr.Ct.Dec. 100, Bankr. L. Rep. P 72,738 In re Raymond H. WOOD, Jr., DDS a/k/a Ray Wood, Debtor. Raymond H. WOOD, Jr., DDS a/k/a Ray Wood, Plaintiff-Appellant, v. UNITED STATES of America, Acting through the INTERNAL REVENUE SERVICE, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1367

866 F.2d 1367

63 A.F.T.R.2d 89-851, 89-1 USTC P 9283,

19 Bankr.Ct.Dec. 100,

Bankr. L. Rep. P 72,738

In re Raymond H. WOOD, Jr., DDS a/k/a Ray Wood, Debtor Raymond H. WOOD, Jr., DDS a/k/a Ray Wood, Plaintiff-Appellant, v. UNITED STATES of America, Acting through the INTERNAL REVENUE SERVICE, Defendant-Appellee.

No. 88-3252.

United States Court of Appeals, Eleventh Circuit.

March 2, 1989.

Lisa C. Cohen, Keystone Heights, Fla., for plaintiff-appellant.

Gary R. Allen, Chief, William S. Rose, Jr., Asst. Atty. Gen., Wynette J. Hewett, Tax Div., Gary D. Gray, Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before RONEY, Chief Judge, COX, Circuit Judge, and MORGAN, Senior Circuit Judge.

PER CURIAM:

Raymond Wood, the Debtor, initiated an adversary proceeding in the bankruptcy court to determine the dischargeability of his federal income tax liabilities for the years 1979 through 1982. The bankruptcy court ruled that Wood's liabilities were dischargeable for each of these years except the 1982. Wood had sought a discharge for the year 1982 also, challenging on constitutional grounds the validity of certain discharge provisions of the Bankruptcy Code. The bankruptcy court rejected this challenge, In re Wood, 78 B.R. 316 (Bankr.M.D.Fla.1987), and the district court, on appeal, affirmed. Wood appeals to this court, and we affirm.

Facts

The material facts are not in dispute. Wood's accountant applied for and received two extensions of time for the filing of his 1982 federal income tax return. The first extension moved the filing deadline from April 15, 1983, to August 15, 1983. The second extended the time for filing to October 15, 1983. Wood filed his return on October 7, 1983.

On October 10, 1986, Wood filed a petition for relief under Chapter 7 of the Bankruptcy Code, 11 U.S.C. Secs. 101-1103 (1979). The Internal Revenue Service ("IRS") subsequently filed a proof of claim against the bankruptcy estate in the total amount of $174,741.91, including an unsecured claim for taxes, penalties, and interest of $83,040.10 for the year 1982.

Wood initiated a proceeding in the bankruptcy court to determine, inter alia, the dischargeability of his federal income tax liability for the year 1982. The United States contested dischargeability. Wood responded to the Government's contest, arguing that the discharge provisions of the Bankruptcy Code pertaining to federal income tax liabilities, specifically sections 523(a)(1) and 507(a)(7)(A), create disparate classes of debtors and that the classes established are irrational, thereby depriving Wood of his rights to substantive due process and equal protection of the laws in violation of the Fifth Amendment to the United States Constitution. Wood further contended that the classifications violate the Bankruptcy Clause of the United States Constitution, see U.S. Const. art. I, Sec. 8, cl. 4, by effecting a nonuniform application of the federal bankruptcy laws and denying Wood equal access to the bankruptcy courts.

Section 523 of the Bankruptcy Code excepts several types of debts from the general discharge granted by section 727 of the Code. Section 523 excepts certain unsecured tax claims of "governmental units" that are granted a priority in distribution by section 507(a)(7)(A) and for which a return is last due, including extensions, within three years before the date on which the petition in bankruptcy is filed. ¹ If the tax return is filed late, without an extension, the tax is dischargeable the later of three years after the last due date, including extensions, or two years after the filing date. Because the last date for filing Wood's 1982 tax return was October 15, 1983, and Wood filed his bankruptcy petition on October 10, 1986, Wood's 1982 liability, to the extent that the Government's claim was unsecured, was excepted from discharge under section 523(a)(1).

Wood does not challenge the conclusion that under the literal reading of section 523(a)(1), the Government's unsecured claim to his 1982 tax liability is nondischargeable. Rather, he attacks that result on the basis that section 523(a)(1), when combined with section 507(a)(7)(A), creates two disparate classes of debtors. The first class consists of taxpayers who file their tax returns late but pursuant to valid extensions and whose tax liability under those sections is not dischargeable until three years from the date the return was due, including extensions. The second class consists of taxpayers who file their returns late, without an extension, and whose tax liability is dischargeable three years from the date on which the return was due.

