In re Hatch
| Decision Date | 03 October 2014 |
| Docket Number | No. 13–03342–als7.,13–03342–als7. |
| Citation | 519 B.R. 783 |
| Parties | In the Matter of Felicia Marie HATCH, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of Iowa |
519 B.R. 783
In the Matter of Felicia Marie HATCH, Debtors.
No. 13–03342–als7.
United States Bankruptcy Court,
S.D. Iowa.
Signed Oct. 3, 2014.
[519 B.R. 785]
Samuel Z. Marks, Nancy L. Thompson, Des Moines, IA, for Debtor.
ANITA L. SHODEEN, Bankruptcy Judge.
Before the Court is the Trustee's Objection to debtor's claim of exemption in the Additional Child Tax Credit as a public assistance benefit pursuant to Iowa Code section 627.6(8)(a) (2014). At the evidentiary hearing that was conducted, Dallas Janssen, Chapter 7 Trustee (“Trustee”), appeared on behalf of the estate, and Felicia Hatch was represented by Nancy L. Thompson and Samuel Z. Marks. An amicus curiae brief in support of the position that the additional child tax credit does not qualify as exempt under Iowa law has been filed by Donald F. Neiman 1.
The Court has jurisdiction of this proceeding pursuant to 28 U.S.C. sections 157(b)(1) and 1334. The following findings of fact and conclusions of law are entered by the Court pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014. For the reasons set forth herein Debtors' Objection to Trustee's Objection to Exemption is sustained.
Felicia Hatch is a single mother of three children ranging in age from one to fourteen years old. She filed a voluntary chapter 7 petition on December 13, 2013. At the time of her bankruptcy she had the following sources of monthly income: gross wages of approximately $2,403, child support of $100 and $500 from the Supplemental Nutrition Assistance Program (SNAP). On Schedule B of her filing she identified an anticipated tax refund for calendar year 2013, including any earned income tax credit and additional child tax credit, which was claimed as exempt on Schedule C with an unknown value. The Trustee filed a timely objection to the exemptions claimed on Hatch's original Schedule C, which disputed her ability to claim any amount of that portion of her refund attributed to the refundable portion of the Additional Child Tax Credits (“ACTC”) as a public assistance benefit. On February 24, 2014, Hatch amended Schedule B to reflect her actual tax refunds in the amount of $8,864. Schedule C was amended to claim this amount as exempt under Iowa law. There is no dispute
[519 B.R. 786]
that $6,044.34 of the refunds qualify as exempt under Iowa Code section 627.6, including an amount attributable to her Earned Income Tax Credit (EITC).
In support of his objection, the Trustee cites to Hardy v. Fink (In re Hardy) which held that the ACTC does not qualify as a public assistance benefit for purposes of exemption under Missouri law. 503 B.R. 722 (8th Cir. BAP 2013). 2 Hatch requested an evidentiary hearing to prove that the ACTC qualified for exempt status as a public assistance benefit under Iowa Code section 627.6(8)(a). The amicus curiae brief argues that there is little, if any, difference between the Missouri and Iowa exemption statutes making Hardy v. Fink dispositive of the Trustee's objection to Hatch's claim of exemption in her ACTC.
Congress enacted the child tax credit at 26 U.S.C. section 24 (“Section 24”) in 1997 to provide tax relief beyond the dependency exemption to wage earning families. As stated in the Senate's Report on the Revenue Reconciliation Act of 1997: “The Committee believes that the individual income tax structure does not reduce tax liability by enough to reflect a family's reduced ability to pay taxes as family size increases.” S.Rep. No. 105–33, at 18 (1997). Neither the original statute nor its legislative history identifies a benefit to low income individuals or neediness as a purpose for the tax credit established by the 1997 law. The statute created a $500 non-refundable tax credit which could be applied to reduce the tax obligation owing under a filed return. The tax credit gradually phased out as a taxpayer's adjusted gross income increased up to a specified level beyond which the credit was not available. H.R.Rep. No. 105–148, at 14–15 (1997), 1997 U.S.C.C.A.N. 678. at 0; S.Rep. No. 105–33, at 19 (1997). The child tax credit adopted in 1997 has undergone a number of modifications. “The first significant change to the child tax credit occurred with the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107–16). That Act raised the amount of the available credit over time to $1,000 per qualifying child and authorized a partially refundable credit under an earned income formula.” Margot L. Crandall–Hollick, Cong. Research Serv., R41873, The Child Tax Credit: Current Law and Legislative History (2014).
