In re Wood

• Decision Date: 16 September 1987
• Docket Number: Bankruptcy No. 86-1172-BKC-3P7,Adv. No. 86-341.
• Parties: In re Raymond H. WOOD, Jr., DDS, a/k/a Ray Wood, Debtor. Raymond H. WOOD, Jr., DDS, a/k/a Ray Wood, Plaintiff, v. UNITED STATES of America, Acting through the Internal Revenue Service, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Florida

78 B.R. 316 (1987)

In re Raymond H. WOOD, Jr., DDS, a/k/a Ray Wood, Debtor.

Raymond H. WOOD, Jr., DDS, a/k/a Ray Wood, Plaintiff, v. UNITED STATES of America, Acting through the Internal Revenue Service, Defendant.

Bankruptcy No. 86-1172-BKC-3P7, Adv. No. 86-341.

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

September 16, 1987.

Lisa C. Cohen, Keystone Heights, Fla., for plaintiff.

Clinton W. Marrs, Washington, D.C., Charlotte Sennot, Jacksonville, Fla., for defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

GEORGE L. PROCTOR, Bankruptcy Judge.

Upon evidence adduced, the Court makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

1. The Chapter 7 debtor, Raymond H. Wood, Jr., DDS, a/k/a Ray Wood, is the plaintiff in this adversary proceeding. The United States of America is both the defendant in this proceeding and a claimant in the main case.

2. The plaintiff commenced this adversary proceeding by filing a complaint to determine the dischargeability of his debts for unpaid federal individual income taxes for the years 1979 through 1982, inclusive. The United States filed its answer admitting that the plaintiff's debts for unpaid federal income taxes for the years 1979 through 1981, inclusive, are dischargeable. The United States denied that the debts for unpaid federal income taxes for the year 1982 are dischargeable and alleged that the debts are excepted from discharge by §§ 523(a)(1)(A) and 507(a)(7)(A)(i) of the Bankruptcy Code (11 U.S.C.).

3. The material facts are not in dispute. In his response to the request for admissions propounded by the United States the plaintiff admitted that his accountant applied to the Internal Revenue Service for two consecutive extensions of the time in which to file his Form 1040 U.S. Individual Income Tax Return ("Form 1040") for the year 1982. The Internal Revenue Service approved the first application for an extension and extended the filing due date to August 15, 1983. The Internal Revenue Service approved the plaintiff's subsequent application for a further extension and extended the filing due date to October 15, 1983. The plaintiff thereafter filed his Form 1040 for the year 1982 on October 7, 1983.

4. The Plaintiff filed his petition for relief under Chapter 7 of the Bankruptcy Code (11 U.S.C.) on October 10, 1986. The Department of Treasury, Internal Revenue Service, on behalf of the United States, made a proof of claim dated November 20, 1986 against the bankruptcy estate in the amount $174,741.91. The proof of claim asserts a secured claim for unpaid federal individual income taxes due for the years 1980 through 1982, inclusive, as follows:

                                                                                                        Notice of Tax
                 Kind                    Date Tax                         Penalty To      Interest To    Lien Filed
                of Tax      Year         Assessed        Tax Due         Petition Date   Petition Date  Date Location
                Income      1980         03/05/84      $11,930.42        $ 1,880.04      $12,132.08       01/14/85
                                                                                                        Marion County
                Income      1981         11/15/82       31,578.00          8,081.10       26,100.17       06/02/83
                                                                                                        Marion County
                Income      1982         11/21/83       45,127.25         13,858.67       24,054.18       01/16/84
                                                                                                        Marion County
                

5. After the United States filed its answer alleging that the plaintiff's debts for unpaid federal income taxes for the year 1982 are excepted from discharge by §§ 523(a)(1)(A) and 507(a)(7)(A)(i) of the Bankruptcy Code, the Court granted the plaintiff's motion for leave to reply to the answer. In his reply, the plaintiff challenged the constitutionality of §§ 523(a)(1)(A) and 507(a)(7)(A)(i), contending that the classifications of dischargeable and nondischargeable tax debt made by these statutes deprived the plaintiff of his rights of due process and equal protection of the laws in violation of the Fifth Amendment to the United States Constitution. The plaintiff contended further that the classifications also violated the Bankruptcy Clause of Article I, Section 8, clause 4 of the United States Constitution.

CONCLUSIONS OF LAW

a. Dischargeability.

