In re Sgarlat

• Decision Date: 28 September 2001
• Docket Number: Adversary No. 99-577.,Bankruptcy No. 99-10243-8B7.
• Citation: 271 B.R. 688
• Parties: In re John P. SGARLAT, Debtor. John Sgarlat, Plaintiff, v. United States of America Internal Revenue Service, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Florida

271 B.R. 688

In re John P. SGARLAT, Debtor John Sgarlat, Plaintiff, v. United States of America Internal Revenue Service, Defendant.

Bankruptcy No. 99-10243-8B7.

Adversary No. 99-577.

United States Bankruptcy Court, M.D. Florida, Tampa Division.

September 28, 2001.

Buddy D. Ford, Tampa, FL, for plaintiff.

Carol Koehler Ide, Tax Division, U.S. Department of Justice, Washington, D.C., for defendant.

ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (DOC. # 35)

ALEXANDER L. PASKAY, Bankruptcy Judge.

THIS IS a Chapter 7 liquidation case and the matter under consideration is a Motion for Summary Judgment filed in the above-captioned Adversary Proceeding by the Defendant, United States of America, Internal Revenue Service (Government). The Complaint to Determine Dischargeability of Debt was filed by John. P. Sgarlat (Debtor) pursuant to 11 U.S.C. § 523 seeking a declaratory judgment to determine the dischargeability of Debtor's tax liability for the tax years 1978-1980, 1982, 1983, and 1985-1993. In its Motion for Summary Judgment, the Government contends there are no genuine issues of material fact and that the income tax liability of John P. Sgarlat (Debtor) for the tax years of 1980 and 1986-1991 are nondischargeable as a matter of law. The Government asserts that for the years 1980 and 1986, the Debtor failed to file federal income tax returns, and for the years 1987-1991 the Debtor failed to file proper federal income tax returns, as defined for dischargeability purposes.

The underlying facts as they appear from the record are indeed without dispute and they are as follows. On June 22, 1999, Debtor filed his Petition for Relief under Chapter 7. On October 5, 1999, Debtor commenced this Adversary Proceeding by filing a Complaint seeking a determination that his liability for unpaid taxes for the years 1978-1980, 1982, 1983, and 1985-1993 is dischargeable. The Government in due course filed an Answer stating that because of alleged lack of knowledge and information, it is not in a position to form a belief as to whether those years should be excepted from the discharge (Doc. No. 12).

Prior to the duly scheduled pretrial conference, Debtor filed a Pre-Trial Statement (Doc. No. 17) narrowing the issues. It stated that the contested legal issue is whether or not taxes for the years listed were an indebtedness that may fall within an exception to discharge pursuant to 11 U.S.C. § 523, including but not limited to § 523(a)(1)(C) as a liability based on a fraudulent return or willful attempt in any manner to evade or defeat the tax.

On September 19, 2000, the Debtor filed his Motion for Summary Judgment with Memorandum of Law for all the tax years listed in the Complaint. On October 6, 2000, Government filed its Opposition to Plaintiff's Motion for Summary Judgment citing In re Griffith, 206 F.3d 1389 (11th Cir.2000). In its Opposition, the Government contends that Debtor's tax liabilities shall be excepted from discharge because the documents Debtor submitted to the IRS purporting to be federal income tax returns for the years 1987-1991 have no legal effect for dischargeability purposes and that the Debtor's liabilities for tax and interest for those years are excepted from discharge pursuant to 11 U.S.C. § 523(a)(1)(B).

After having considered Debtor's Motion, the record and the Government's Opposition to the Motion, this Court entered an Order on February 1, 2001, denying the Debtor's Motion for Summary Judgment. (Doc. No. 32) The Motion was denied because of the paucity of the evidence and insufficient record on which this Court could have based its ruling on the Debtor's Motion for Summary Judgment. Subsequently, the parties commenced extensive discovery, at the conclusion of which the Government filed its Motion for Summary Judgment, which is the matter under consideration at this time.

Government contends in its Motion that the documents Debtor submitted to the IRS purporting to be federal income tax returns for the years 1987-1991 have no legal effect for dischargeability purposes because they were filed after the Government already assessed the taxes for those years. Therefore, the Debtor's liabilities for tax and interest for those years are excepted from discharge pursuant to 11 U.S.C. § 523(a)(1)(B), citing In re Hindenlang, 164 F.3d 1029 (6th Cir.1999). According to the Government, in addition, the evidence demonstrates that the Debtor failed to file federal income tax returns for the years 1980 and 1986; the Debtors' liabilities for tax and interest for those years also are excepted from discharge pursuant to 11 U.S.C. § 523(a)(1)(B)(i).

