In re Walsh

• Decision Date: 29 March 2001
• Docket Number: Bankruptcy No. 97-33916. Adversary No. 99-3344.
• Citation: 260 BR 142
• Parties: In re David P. WALSH, Debtor. David P. Walsh, Plaintiff, v. United States of America, Internal Revenue Service, Defendant.
• Court: U.S. Bankruptcy Court — District of Minnesota

260 B.R. 142 (2001)

In re David P. WALSH, Debtor David P. Walsh, Plaintiff, v. United States of America, Internal Revenue Service, Defendant.

Bankruptcy No. 97-33916. Adversary No. 99-3344.

United States Bankruptcy Court, D. Minnesota, Third Division.

March 29, 2001.

Kenneth E. Keate, St Paul, MN, for the plaintiff.

Katja M. Eichinger, Trial Attorney, U.S. Department of Justice, Washington D.C., for the defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

GREGORY F. KISHEL, Chief Judge.

This adversary proceeding came on before the Court on November 29, 2000, for hearing on the Defendant's motion for summary judgment. The Defendant ("the United States") appeared by Katja M. Eichinger, Trial Attorney, Tax Division, U.S. Department of Justice. The Plaintiff ("the Debtor") appeared by his attorney, Kenneth E. Keate. Upon the record made for the hearing and certain post-hearing development, the Court makes the following order.

IDENTITY OF PARTIES AND NATURE OF ADVERSARY PROCEEDING

The Debtor filed a voluntary petition for relief under Chapter 7 on June 6, 1997. He received a discharge in the due course of his case, via an order entered on September 9, 1997. The United States, through the Internal Revenue Service, was scheduled as a creditor in the case. There is no dispute that the United States received the appropriate clerk's notices for the case.

On December 21, 1999, the Debtor commenced this adversary proceeding. The United States timely answered the Debtor's complaint.

Through this adversary proceeding, the Debtor seeks a determination that his liability to the United States for personal income taxes for years 1988 and 1989 were discharged in BKY 97-33916.¹ His theory is four-fold. It is structured in light of the Bankruptcy Code's several exceptions from discharge for tax claims, it addresses each of them for his liability for 1988-89, and its points are summarized as follows:

1. The liability was not excepted from discharge by 11 U.S.C. § 523(a)(1)(A), because the last due dates for his returns for 1988 and 1989 were outside the period that commenced three years before the date of his bankruptcy filing, and the Internal Revenue Service\'s assessment on the returns was before the 240-day period of 11 U.S.C. § 507(a)(8)(A)(ii).

2. The liability is not excepted from discharge under 11 U.S.C. § 523(a)(1)(B)(i), because on March 3, 1994, he did file returns on appropriate forms for tax years 1988 and 1989.

3. The liability is not excepted from discharge by 11 U.S.C. § 523(a)(1)(B)(ii), because the late filing of those returns did not take place within the period that started two years before the date of his bankruptcy filing.

4. The liability is not excepted from discharge by 11 U.S.C. § 523(a)(1)(C), because "no allegation has been made that the Debtor either made a fraudulent return or willfully attempted in any manner to defeat tax due on his income for . . . 1988 and 1989."

In its answer, the United States variously admits and denies the individual fact allegations of the Debtor's complaint. It requests a judgment declaring that the Debtor's tax liabilities are nondischargeable. It also seeks a declaration that its pre-petition notice of tax lien continues in full force and effect.

The main theory of the defense emerged from the record on the present motion. It is that the documents that the Debtor filed with the IRS on March 3, 1994 no longer could have the status of required tax returns cognizable under 11 U.S.C. § 523(a)(1)(B). Hence, as the United States would have it, that statute lies to except the Debtor's liability for tax years 1988 and 1989 from discharge, because "a return . . . was not filed" for either year.

MOTION AT BAR

The United States now moves for summary judgment on the issue of the dischargeability of the Debtor's tax liabilities for 1988-89. The governing rule is FED. R.BANKR.P. 7056.² To merit the summary adjudication of a dispute under this rule, the Court must make a threshold determination that there is "no genuine issue as to any . . . fact" that is material to the claims or defenses at issue on the motion. In re Circuit Alliance, Inc., 228 B.R. 225, 229-230 (Bankr.D.Minn.1998). After that, the movant must still show that the governing law lies in its favor, under the facts thus established. Guinness Import Co. v. Mark VII Distributors, Inc., 153 F.3d 607, 610-611 (8th Cir.1998); Osborn v. E.F. Hutton & Co., 853 F.2d 616, 618 (8th Cir. 1988). The Eighth Circuit has noted many times that summary judgment is a particularly appropriate means of judicial decision-making where the issues in litigation are "primarily legal rather than factual." E.g., Gordon v. City of Kansas City, 241 F.3d 997, 1002 (8th Cir.2001); Buettner v. Arch Coal Sales Co., Inc., 216 F.3d 707, 713 (8th Cir.2000), United States Fidelity and Guaranty Co. v. Housing Auth. of the City of Poplar Bluff, 114 F.3d 693, 695 (8th Cir.1997); Crain v. Board of Police Comm'rs, 920 F.2d 1402, 1405-1406 (8th Cir.1990). See also State of Minnesota, Dept. of Revenue v. United States, 184 F.3d 725, 728 (8th Cir.1999) (where dispute is presented on stipulated or uncontested facts and presents only questions of law, disposition by summary judgment is appropriate).

