Ivison v. Internal Revenue Serv. (In re Ivison)

• Decision Date: 23 April 2020
• Docket Number: ADVERSARY NO. 15-3001,CASE NO: 13-37732
• Parties: IN RE: ANITA IVISON Debtor ANITA IVISON; aka KANZLER, et al Plaintiffs v. INTERNAL REVENUE SERVICE, UNITED STATES OF AMERICA, et al Defendants
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

IN RE: ANITA IVISON DebtorANITA IVISON; aka KANZLER, et al Plaintiffs v. INTERNAL REVENUE SERVICE,UNITED STATES OF AMERICA, et al Defendants

CASE NO: 13-37732

ADVERSARY NO. 15-3001

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

April 23, 2020

CHAPTER 7

Judge Eduardo V. Rodriguez

MEMORANDUM OPINION

Section 505 of the Bankruptcy Code confers broad authority on a bankruptcy court to determine a debtor's tax liability before the debtor filed for bankruptcy. A bankruptcy court's determination of certain tax liabilities also affects whether such claims may be dischargeable. In the case sub judice, plaintiffs seek determination and dischargeability of certain tax liabilities.

Anita Ivison,¹ James Ivison, ("Plaintiffs") and Specialized Hydraulic Services, Inc. ("SHS") originally filed separate adversary proceedings against the Internal Revenue Service United States of America, and the United States of America (IRS) (hereinafter referred to as "IRS") to determine the proper amounts of federal income taxes, and payroll tax and civil penalty liabilities. Shortly thereafter, the adversary proceedings were transferred and consolidated before the Court. After approving a stipulation between SHS and the IRS and dismissing SHS's claims, trial was held.

In consideration of the arguments of counsel, all evidence in the record, credibility of thewitnesses, and relevant case law, the Court finds that: James Ivison's aggregate Trust Fund Recovery Penalty liability for the tax quarters ending March 31, 2011, June 30, 2012, September 30, 2012, and March 31, 2013 through December 31, 2013 is determined to be $566,373.77 and is not dischargeable pursuant to 11 U.S.C. § 523(a); James Ivison's individual federal income tax liability for tax year 2011 is determined to be $308,750.87 and is not dischargeable pursuant to 11 U.S.C. § 523(a); Anita Ivison's aggregate Trust Fund Recovery Penalty liability for the tax quarters ending March 31, 2011, June 30, 2012, September 30, 2012, and March 31, 2013 through December 31, 2013 is determined to be $566,303.77 and is not dischargeable pursuant to 11 U.S.C. § 523(a); Anita Ivison's individual federal income tax liabilities are determined to be $308,750.87 for tax year 2011, $6,238.00 for tax year 2012, and are not dischargeable pursuant to 11 U.S.C. § 523(a).

I. FINDINGS OF FACT

The Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, which is made applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7052. To the extent that any finding of fact constitutes a conclusion of law, it is adopted as such. To the extent that any conclusion of law constitutes a finding of fact, it is adopted as such.

a. Background History

During 2013, Plaintiffs owned two Subchapter S corporations: SHS and Specialized Pipe Services, Inc. ("SPS"), which they each held a 50% interest in.² The events that precipitated Plaintiffs and SHS' bankruptcy filings were significant tax assessments made by the Internal Revenue Service ("IRS") against them for income tax liabilities, and payroll tax and civil penaltyliabilities.

Anita Ivison commenced her underlying chapter 7 proceeding on December 17, 2013 and received her discharge March 18, 2014.³ Ms. Ivison's chapter 7 case was closed on October 22, 2014 and then reopened on December 22, 2014 for purposes of instituting the above-captioned adversary proceeding.⁴ Anita Ivison filed her adversary proceeding on January 2, 2015.⁵

James Ivison commenced his underlying chapter 7 proceeding on December 17, 2013 and received his discharge on April 1, 2014.⁶ On April 1, 2014, the IRS filed a proof of claim in James Ivison's bankruptcy proceeding, totaling $1,542,049.05.⁷ However the IRS was only paid $6,868.80 on its unsecured priority claim.⁸ A final decree was signed on May 10, 2017, closing the case.⁹ Seven days later, James Ivison filed a second chapter 7 bankruptcy petition, which was converted to a chapter 11 on October 25, 2017.¹⁰ On November 28, 2017, the IRS filed a proof of claim in James Ivison's second bankruptcy proceeding, totaling $2,471,191.61.¹¹ However, James Ivison's chapter 11 bankruptcy was dismissed on December 12, 2017, with no distributions being made to creditors.¹² James Ivison filed his adversary proceeding on January 21, 2015.¹³

Lastly, SHS commenced its chapter 7 bankruptcy case on January 24, 2014.¹⁴ SHS filed its adversary proceeding on January 21, 2015.¹⁵ On February 19, 2015, the Court transferredJames Ivison and SHS's adversary proceedings and consolidated them with the above-captioned adversary proceeding.¹⁶

Plaintiffs and SHS' original claims set forth in the consolidated adversary proceedings are:

1. tax determination on behalf of James and Anita Ivison pursuant to 11 U.S.C. § 505(a) for tax years 2006 through 2013, including all penalties, interest, and additions thereto, and tax determination of SHS's prepetition federal income tax liability, miscellaneous penalty, and payroll tax labilities for tax years 2007 through 2014;

