In re Wood

• Decision Date: 06 June 2005
• Docket Number: Adversary No. 04-3267-BKC-PGH-A.,Bankruptcy No. 94-31415-BKC-PGH.
• Citation: 328 B.R. 880
• Parties: In re John W. WOOD, Jr., Magdalena Wood, Debtor. John W. Wood, Jr. Plaintiff, v. Commissioner, Internal Revenue Service Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

328 B.R. 880

In re John W. WOOD, Jr., Magdalena Wood, Debtor John W. Wood, Jr. Plaintiff, v. Commissioner, Internal Revenue Service Defendant.

Bankruptcy No. 94-31415-BKC-PGH.

Adversary No. 04-3267-BKC-PGH-A.

United States Bankruptcy Court, S.D. Florida, Palm Beach Division.

June 6, 2005.

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Frank R. Brady, Boca Raton, FL, for Debtors.

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

PAUL G. HYMAN, JR., Bankruptcy Judge.

THIS MATTER came before the Court on the Internal Revenue Service's (the "IRS") Second Motion to Dismiss ("Defendant's Motion") and John W. Wood, Jr.'s (the "Plaintiff"), Response to Defendant's Second Motion to Dismiss (the "Response"). On October 19, 2004, the Plaintiff initiated this adversary proceeding. On December 27, 2004, the Plaintiff filed a three-count complaint (the "Complaint") against the IRS seeking inter alia a judgment declaring that his tax obligations to the IRS were discharged on February 6, 1995, by means of the Order confirming his Chapter 11 plan (the "Plan"). In the Complaint, the Plaintiff seeks compensatory and punitive damages against the IRS for violations of the automatic stay and contempt of this Court's Order confirming the Plan. The Court, having considered the arguments and memoranda of the parties, hereby GRANTS the Defendant's Motion.

Background

The Plaintiff and his wife filed a petition under Chapter 11 of the Bankruptcy Code on April 29, 1994. The IRS was not listed on the Plaintiff's schedules, but it received notice of the filing of the Plaintiff's petition. The IRS filed a proof of claim in the Plaintiff's Chapter 11 case. The proof of claim was for unpaid taxes in the amount of $22,589.54, of which $20,389.54 was classified as an unsecured priority claim and $2,200.00 was classified as an unsecured nonpriority claim.

The Plaintiff's Plan provided that unsecured claims of less than $90,000.00 would be paid in full from the proceeds of the sale of the Plaintiff's real property. The Plan provided that the claims in the class of unsecured claims of less than $90,000.00 would receive adequate protection by means of monthly installment payments until the sale of the Plaintiff's real property, at which time the remainder of the claims would be paid in full. Neither the Plan, the Plaintiff's schedules, nor the Plaintiff's Amended Disclosure Statement specifically mentioned any outstanding tax claims or individualized treatment of tax claims.

The Plan was confirmed on February 6, 1995, by an Order that contained a general discharge of the Plaintiff's prepetition nonexcepted debts. The discharge provision of the Order provided that "except as provided in the Plan, the individual Debtors are discharged from any debt that arose before the date of confirmation of the Plan, except any debts excepted from discharge under § 523 of the Bankruptcy Code, and except if the Debtors would be denied a discharge under § 727(a) ..." Pursuant to the Plan, the Court retained jurisdiction of the case until all payments and distributions called for under the Plan had been made. On May 18, 1995, the Court issued a final decree and closed the case. The Plaintiff asserts that all payments under the Plan were made and that the Plan was completed on May 17, 2000.

On May 14, 2004, the Plaintiff and his wife filed a Motion to Reopen their Chapter 11 case to resolve two issues unrelated to the present adversary proceeding. On August 10, 2004, the Court granted the Plaintiff's Motion to Reopen Case so that the Plaintiff could file adversary proceedings addressing those issues. On September 14, 2004, the Plaintiff and his wife filed a Motion for Additional Adversary Complaint to resolve the present tax controversy. The Court granted the Plaintiff's Motion for Additional Adversary Complaint on October 12, 2004, and the Plaintiff filed the present adversary complaint on October 19, 2004.

In his Complaint,¹ the Plaintiff alleges that the IRS violated the automatic stay provided by 11 U.S.C. § 362 through its efforts to collect the Plaintiff's outstanding tax deficiencies. For instance, the Plaintiff alleges that the IRS did not file proofs of claim for any outstanding taxes for tax years 1991, 1992, or 1993. Moreover, the proof of claim that it filed for 1994 was fraudulent in that it was filed six months before the Plaintiff filed his 1994 tax return. Furthermore, he alleges that the IRS did not file proofs of claim for his 1995 and 1996 tax deficiencies.

