In re Bogue
| Decision Date | 02 August 1999 |
| Docket Number | Bankruptcy No. 97-28907-JES. |
| Parties | In re William J. BOGUE and Judith L. Bogue, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
Todd C. Esser, Milwaukee, WI, Chapter 7 Trustee.
Michael G. Trewin, New London, WI, for debtors.
DECISION
Todd C. Esser ("Trustee") has objected to the exemption claimed by William Bogue ("debtor" or "Mr. Bogue") in two annuity contracts.1 This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). This matter has been submitted to the court upon a stipulation of facts and briefs.
The trustee contends that the two annuity contracts are not within the retirement benefits exemption of Wis.Stats. § 815.18(3)(j)2 because neither "complies with the provisions of the internal revenue code" as required under subsection (2)(a) of this exemption statute. The trustee further asserts that these annuities are ineligible to be claimed as exempt because they do not provide benefits "by reason of age, illness, disability, death or length of service." Finally, the trustee asserts that, even if the annuities are exempt, they should be denied exemption status because, pursuant to Wis.Stats. § 815.18(10),3 the debtors "procured, concealed, or transferred assets with the intention of defrauding creditors."
On August 13, 1997, Mr. Bogue purchased an annuity contract for $10,300 with proceeds obtained from the sale of debtors' personal property. On September 5, 1997, Mr. Bogue purchased a second annuity contract for $7,500 with proceeds obtained from the sale of the debtors' real estate. The debtors and trustee have stipulated that the funds used to purchase these annuities are not exempt under the Wisconsin statutes and that the annuities were purchased with the intention of being listed as exempt in the debtors' subsequent bankruptcy schedules.
On September 9, 1997, the debtors filed a petition in bankruptcy under chapter 7. On November 20, 1997, the trustee timely filed an objection to this exemption.
The trustee submits that the annuities are not exempt under Wisconsin's retirement benefits exemption because they do not comply with §§ 401-409 of the Internal Revenue Code. The trustee contends that these Internal Revenue Code sections are what subsection (2)(a) of Wis. Stats. § 815.18(3)(j) meant as "compliance with the provisions of the internal revenue code." It is the trustee's position that the two annuities involved in this case are not retirement plans or contracts but are, in reality, a "tax-sheltered investment" and ineligible to be claimed as exempt. The trustee argues that only annuities which are governed by and satisfy IRC §§ 401-409 are eligible to be claimed as exempt, and they do not include the types of annuities involved here. He further argues that the intent of the Wisconsin retirement benefits exemption statute is to exempt only "traditional retirement plans."
The debtors take issue with that position. They submit that the two annuities in this case need not comply with IRC §§ 401-409. The debtors submit that they do comply with the Internal Revenue Code as mandated under subsection 2(a) because they meet the requirements of IRC § 72 and, more precisely, IRC § 72(s)(1).4
The problem here is that subsection 2(a) of the Wisconsin retirement benefits exemption statute makes no reference to any specific provisions of the Internal Revenue Code. It only states that as a requirement for being eligible for exemption purposes "the plan or contract complies with the provisions of the internal revenue code." It does not refer to IRC §§ 401-409, IRC § 72, or any other provision of the Internal Revenue Code. It is for this court to interpret the meaning of this statutory language. This, in turn, will require an understanding of the annuity contracts in question as well as an understanding of IRC §§ 401-409 and IRC § 72. A review of this type of exemption in other state statutes reveals that some states specifically tie this exemption for annuities to IRC §§ 401-409. See, e.g., Cal.Civ.Proc. Code § 703.140(b)(10)(E) (West 1998), Kan.Stat.Ann. § 60-2308 (1998), Me.Rev. Stat.Ann. tit. 14, § 4422(13)(E) (West 1998), S.C.Code Ann. § 15-41-30(10)(E) (Law Co-op.1998), Tenn.Code Ann. § 26-2-104(b) (1998), Utah Code Ann. § 78-23-5(1)(A)(X) (1998), Va.Code Ann. § 34-34A (Michie 1998), and W.Va.Code § 38-10-4(j)(5) (1998). Other states, however, have broader language which is similar to Wisconsin and do not limit the exemption to IRC § 401-409. See, Ill.Ann.Stat. ch. 735 § 12-1006 (Smith-Hurd 1998) and Ohio Rev.Code Ann. § 2329.66(A)(10) (Baldwin 1999). Unfortunately, there are no decisions which have interpreted this language.
