In re Olson, Bankruptcy No. 91-05291

• Decision Date: 17 February 1993
• Docket Number: Adv. No. 92-7020.,Bankruptcy No. 91-05291
• Citation: 154 BR 276
• Parties: In re Robert O. OLSON, Debtor. Robert O. OLSON, Plaintiff, v. UNITED STATES of America, acting through the INTERNAL REVENUE SERVICE, UNITED STATES DEPARTMENT OF TREASURY, Defendant.
• Court: U.S. Bankruptcy Court — District of North Dakota

154 B.R. 276 (1993)

In re Robert O. OLSON, Debtor Robert O. OLSON, Plaintiff, v. UNITED STATES of America, acting through the INTERNAL REVENUE SERVICE, UNITED STATES DEPARTMENT OF TREASURY, Defendant.

Bankruptcy No. 91-05291, Adv. No. 92-7020.

United States Bankruptcy Court, D. North Dakota.

February 17, 1993.

COPYRIGHT MATERIAL OMITTED

Robert Slorby, Minot, ND, for plaintiff.

Thomas Linguanti, Washington, DC, for defendant.

Phillip Armstrong, Minot, ND, Ch. 12 Trustee.

ORDER

WILLIAM A. HILL, Bankruptcy Judge.

Before the court is a Motion for Summary Judgment filed on January 28, 1993, by the defendant, United States of America, acting through the Internal Revenue Service (IRS) arising from the Complaint filed by the Plaintiff/Debtor, Robert O. Olson on February 18, 1992. In the Complaint, the Debtor asks the court to determine (1) the dischargeability of certain claims of the IRS stemming from unpaid federal income taxes; (2) whether the IRS' federal tax liens securing the tax liabilities may be avoided; and (3) the IRS' security interests which he believes is limited to $63,000.00 and that said value is the only amount he is obligated to pay.

The Debtor was also the subject of an earlier federal criminal action wherein the federal district court ruled in favor of the IRS, awarding it $12,442.36 in restitution for the Debtor's failure to pay federal income taxes. Consequently, in its Motion for Summary Judgment, the IRS contends that the majority of the Debtor's tax debts as well as the criminal judgment against the Debtor are nondischargeable and those debts which are dischargeable are subject to tax liens which it holds. The IRS further contends that it is an oversecured creditor by at least $36,000.00 by virtue of the appraisals provided by both parties.

Summary Judgment is available when the pleadings and other documents on file show there to exist no genuine issue as to any material fact and where the moving party is entitled to summary judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Froholm v. Cox, 934 F.2d 959 (8th Cir.1991). The burden rests upon the movant to establish the lack of any material fact with the party opposing the motion given the benefit of all favorable inferences. Simmons v. Diamond Shamrock Corp., 844 F.2d 517 (8th Cir.1988). In considering the merits of a motion for summary judgment it is not the court's function to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. Johnson v. Enron Corp., 906 F.2d 1234 (8th Cir.1990).

It is with the foregoing standard and a complete review of the pleadings, and the submitted exhibits that the court proceeds to resolve the issues raised by the parties herein.

1.

The facts are not disputed. The Debtor filed a Chapter 12 bankruptcy petition on March 25, 1991, which petition listed the IRS as a creditor for personal income taxes. The IRS appears to be the only creditor of significance in this case. Prior to the commencement of the petition, the IRS assessed federal income tax deficiencies against the Debtor for the tax years 1977 through 1988. It then filed a proof of claim against the Debtor in the amount of $160,370.62 on April 16, 1991. Subsequent to the assessment, the Debtor filed amended tax returns for the aforementioned years, whereby the IRS reduced the deficiencies accordingly. In its third amended proof of claim, the IRS claims that the Debtor is indebted to it in the secured amount of $56,915.62 from tax liabilities and an unsecured amount of $12,442.36 from a criminal judgement entered against the Debtor. Included in the $56,915.62 is $40.00 for fees and costs charged against the Debtor in 1984 and 1987. From the exhibits provided to the court, the taxes, penalties and interests after the filing of the amended tax returns are as follows:

                                          Initial                      Penalty     Interest
                Tax      Date Tax         Date Tax       Remaining     to Petition  to Petition       Total
                Year       Filed          Assessed       Tax Due          Date          Date         Liabilities
                1977                     08/20/85     $   578.78        $    0.00   $      0.00     $    578.78
                1978                     08/20/85       3,032.00           999.98      8,944.00       12,975.98
                1979                     08/20/85       1,210.00           424.04      2,369.71        4,003.75
                1980     11/04/81        08/20/85       7,513.67         4,429.95     18,730.24       30,673.86
                1981     05/24/90        07/16/90           0.00             0.00          0.00            0.00
                1982     06/01/90        07/30/90         111.28           674.31        825.93        1,611.52
                1983     06/01/90        08/06/90         655.46           311.34        844.44        1,811.24
                1984     08/28/90        10/22/90         166.79           136.69        216.73          520.21
                1985     07/23/90        09/10/90         471.26           485.97        571.17        1,528.40
                1986     08/13/90        10/08/90         678.91           312.97        432.20        1,424.08
                1987     12/20/89        03/26/90          20.00           480.48        476.77          977.25
                1988     01/03/90        02/12/90           0.00           423.24        347.31          770.55
                                                       _________       __________    __________     ___________
                                        Total         $14,438.15        $8,678.97    $33,758.50      $56,875.62
                

Each of the income tax liabilities from 1977 through 1988 is listed on the IRS' proof of claim as a secured claim based upon the filing of its Notice of Federal Tax Liens pursuant to I.R.C. § 6323 with the Register of Deeds, McLean County, North Dakota. All filings of notices were made prior to the commencement of the Debtor's bankruptcy petition.

The parties dispute over the value of a specific piece of farm property located in McLean County which is owned by the Debtor and his wife. The farm property has been independently appraised by both the Debtor and IRS. According to the Debtor's appraiser, the fair market value of the farm property is $93,162.00 as of October 20, 1992 (½ of Fair Market Value (232,905.00 divided by 2 = 116,452.50) less a 20% discount based upon the decreased value of a half interest (23,290.50) = $93,162.00). The fair market value of the farm property as of May 8, 1992, under the IRS' analysis is $305,000.00. Applying the Debtor's methodology to the IRS' appraisal, the Debtor's one-half interest in the property would be $122,000.00 ($152,500 less a 20% discount). For purpose of this motion only, the court will use the Debtor's appraisal value, being the lower of the two.

The IRS also included a pre-petition criminal judgment award in its proof of claim as an unsecured general claim. The claim arose from the order entered by Chief Judge Patrick A. Conmy on April 18, 1990, in the case of United States v. Robert O. Olson, No. C1-89-52-01 (D.N.D.1990), requiring the Debtor to make probationary restitution to the IRS in the amount of $12,442.36. The Debtor has made payments on the restitution, and as of February 1, 1993, the balance owed on the restitution is $10,472.36.

The sum of the tax liabilities and the probationary restitution do not exceed the value of the farm property, and accordingly, the IRS is an oversecured creditor by at least $36,000.

2.

The burden of proving that the Debtor's tax liabilities are nondischargeable is on the IRS. In re Berzon, 145 B.R. 247 (Bankr.N.D.Ill.1992); In re Fernandez, 112 B.R. 888 (Bankr.N.D.Ohio 1990). This burden placed upon the IRS to establish nondischargeability is by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

Section 523(a)'s exception to discharge sets forth the parameters in which a tax debt may not be discharged. The court begins its analysis by addressing the dischargeability of the debt obligations as they relate to the underlying tax liabilities along with the accompanying penalties and interest.

The dischargeability issue regarding the 1981 tax liability is moot in light of the fact that all outstanding tax obligations have been reduced to zero. With respect to the 1982 through 1988 income tax liabilities, the IRS alleges that the said liabilities are not dischargeable pursuant to sections 507(a)(7) and 523(a). The relevant portions of section 507(a)(7) are as follows:

(a) The following expenses and claims have priority in the following order:

(7) Seventh, allowed unsecured claims of governmental units, only to the extent that such claims are for —

(A) a tax on or measured by income or gross receipts —

(i) for a taxable year ending on or before the date of the filing of the petition for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition;

(ii) assessed within 240 days, plus any time plus 30 days during which an offer in compromise with respect to such tax that was made within 240 days after such assessment was pending, before the date of the filing of the petition . . .

11 U.S.C. § 507(a)(7). (emphasis added).

Section 523(a) states that:

(a) A discharge under section . . . 1228(a), 1228(b) . . . of this title does not discharge an individual debtor from any debt —

(1) for a tax . . .

(A) of the kind and for the period specified in section . . . 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;

(B) with respect to which a return, if required —

(i) was not filed; or

(ii) was filed after the date on which such return was last due, under applicable law or under an extension, and after two years before the date of the filing of the petition; or

(C)

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