To illustrate the alleged unconstitutionality of the relevant provisions of the Bankruptcy Code, Wood hypothesizes two taxpayers: the one, like Wood, obtained valid extensions for filing until October 15, 1983; the second one obtained no extensions. Wood observes that if both taxpayers filed their 1982 returns after April 15, 1983, but before October 15, 1983, the second taxpayer's liability would be dischargeable three years after the April 15, 1983, due date. The liability of the first taxpayer, however would not be dischargeable until three years after October 15, 1983, the due date under the extensions for filing. Because of the "including extensions" language of section 507(a)(7)(A), then, the taxpayer who filed the delinquent return could file a bankruptcy petition and receive a discharge from federal income tax liability up to six months earlier than the taxpayer who filed a return pursuant to valid extensions. ²

The bankruptcy court held that Wood's tax liability for 1982 was not dischargeable, rejecting his constitutional challenge to the discharge statutes. The court also rejected Wood's contention that section 523 violates the Bankruptcy Clause of the United States Constitution. On appeal, the district court affirmed the bankruptcy court's ruling. From the district court's adverse ruling, Wood initiated this appeal. Because the issues presented involve questions of law, review is plenary.

Discussion

We must determine whether the classifications created by 11 U.S.C. Secs. 523(a)(1) and 507(a)(7)(A): (1) unconstitutionally deny Wood's right of equal protection under the Fifth Amendment to the United States Constitution; (2) unconstitutionally deny Wood's right of substantive due process under the Fifth Amendment to the United States Constitution; or, (3) violate the Bankruptcy Clause of the United States Constitution by effecting a nonuniform application of federal bankruptcy laws and denying Wood equal access to the bankruptcy courts. The issues presented are discussed seriatim.

A. Equal Protection

Congressional legislation enjoys a presumption of constitutionality. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 14, 96 S.Ct. 2882, 2891-92, 49 L.Ed.2d 752 (1976). The party contending that the statute, or a portion thereof, is unconstitutional has the burden of overcoming that presumption. Id.

The Supreme Court has articulated various standards for evaluating claims that a particular piece of legislation, as applied, violates an individual's rights of substantive due process and equal protection under the Fifth Amendment. ³ Whether a particular standard will govern in a case depends upon the nature of the challenge and of the legislation involved. The Court has held that bankruptcy legislation is social and economic in nature. United States v. Kras, 409 U.S. 434, 446, 93 S.Ct. 631, 638, 34 L.Ed.2d 626 (1973). When a piece of social or economic legislation is challenged on equal protection grounds, the legislation generally will be upheld if the classifications established by the legislation rationally relate to a legitimate government interest. Kras, 409 U.S. 434, 93 S.Ct. at 631. Under the "rational relationship" test, a court reviewing the constitutionality of a classification only may strike down the classification if the classification is without any reasonable justification. Dandridge v. Williams, 397 U.S. 471, 485, 90 S.Ct. 1153, 1161, 25 L.Ed.2d 491 (1970); Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78, 31 S.Ct. 337, 340, 55 L.Ed. 369 (1911). Thus, even if in a particular case the classification, as applied, appears to discriminate irrationally, the classification must be upheld if "any set of facts reasonably may be conceived to justify it." McGowan v. Maryland, 366 U.S. 420, 426, 81 S.Ct. 1101, 1105, 6 L.Ed.2d 393 (1961).

Wood has failed to demonstrate that the statutes involved are unconstitutional. The statutes do create two classes of debtors, and the classes established do rationally relate to a legitimate government interest. Sections 523(a)(1) and 507(a)(7)(A) reflect a two-fold government interest. First, the Government has an interest in decreasing the number of delinquent income tax filers, and the sections encourage a prompt investigation of such filers. Presumably, the vigorous pursuit of delinquent filers, combined with substantial civil and criminal penalties, discourages the late filing of returns. Second, and perhaps more importantly, the Government has an interest in maximizing the period allowed for auditing returns and collecting taxes. In establishing the priority and discharge provisions of the Code, Congress recognized the IRS' status as an involuntary creditor and need to have a reasonable period of time within which to collect taxes. See Sen.Rep. No. 989, 95th Cong., 2d Sess. 14, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5800; H.R.Rep. No. 595, 95th Cong., 2d Sess. 190, reprinted in 1978 U.S.Code Cong. & Admin.News at 6150. The three-year time period embodied in section 507(a)(7)(A) reflects the "reasonable" period of time the IRS is allotted to audit the return and collect taxes.

If a debtor files a delinquent return, the IRS' three-year period for auditing that return and collecting taxes may be...