1. The threshold issue presented is whether the plaintiff's debt for unpaid federal individual income taxes for the year 1982, together with penalties and interest thereon as provided by law, is subject to discharge by operation of § 727 of the Bankruptcy Code or whether the debt is excepted from discharge by §§ 523(a)(1)(A) and 507(a)(7)(A)(i) of the Code. If the debt is excepted from discharge the question then presented is whether the classifications of nondischargeable tax debt in §§ 523(a)(1)(A) and 507(a)(7)(A)(i) deprive the plaintiff of his rights of due process and equal protection of the laws in violation of the Fifth Amendment to the United States Constitution or violate the Bankruptcy Clause of Article I of the Constitution.

2. Section 727 of the Bankruptcy Code (11 U.S.C.) states, inter alia, that the Court "shall grant the debtor a discharge, unless" any one of ten conditions enumerated in Section 727 are met. A discharge under § 727, however, does not discharge an individual debtor from a debt which the Bankruptcy Code excepts from discharge. Under § 523(a)(1) of the Code an individual's debts for certain taxes are excepted from the § 727 discharge. Hence, these tax debts are nondischargeable. Section 523(a)(1) provides as follows:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

(1) for a tax or a customs duty—

(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;

(B) with respect to which a return, if required—

(i) was not filed; or

(ii) was filed after the date on which such return was last due, under applicable law or under extension, and after two years before the date of the filing of the petition; or

(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.

11 U.S.C., § 523(a)(1).

3. Section 507(a)(7)(A) provides as follows:

(a) The following expenses and claims have priority in the following order:

* * * * * *

(7) Seventh, allowed unsecured claims of governmental units; only to the extent that such claims are for—

(A) a tax on or measured by income or gross receipts—

(i) for a taxable year ending on or before the date of the filing of the petition for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition;

(ii) assessed within 240 days, plus any time plus 30 days during which an offer in compromise with respect to such tax that was made within 240 days after such assessment was pending, before the date of the filing of the petition; or

(iii) other than a tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(C) of this title, not assessed before, but assessable, under applicable law or by agreement, after, the commencement of the case.

11 U.S.C., § 507(a)(7).

Section 507(a)(7)(A) is disjunctive: it classifies an unsecured claim for an unpaid income tax as a seventh priority claim on three alternative grounds. 11 U.S.C. § 102(5) ("In this title * * * `or' is not exclusive"); In re Easton, 59 B.R. 714, 716-17 (Bankr.C.D.Ill.1986). Section 507(a)(7)(A) does not impose a mutually exclusive choice between the three alternatives. Hence, an unsecured claim for an unpaid income tax of the kind specified in § 507(a)(7)(A)(i) is a nondischargeable claim. In re Coleman American Moving Services, Inc., 20 B.R. 267, 269 (Bankr.D. Kan.1981).

4. In the case sub judice, to the extent that the claim of the United States for the plaintiff's unpaid federal individual income taxes for the year 1982 is unsecured, the claim is a seventh priority claim under § 507(a)(7)(A)(i). The plaintiff's debt for the taxes, therefore, is excepted from discharge under § 523(a)(1)(A) as a debt for taxes of the kind and for the periods specified in § 507(a)(7)(A)(i).

5. Section 6081(a) of the Internal Revenue Code (26 U.S.C.) provides that the Secretary of the Treasury "may grant a reasonable extension of time for filing any return * * * required by this title or by regulations." Except for taxpayers who are abroad, no extension may be granted for more than six months. Id. Treasury Regulation § 1.6081-4(a)(1) provides an automatic four-month extension of time to file an individual tax return "for any taxable year ending on or after December 31, 1982." For taxable years ending on or before December 31, 1981, Treas.Reg. § 1.6081-4 provided for an automatic two-month extension. The four-month automatic extension for 1982 and after was added to the treasury regulations by Treasury Decision 7885, 1983-1 C.B. 338, which amended Treas.Reg. § 1.6081-4 expressly "so as to extend the present two-month automatic extension * * * to a four-month automatic extension." Id., 1983-1 C.B. at 338. After receiving a four month extension, and in conformity with the mandate of § 6081(a), that no extension of more than six months shall be granted, the plaintiff applied for and received an additional two month extension of time in which to file his 1982 return. This additional extension ran to October 15, 1983. The plaintiff's Form 1040 income tax return for the year 1982, therefore, was "last due, including extensions," on October 15, 1983. The plaintiff filed his petition for relief under Chapter 7 of the Bankruptcy Code on October 10, 1986. The last due date of the return—October 15, 1983—is within the three year period...