In re Durensky

• Decision Date: 28 May 1974
• Docket Number: No. BK 3-2585.,BK 3-2585.
• Citation: 377 F. Supp. 798
• Parties: In the Matter of Lloyd James DURENSKY, Bankrupt.
• Court: U.S. District Court — Northern District of Texas

377 F. Supp. 798

In the Matter of Lloyd James DURENSKY, Bankrupt.

No. BK 3-2585.

United States District Court, N. D. Texas, Dallas Division.

May 28, 1974.

John C. Moran, Oklahoma City, Okl., for bankrupt.

Frank D. McCown, U. S. Atty., Fort Worth, Tex., Roger J. Allen, Asst. U. S. Atty., Dallas, Tex., Francis P. Dicello, Tax Div., Dept. of Justice, Washington, D. C., for United States.

MEMORANDUM ORDER

MAHON, District Judge.

This is an appeal from the order of the bankruptcy court denying the Government's motion to dismiss.

On February 25, 1972, Lloyd James Durensky filed a voluntary petition in bankruptcy. In the schedule filed with the petition, the United States was named among the creditors by virtue of income taxes alleged to be due in the amount of approximately $90,000.00. Notice of First Meeting of Creditors was served upon the United States through its Internal Revenue Service on March 10, 1972. Notice was also given that an order had been entered setting May 22, 1972, as the last day for filing objections to the discharge of the bankrupt and for filing applications pursuant to § 17c(2) of the Bankruptcy Act, 11 U.S.C. § 35c(2) (1970),¹ to determine the dischargeability of debt claimed to be nondischargeable under clauses (2), (4), or (8) of Section 17a of the Act. The United States made no response and filed no claim. The bankruptcy court's Order of Discharge was entered on May 25, 1972, and notice of entry thereof was mailed June 9, 1972.

Thereafter, on August 8, 1972, the Internal Revenue Service gave the bankrupt "Final Notice Before Seizure" whereupon it was indicated that the taxes in question related to the years 1964 and 1965. The bankrupt then filed an Application to Determine Dischargeability of Debt as provided for in § 17c of the Act. In the application it was alleged that the Internal Revenue Service had persisted in undertaking collection efforts against the bankrupt subsequent to the entry of the Order of Discharge. A temporary restraining order was entered and thereafter the Government moved for dismissal, urging, inter alia, that there was no jurisdiction to determine whether a debt due the United States is discharged where the United States has filed no proof of claim. The bankruptcy court's memorandum order of February 1, 1974, reflects that the United States sought a determination that jurisdiction was lacking. The Government urged that if the bankruptcy court concluded that it did have jurisdiction, it should then determine that the taxes in controversy were not discharged in that they were taxes "with respect to which the bankrupt made a false or fraudulent return, or willfully attempted in any manner to evade or defeat . . .." Section 17(a)(1) (d) of the Bankruptcy Act, 11 U.S.C. § 35(a)(1)(d).²

The bankruptcy court entered an order denying the motion to dismiss on December 21, 1974. With the consent of the Internal Revenue Service, the fraud issue was set for trial.

Subsequently, the Government elected to appeal from the ruling of the bankruptcy court wherein jurisdiction had been upheld. The matter is now before this Court for consideration of that appeal. The United States urges that the bankruptcy court has no jurisdiction to determine whether a debt of the bankrupt to the United States has been discharged where the United States has not filed a proof of claim. The contention is made that the Government must waive sovereign immunity or otherwise voluntarily submit itself to the jurisdiction of the bankruptcy court for there to exist in that court the power to determine the rights of the United States.

Section 2a(2A) of the Act, 11 U.S.C. § 11(a)(2A), an amendment enacted in 1966, provides that courts of bankruptcy are invested with jurisdiction to—

"Hear and determine, or cause to be heard and determined, any question arising as to the amount or legality of any unpaid tax, whether or not previously assessed, which has not prior to bankruptcy been contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction. . . ."

The statute in question is an express grant of jurisdiction. As was noted by the bankruptcy judge in the order of February 1, "Much authority does exist for the proposition that the bankruptcy court in this context does have jurisdiction to determine the dischargeability of tax claims of this nature, whether or not a proof of claim is filed. In re Standard Milling Co., Inc., 324 F. Supp. 386 (N.D.Tex.1970); In re Curtis, CCH 1969 Stand.Fed.Tax Rep., U.S. Tax Cas. (69-1 at 84, 805) ¶ 9433, 1969 CCH Bankr.L.Rep. ¶ 63,136 (D.Mich. 1969); In re Murphy, ¶ 64,755 CCH Bankr.L.Rep. (Bankruptcy Ct.Ala., 1972), remanded for dismissal, 355 F. Supp. 1235 (N.D.Ala.1973). See also, In the Matter of Century Vault Co., 416 F.2d 1035, (3rd Cir. 1969), where at page 1041 the Court says, `. . . The Bankruptcy Court has jurisdiction to hear and determine any question arising as to the amount of any unpaid tax if that question has not been contested prior to bankruptcy. The fact that a proof of claim has or has not been filed is immaterial.'"³