The Government concedes that the penalties for the years involved are dischargeable. 11 U.S.C. § 523(a)(7)(B); In re Burns, 887 F.2d 1541 (11th Cir.1989) (holding that tax penalty is discharged if transaction or event giving rise to penalty occurred more than three years prior to filing of bankruptcy petition); Wright v United States (In re Wright), 244 B.R. 451, 457-58 (Bankr.N.D.Cal.2000).

In support of its Motion the Government relies on copies of the IRS Transcripts (Gov.Exh.1), Declaration of Theresa Bland (Bland Declaration) with copies of income tax returns as exhibits (Gov.Exh.2), and Deposition of John P. Sgarlat dated April 26, 2001 (Sgarlat Depo.) (Gov.Exh.3).

In opposition to Government's Motion, Debtor contends there are genuine issues of material fact concerning the claim of the Government that the returns have not been filed at all for the tax years 1980 and 1986. Therefore, it is improper to dispose of the question of dischargeability for these tax years by summary judgment.

The facts as they appear from the record leave no doubt that the Debtor has no evidence whatsoever that he filed an income tax return for the tax year 1980. Government's Exhibit 1, p. 7, indicates money amount of $0.00 next to the entry, "Return filed and tax assessed," Code 150, which indicates no tax return was filed by the taxpayer. Furthermore, in his deposition the Debtor testified that he does not recall filing the return and he has no documentation or any writing to prove he in fact filed the return for that year (Sgarlat Depo., p. 53 lines 10-11, p. 54 lines 10-14). After an Internal Revenue Service (IRS) examination, and a stipulated Decision of the United States Tax Court entered February 28, 1995, assessments were made on April 14, 1995, of income tax in the amount of $111,145.00 together with the late filing penalty in the amount of $27,786.25, negligence penalty in the amount of $5,557.25 and interest computed based on substantial underpayments of tax attributable to tax motivated transactions in the amount of $534,547.58. A portion of the interest, $98,566.64, later was abated. There is a balance due for this tax year in excess of $876,263.40.

Concerning the tax year 1986 it is without dispute that the Debtor failed to file a Federal Income Tax Return (see Gov.'s Exh. 1, p. 17 indicating money amount of $0.00 next to the entry, "Return filed and tax assessed," Code 150, indicates no tax return was filed by the taxpayer; and Bland Declaration). On March 23, 1992, the Internal Revenue Service made an assessment for an income tax liability against the Debtor in the amount of $13,035.00 plus interest. On March 17th 1995, the Government made an additional assessment assessing a tax liability of $42,903.00 plus interest, making a balance due for the tax year 1986 with interest and penalties in excess of $187,799.20. Just as in the previous year, the Debtor stated in his deposition that he does not recall filing the return of this year and again Debtor has no records to substantiate that the return was in fact filed. (Sgarlat Depo., p. 54 lines 15-19).

Concerning the tax year 1987 the Debtor did not file a federal income tax return prior to the assessment of tax liability although after the assessment the Government prepared a substitute for return pursuant to 26 U.S.C. 6020(b)(SFR) and mailed a Notice of Deficiency on November 18, 1994. The assessment for this particular year was in the amount of $65,296.00, plus penalties for late filing and underpayment of estimated tax, plus interest. (Gov.Exh.1, p. 20). On February 8, 1995, Debtor filed Form 1040 claiming a self-employment tax liability for 1987 of $5,387.00 (Bland Declaration, Exh. C). On February 12, 1996, the penalty for underpayment of the estimated tax, $32,498.00 in tax and a portion of the interest later were abated. The current balance for this tax year is in excess of $123,989.83 (Gov.'s Exh. 1, p. 20).

For the tax year 1988, Debtor failed to file a federal income tax return prior to the assessment of tax liabilities. Just as before, the Government filed an SFR after an examination and mailed a Notice of Deficiency on November 18, 1994 for income tax liability deficiency in the amount of $73,013.00, plus penalties for late filing and under payment of estimated tax, plus interest. Again, the Debtor filed a Form 1040 on or about February 8, 1995 claiming a self-employment tax liability for 1998 of $5,859.00. As a result, a portion of the interest and $26,507.00 in tax later was abated. There is a balance due for the 1988 tax year in excess of $162,693.89.

Concerning the tax year 1989 the Debtor again failed to file an income tax return prior to the assessment made by the Government. Again, the IRS prepared an SFR and mailed a Notice of Deficiency on November 18, 1994, and determined the tax liability in the amount of $274,197.00, plus penalties for late filing and underpayment of estimated tax, plus interest. After the assessment had been made, the Debtor filed Form 1040, and as a result, the Government abated $4,579.00 in tax, leaving an unpaid balance for that year in excess of $780,809.58.

The Debtor again failed to file an income tax return for 1990 prior to the assessment of a tax liability. After, examination, the government prepared the SFR and mailed a Notice of Deficiency on ...