In re Vale

Decision Date24 September 1996
Docket NumberBankruptcy No. 90-60798.
Citation204 BR 716
PartiesIn re Carl Robert VALE, Lorraine Kathy Vale, Debtors.
CourtU.S. Bankruptcy Court — Northern District of Indiana



Trustee by Counsel Donald Dreyfus, Merrillville, IN, for Respondent.

Stephen Place, Merrillville, IN, for Debtors.

Gerald Parshall, Washington DC, for United States of America on Behalf of its Agency the Internal Revenue Service.

David Dubois, Trustee, Portage, IN.



I Statement of Proceedings

This Chapter 7 case came before the Court on May 29, 1996 for a final evidentiary hearing on the Motion with Supporting Brief filed on May 8, 1995 by the United States of America on behalf of its Agency, the Internal Revenue Service (hereinafter: "IRS"). The Motion of the IRS requests a determination by the Court of the federal income tax liability of the Debtors' estate to the IRS for the calendar year 1990 pursuant to § 505(b).

The Chapter 7 Trustee, David R. DuBois (hereinafter: "Trustee"), filed his Response to said Motion on March 8, 1996, with a Supporting Reply Brief. The Trustee's Affirmative Defense to the IRS' Motion is set out at pages 9-16 of his Reply Brief.

Trustee appears by Attorney Dreyfus.

IRS appears by Attorneys Parshall and Blunt.

Submitted. Evidence and arguments heard.

II Findings of Fact

The Court takes judicial notice of the record in the Debtor's main case, and finds as follows:2

1. That the Debtors filed their Joint Voluntary Chapter 7 Petition on May 4, 1990, and on May 10, 1990 the Trustee was appointed Trustee of the Debtors\' estate.
2. That on July 27, 1990, the Trustee filed his Notice of Sale of certain real estate of the Debtors, which was property of the Debtors\' bankruptcy estate pursuant to § 541(a), commonly known as 1818 Bluebird Lane, Munster, Ind. (hereinafter: "Real Estate").
3. That pursuant to said Notice the Trustee on August 24, 1990, filed his Application to Sell said Real Estate, attaching thereto as Exhibit "A", a Stipulation between the Trustee and the IRS resolving a certain Objection filed by the IRS on August 10, 1990, to the Trustee\'s Notice of Sale on the grounds that the IRS had a prior lien interest in said Real Estate by virtue of a federal tax lien.
Pursuant to that Stipulation, it was agreed between the Trustee and the IRS that the proposed sale of the Real Estate by the Trustee would be completed for $109,000.00, and that from the sale proceeds there would be deducted the following items: (1) Real Estate taxes; (2) sales commissions; (3) other normal sales expenses; and, (4) the balance due and owing on the first mortgage owed to First Bank. It was further stipulated that the balance of the sale proceeds would be paid over to the Trustee until the Court resolved the tax lien rights of the IRS.
4. That on November 20, 1990, the Trustee filed his Report of Sale with the Court reflecting that the Real Estate had been sold by the Trustee on August 24, 1990 for $109,000.00. After all customary and usual deductions, charges, and prorations, and the payment of the mortgage held on said Real Estate by First Bank of Whiting, the Trustee received the net figure of $48,339.00.
5. That on August 12, 1991, the IRS filed its Form 6338(c), Amended Proof of Claim, dated August 8, 1991, showing at Subpart A a secured claim in the sum of $14,929.98 due as a base tax for "100% pen.", plus a $9.00 penalty, and $14,044.52 in accrued interest as of the Petition date based on Notice of Tax Liens filed on June 14, 1985 and August 30, 1985. This claim arose out of "100%" tax penalties assessed versus the Debtors for the quarterly tax periods ending December 31, 1982 and September 30, 1983. The Debtors filed their Petition on May 4, 1990, and thus, these secured tax claims of the IRS clearly arose prepetition. (The "100%" tax penalties have reference to the responsible person tax liabilities of the Debtors pursuant to I.R.C. §§ 6672 and 7501.)
6. That on February 26, 1992, the Court entered an Order Approving a Stipulation filed by the Trustee, the IRS, and the Debtors on February 20, 1992, in which it was agreed that the Form 6338(c), Proof of Claim filed by the IRS dated August 8, 1991, should be allowed in full for the purposes of distribution to creditors of the Debtors\' Chapter 7 case. It was further stipulated that the Debtor Carl and another individual were both severally liable for assessments made against each of them pursuant to I.R.C. § 6672 arising out of their involvement as principals of Elite Remodeling, Inc. It was further stipulated that within ten days of the entry of the Order approving the Stipulation the Trustee would pay the IRS from the sale proceeds $18,420.46, computed as of January 15, 1992, with additional interest to the date of full payment, and upon so doing, the secured claims as set out in subpart A of the IRS\' proof of claims shall be deemed satisfied in full for the purpose of distribution to claims of creditors in the Debtors\' Chapter 7 case.
7. That on July 23, 1993 Trustee DuBois filed his Application to Employ Harold P. Sullivan (hereinafter: "CPA Sullivan") to render professional accounting services relating to the administration of the Debtors\' estate, and on July 27, 1993, the Court entered an Order approving that employment.
8. That on May 7, 1996, the Trustee filed his Report on this case, which included a Statement of Cash Receipts and Disbursement, and which reveals that on March 3, 1992, he paid the IRS the sum of $18,647.61 pursuant to the Order dated February 26, 1992. (See Subparagraph 6, supra).
9. That to date no Court order has been entered allowing any § 503(b) administrative expenses to the Trustee for statutory commissions, to the Trustee\'s general counsel, Attorney DuBois, for fees and expenses, or to Attorney Dreyfus, who has been employed as special tax counsel for the Trustee. The record reveals that the Trustee, and Attorney DuBois, as attorney for the Trustee, filed their administrative expense applications on April 7, 1995, and Attorney Dreyfus filed his fee application on March 8, 1996.

