In re Boch, Bankruptcy No. 1-89-01474
| Decision Date | 12 February 1993 |
| Docket Number | Bankruptcy No. 1-89-01474,Adv. No. 1-90-0078. |
| Citation | 154 BR 647 |
| Parties | In re Thomas A. BOCH, and Linda Jo Boch, d/b/a Boch Chiropractic Clinic, Debtors. Thomas A. BOCH, and Linda Jo Boch, d/b/a Boch Chiropractic Clinic, Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Pennsylvania |
Harry Giacometti, Tax Div., U.S. Dept. of Justice, Washington, DC, for U.S.
William F. Lawless, Altamonte Springs, FL, for Boch.
In this adversary proceeding, I have been asked to determine for purposes of Section 506(a), 11 U.S.C., the value of tax liens asserted by defendant United States of America, Internal Revenue Service (the "Government") against debtor Thomas A. Boch ("Boch"), individually, and against debtors Boch and Linda Jo Boch ("Debtors") jointly with respect to federal tax debt from the years 1980 through 1985. Also at issue is the dischargeability of the Debtors' tax debt. For the reasons set forth below, the value of the Government's secured claims will be deemed to be $57,000.00, with respect to Debtors' residence, $46,762.00 with respect to Debtors' personal property, accounts receivable and investment limited partnership, and an additional $55.00 with respect to Boch's individual property; Boch's tax debts will be deemed to be nondischargeable; and the tax debt of Linda Jo Boch will be deemed to be dischargeable.
Procedural history
On October 30, 1989, Debtors filed a petition for relief under Chapter 11 of the Bankruptcy Code. The Government filed a proof of claim on February 16, 1990, in the amount of $431,270.70. See Transcript of January 17-18, 1991 proceedings ("N.T."), Ex. P-14. The proof of claim encompassed Debtors' federal income tax liabilities, including interest and penalties, for the years 1980 through 1985.
On April 16, 1990, Debtors commenced the instant adversary proceeding, seeking to determine the validity and extent of liens asserted by the Government and the dischargeability of their tax debt. On January 17 and 18, 1991, I heard evidence in the adversary proceeding. On August 26, 1991, seven months after trial, the Government filed a motion to supplement the record with several tax forms that had been requested by Debtors in discovery prior to trial but which had not been produced. I denied the Government's motion by Order dated September 20, 1991. The parties have submitted multiple briefs and these matters are ready for disposition.
Factual findings
1. At all times relevant to this action, Boch was a self-employed chiropractor. N.T., at 41.
2. In 1977, 1978 and 1979, Boch filed federal income tax returns. N.T., at 154, 191-92, Ex. D-21.
3. In January, 1981, Boch received notification from his accountant that Debtors owed approximately $1,000.00 in taxes in connection with their 1980 tax return. N.T., at 212. Because he felt that Debtors' financial condition was poor, Boch did not file an income tax return on Debtors' behalf or pay amounts due and owing to the Government. N.T., at 213, 243, 255-56.
4. Shortly after this initial decision not to pay taxes, Boch reviewed an advertisement in the "American Chiropractor" journal entitled N.T., at 213, 242. The advertisement asserted, inter alia, that individual United States citizens were not required to file tax returns or pay income taxes. Id. at 214, 248, 256, Ex. D-26. The advertisement was placed by Belanco Liberation Foundation or Belanco Religious Order ("Belanco"). See also N.T., at D-26.
5. In the spring of 1981, Boch became affiliated with Belanco, organized by Paul Bell from Bakersfield, California. N.T., at 212. Boch had several meetings with representatives of Belanco. N.T., at 244-45. Bell offered legal protection to Boch in his efforts not to file income tax returns or pay income taxes. N.T., at 244.
6. Boch did not file returns or pay income taxes for the next several years. In September, 1983, an agent of the Internal Revenue Service attempted to interview Boch and informed him that he was the subject of a criminal investigation related to his failure to pay taxes for the years 1980 through 1982. N.T., at 192-93.
7. Shortly thereafter, Boch contacted Travis Brownlee. N.T., at 193, 205. Brownlee is a known tax protestor. N.T., at 174. Brownlee visited Boch in Harrisburg, and assisted Boch in devising a sham agreement that purported to set up an offshore trust known as Allfunds Company ("Allfunds"). N.T., at 177-78, 194, 196, Exs. D-13-15. The purpose of purporting to set up a trust was to provide a mechanism whereby Boch could claim that interest payments were made to the trust that would offset his income should it be necessary for him to file an income tax return. N.T., at 193-97.
8. Although Boch signed the trust instrument in late 1983, the agreement was back-dated to February 26, 1981. N.T., at 199. The purpose of back-dating the agreement was to provide false documentation of interest expense from 1981 in the event that Boch subsequently filed income tax returns for that period. N.T., at 200.