2. temporary injunctive relief for James Ivison pursuant to 11 U.S.C. § 362(a); and

3. determination of dischargeability for James and Anita Ivison under 11 U.S.C. § 523(a).¹⁷

On February 20, 2015, the Court reinstated the automatic stay, pending adjudication of the underlying adversary proceeding.¹⁸ And on August 1, 2017, the Court approved a stipulation between the IRS and SHS, allowing the IRS's October 8, 2014 amended proof of claim filed in SHS's bankruptcy case in its entirety, and dismissing SHS as a party to this adversary proceeding.¹⁹ At trial, the parties stipulated that James and Anita Ivison's individual liability for tax years 2006 through 2010, and 2013 is zero, and that the liability for tax year 2012 as to Anita Ivison only is $6,238.00.²⁰ After reviewing the record, there are three remaining issues for the Court to decide, to wit:

1. Whether Plaintiffs are liable for tax year 2011 federal individual income taxes and if so, in what amount;

2. Whether Plaintiffs are liable for Trust Fund Recovery Penalty liabilities for tax years 2011 and 2012, and if so, in what amount; and

3. Whether Plaintiffs' taxes are dischargeable.

b. The Federal Tax Claims

For illustration, the Court has crafted two separate charts—for James and Anita Ivison—which summarize the disputed tax year amounts:

 CHART AJAMES IVISON Year IndividualFederalIncomeAmount Due Tax Period Trust Fund/Civil Penalty& Federal Tax LienAmount Due  2011  $308,750.8721  March 2011  $56,717.5122  2012  $0.00  June 2012  $74,520.0223  2013  $0.00  September 2012  $96,533.7724    March 2013  $14,376.9625    June 2013  $140,359.6226    September 2013  $120,257.6527    December 2013  $63,608.2428                   Total  $308,750.87   $566,373.57 CHART BANITA IVISON Year IndividualFederalIncomeAmount Due Tax Period Trust Fund/Civil Penalty& Federal Tax LienAmount Due  2011  $308,750.8729  March 2011  $56,647.5130  2012  $6,238.00  June 2012  $74,520.0231    September 2012  $96,533.7732  2013  $0.00  March 2013  $14,376.9633    June 2013  $140,359.6234    September 2013  $120,257.6535 

   December 2013  $63,608.2436 Total  $314,988.87  $566,303.77 

c. Trial

Trial was initially conducted on November 28, 2018, then continued to and concluded on September 24, 2019.³⁷ At trial, the parties stipulated to the following, either through oral agreement, testimony, or documentary evidence:

1. Plaintiffs are "Responsible Persons" for purposes of the Trust Fund liabilities assessed against them.³⁸

2. Plaintiffs were officers, board members, and 50% shareholders of SHS until its bankruptcy filing on January 24, 2014.³⁹

3. James Ivison's estimated compensation received during the period in issue was $150,000.⁴⁰

4. James Ivison had the authority to determine which SHS creditors were paid, participated in overseeing the day-to-day operations of SHS, and was authorized to hire and fire employees, enter into contracts, and to sign checks on SHS's behalf.⁴¹

5. Anita Ivison was authorized to sign checks on SHS's behalf.⁴²

6. Anita Ivison was authorized to hire and fire SHS employees.⁴³

7. James and Anita Ivison signed checks or authorized payments for SHS's payees (other than the IRS) after they knew that SHS had unpaid federal withholding taxes.⁴⁴

8. Either James or Anita Ivison signed SHS's payroll returns.⁴⁵

9. James Ivison became aware of SHS's unpaid payroll taxes during mid-2011.⁴⁶10. James Ivison's response was to give Rose Paredes power of attorney "to work with the IRS to ensure that an installment agreement was reached as to any unpaid taxes, and future payroll tax deposits were timely made.⁴⁷"

11. No payments, credits, or abatements have been made against any of Plaintiffs' individually assessed Trust Fund liabilities.⁴⁸

12. A $22.00 fee and collection cost was assessed on September 22, 2014 against Anita Ivison for the Trust Fund liability associated with the tax quarter ending March 30, 2011.⁴⁹

13. A $92.00 fee and collection cost was assessed on November 10, 2014 against James Ivison for the Trust Fund liability associated with the tax quarter ending March 30, 2011.⁵⁰

14. SHS's Employer's Quarterly Federal Tax Returns (Form 941) for the tax periods ending April 30, 2012, September 30, 2012, and March 31, 2013 through December 31, 2013 all contain what purports to be James Ivison's signature as a SHS officer.⁵¹

15. SHS's Employer's Quarterly Federal Tax Returns (Form 941) for the tax periods ending April 30, 2012, September 30, 2012, June 30, 2013, September 30, 2012 and December 31, 2013 reflect balances due.⁵²

16. The return for March 31, 2013 and the return for the tax quarter ending June 30, 2013 are the only returns that reflect any deposits.⁵³

17. James Ivison admits he signed the returns for the periods ending September 30, 2013 and December 31, 2013.⁵⁴

18. Anita Ivison's 2012 individual income tax liability is $6,238.00.⁵⁵

II. CONCLUSIONS OF LAW

a. Jurisdiction, Venue, and...