In re Galvano
| Decision Date | 19 July 1990 |
| Docket Number | Bankruptcy No. 189-93260-260. |
| Citation | 116 BR 367 |
| Parties | In re Giuseppe GALVANO, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Steven M. Coren, P.C., New York City by Steven M. Coren, Randy L. Braun, of counsel, for debtor.
Robert Abrams, Atty. Gen. of the State of New York, New York City by Marcie S. Mintz, Asst. Atty. Gen., of counsel, for New York State Dept. of Taxation & Finance.
DECISION
Giuseppe Galvano, ("Galvano" or "the Debtor"), the debtor herein, seeks to have this Court review and determine the validity and legality of certain sales and use taxes assessed by the New York State Department of Taxation and Finance ("Department of Taxation"). The instant proceeding comes before this Court on a motion pursuant to Section 505(a) of the Bankruptcy Code.1 The motion is opposed by the Department of Taxation on the grounds that this Court lacks jurisdiction to determine the Debtor's tax liability under § 505(a)(2)(A) inasmuch as his liability has been contested and adjudicated by a tribunal of competent jurisdiction prior to the Debtor's filing of his Chapter 7 petition.
Giuseppe Galvano is the sole owner and principal officer of Joe-Gal Pizza, Inc. ("Joe-Gal"), a corporation that operates a pizzeria in Manhattan which is currently under reorganization pursuant to Chapter 11 of the Bankruptcy Code before the Honorable Howard C. Buschman III in the Southern District of New York. Galvano's individual Chapter 7 petition is presently pending in this Court and appears to have been precipitated by certain tax liabilities, a majority of which stem from the operation of Joe-Gal. The schedules annexed to the petition list priority debts for corporate income taxes owed to the Internal Revenue Service, and corporate sales and use taxes owed to New York State for which he may be liable. Additionally, a secured debt is listed as owing to Astoria Federal Savings Bank on the Debtor's principal residence and two unsecured debts, one owed to his estranged wife, and the other to a lawyer, presumably for legal services rendered.
The Debtor brings the instant motion under § 505(a) to determine his tax liability for sales and use taxes arising out of three separate assessments levied by the Department of Taxation against him individually and as the principal officer of the corporation. The assessments are comprised of sales and use taxes for two periods namely, June 1, 1981 through May 31, 1984 (the "first" assessment), June 1, 1984 through May 31, 1987 (the "second" assessment), and interest and penalties on the taxes levied from June 1, 1985 through May 31, 1987 (the "third" assessment).
The underlying reason for the Department of Taxation's opposition is grounded on the proposition that the liability of the Debtor and Joe-Gal has been fully contested and adjudicated by a tribunal of competent jurisdiction prior to the Debtor's filing of his Chapter 7 petition. It further opposes the Debtor's motion on the ground that the Debtor participated in the filing of an identical motion under § 505(a) for the corporation in its Chapter 11 proceeding. The corporation's motion was denied in its entirety by Judge Buschman in those proceedings. In re Joe-Gal Pizza, Inc., Case No. 87B-11503 (HCB), slip op. .
The procedural history of the assessments is as follows. On September 4, 1984, Joe-Gal received a notice of Determination and Demand for Payment of Sales and Use Taxes in the amount of $172,465.59 for the period of June 1, 1981 through May 31, 1984, ("the first assessment"). The notice was addressed to Joe-Gal and to the Debtor individually in his capacity as a responsible officer of the corporation and was mailed to Galvano's home. It expressly stated that the Debtor was personally liable for the taxes listed as due from the corporation, and set out the statutory period during which the assessment could be appealed. In compliance thereto, the Debtor filed a petition for Joe-Gal to contest the assessment. He did not, however, file a separate petition to contest his individual liability under the assessment. As a result of the petition, a hearing was held on October 28, 1986 before the Tax Appeals Bureau of the New York State Department of Taxation ("Tax Bureau"), and a decision was issued thereupon on March 20, 1987. The Tax Bureau concluded that the amount of the first assessment was correct, and the audit methodology used to determine the amount was proper.2 Joe-Gal did not thereafter take any appeal to contest the decision of the Tax Bureau. In August of 1987, approximately six months after the decision of the Tax Bureau, Joe-Gal filed for relief under Chapter 11 of the Bankruptcy Code.
