In re Millsaps
| Decision Date | 04 November 1991 |
| Docket Number | Adv. No. 86-0154.,Bankruptcy No. 86-00487-BKC-6C7 |
| Citation | 133 BR 547 |
| Parties | In re William David MILLSAPS et ux., Debtors. William David MILLSAPS et ux., Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
William D. Millsaps and Anna Jean Millsaps, debtors pro se.
Hildy S. Stern, Trial Atty. Tax Div., U.S. Dept. of Justice, Washington, D.C.
Steven R. Bechtel, Mateer, Harbert & Bates, P.A., Orlando, Fla., for Earl K. Wood and Ford S. Hausman.
Eugene S. Legette, Orlando, Fla., for Paul Roper and Martha O. Haynie.
Andrea A. Ruff, Trustee, Orlando, Fla.
DECISION ON CROSS MOTIONS FOR SUMMARY JUDGMENT AND ON MOTION FOR ABSTENTION
This adversary proceeding came on for consideration of the motion for partial summary judgment filed by plaintiffs, William and Anna Jean Millsaps ("Millsaps") (Document No. 81); the cross motion for summary judgment filed by the defendant, United States of America ("Internal Revenue Service" or "Service") (Document No. 97); the motion for abstention filed by the Service (Document No. 95); and the Millsaps' response (Document No. 105).
In this proceeding, the Millsaps make:
1. A request for a declaratory judgment that their federal income tax liabilities for the years 1979 through 1984 have been discharged.
2. A request for a declaratory judgment that the action taken by the Internal Revenue Service to enforce the liens securing tax obligations for the years 1979 through 1984 violated the automatic stay or Section 524(a)(2) of the Bankruptcy Code.
3. A request for a declaratory judgment that the levy, seizure, and sale of the debtors' home located at 528 Morocco Avenue, Orlando, Florida, was illegal and invalid.
4. A request that the court determine the amount owed for the tax year 1982.
In its cross motion for summary judgment, the Service requests that the court declare the dischargeability issues relating to the tax liabilities for the years 1979 through 1984; declare that the tax liabilities for the years 1979 through 1984 were validly assessed; declare that notice and demand were properly effectuated; and declare that the sale of the plaintiffs' residence did not violate the automatic stay or Section 524(a)(2) of the Bankruptcy Code. Alternatively, the Service asserts that, under the facts of this proceeding, this court does not have subject matter jurisdiction to review the levy, seizure, and sale of the plaintiffs' residence.
In addition, in its separate motion for abstention, the Service requests that the court abstain from determining all issues raised by the plaintiffs' fourth amended complaint except the dischargeability of the income tax liabilities for the years 1979 through 1984.
The undisputed facts of this proceeding set forth by the parties in the record on the pending motions are as follows:
By early 1986, the Millsaps and the Service for some considerable time had been engaged in a dispute over the Millsaps' federal income tax liabilities for 1979 through 1984. With enforcement action by the Service then imminent, on March 5, 1986, the Millsaps filed suit in the United States District Court for the Middle District of Florida (Case No. 86-227-CIV-ORL) seeking injunctive relief to prevent the Service from selling their residence located at 528 Morocco Avenue, Orlando, Florida. (On April 2, 1987, the district court dismissed that action for lack of subject matter jurisdiction.)
A week later, on March 12, 1986, the Millsaps then filed in this court their joint petition under Chapter 7 of the Bankruptcy Code. The clerk notified creditors that there appeared to be no assets in the estate for distribution and that no claims bar date had been set. The docket reflects that, to this date, there has been no claims bar date established. The Service has never filed a proof of claim. In this bankruptcy case, the debtors claimed their home at 528 Morocco Avenue, Orlando, Florida, as exempt from administration under the Florida constitutional homestead exemption. There were no objections to this claim of exemption. The court entered the debtors' discharge on September 15, 1986.
On July 22, 1986, the Millsaps filed the original complaint initiating this adversary proceeding. The only relief requested in the first complaint was a determination of the dischargeability of the Millsaps' tax obligations for the years 1979 through 1984. Later the Millsaps filed the first amendment to the complaint to identify correctly the United States of America as the defendant.
