In re Pierchoski, Bankruptcy No. 96-22017-BM
| Decision Date | 08 April 1998 |
| Docket Number | Bankruptcy No. 96-22017-BM,Adversary No. 97-2414-BM. |
| Citation | 220 BR 20 |
| Parties | In re John C. PIERCHOSKI, Debtor. John C. PIERCHOSKI, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
John C. Pierchoski, Pro se.
Angelo A. Frattarelli, Justice Department, Tax Division, Washington, DC, for Defendant.
Cross-motions for summary judgment by debtor and Internal Revenue Service ("IRS") are before us.
IRS contends that a prepetition tax debt owed to it by debtor falls within the scope of the exception to discharge set forth at 11 U.S.C. § 523(a)(1)(B)(i) because debtor never filed required tax returns and that it therefore is entitled to summary judgment in its favor.
Debtor contends that the tax debt does not fall within the scope of the exceptions to discharge set forth at 11 U.S.C. § 523(a)(1)(B)(i) or § 523(a)(1)(B)(ii) and that he therefore is entitled to summary judgment in his favor. Debtor insists that he filed the required tax returns and that he did so more than two years before filing his bankruptcy petition.
We will enter summary judgment in favor of debtor and against IRS. For reasons set forth in detail below, we reluctantly conclude that neither of the exceptions to discharge set forth at 11 U.S.C. § 523(a)(1)(B)(i) and § 523(a)(1)(B)(ii) applies in this case. To put the decision of this court into succinct terms, we believe the debtor, albeit late, inserted information onto the forms provided by the IRS so as to allow the IRS to know the sums due; debtor executed said returns under penalty of perjury and mailed same to the address mandated. This action seems to fulfill the requirements of the Internal Revenue Code.
The IRS has its protections and/or remedies including, inter alia, criminal sanctions or tolling provisions. If there is a need for Congressional action then surely the IRS has an effective voice. Unfortunately, counteraction in the case at hand is too little, too late.
-FACTS-
Debtor has worked as an engineer for more than thirty-five years. According to wage and tax statements (Form W-2) prepared by his employer, debtor's annual gross wages from 1983 through 1989 were as follows:
1983: $ 34,999.00
1984: 35,067.00
1985: 35,908.00
1986: 38,636.00
1987: 40,509.00
1988: 38,470.00
1989: 42,962.00
Debtor did not file federal income tax returns for these tax years within the time period prescribed by law.
After determining that a deficiency existed in debtor's federal income tax due for these tax years, IRS issues notices of deficiency. IRS proposed assessing income taxes against debtor in the following amounts for the following tax years:
1983: $ 7,908.00
1984: 7,499.00
1985: 7,604.00
1986: 8,396.00
1987: 8,480.00
1988: 7,067.00
1989: 8,194.001
IRS relied upon the wages and tax statements for these tax years prepared and submitted by debtor's employer in arriving at these amounts.
Shortly after IRS issued the above notices of deficiency, debtor brought an action in the United States Tax Court contesting the deficiencies.
Debtor and IRS entered into a stipulation during the litigation wherein they agreed to the above deficiencies in income tax owed by debtor for the above tax years. They further stipulated to the applicable penalties and interest and agreed that debtor was entitled to prepayment credits in certain specified amounts for each of the tax years. The Tax Court approved the stipulation and entered it on the docket on June 16, 1993.
On September 13, 1993, IRS assessed tax liabilities for each of the above tax years in the amounts set forth in the stipulation.
In October of 1993, debtor submitted 1040 forms signed under penalty of perjury for each of the above tax years. The forms submitted shared certain features in common.
Aside from debtor's name, address, and social security number, the only entries on the forms were: the amount of debtor's wages (line 7); the total tax due (line 56); the amount of federal income tax withheld (line 57); total payments made (line 64); and the amount of tax owed by debtor (line 68).
The entries on line 7 were taken from W-2 statements issued by debtor's employer. The entries on lines 56, 57, 64, and 68 were derived from the above stipulation. Each of these latter entries was followed by an asterisk and was accompanied by the following notation at the bottom of the page:
*See Attached U.S. Tax Court Decision, Docket No. 12668-92.
The stipulation and a copy of debtor's W-2 statement were attached to each Form 1040.
Debtor and IRS entered into an agreement in February of 1994, wherein debtor would pay IRS the sum of $1,400.00 per month until his tax debt was paid in full. The payments were to be applied to debtor's outstanding obligations as set forth in the above stipulation.
Pursuant to the agreement, debtor made monthly payments to IRS through March of 1996 in the amount of $1,400.00. He stopped making payments after a dispute broke out concerning whether IRS had credited a payment debtor claimed to have made. The payments made to IRS during this period totaled in excess of $30,000.00.
On April 19, 1996, some thirty months after submitting the above 1040 forms to IRS in October of 1993, debtor filed a voluntary chapter 7 petition. His purpose in filing for bankruptcy was to have the debt owed to IRS discharged. IRS was listed on Schedule F, Creditors Having Unsecured Nonpriority Claims, as having an undisputed claim in the amount of $93,430.00. No other creditors were listed on the schedules as having claims against the bankruptcy estate.
Debtor was granted a discharge and a final decree closing the bankruptcy case was entered on November 27, 1996.
Subsequent to entry of the discharge and final decree, IRS levied against debtor's wages in an attempt to collect unpaid income taxes, penalties, and interest for the above tax years.
On June 17, 1997, debtor brought a pro se motion to reopen his bankruptcy case for the purpose of bringing an adversary action against IRS. In support of his motion debtor alleged that IRS had "ignored the bankruptcy discharge"; had attempted to garnish his wages; and that he needed to file an adversary action "to get them to pay attention to the bankruptcy discharge".
IRS opposed the motion to reopen. It insisted that the general discharge debtor had received on November 27, 1996, did not apply to the debt he owed to IRS because debtor had not filed the required tax "returns".
Debtor was granted leave to reopen after notice and a hearing on August 15, 1997, for the limited purpose of bringing an adversary action against IRS within thirty days.
On September 11, 1997, debtor brought the above adversary action pro se seeking a determination that the tax debt he owed to IRS, including penalties and interest, had been discharged.
IRS brought a motion for summary judgment in the above adversary action on January 16, 1998. The tax debt at issue in this case, IRS asserted, falls within the scope of the exception to discharge set for at 11 U.S.C. § 523(a)(1)(B)(i). In particular, it maintains that the 1040 forms debtor filed in October of 1993 do not qualify as "returns" for purposes of § 523(a)(1)(B)(i).
Debtor responded with a summary judgment motion of his own on January 20, 1998. The above tax debt, he contends, does not fall within the scope of 11 U.S.C. § 523(a)(1)(B). The 1040 forms submitted in October of 1993, debtor continues, constitute "returns" for purposes of § 523(a)(1)(B). Moreover, they were filed after the last date on which they were due but more than two years prior to the filing of the chapter 7 petition.
A hearing on the cross-motions for summary judgment was conducted on February 26, 1998. Both debtor and IRS agreed that there were no disputed material facts and asserted they would offer nothing at trial above and beyond what they had offered in support of their respective motions. They urged us to decide the merits of this case on the basis of the record as it presently exists.
-DISCUSSION-
As a general matter, a chapter 7 individual debtor receives a discharge of personal liability for all prepetition debts. 11 U.S.C. § 727(a). There are, however, certain exceptions to this general rule. Subsection 523(a)(1)(B) of the Bankruptcy Code (11 U.S.C. § 523(a)(1)(B)), for instance, provides as follows:
In other words, a chapter 7 individual debtor is not discharged from a tax debt if a required return either was not filed or was filed after the date on which it was last due but less than two years prior to the filing of the bankruptcy petition.
It is undisputed that debtor was required to file federal income tax returns for tax years 1983 through 1989 and that he failed to do so on or before the last dates on which they were due. Debtor instead submitted 1040 forms to IRS in October of 1993, approximately one month after IRS had assessed tax liabilities for each of these tax years on September 13, 1993.
IRS argues that it is entitled to summary judgment and that the above tax debt owed by debtor is not discharged because the exception to discharge set forth at 11 U.S.C. § 523(a)(1)(B)(i) applies in this case. It maintains that debtor did not file any tax "returns" for purposes of § 523(a)(1)(B).
As far as we are able to discern, IRS' contention that debtor did not file the required "returns" is based on two (possibly interrelated) arguments.
The federal income tax system is...
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