Subsequent to Joe-Gal's filing for bankruptcy, the Debtor and Joe-Gal received a series of Statements of Proposed Audit Adjustment from the Department of Taxation. The first Statement, dated September 16, 1987, detailed additional assessed taxes due from Joe-Gal and the Debtor for the period of June 1, 1984 through May 31, 1987, and requested that certain financial data be submitted to complete the audit process. On November 16, 1987, after receiving the requested financial data, a second Statement revising the amount of the taxes assessed for the period June 1, 1984 through May 31, 1987 was sent by the Department of Taxation ("the second assessment"). Furthermore, on that same day, Joe-Gal and the Debtor received a third Statement ("the third assessment") which detailed the tax penalties and interest due on a portion of the taxes set forth in the second assessment.
On December 7, 1987, the Debtor, acting as president of Joe-Gal, signed a consent setting the second and third tax assessments at $27,815.49 and 1,699.97, respectively. This consent was signed subject to approval by the Bankruptcy Court.3 Following receipt of the signed consent, the Department of Taxation sent Joe-Gal and the Debtor each Notices of Determination and Demands for Payment of Sales and Use Taxes which reflected the amount of taxes agreed upon in the consents.4
Notwithstanding its consent to the second and third assessments and after having received the notices listing the amount of taxes due, Joe-Gal filed a motion before Judge Buschman virtually identical to the instant application. Judge Buschman denied the motion, holding that the first assessment had been "contested and adjudicated" before a tribunal of competent jurisdiction and that § 505(a) precluded further determination of Joe-Gal's tax liability by the Bankruptcy Court. Judge Buschman also declined to review the amount of liability due under the second and third assessments. He found the question of liability to be moot with respect to these assessments because the signed consent was a settlement of all remaining tax liability. In re Joe-Gal Pizza, Inc., Case No: 87B-11503 (HCB), slip op. .5
Prior to Judge Buschman's decision rendered in May 1989, the Debtor, acting individually and as the principal officer of the corporation, petitioned the Department of Taxation for a review of the second and third assessments which he had consented to on behalf of his corporation. A hearing pursuant to that petition was scheduled for January 26, 1990. In October of 1989, the Debtor filed a Chapter 7 petition in his individual capacity in this Court. Subsequently, but prior to the hearing, he filed the instant motion seeking a determination of his tax liability for the three assessments under § 505(a).
In accordance with the Debtor's individual bankruptcy filing, the January 26, 1990 hearing before the Tax Bureau on the second and third assessments was adjourned in compliance with § 362, the automatic stay provision of the Bankruptcy Code. A similar motion made to stay the proceeding before the Tax Bureau for Joe-Gal was denied. As a result, a hearing on the validity of the signed consent for the assessments, and the amount of liability owed by Joe-Gal for the second and third assessments was held on January 26, 1990 before Administrative Law Judge Kevin Cahill.
At the hearing, an attorney represented both Joe-Gal, the corporation, and Galvano, the individual. The attorney attempted to make a limited appearance for Joe-Gal because he feared that his participation in its contest of tax liability for the second and third assessments would prejudice Galvano's individual right to contest the liability. Judge Cahill refused to recognize the limited appearance, finding that no prejudice to Galvano would result given that the hearing had been stayed and adjourned with respect to him. Nevertheless, the attorney removed himself from the hearing, opining that his continued presence would jeopardize Galvano's rights to contest the matter in the Bankruptcy Court.
Following the hearing, the Tax Bureau determined that the consent signed by the Debtor for the second assessment was valid and binding on Joe-Gal. Furthermore, the methodology used by the Department of Taxation to calculate the interest and penalties due for the third assessment was found to have been made without error. The decision of the Tax Bureau therefore fixed the amount of Joe-Gal's tax liability for these assessments. However, because Judge Cahill specified that the hearing was not to prejudice the individual rights of the Debtor, it appears that Galvano has retained his right to a separate hearing on these assessments.
Section 505(a) of the Bankruptcy Code grants authority to the Bankruptcy Court to determine the amount or legality of "any tax, any fine or penalty relating to a tax, or any addition to tax," as long as the amount or legality of the tax has not been contested or adjudicated by a "judicial or administrative tribunal of competent jurisdiction" before the filing of the bankruptcy petition. 11 U.S.C. § 505(a). The Bankruptcy Court is, therefore, precluded from reviewing any determination of a debtor's tax...
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