On January 21, 1987, the Service sold the plaintiffs' Morocco Avenue home to enforce claimed perfected tax liens securing the debtors' personal income tax liabilities for 1979, 1980, and 1981. Although the Service had filed notices of liens relating to the tax years 1979 through 1984, the Service applied the proceeds from the sale of the home only to the unpaid federal income tax liabilities for the years 1979 through 1981 because there were not sufficient funds to cover the later years.
Also on January 21, 1987, the Millsaps filed a civil action in the Circuit Court for Orange County, Florida (Case No. C.I. 87-413), in connection with the Service's collection efforts. The Service removed that case to the United States District Court for the Middle District of Florida (Case No. 87-104-CIV-ORL-18). On March 16, 1987, the district court dismissed this case with prejudice for failure to allege facts upon which relief could be granted or upon which the court could take jurisdiction.
On September 1, 1987, the Millsaps filed their second amended complaint in this adversary proceeding. In addition to requesting a declaration of the dischargeability of their personal income tax liabilities for the years 1979 through 1984, the Millsaps requested that the court determine the amount of their tax liability for the 1982 tax year.
On November 13, 1987, the Millsaps filed a third amended complaint in this adversary proceeding. In addition to the relief requested previously, the Millsaps requested a declaration that the alleged claim of the Service was unenforceable by virtue of the automatic stay of Section 362 or the permanent injunction of Section 524(a)(2) of the Bankruptcy Code.
On December 30, 1988, almost two years after the sale of the Millsaps' Morocco Avenue home by the Service and well after the dismissal of both civil actions by the district court, the Millsaps filed a fourth amended complaint in this adversary proceeding. In addition to the relief previously requested, the Millsaps requested for the first time that this court declare invalid and improper the assessment, lien, levy, seizure, and sale procedure followed by the Service with regard to the taxes for the years 1979 through 1984 and the sale of the home.
The court makes these conclusions of law based upon the undisputed facts.
The debtors' discharge, entered on September 15, 1986, operates to discharge the Millsaps from all debts that arose before the date of the petition except those debts identified in Section 523 of the Bankruptcy Code. See 11 U.S.C. § 727(b).
Section 523(a)(1)(A) of the Bankruptcy Code provides that a discharge under Section 727 does not discharge individual debtors from taxes of the kind and for the periods specified in Section 507(a)(7). Conversely, unless the tax obligations fall into one of the Section 507(a) categories, they are discharged as personal obligations. Whether or not the personal prepetition tax obligations are discharged, however, exempt real property remains subject to any properly filed tax liens. 11 U.S.C. § 522(c)(2)(B).
The certified certificates of assessments and payments filed by the Service in support of its cross motion for summary judgment reveal that the Millsaps' tax obligations for the years 1979, 1980, and 1981 were personal income tax obligations the returns for which were last due well before three years before the filing of the petition in this case on March 12, 1986.1 Section 507(a)(7)(A)(i) would provide no priority to taxes of such an old age. For each of those years, however, the obligations arose as the result of audit deficiencies. Section 507(a)(7)(A)(ii) of the Bankruptcy Code assigns a priority status to unsecured obligations arising from audit deficiencies that are assessed within 240 days before the filing of the petition. The certificates for the years 1979 through 1981 further reveal that the most recent assessment occurred on May 8, 1984, a date more than 240 days before the filing date.
Consequently, those obligations do not constitute a priority and are therefore not excepted from the discharge. Indeed, the Service concedes the Millsaps had no personal liability after the discharge for the 1979 through 1981 tax years. The Millsaps are therefore entitled to a judgment declaring that their personal liability for the 1979 through 1981 tax years has been discharged. The issues relating to the tax liens on the real property for these years, however, are discussed in Section 2 below.
Section 507(a)(7)(A)(i) of the Bankruptcy Code assigns a priority for income tax obligations for which the return was last due within the three year period before the filing of the petition. The certified certificates of assessment show that the obligations for the years 1982, 1983, and 1984 arose from income taxes for which a return was due within the three year period before the filing of the petition on March 12, 1986. The return for the 1982 tax year was due April 15, 1983; the return for the year 1983 was due April 15, 1984; and the return for 1984 was due April 15, 1985.
As a result, the tax obligations for those years, including interest, are Section 507(a)(7) priority taxes and, as such, are excluded...
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