In re Brumbaugh
| Decision Date | 27 August 2001 |
| Docket Number | Bankruptcy No. 00-33453. Adversary No. 00-3120. |
| Citation | 267 BR 800,89 AFTR 2d 2002 |
| Court | U.S. Bankruptcy Court — Southern District of West Virginia |
| Parties | In re Mark BRUMBAUGH and Rachel Brumbaugh, Debtors. Mark Brumbaugh and Rachel Brumbaugh, Plaintiffs, v. United States of America, Internal Revenue Service, Defendants. |
Roger E. Luring, Troy, OH, for debtors.
Dale Ann Goldberg, Dayton, OH, for United States of America, Internal Revenue Service.
Townsend Foster, Jr., Troy, OH, Chapter 7 Trustee.
The debtors, Mark and Rachel Brumbaugh ("Debtors" or the "Brumbaughs"), and the United States, on behalf of the Internal Revenue Service (the "IRS"), have filed cross-motions for summary judgment seeking a determination of the dischargeability of certain tax debts. The specific issues before the Court are: (1) whether altered IRS Form 1040s filed by the Brumbaughs for tax years 1993 and 1994 should be deemed to be "returns" for purposes of § 523(a)(1)(B) of the Bankruptcy Code (the "Code"); and (2) whether the Brumbaughs willfully attempted to evade or defeat their federal income tax obligations within the meaning of § 523(a)(1)(C) of the Code. The Court concludes that the Brumbaughs' tax obligations are nondischargeable under both § 523(a)(1)(B) and § 523(a)(1)(C).
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and the general order of reference entered in this district. This is a core proceeding. 28 U.S.C. § 157(b)(2).
The Debtors filed a joint Chapter 7 petition on July 2, 2000. Their schedules list the IRS as the holder of a priority unsecured claim in the amount of $52,024.70 for 1993 and 1994 income taxes assessed on February 23, 1998 (the "Tax Debt"). The Debtors filed this adversary proceeding seeking a determination that the Tax Debt is dischargeable.
The cross motions for summary judgment filed by the parties are not supported by affidavits, although exhibits are attached to each motion. The Brumbaughs have attached four exhibits to their summary judgment motion. Exhibit 1 is a copy of the Brumbaughs' 1993 Form 1040 U.S. Individual Income Tax Return dated May 17, 1995. Exhibit 2 is a copy of their 1994 Form 1040 U.S. Individual Income Tax Return dated May 17, 1994. Since the 1994 return would not have been due until 1995, the date on Exhibit 2 appears to be erroneous — it probably should read May 17, 1995. Exhibit 3 is a copy of a letter from the IRS to the Brumbaughs dated November 22, 1996 (the "November 1996 Letter"). The letter informed the Brumbaughs that because they provided insufficient information to explain various items reported on the Form 1040s, the IRS had issued a document entitled "Form 4549 — Income Tax Examination Changes." The letter directed the Brumbaughs either to execute and return the Form 4549 or contact the IRS to take proper steps to resolve the matter by no later than December 16, 1996. Exhibit 4 is a Notice of Federal Tax Lien issued November 3, 1998, reflecting the assessment of $52,024.70 made on February 23, 1998.
The summary judgment motion filed by the IRS is accompanied by the following exhibits (which are not identified by number or letter designations): (1) a copy of the Brumbaughs' 1994 Form 1040 U.S. Individual Tax Return; (2) two copies of a document entitled "Revocation of Powers of Attorney and Agency (of any alleged by the I.R.S. over me respecting Federal Income taxes) by Notice of Lawful Nontaxpayer Status and Rescission of My Signature on all I.R.S. Forms Obtained Under Threat, Duress and Fraud," one of which is executed by Mark Brumbaugh and the other by Rachel Brumbaugh (the "Revocations"); (3) a copy of Mark Brumbaugh's 1994 W-2 Wage and Tax Statement from Brumbaugh Construction, Inc.; (4) a copy of a letter dated June 23, 1995 to the Brumbaughs from the IRS, which informed them that their 1994 tax return was deemed a frivolous return (the "June 1995 Letter"); (5) a letter dated August 5, 1996 from the IRS to the Brumbaughs informing them that their 1993 tax return was assigned to IRS Agent Christina Riggs for examination (the "August 1996 Letter"); (6) a copy of an August 24, 1996 letter from Mark Brumbaugh to the IRS in which he advised the IRS that it must furnish him with the law or regulation that "makes him liable for income taxes. . . . or the audit is cancelled;" (7) a copy of an envelope addressed to the IRS in Cincinnati, Ohio, bearing the Brumbaughs' return address and an illegible postmark date; (8) a copy of an IRS Special Handling Form; and (9) two copies of an IRS form entitled "Notice of Deficiency" with various attachments, including a Notice of Deficiency-Waiver form dated September 24, 1997 (the "Waiver").1
The facts gleaned from the exhibits attached to the cross-motions are neither complex nor disputed. The Brumbaughs made filings with the IRS for tax years 1993 and 1994 on IRS official Form 1040s that were altered in several significant respects. A review of the Form 1040s reveals that identical changes were made to both the 1993 and 1994 forms. Line 23 of the 1993 form and line 22 of the 1994 form, which require the taxpayer to compute total income, were obliterated and replaced with the following typewritten phrase: "Non-Taxable Compensation EISNER MACOMBER 252 U.S. 189." Following this notation is the figure $25,205 on the 1993 form and $31,447 on the 1994 form. Adjusted gross income is reported as $3,027 in 1993 and $158.00 in 1994. The Brumbaughs listed the standard deduction for "married filing jointly" on both the 1993 and 1994 Form 1040s. In 1993, that amount was $6200; in 1994, it was $6350. Line 23b, which requires a taxpayer to list a spouse's IRA deduction, was altered to read "26 CFR ('39) 9.22(b)(1)." Line 25, which normally reads "One-half of self-employment tax," was altered to read "Compensation Exclusion." Line 37, which should read "Taxable income," was again obliterated on each return, with the phrase "Non-Taxable Compensation EISNER MACOMBER 252 U.S. 189" typed in its place. On line 37, the amounts $25,205 and $31,447 were reported for 1993 and 1994, respectively. Both purported returns state that no tax is due and request a refund of all income tax withheld. At the bottom of each purported return, the Brumbaughs obliterated the jurat on the Form 1040s that stated: "Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete." The jurat was replaced with the following typewritten declaration: "Under the penalty of perjury under the laws of the United States of America, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct and complete." See Debtors' Exhibits 1 and 2.
The Debtors' altered Form 1040s (the "Altered Forms") were accompanied by the Revocations — notarized documents executed by Mark Brumbaugh and Rachel Brumbaugh containing voluminous citations to various cases and statutes that purport to establish that the Debtors are not subject to income taxation. The Revocations recite a number of stock arguments commonly asserted by tax protesters,2 including the following statements and allegations:
Citing this alleged misconduct by the IRS, paragraph 19 of the Revocations provides that both Debtors:
Do hereby revoke, rescind, cancel and do render null and void, both currently and retroactively to include the time of signing (based upon fraud and the constructive fraud and extortion perpetuated upon me by such Outlaws) all "Form 1040 Income Tax Returns," "Form W-4 Employees Withholding Allowance Certificates," and other I.R.S. forms, documents, and schedules ever signed and/or submitted by or for me, and all alleged power of attorney (agency) represented thereby and/or acknowledged by me thereafter.
After receiving the Altered Forms and the Revocations, the IRS responded by sending the June 1995 Letter, which informed the...
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