In re Dees
Decision Date | 31 May 2007 |
Docket Number | Bankruptcy No. 05-32545-LMK.,Adversary No. 06-03034-LMK. |
Citation | 369 B.R. 676 |
Parties | In re Lawrence Allen DEES & Sylvia Holyfield Dees, Debtors. Lawrence Allen Dees & Sylvia Holyfield Dees, Plaintiffs, v. United States of America, Defendant. |
Court | U.S. Bankruptcy Court — Northern District of Florida |
Eric Joseph Derbes, Esq., The Derbes Law Firm, LLC, Metairie, LA, for Plaintiff.
Benjamin W. Beard, Esq., Office of the U.S. Attorney, Pensacola, Carol Koehler Ide, Esq., U.S. Dept. Of Justice, Washington, D.C., for Defendant.
Karin A. Garvin, Esq., Pensacola, for Trustee.
ORDER GRANTING DEFENDANT'S MOTION FOR ABSTENTION
Defendant, the United States ("Government"), has moved for the Court to abstain (Doc. 10) in this adversary proceeding to determine the dischargeability of the Plaintiff-Debtors' potential tax liability under 11 U.S.C. §§ 523(a)(1), 507(a)(8), and 505. The issue is whether the Court should abstain from determining the dischargeability of taxes that have not yet been assessed in a fully-administered, noasset, reopened Chapter 7 case when there are parallel proceedings pending in the Tax Court that will answer the dispositive question: namely, whether the taxes are assessable by virtue of agreements extending the statute of limitations executed on behalf of the Debtors. For the reasons stated herein, it is appropriate for the Court to abstain.
The Debtors filed their voluntary Chapter 7 petition on October 7, 2005. The estate had no assets (Doc. 6). The Debtors were granted a discharge on February 7, 2006, and the case was closed. On September 29, 2006, the IRS sent the Debtors a notice of deficiency for taxes owing for tax years 1988 through 1996 (the "Taxes"). The Court allowed the Debtors to reopen their bankruptcy case on December 22, 2006 (Docs. 18 and 19) for the sole purpose of filing this adversary proceeding, which alleges that the statute of limitations has expired for assessment of the Taxes, or the Taxes were discharged in the Chapter 7 case. The Debtors have also filed a petition in the Tax Court with essentially the same allegations (Number 26566-06, filed December 26, 2006).
The Debtors' potential tax liability arose from their investment in partnerships with Walter Jay Hoyt, III ("Hoyt"). Similar partnerships, which involved thousands of investors, have been found to be illegal tax-sheltering schemes, and Hoyt has been convicted of conspiracy to commit fraud, bankruptcy fraud, and money laundering. See, e.g., Mekulsia v. Comm'r of Internal Revenue, 389 F.3d 601, 601-02 (6th Cir. 2004). While he was under investigation for the partnerships, Hoyt, acting as "tax matters partner," executed agreements extending the statute of limitations for assessment of the Taxes on behalf of the Debtors ("extension agreements"). The Debtors contend that these extension agreements are void because a conflict of interest disabled Hoyt from executing them. The Government requests that the Court abstain from determining the extension agreements' validity.
Congress gave bankruptcy courts discretion when it empowered them to determine tax liability. See 11 U.S.C. § 505(a)(1) ( ); New Haven Projects Ltd. Liab. Co. v. City of New Haven (In re New Haven Projects Ltd. Liab. Co.), 225 F.3d 283, 288-89 (2d. Cir.2000); In the Matter of East Coast Brokers & Packers, Inc., 142 B.R. 499, 501-02 (Bankr.M.D.Fla.1992). Courts have looked to a number of nonexhaustive factors to assist in deciding whether to abstain under § 505: whether bankruptcy issues predominate; the complexity of the tax issue; whether a bankruptcy purpose would be served; the need for orderly, efficient, and expeditious administration of the case; the legislative purpose of § 505; the length of time to resolve the matter; the burden on the docket; the asset and liability structure of the debtor; uniformity of assessment; potential prejudice to the debtor, taxing authority, and creditors; and other factors, such as judicial economy, fairness and convenience to litigants, and the simplicity of the nonbankruptcy issues. See generally. IRS v. Luongo (In the Matter of Luongo), 259 F.3d 323 (5th Cir.2001); Hinsley v. Harris County, Texas (In re Hinsley), 69 Fed.Appx. 658, 2003 WL 21356015, *3 (5th Cir.2003) (unpublished); New Haven Projects Ltd. Liab. Co. v. City of New Haven (In re New Haven Projects Ltd. Liab. Co.), 225 F.3d 283, 288-89 (2d Cir.2000); Gossman v. United States (In re Gossman), 206 B.R. 264, 266-67 (Bankr.N.D.Ga.1997); In re Diez, 45 B.R. 137 (Bankr.S.D.Fla.1984). In this case, there are five factors that lead to the conclusion abstention is appropriate.