9. Boch provided Brownlee with income figures to enable Brownlee to structure sham interest payments sufficient to offset his income. N.T., at 205, Ex. D-22. The interest payments were established through false loan and mortgage agreements. N.T., at 196. For example, Boch entered into a $300,000.00 installment loan agreement with Allfunds to provide documentation to support interest payments that might be claimed; however, no money was exchanged between Boch and Allfunds. N.T., at 176, 195-96; Ex. D-14. Boch executed a mortgage in the amount of $300,000.00 although the property purportedly subject to the mortgage was valued at approximately $100,000.00 and already was encumbered. N.T., at 203.
10. Although Boch was not filing income tax returns during this period, the Allfunds transaction was set up to justify Boch's failure to pay taxes in the event that returns subsequently were filed. N.T., at 197. At trial, Boch was aware that if he would have filed a return claiming interest expense based upon the Allfunds transaction, such a return would have been fraudulent. N.T., at 198.
11. Boch also obtained a number of blank receipts from Brownlee and filled them out, although no money changed hands as reflected in the receipts. N.T., at 181-82, 200-02, Ex. D-17. The purpose of the receipts was to provide documentation for the false interest expense. Id.
12. Boch titled a number of Debtors' vehicles in the name of Allfunds. N.T., at 183-84, 207-08, 245, Ex. D-18. Boch advised Brownlee that he had titled at least one vehicle in the name of Allfunds. N.T., at 205-06, Ex. D-22.
13. Also in late 1983, Boch became a member of the National Commodity and Barter Exchange ("NCBE"), also known as Club 110. N.T., at 209-10. NCBE purports to be an organization dedicated to assisting individuals in concealing income from taxing agencies. N.T., at 167-68, 211, Ex. D-11, D-23-D-24. Boch endorsed at least $20,000.00 in checks over to NCBE or Club 110. N.T., at 169-172, 219.
14. In 1983 through 1984, on numerous occasions, Boch exchanged a number of patient checks for cash, N.T., at 166, 261, and each time subsequently would deposit in his accounts a slightly smaller amount of cash. N.T., at 165, 272. Boch utilized $9,600.00 in patient checks to fund construction of a swimming pool. N.T., at 66-67, 166.
15. In the spring of 1984, Boch broke off his association with Brownlee. N.T., at 221-23, Ex. D-16.
16. Shortly thereafter, Boch consulted David Skinner, an ex-IRS agent and obtained legal counsel. N.T., at 223-24. In February, 1985, Skinner advised Boch that it was likely that the Government would obtain a warrant for a search of Boch's offices. N.T., at 224-25.
17. The Government did search Boch's office, and seized a number of records. N.T., at 267, Ex. D-19. These included NCBE documents, N.T., at 167-71, Exs. D-10-11, the Allfunds loan documents, N.T., at 177, a letter to Brownlee, N.T., at 179, Ex. D-16, and the receipts relating to the interest expense, N.T., at 181-82, Ex. D-17. Based upon the information from Skinner, prior to the search, Boch removed a number of patient records and payment records from his offices. N.T., at 227-30.
18. The Government also obtained summonses with respect to Farmers Trust Bank, Boch's bank, and insurance carriers that had paid Boch for patient services. N.T., at 257-60. Boch obtained a form motion to quash from Brownlee and attempted to quash the summonses, but was unsuccessful. Id., Ex. D-18. The Government collected a number of receipts from insurance companies and patients from 1980 through 1984 that substantiated the fact that Boch had substantial income. N.T., at 163. In 1981, Boch had income of approximately $15,304.00, in 1982, $72,454.85, in 1983, $143,245.27, and in 1984, $200,619.00. N.T., at 190-91, Ex. D-20.
19. Forms 1040, Joint Federal Income Tax returns for the years 1983, 1984, and 1985, were filed on behalf of Debtors on February 3, 1987. N.T., at 85, Exs. P-6-P-8, Court Ex. 1, Stipulation ¶ 6.
20. Forms 1040X, Amended Federal Income Tax returns for the years 1984 and 1985, were filed on behalf of Debtors on February 3, 1987. N.T., at 75, 255, Exs. P-10-P-11, Court Ex. 1, Stipulation ¶ 7.
21. On March 7, 1987, as a result of a plea agreement, Boch was convicted of failure to file an income tax return for one year. N.T., at 259-60, Ex. D-30. In the judgment and probation/commitment order, Boch was directed to cooperate with the Government, serve a three month prison sentence, perform 600 hours of community service, and pay a $10,000.00 fine. N.T., at 187, 260, Ex. D-31. He currently is on probation. N.T., at 260.
22. A Form 1040X, Amended Federal Income Tax return for the year 1983 was filed on behalf of Debtors on December 14, 1987. N.T., Ex. P-9, Court Ex. 1, Stipulation ¶ 8.
23. Forms 1040, Joint Federal Income Tax returns...
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