In re Miller
| Decision Date | 12 October 1989 |
| Docket Number | No. CIV-1-88-447,Bankruptcy No. 1-86-01972.,CIV-1-88-447 |
| Parties | In re Herbert A. MILLER, Jr. and Quindal Sue Miller, Debtors. UNITED STATES of America, Plaintiff/Appellant, v. Herbert A. MILLER, Jr., and Quindal Sue Miller, Defendants/Appellees. |
| Court | U.S. District Court — Eastern District of Tennessee |
Thomas E. Ray, Ray & North, P.C., Chattanooga, Tenn., for appellee Herbert A. Miller, Jr.
Steve McKnight, Asst. U.S. Atty., Chattanooga, Tenn., Carl Carter, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., for U.S.
This matter is presently before the Court upon the appeal of the United States of America from the bankruptcy court's determination, by an order and memorandum opinion dated September 1, 1988, that the amended proof of claim of the United States for internal revenue taxes (Claim 26d) should be disallowed, thereby sustaining the debtors' objection. In re Miller, 90 B.R. 317 (Bankr.E.D.Tenn.1988).
For the reasons that follow, the appeal is DENIED.
During the 1986 tax year, Herbert A. Miller (hereinafter the "debtor") was the controller and day-to-day financial manager of Dorothy W., Inc., doing business as Aunt Lou's Family Buffet (hereinafter the "corporate-debtor"). Dorothy W., Inc. experienced financial hardship and filed for bankruptcy under chapter 11 of the Bankruptcy Code on August 8, 1986. On December 29, 1986, the corporate-debtor converted its bankruptcy to a chapter 7 liquidation action. Dorothy W., Inc. failed to pay all of its withheld employment taxes during the four taxable quarters of 1986 in the total approximate amount of $40,542.27.
Herbert Miller and his wife, Quindal Miller (hereinafter the "debtors"), filed their personal petition in bankruptcy under chapter 13 of the Bankruptcy Code on September 12, 1986. A proof of claim for internal revenue taxes was originally filed on October 3, 1986, in their case, reporting an unsecured priority claim for 1984 income taxes. This original claim was subsequently thrice amended to include an income tax deficiency for 1985 and 1986, and an Internal Revenue Code § 6672 penalty with respect to the unpaid employment taxes of Dorothy W., Inc. The first amended claim was filed on December 22, 1986, the second on June 24, 1987, and the third on August 20, 1987. The bar date for filing claims was on January 13, 1987.
The third amended proof of claim for internal revenue taxes filed in this action resulted from an investigation of Dorothy W., Inc. that had been requested by an employee of the Special Procedures Section, Internal Revenue Service (hereinafter "IRS"), at Nashville, Tennessee. In accordance with IRS procedure, the Special Procedures Section in Nashville requested the Collection Division of the IRS begin a 100% penalty investigation on all individuals connected with Dorothy W., Inc. who were in a position of responsibility and authority in the corporation. The investigation was assigned to a local revenue officer, Mr. Zorn. The revenue officer first talked to the debtor on September 12, 1986, about a month after the corporate-debtor filed its chapter 11 case. The debtors' individual chapter 13 case was filed the same day. The debtor did not tell the revenue officer that he was filing or had filed a chapter 13 case.
In the schedules filed with their chapter 13 petition, the debtors listed debts to the IRS for 1984, 1985 and 1986 income taxes, and a contingent debt for the 100% penalty arising from Mr. Miller's involvement with Dorothy W., Inc. The debts were scheduled as follows:
Creditor Amount When Incurred
IRS $2,895.00 1984
IRS 9,500.00 1985
IRS 9,000.00 1986
IRS 1.00 Contingent Claim
on Dorothy W
Inc. Withholding
Notice of the debtors' chapter 13 case was also sent to the IRS Special Procedures Section in Nashville, Tennessee. The IRS admits receiving notice of the chapter 13 case which set January 14, 1987, as the last day for filing proofs of the claims.
Shortly after this notice was mailed, the debtors amended the schedule of debts as follows:
Internal Revenue Service Special Procedures Section P.O. Box 1107, Stop 31 Nashville, Tennessee 37202 $1.00 (Contingent liability for withholding of SVW, Inc.)
The debtors' attorney certified service of the amendment on the IRS on the same day that it was filed, September 30, 1986.