In addition, the Plaintiff alleges that the IRS violated the automatic stay by conducting a 38 day tax audit from September 27, 1994 to November 3, 1994 for outstanding taxes from 1991, 1992, and 1993, without first seeking relief from the automatic stay. The audit allegedly resulted in a $5,562.00 deficiency and $1,112.40 in related penalties. The IRS allegedly conducted another audit of the Plaintiff's taxes between January 8, 1998, and May 29, 1998, for outstanding taxes from 1994, 1995, and 1996, without first requesting relief from the automatic stay. The audit resulted in a $23,663.00 deficiency and $4,732.60 in penalties for the 1994 tax year, a $3,102.00 deficiency and $620.00 in penalties for the 1995 tax year, and a $7,515.00 deficiency and $1,503.00 in penalties for the 1996 tax year.

According to the Plaintiff, he was forced into the United States Tax Court (the "Tax Court Proceeding") under threats and intimidation by the IRS.² In the Tax Court Proceeding, the Plaintiff raised some of the same allegations that he currently raises including that the IRS violated the automatic stay by conducting tax audits and issuing notices of deficiency during the automatic stay, and that the Order confirming the Plan discharged the Plaintiff from his unpaid tax liabilities.³

Based on these allegations, the Plaintiff seeks compensatory and punitive damages for the IRS's willful violations of the automatic stay and violations of its internal policies and procedures over a ten year period. Count I of the Complaint alleges that the IRS violated its own policies and procedures as stated in the Internal Revenue Manual by pursuing actions to collect on the Plaintiff's prepetition tax liabilities including the tax audit commenced on September 27, 1994. Count I also alleges that the IRS failed to file any proofs of claim for the Plaintiff's prepetition tax liabilities, but only filed a proof of claim for the 1994 tax year. The Plaintiff asserts that he contested the IRS's claims to prepetition and postpetition tax deficiencies in Bankruptcy Court. He asserts that an IRS representative appeared before the Court on or about December 19, 1994, but that the IRS representative did not seek relief from the automatic stay, did not contest the dischargeability of the Plaintiff's prepetition tax liabilities, did not contest the disclosure statements eliminating the IRS from participation in the Plan, and neither objected to the Plan nor to confirmation of the Plan. Count I further alleges that the IRS sent a notice of deficiency on November 11, 1995, for the Plaintiff's outstanding taxes from 1991, 1992, and 1993. In addition, the IRS allegedly served the Plaintiff with notices of intent to levy and notices of federal tax lien and seized the Plaintiff's income tax refunds for 1997 through 2000 amounting to $10,425.00.

Pursuant to Count I, the Plaintiff requests that the Court enter an eight part judgment seeking various declarations that the IRS violated its own policies as well as the Bankruptcy Code, the IRS prepetition tax claim was disallowed, the Tax Court lacked jurisdiction to hear the IRS's case against the Plaintiff, and that the IRS wrongfully seized the Plaintiff's tax refunds. In addition the Plaintiff seeks a judgment to recover $10,425.00 plus interest and a sanction against the IRS for $100,000.00 for willful disregard of the Bankruptcy Code and this Court's orders.

Count II alleges similar violations of IRS policies and procedures and violations of the Bankruptcy Code stemming from the IRS's audit of the Plaintiff's 1994, 1995, and 1996, tax returns between January 8, 1998 and May 29, 1998. Count II repeals the allegation that an IRS representative appeared in Bankruptcy Court on or about December 19, 1994, but did not seek relief from stay to contest the dischargeability of the Plaintiff's postpetition taxes. Moreover, the Plaintiff alleges that the IRS did not contest the disclosure statements eliminating the IRS from participating in the Plan, the Plan itself, or confirmation of the Plan. The Plaintiff also alleges that the severity of the 142 day audit caused him to lose out of town consulting assignments that would have generated as much as $85,000.00 in income.

Count II also alleges that the Plaintiff was threatened by his receipt of an Income Tax Examination Changes letter that charged the Plaintiff with significantly under-reporting income for the 1994 tax year. The Plaintiff claims that this letter in addition to notices of Intent to Levy and Federal Tax Lien coerced him into Tax Court. The Plaintiff also alleges that the IRS's proof of claim for his 1994 tax deficiencies was disallowed by this Court. In addition, the Plaintiff repeats the allegation that the IRS wrongfully seized his income tax refunds. In Count II, the Plaintiff seeks similar declaratory relief to Count I as well as $100,000.00 in punitive damages against the IRS for contempt of Court and for filing a false proof of claim.

Count III seeks similar declaratory relief and punitive damages for the IRS's audit of the Plaintiff's 1995 and 1996 tax returns. In Count III, the Plaintiff also alleges that the IRS issued a notice of deficiency to the Plaintiff on October 17, 1999. In addition to a declaratory judgment, the Plaintiff seeks $100,000.00 in punitive damages for the IRS's contempt of Court and harassment of the Plaintiff in pursuing these allegedly unlawful tax...