While not moving for summary judgment as such, the Debtor used the closing section of his responsive memorandum to request a determination that his tax liability for 1988-89 was dischargeable and had been discharged. The lack of a formal motion would not bar the Court from granting such relief to him, were there no triable fact dispute and were the law to merit that result. Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986) (federal trial courts may grant summary judgment to a party sua sponte, where record merits it and no purpose would be served by delaying disposition); Interco Inc. v. Nat'l Surety Corp., 900 F.2d 1264, 1268 (8th Cir.1990); In re Mid-City Hotel Assoc., 114 B.R. 634, 646 (Bankr.D.Minn.1990) (foregoing authorities support grant of summary judgment to respondent that did not move for such relief in its own right, where facts are uncontested and law requires judgment in respondent's favor).

UNDISPUTED FACTS

As it turns out, the parties have no dispute over a body of individual facts that are material to the one identified issue:

1. The Debtor is a wage earner, employed at all relevant times as a machine mechanic in factories that make and imprint envelopes. For the purposes of federal income taxation, the Debtor was a calendar-year taxpayer at all relevant times.

2. The Debtor did not file personal income tax returns for 1988 and 1989³ timely, that is, by April 15 of the following year or by the deadline fixed by law upon an automatic extension after April 15.

3. The Collection Branch of the Internal Revenue Service computed the Debtor's income tax liability for 1988 based on income attributable to him as reported by his employer(s), bank(s), and other sources. On February 21, 1991, the Collection Branch mailed the Debtor a notice that it had computed the tax and associated penalties and interest. The notice advised the Debtor that the IRS was prepared to assess that liability against him, and that he had 30 days to make one of several forms of response. It proffered him the opportunity to file his own tax return, to explain why he was not required to do so, to send additional information for consideration, or to appeal the proposed assessment.

4. On March 25, 1991, the IRS prepared and forwarded to the Debtor a substitute return for 1988, pursuant to 26 U.S.C. § 6020(b).

5. On May 9, 1991, the Collection Branch sent the Debtor another notice regarding its computation of tax liability for 1988, stating a larger amount. The IRS's file copy of this letter bears the stamp "UNDELIVERED."

6. The Debtor did not respond to either notice of computation of tax.

7. On August 23, 1991, the IRS sent the Debtor a notice of deficiency on his tax liability for 1988. The notice included an advisory of the Debtor's right to file a petition in the U.S. Tax Court to contest the deficiency and to obtain a redetermination of the liability.

8. On February 7, 1992, the IRS sent the Debtor a similar notice of deficiency, stating a slightly reduced amount for the 1988 liability.

9. The Debtor did not respond to either notice of deficiency.

10. On November 25, 1991, the IRS prepared and forwarded to the Debtor a substitute return for 1989, again pursuant to 26 U.S.C. § 6020(b). The Debtor did not file this substitute return.

11. At the times that he received the various notifications from the IRS, the Debtor did not believe that he did not owe the taxes in question. He did not respond to the notifications because he was going through marital difficulties and other personal turmoil.

12. At some point in 1991, the IRS began seizing a substantial portion of the Debtor's wages under color of its perfected tax lien and/or tax levy. These seizures continued for approximately three years.

13. On March 3, 1994, the Debtor appeared at the offices of the IRS at the Federal Courthouse in St. Paul. He had decided "to get on the straight and narrow" with his tax liabilities. With the assistance of IRS personnel, the Debtor completed and submitted Forms 1040 for 1988 and 1989, among other years.

14. As between the IRS's assessed amount of the base income tax for 1988 and that shown on the Debtor's Form 1040, there is a difference of $1.00. That difference is due to the Debtor having rounded his $19.93 in total withholding for the year up to $20.00, and the IRS having rounded it down.

15. There is a difference of $71.00 between the comparable figures for 1989, with the IRS's assessed tax being higher. There is no way to determine the origin of the discrepancy, as the record does not contain copies of the original notices, if any, that the IRS sent to the Debtor for 1989.

16. After the Debtor...