The IRS and Trustee stipulated that all of the documents set out in the Trustee's Request for Admissions, and Stipulations filed on March 11, 1996, were deemed admitted into evidence as authentic and genuine without the necessity of extrinsic evidence or formal proof. See Prehearing Order, Par. 3, dated April 10, 1996.

A review of the Trustee's exhibits reveals the following:

1. Trustee\'s Exhibit No. 8: Letter dated March 2, 1992 by the local U.S. Attorney which advised the Trustee that the balance due on the tax lien of the IRS was $18,647.61 as of March 6, 1992.
2. Trustee\'s Exhibit No. 12: 1990 Form 1041. U.S. Fiduciary Income Tax Return filed by the Trustee on behalf of the Debtors\' estate. This return is dated August 30, 1993, and is signed by CPA Sullivan. That return states a total estate income tax was due in the sum of $11,994.00 based on a capital gain of $55,232.00 on the sale of the Real Estate, which took place on August 24, 1990. See Schedule D, Capital Gains and Losses, Line 10, and Form 2119, Sale of Your Home, Line 8A. The sales price was shown as $109,000.00, with a basis of $38,000.00. (Form 2119, Lines 4 and 7). The Trustee claimed a standard deduction of $2,725.00 (1990 Form 1040, Line 34), and claimed an exemption of $2,050.00 (1990 Form 1040, Line 36). The return claimed a $3,000.00 reduction in Adjusted Gross Income based on $3,000.00 in accountants fees. This return has attached thereto a request that any additional assessment be abated, on the grounds that the Trustee did not receive the information necessary to complete the filing until August 17, 1993, and that there was no intentional attempt to avoid paying the required tax liability or from filing the required reports. This return does not indicate if it was filed on a cash basis or accrual basis.
3. Trustee\'s Exhibit No. 13: Letter dated September 9, 1993 by the Trustee to the IRS enclosing the 1990 Form 1041 Return (Trustee\'s Exh. No. 12), and requesting prompt determination of the estate\'s tax liability pursuant to 11 U.S.C. § 505(b). This letter also enclosed a check in the sum of $11,994.00 in payment of the estate income tax for the year 1990.
4. Trustee\'s Exhibit No. 21: Notice by the IRS to the Trustee dated November 15, 1993 as to the 1990, Form 1041 Fiduciary Return filed by the Trustee, for the estate tax period ending December 31, 1990. The Notice advised the Trustee that in addition to the base tax of $11,994.00 that was shown as paid on September 21, 1993, there was also due an additional $7,846.73 comprised of $4,497.75 in penalties and $3,348.98 in interest for the tax year 1990. The $4,497.75 in penalties was comprised of a penalty in the sum of $2,698.65 for filing late, and $1,799.10 for paying late.3
5. Trustee\'s Group Exhibit No. 15: Letter dated May 25, 1994 by the Trustee to the IRS again requesting a prompt determination of the estate\'s income tax liability for the year 1990, pursuant to 11 U.S.C. § 505(b). This letter makes no reference whatsoever to the Trustee\'s letter dated September 9, 1993 to the IRS (Trustee\'s Exh. No. 13) in which he originally requested a § 505(b) prompt determination for the tax year 1990, or the Notice issued by the IRS in Response thereto dated November 15, 1993 assessing an additional $4,497.75 in penalties, and $3,348.98 in interest (Trustee\'s Exh. No. 21).
Also included as a part of Group Exhibit No. 15 was another Form 1041, U.S. Fiduciary Tax Return for the year 1990, and a Form 1040X, Amended U.S. Individual Income Tax Return for the year 1990 dated May 24, 1994, which was transmitted to the IRS with the May 25, 1994 letter by the Trustee. The Form 1040X adjusted the base income tax for the estate for the year 1990 from $11,994.00 to an allegedly correct amount

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