The annuities in this case are "single premium deferred annuity contracts." Under this type of annuity contract, the annuitant pays one premium and is guaranteed a return over a number of years (depending upon which of several options the annuitant selects).5 When the annuitant becomes 59½ years old, the entire amount of the annuity can be withdrawn without any tax penalty. Before then, however, there is a 10% tax penalty on any early withdrawals. Mr. Bogue was 58 years old when he purchased these annuities.
Certain tax benefits are afforded to single premium deferred annuitants, provided such annuity contract has the mandatory requirements contained in IRC § 72(s)(1). If these requirements are in the annuity contract, all income which accumulates on the annuity contract is excluded from the annuitant's annual gross income until received by the annuitant. IRC §§ 401-409 afford other tax benefits to the holders of certain specified types of annuities, provided these annuities comply with the IRC provisions in §§ 401-409. If there is compliance with IRC §§ 401-409, the annuitant is permitted to claim income tax deductions with respect to contributions up to a maximum amount in the year in which such contributions are made. The only types of annuities which qualify for this tax benefit are individual retirement annuities (under IRC § 408(b)) and employee annuities (under IRC §§ 403(a) and (b)). These are known as "qualified" annuities. Neither of these types of annuities are involved in the case at bar.
The single premium deferred annuities in this case are "non-qualified" annuities, and IRC §§ 401-409 do not have any bearing on them. That does not mean that because they are "non-qualified" they cannot be claimed as exempt under the Wisconsin exemption law. The Wisconsin retirement benefits exemption statute is couched in very broad terms. It includes "individual retirement annuities," but it also includes "any . . . annuity," a much broader term. The Wisconsin retirement benefits exemption statute does not limit its application to "traditional" retirement plans, "qualified" annuities, or annuities which comply with IRC §§ 401-409.
The only provision of the Internal Revenue Code having any bearing upon the single premium deferred annuity is IRC § 72. The two annuities in this case do have the prerequisite provisions necessary to comply with IRC § 72. This, in turn, provides these annuities with tax-deferred status and is also sufficient to satisfy subsection 2(a) of the Wisconsin retirement benefits exemption statute.
This court is persuaded that the intent of this statute is that it be afforded an expansive construction. This conclusion is borne out by a review of the legislative history to the current Wisconsin retirement benefit exemption statute. Where, as in this case, the statute is unclear as to its meaning or how it is to be applied, the legislative history is instructive. In re United States Leather, Inc., 98-24997 (Bankr.E.D.Wis. June 15, 1999). R Arthur Ludwig, the chairman of the subcommittee of the Bankruptcy, Insolvency & Creditors' Rights Section of the State Bar of Wisconsin which was formed to review and propose revisions to the Wisconsin exemptions,6 made the following comment regarding the revised exemptions:
The revision is intended to broaden the areas and items that are now exempt under current law. . . . While retaining the language of the current statute and thereby not excluding "non-qualified" plans. The statute will now extend to Individual Retirement Accounts, 401-K\'s and similar plans or contracts.
Wisconsin Exemption Statutes-Legislative Update, Annual Bankruptcy Update, (State Bar of Wisconsin) October 1990, at Shapiro-30. Chairman Ludwig, on behalf of his subcommittee, also responded to a comment made that expansion of the retirement benefits exemption was too broad:
The Committee\'s position is that today\'s environment and attitude of the average wage earner considers what, if any, retirement benefits he may have or be able to obtain. It was therefore felt that to include the other savings vehicles was fair and reasonable under the circumstances.
Letter from R Arthur Ludwig, chairman of the Committee on Wisconsin Exemptions Provisions of the Wisconsin State Bar Bankruptcy, Insolvency and Creditors' Rights Section, to those who commented on the proposed revisions (Nov. 9, 1989) (contained in Legislative History to S.B. 259). These comments demonstrate an intent to give a broad interpretation to the current statute.
This court rejects the trustee's contention that the Wisconsin legislature could not have intended to create an unlimited retirement exemption. Some retirement benefits do contain specific limitations. For example, retirement benefits pursuant to an "owner dominated plan" are limited to "the extent reasonably necessary for the support of the debtor and the debtor's dependents." Wis.Stats. § 815.18(3)(j)(2). Here, however, there is no specific monetary limitation in the Wisconsin exemption law dealing with annuities, and it is not the court's role to rewrite a statute. See Felix Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum.L.Rev....
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