The current version of Section 24 is summarized as follows. A tax credit of $1,000 may be claimed for each qualifying child during the tax year as long as the tax payer does not exceed specified adjusted gross income (AGI) limitations of: $110,000 for a jointly filed return; $75,000 for an unmarried filer; and $55,000 for a married individual filing a separate return. 26 U.S.C. § 24(b)(2) (2014). As various levels are reached under AGI, the tax credit starts to decrease based upon a fraction of the amount exceeding the given threshold. Id. § 24(b)(1). A taxpayer with earned income of less than $3,000 does not qualify for either the non-refundable or refundable portion of the child tax credits.
Debtor's tax return (Exhibit 1) provides a concrete illustration of the process. Hatch has three qualifying children which permits her to claim total child tax credits in the amount of $3,000. Line 46 of her 2013 tax return reflects that she owes $249.00 in taxes. After application of an
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unrelated tax credit 3 on line 48, Hatch utilizes $190.00 of her $3,000 available child tax credits to reduce her tax obligation to zero. The remaining value of her tax credit of $2,810 ($3,000–$190) is the ACTC shown on line 65 which is refundable to her.
2. Hardy v. FinkThis was a chapter 13 case where the debtor (Hardy) claimed an exemption in the ACTC to which the chapter 13 trustee (Fink) objected. In re Hardy, 495 B.R. 440 (Bankr.W.D.Mo.2013). The matter was apparently deemed a purely legal issue which was submitted to the bankruptcy court on stipulated facts and the debtor's tax returns. The debtor argued that the revision to Missouri's exemption statute that deleted the word “local,” which had previously modified the phrase “public assistance benefit,” permitted the child tax credits to be claimed as exempt. The bankruptcy court acknowledged that the referenced change to the state statute has resulted in a determination that the Earned Income Tax Credit (“EITC”) is exempt, but it declined to extend similar treatment to the ACTC. Id. at 445–47 (citing In re Corbett, No. 13–60042, 2013 WL 1344717, at *3 (Bankr.W.D.Mo. Apr. 2, 2013)). In reaching this conclusion, the bankruptcy court contrasted the original purpose between the EITC and the tax credit available at Section 24.
The EITC's specific purpose was to provide economic relief to those defined as “low-income workers.” In contrast, the CTC's availability was not restricted to low-income workers; rather, its purpose in sum was to give parents of dependent children a “financial break.” Given that the CTC is available to taxpayers who could be described as relatively affluent in comparison to the low income working parents who qualify for the EITC, the Court concludes that the Missouri legislative would not have intended the CTC to be a “public assistance benefit.”
Id. at 447 (citing In re Law, 336 B.R. 780, 783 (8th Cir. BAP 2006)). The court reasoned that: “The fact the Additional CTC is available as a refund for taxpayers whose income places them out of range for most public assistance benefits available to Missourians is a sufficient basis to conclude that the Additional CTC is not an exempt ‘public assistance benefit.’ ” Id.
On appeal, Hardy argued that “[t]he common meaning of public assistance benefit is quite plainly an assistance that benefits the public.” In re Hardy (Hardy v. Fink), 503 B.R. 722, 725 (8th Cir. BAP 2013) (emphasis added). This broad interpretation was dismissed in favor of a dictionary definition of the term public assistance. Based upon the dictionary definition of public assistance and the high income thresholds that govern qualification for the child tax credit under 26 U.S.C. section 24, the Bankruptcy Appellate Panel affirmed the bankruptcy court's holding that the ACTC is not exempt under Missouri law. Id. at 726.
3. The Pending Exemption DisputeHatch challenges the holding in Hardy v. Fink and seeks a different determination from this Court. Whether a decision of a Bankruptcy Appellate Panel is binding precedent on bankruptcy courts is the subject of disagreement. Four approaches have developed related to this topic which vary from recognizing binding precedent to no binding effect by analogy to rulings of federal district courts related to bankruptcy appeals. See In re Hunter, 380 B.R. 753, 773–74 (Bankr.S.D.Ohio 2008) (citing 6 William L. Norton, Jr., Norton
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Bankruptcy Law & Practice 2d § 148:17 (2d ed. 2007)).4 A court in this circuit has stated that “[w]hile the rulings of the Bankruptcy Appellate Panels are entitled to appropriate respect, those rulings are not binding on the Bankruptcy Court.” In re Williams, 257 B.R. 297, 301 n. 5 (Bankr.W.D.Mo.2001). Such an approach is appropriately applied in this case.
As permitted by 11 U.S.C. section 522(b), Iowa has opted out of the federal exemption scheme. SeeIowa Code § 627.10 (2014). A resident of Iowa filing...
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