First, this is a fully-administered, no-asset Chapter 7 case which was reopened for the sole purpose of contesting the Debtors' potential1 tax liability. Though protecting a debtor's discharge could be a legitimate bankruptcy purpose under § 505, see Luongo, 259 F.3d at 330-31, many courts have concluded that abstention is generally appropriate in noasset Chapter 7 cases since the distribution to creditors is not affected. See, e.g., New Haven Projects, 225 F.3d at 288-89 ( ); In re Gossman, 206 B.R. at 266-67 ( ); In re Diez, 45 B.R. 137 (Bankr.S.D.Fla.1984) ( ). Here, there are no assets for the estate to administer for distribution to creditors, and the Debtors' discharge has not been offended because the Taxes have not yet been assessed.
Second, nonbankruptcy issues predominate. This adversary proceeding seeks to determine the dischargeability of the Debtors' potential liability for Taxes under 11 U.S.C. § 523(a)(1)(A). Section 523(a)(1)(A) provides that taxes of the kind described in 11 U.S.C. § 507(a)(8) are not discharged. Section 507(a)(8) describes, in relevant part, pre-petition income taxes assessable post-petition under applicable law or by agreement (with certain exceptions). See 11 U.S.C. § 507(a)(8)(iii). Since the dispositive question — whether the Taxes are assessable by virtue of the extension agreements — is determined by tax law, nonbankruptcy issues predominate. See, e.g., Hinsley, 69 Fed.Appx. 658, 2003 WL 21356015 at *3 (unpublished) ( ); cf. Luongo, 259 F.3d at 330-31 ( ).
Third, the complexity of the dispositive tax question weighs in favor of abstention. Cases spawned by Hoyt's partnerships demonstrate that the tax questions likely to be raised in this proceeding are not well-settled. See generally In re Leland, 160 B.R. 834 (Bankr.E.D.Cal.1993); In re Miller, 1993 WL 632255 (Bankr.E.D.Cal. 1993), affd Miller v. IRS (In re Miller), 174 B.R. 791 (9th Cir.BAP1994), aff'd 81 F.3d 169, 1996 WL 164295 (9th Cir.1996) ( ); but see generally Phillips v. Commissioner of Internal Revenue, 272 F.3d 1172 (9th Cir.2002); River City Ranches # 1 Ltd. v. C.I.R., 401 F.3d 1136 (9th Cir.2005); Olcsvary v. United States (In re Olcsvary), 240 B.R. 264 (Bankr. E.D.Tenn.1999), aff'd, 258 B.R. 885 (E.D.Tenn.2001); see also Transpac Drilling Venture v. Commissioner, 147 F.3d 221 (2d. Cir.1998) ( ).2 The experience of other courts in similar cases indicates that the tax law governing the validity of the extension agreements is at least somewhat complex. See Martinez v. United States (In re Martinez), 323 B.R. 650 (Bankr. E.D.La.2005), vacated by 2005 WL 2065307 (E.D.La.2005), remanded to, 341 B.R. 568 (Bankr.E.D.La.2006), 366 B.R. 604 (Bankr.E.D.La.2007).
Fourth, it is not apparent, as the Debtors suggest, that the issues would necessarily be resolved more quickly in this Court than they would in the Tax Court. Of course; the Tax Court has more experience in tax matters. Plus, there are three levels of appellate review after this Court reaches a decision (the District Court, the Circuit Court, and the Supreme Court), while Tax Court decisions are appealable directly to the Circuit Court. Compare 28 U.S.C. § 158 with 26 U.S.C. § 7482. Any time saved in ...
To continue reading
Request your trial-
In re BFW Liquidation, LLC
...(withdrawal of reference); In re Gilliam, 428 B.R. 656, 660 (Bankr.D.S.C.2008) (section 505 abstention); Dees v. United States (In re Dees), 369 B.R. 676, 678 (Bankr.N.D.Fla.2007)(section 505 abstention); Kopp v. United States (In re Kopp), 355 B.R. 296, 300 (Bankr.N.D.Okla.2006) (section 5......
-
U.S. v. Martinez
...(9th Cir.2005); Mekulsia v. Comm'r, 389 F.3d 601 (6th Cir.2004); Myers v. United States, 883 F.Supp, 526 (D.Or.1995); In re Dees, 369 B.R. 676, 679 (Bankr.N.D.Fla. 2007) (citing cases and noting that "[c]ases spawned by Hoyt's partnerships demonstrate that the tax questions likely to be rai......
-
In re Beane, 2:07-cv-00065-FtM-34.
...such as judicial economy, fairness and convenience to litigants, and the simplicity of the nonbankruptcy issues." See In re Dees, 369 B.R. 676, 677-78 (Bankr.N.D.Fla.2007). Thus, a bankruptcy court examines a number of similar factors in determining whether to grant relief from a stay and w......
-
In re Gilliam
...the litigants. See Luongo, 259 F.3d at 330; In re New Haven Projects Ltd. Liab. Co., 225 F.3d 283, 289 (2d Cir.2000); In re Dees, 369 B.R. 676, 677-78 (Bankr.N.D.Fla.2007); In re Fyfe, 186 B.R. 290, 292 (Bankr.N.D.Ga.1995). In this case, several of these factors weigh in favor of abstention......