On October 3, 1986, the IRS filed a proof of claim for personal income tax owed by the debtor for the year 1984 in the amount of $2,900.
The meeting of creditors was held as scheduled on October 16, 1986, and the court confirmed the plan on the same day. There were no objections by creditors or the chapter 13 trustee.
During this period of time, the local revenue officer was continuing the 100% penalty investigation. He met with Mr. Miller again in November 1986. Mr. Miller did not tell the revenue officer that he had already filed a chapter 13 case. The revenue officer completed his case in early December 1986. He recommended that the 100% penalty be assessed against Mr. Miller. In mid-December 1986, the revenue officer telephoned Mr. Miller and told him he had proposed assessment of the 100% penalty. Mr. Miller still did not mention his chapter 13 case. The revenue officer's group manager approved assessment of the penalty about the same time, mid-December 1986. The recommendation was sent to a clerk to prepare a formal notice of assessment of the 100% penalty.
On December 22, 1986, the IRS amended its proof of claim to add personal income tax for the year of 1985. The time for filing proofs of claims in the debtor's chapter 13 case ended on January 14, 1987. The IRS had not filed a proof of claim for the 100% penalty and had not asked for an extension of the time to file a proof of claim. The proposed assessment was mailed to the debtor on February 23, 1987, about two months after the IRS had approved the proposal. The IRS says that the delay was due to the normal backlog of cases and the holiday season that intervened after approval of the proposed assessment.
After Mr. Miller received the proposed assessment in late February 1987, the debtors' attorney wrote a letter to the local revenue officer who did the penalty investigation. The letter is dated March 10, 1987 and notified the revenue officer that the debtors were in a chapter 13 case. The revenue officer responded to the letter by calling the debtors' attorney and advising him that the penalty case had been turned over to the Special Procedures Section in Nashville. In May 1987, the bankruptcy court entered a routine order allowing claims, including the IRS's claim against the debtors for 1984 and 1985 personal income tax.
On June 24, 1987, the IRS amended the claim again to include 1986 personal income tax. This was the first amendment after the bar date, but the debtors have not objected to it. In July 1987, Mr. Miller received a letter from the IRS Service Center in Memphis, Tennessee, stating that the 100% penalty was being assessed. On July 15, 1987, the debtors' attorney responded with a letter informing the IRS that the debtors had filed a chapter 13 case in September 1986. The Memphis IRS office forwarded the letter to the Special Procedures Section in Nashville. On August 20, 1987, the IRS filed the amendment to its claim to add the 100% penalty.
Since the claim was filed beyond the bar date, this Court's ruling on the timeliness of the claim depends on whether the August 20, 1987 claim relates back as an amendment to a timely filed claim or whether it is an entirely new claim.
United States of America v. International Horizons, Inc. (In re International Horizons), 751 F.2d 1213, 1216 (11th Cir.1984). Under a traditional analysis, the factor most often considered is whether the "amended" claim arises out of the same transaction or occurrence set forth in the original timely filed claim. In re Overly-Hautz Company, 57 B.R. 932, 936 (Bankr. N.D.Ohio 1986), aff'd, 81 B.R. 434 (Bankr.N.D.Ohio 1987). An amendment is permitted where the original claim provided notice to the court of its existence, nature and amount of the claim, and it was the creditor's intent to hold the estate liable. International Horizons, 751 F.2d at 1216. Courts are guided by principles of equity in this determination to insure that "fraud will not prevail, that substance will not give way to form, that technical considerations will not prevent substantial justice from being done." Pepper v. Litton, 308 U.S. 295, 305, 60 S.Ct. 238, 244, 84 L.Ed. 281 (1939).
In applying the standard to the amended claims by the IRS, the courts have reached varying results in similar cases. Basically, two lines of authority have emerged:
(1) The liberal view which holds prior tax claims as being of the "same genre" as the amended claim, and falling "within the matrix of an indebtedness" due the federal government in "their revenue function." In re Midwest Teleproductions Company, Inc., 69 B.R. 675, 677 (Bankr.N.D.Ohio 1987) (quoting In re Emerald Green Corporation, 2 B.C.D. (CRR 938, 939) (Bankr. E.D.N.Y.1976). See also Menick v. Hoffman, 205 F.2d 365 (9th Cir.1953).
(2) The conservative view is that such claims for different types of taxes do...
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