Matter of Verdunn
| Decision Date | 04 November 1993 |
| Docket Number | Bankruptcy No. 92-460-8B3. |
| Citation | 160 BR 682 |
| Parties | In the MATTER OF VERDUNN, Thomas B., Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
B. Gray Gibbs, St. Petersburg, FL, for debtor.
I.R.S., Jacksonville, FL.
Susan Roark Waldron Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC.
U.S. Atty., Tampa, FL.
Terry E. Smith, Trustee, Bradenton, FL.
THIS CAUSE came on for hearing upon Thomas B. Verdunn's (Debtor's) Motion for Partial Summary Judgment with respect to Debtor's Objection to the Internal Revenue Service's (Service's) Proof of Claim. The Court, having heard the argument of counsel and having reviewed the Motion for Summary Judgment, the Objection to the Internal Revenue Service's Proof of Claim, the record, and the memoranda filed by counsel, finds the undisputed facts as follows:
On January 14, 1992 Debtor filed a voluntary petition for relief under Chapter 13 of Title 11 of the United States Code (Bankruptcy Code). The Service filed a timely Proof of Claim on May 4, 1992. The Proof of Claim, in the amount of $297,170.88, includes an unsecured priority claim of $133,181.40, and an unsecured general claim of $163,989.48.
Prior to the petition for relief under Chapter 13, Debtor had pleaded guilty to two (2) criminal counts of False Statements/Perjury under Title 26 of the United States Code § 7206(1) (I.R.C.). In addition, Debtor received a Notice of Deficiency dated September 25, 1990. In the deficiency the Service made a determination of underpayment of taxes, all of which is claimed to be due to fraud for the years 1982, 1983, 1984, and 1985. The civil fraud penalties arise under I.R.C. § 6653(b)(1), and (2), and substantial understatement penalties under I.R.C. § 6661 for those years. The notice also set forth a deficiency for 1986, based on underpayment due to negligence, delinquency penalty (I.R.C. § 6653(a)(1)(A)), and penalties for negligence (I.R.C. § 6653(a)(1)(A), and (B)). There are additional interest claims for all of the years at issue.
On September 23, 1992, Debtor filed an Objection to the Proof of Claim by the Service, which was later amended on October 15, 1992. The Debtor then filed, on March 4, 1993, a Motion for Partial Summary Judgment with respect to Debtor's Objection to the Proof of Claim submitted by the Service for the Years 1983, 1984, and 1985. Arguments were heard on July 2, 1993 with respect to the Motion for Partial Summary Judgment. This Court found there was a material question of fact as to whether the Debtor filed fraudulent income tax returns for the years 1983, 1984, and 1985, and denied Summary Judgment. Subsequently, the parties did agree that the income tax return for 1982 was fraudulent.1
The linchpin of Debtor's argument is 11 U.S.C. § 507(a)(7)(A)(iii) precludes tax fraud claims from priority and the "super discharge" of 11 U.S.C. § 1328(a)(2) permits tax fraud liabilities to be discharged. Generally, a governmental unit such as the Service, may have a priority claim provided the claim satisfies 11 U.S.C. § 507(a)(7)(A)(i), (ii) or (iii).2 Debtor's argument is 11 U.S.C. § 507(a)(7)(A)(iii), in which the Service's tax fraud claims appear to conform, excludes tax fraud claims by reference to 11 U.S.C. § 523(a)(1)(C). In addition, Debtor argues the tax fraud claims are dischargeable by virtue of the "super discharge" of 11 U.S.C. § 1328(a).
Bankruptcy Code Section 507(a)(7)(A)(iii) establishes priority for tax claims ". . . other than a tax of a kind specified in section . . . 523(a)(1)(C)." Section 523(a)(1)(C) states "a tax . . . with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax. . . ." Thus, a fraud tax claim is specifically excluded as a priority claim. Therefore, Debtor claims tax fraud liabilities are afforded treatment in a Chapter 13 case, unavailable in Chapters 7, 11, or 12.3
In support of the argument, Debtor cites Muina v. United States (In re Muina), 75 B.R. 192 (Bankr.S.D.Fla.1987). In Muina, the Tax Court held there was a deficiency in the debtors' income tax for the year 1981. In addition, there was a fraud penalty imposed. As in the instant case, all liabilities for taxes were assessable after the commencement of the Chapter 13 case. The debtors in Muina argued the language of 11 U.S.C. § 507(a)(7)(A)(iii) specifically excluded the taxes named in 11 U.S.C. § 523(a)(1)(C) as being priority claims. The Court in Muina found the taxes owed by the debtors were not entitled to priority. 11 U.S.C. § 507(a)(7)(A)(iii); 11 U.S.C. § 523(a)(1)(C).
While there is a paucity of authority considering Muina, another court has held priority status would not be afforded a tax liability specified in 11 U.S.C. §§ 523(a)(1)(B) or 523(a)(1)(C) in a Chapter 13 case. Torrente v. United States (In re Torrente), 75 B.R. 193 (Bankr.S.D.Fla.1987). The Court in Torrente made a finding the tax was not the type described in 11 U.S.C. § 523(a)(1)(B), and by negative inference, a 11 U.S.C. § 523(a)(1)(B) or (C) tax claim would have been general unsecured and not entitled priority.
On brief, the Service questions the corollary that follows from Muina and Torrente, stating "it is difficult to understand how Congress could have intentionally provided Chapter 13 debtors who had committed tax fraud, should be allowed to escape the full measure of liability for their fraudulent behavior." Yet, this is not the first unusual result in Chapter 13 addressed by Congress. See Rowland v. California Men's Colony, Unit II Men's Advisory Council, ___ U.S. ___, 113 S.Ct. 716, 121 L.Ed.2d 656 (1993). Prior to November 15, 1990, a drunk driver could escape payment of a civil judgment by filing under Chapter 13. Congress responded to the problem. Pub.L. 101-581, Nov. 15, 1990 (adding § 1328(c)(2)). Although not dischargeable under Chapter 7, student loans were not exceptions to discharge until Subsection (a)(2) of 11 U.S.C. § 1328 was amended by the Student Loan Default Prevention Initiative Act of 1990. Pub.L. 101-508, Nov. 5, 1990 (as part of the Omnibus Reconciliation Act). In addition, convicted felons were permitted to discharge their restitution obligations to victims or the State, merely by filing a Chapter 13.4 Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990). Thereafter, Chapter 13 was amended to make criminal restitution nondischargeable. