In re Pransky
| Decision Date | 03 November 1999 |
| Docket Number | Bankruptcy No. 97-20528. |
| Citation | 245 BR 478 |
| Parties | In re Roger PRANSKY, Debtor. Roger Pransky, Plaintiff, v. Internal Revenue Service, Defendant. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Michael I. Saltzman, White & Case LLP, New York City, for debtor.
Morris S. Bauer, Ravin, Greenberg & Marks, P.A., Roseland, NJ, for debtor.
Samuel A. Mitchell, U.S. Department of Justice, Tax Division, Washington, D.C., for IRS.
This dispute arises out of a proof of claim filed by the Internal Revenue Service ("IRS") against Roger Pransky for the unpaid portion of an asserted tax liability. Both debtor and the IRS have submitted motions for summary judgment. The issue before this court is whether or not debtor's remittances constitute payments or deposits for purposes of 26 U.S.C. § 6511.
This court conducted a hearing on this matter on July 2, 1999, and reserved decision. Counsel for both parties submitted supplemental memoranda.
This court finds, for the reasons set forth below, that 26 U.S.C. § 6511 does not operate as a bar to this court's jurisdiction to determine the amount of the IRS's claim as the debtor's remittances did not constitute payments of tax which triggered § 6511's three-year time limit.
This court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 151 and 157(a). It is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) & (O) and 11 U.S.C. § 505(a)(1). To the extent that this determination constitutes a "non-core" determination, this opinion shall constitute a report and recommendation pursuant to 28 U.S.C. § 157(c)(1).
Roger Pransky ("Pransky" or "debtor") filed a chapter 11 petition on January 15, 1997. On December 11, 1991, Pransky filed federal tax returns for the years 1984, 1985, and 1986. On July 20, 1992, Pransky filed his federal tax return for 1987. Pransky failed to timely file returns because he was under criminal investigation at the time such returns were due.
In light of the criminal investigation, debtor's defense counsel (with assistance from a tax attorney) advised him not to file tax returns until the conclusion of the investigation. Debtor's counsel was concerned with possible Fifth Amendment complications. The defense counsel also instructed debtor to send money to the IRS in order to satisfy future tax liability and to prevent the assessment of penalties and interest. Debtor's defense counsel, therefore, remitted several checks to the IRS on behalf of debtor. Each remittance was accompanied by a letter which stated that the monies were "to be applied to the account of the captioned taxpayers for any income tax liability that they may have for the year."
IRS records for 1984 indicate Pransky's total overpayment for the 1984 tax year was $27,437.97. This amount includes the penalties and interest imposed against him. On April 12, 1985, Pransky filed a timely Form 4868 extension request with an estimated payment of $9,500 for the 1984 tax year, extending his filing deadline to August 15, 1985. On April 17, 19861, Pransky sent the IRS a $40,000 remittance for the 1984 tax year. Pransky's wage withholdings for 1984 were $4,000. Pransky claimed a $31,697 overpayment on his 1984 tax return2. The IRS, on April 14, 1986, issued a notice to Pransky requesting information about his 1984 Form 1040. On May 26,1986, the IRS sent Pransky a notice informing him that his 1984 Form 1040 was overdue. The IRS also issued an overdue notice to debtor on September 22, 1986.
IRS transcripts indicate that Pransky's remittances exceeded his 1985 tax liability (including penalties and interest assessed) by $33,389.94. On April 15,1986, Pransky submitted a payment of $20,000 accompanied by a Form 4868 extension request3, extending the filing deadline to October 15, 1986. On July 8, 1987, the IRS received a remittance of $150,000 from Pransky for his 1985 tax liability. Pransky's employer withheld $35,000 from his wages. Pransky claimed an overpayment of $48,737 on his 1985 tax return.
On July 8, 1987, the IRS received a $315,000 remittance from Pransky for the 1986 tax year. Debtor's wage withholdings for 1986 were in the amount of $50,000. On April 21, 1998, Pransky remitted $9,500 to the IRS for the 1987 tax year. Pransky's reported wage withholdings for 1987 totaled $1,564.
Pransky's tax returns indicate that the remittances were in excess of the actual taxes due for the years 1984 and 1985. Pransky claimed the overpayments as credits on his 1985, 1986 and 1987 tax returns and sought to apply them against the taxes due for 1986 and 1987. The IRS treated the credits as refund requests. The IRS, therefore, disallowed the refund requests on February 20, 1992, and March 9, 1992, asserting that they were time barred pursuant to 26 U.S.C. § 6511(a). As a result, Pransky underpaid the taxes owed for 1986 and 1987. On May 7, 1992, debtor filed Form 843 in order to administratively appeal the refund denial.
The IRS's Certificate of Assessments and Payments shows that Pransky is current on his tax liabilities owed for the years 1984 through 1986. The 1987 account, however, has an outstanding balance of $144,874.74. On February 27, 1997, the IRS filed a timely proof of claim in the amount of $131,237.02. The balance of the secured claim was $131,237.02 as of January 15, 1997, reflecting a balance of $2,183.28 in taxes, $34,650.15 in penalties, and $94,403.59 in interest.
Pransky asserts that he is entitled to recover funds remitted to the IRS because the remittances constituted mere deposits to stop the assessment of interest and penalties until he could formally file his tax returns for the years 1984 through 1987. Pransky further asserts that the statute of limitations set forth in 26 U.S.C. § 6511(a) was not triggered until he filed his tax returns in 1991 and 1992.
In contrast, the IRS asserts that debtor's failure to timely apply for a refund pursuant to section 6511(a) operates as a bar to the bankruptcy court's jurisdiction to determine the amount and validity of the IRS's proof of claim.
Summary judgment is justified if the moving party can "show that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). When considering a motion for summary judgment, the court must view the evidence in the light most favorable to the non-movant. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The court must accept the nonmovant's version of the facts as true, and resolve conflicts in the non-movant's favor. Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1363 (3d Cir.1992).
The initial burden of demonstrating the absence of genuine issues of material fact falls on the moving party. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the movant has done so, the burden shifts to the non-movant. The non-movant "cannot merely rely upon conclusory allegations in his pleadings or in memoranda and briefs to establish a genuine issue of material fact." Indeed, he "must make a showing sufficient to establish the existence of every element essential to his case, based on the affidavits or by the depositions and admissions on file." Harter v. GAF Corp., 967 F.2d 846, 852 (3d Cir.1992). On cross-motions for summary judgment, the court must determine separately each party's motion whether or not judgment may be entered in accordance with the summary judgment standard. 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2720, at 23-25 (2d ed.1983). Both parties agree as to all material facts in this case.
Code section 505 grants the bankruptcy court broad authority to determine tax liabilities of a debtor. That section provides:
Sections 505(a)(2)(B)(1) and 505(a)(2)(B)(1) of the Bankruptcy Code both require that a debtor "properly" seek a "refund" from the IRS before the bankruptcy court can assert jurisdiction. The proper procedure is to file a claim for refund. 26 U.S.C. §§ 6511(b)(1) and 7422(a). See In re Dunhill Medical, Inc., 1996 WL 354696 at *5 (Bankr.D.N.J. March 27, 1996). Section 505 incorporates the statute of limitations set forth in § 6511(a).
Section 6511(a) provides that a refund claim must be submitted "within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such period expires the later." 26 U.S.C. § 6511(a). Section 6511(a) states as follows:
Claims for credit or refund of an over-payment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid . . .
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