Further, in 3A Collier on Bankruptcy, ¶ 64.4073 at 2234-2235 (14th ed. rev. 1972), it is observed that in connection with tax disputes before bankruptcy courts,

"The jurisdictional grant under the first part of § 2a(2A) to hear and determine `any question arising as to the amount or legality of any tax is limited by two factors only. First of all the tax must not have been paid. . . . Secondly, the disputed tax must not have been contested and adjudicated prior to bankruptcy. Thus, the immaterial elements not affecting the court's jurisdiction, include . . whether or not a proof of claim is filed for the tax. Actually, if a proof of claim has been filed the court has independent power under § 57 to determine its validity and amount before allowing it."

With reference to the Government's first contention, this Court finds little difficulty in concluding that jurisdiction does lie to determine dischargeability without regard to whether a proof of claim is filed.

The Government next argues that even if there is jurisdiction to determine dischargeability of a tax debt, the bankruptcy court is nevertheless precluded from undertaking to determine the merits of a dispute wherein the United States has not subjected itself to the court's jurisdiction. It is urged that in this cause resolution of the dischargeability issue requires determination of the merits of the claim, viz., for the debt not to be discharged it must first be established that the taxes alleged to be due are taxes "with respect to which the bankrupt made a false or fraudulent return." This, the Government contends, would be inconsistent with the legislative history of the amendments to the Bankruptcy Act, particularly the express statement of the Senate Finance Committee wherein it was said:

"This committee understands that this amendment makes no change in present law under which a bankruptcy court cannot adjudicate the merits of any claim, including a Federal tax claim, which has not been asserted in the bankruptcy proceeding by the filing of a proof of claim." S.Rep.No. 999, 89th Cong., 2d Sess., at 11 (1966), 2 U.S.Code Cong. & Admin.News, pp. 2442 at 2452 (1966)."

A review of the legislative history relative to § 2a(2A) and its companion amendments reveals that the statement of the Senate Finance Committee that is herein given emphasis by the Government appears in the closing paragraph of the last section of the majority views of Senate Report No. 999. The statement is made under the concluding general topic, "Comments on Other Provisions of the Bill," not under the more specific section captioned "Discharge of Taxes" wherein H.R. 3438 (encompassing the § 2a(2A) amendment) was addressed. In fact, the Senate Finance Committee's recommendations on H.R. 3438 appeared in Senate Report 998, not Senate Report No. 999,⁴ and though the Finance Committee discussed its recommendations on both H.R. 3438 and H.R. 136 in Senate Report No. 999, its views relative to H.R. 3438 were not adopted and its recommendations relative thereto were expressly rejected.⁵

House Resolution 3438, which included the jurisdictional § 2a(2A) proposal, was considered by the Senate Finance Committee together with its companion bill, H.R. 136, the amendment to sections 1, 17a, 64a(5), 67c and 70c of the Bankruptcy Act which related in many respects to tax liens and their status. The two amendatory bills had been referred to the Judiciary Committee and thereafter re-referred to the Senate Finance Committee "for consideration of their tax aspects with instructions to return them to the Senate. . . .",⁶ and, as has been noted above, the committee recommendations relative to them both appeared in Senate Report No. 999. It is in this context that attention is directed to the observations of Professor Frank R. Kennedy, Reporter of the Advisory Committee on Bankruptcy Rules and a member of the National Bankruptcy Conference. He has written:

"One of the exasperating aspects of the campaign for enactment of H.R. sic 89-495 was the insistence by the Treasury Department that the Supreme Court changed the law in United States v. Speers, 382 U.S. 266, 86 S.Ct. 411, 15 L.Ed.2d 314 (1965) and thereby exposed the Government's unfiled federal tax lien to new risks of such seriousness that it would now have to notice file all tax liens without regard to (1) the cost and inconvenience to the Government of adopting such a policy or (2) the hardship to the tax debtor resulting from such a step. The Treasury Department's views are reflected in Sen.Rep.No.999, 89th Cong., 2d Sess. 4, 11-12 (1966). The Treasury Department sought to amend the statutory lien bill to overrule United States v. Speers, and indeed persuaded a majority of the Senate Finance Committee to recommend such an amendment. Id. at 12-13. A minority of that committee exposed the fallacies of the majority's report

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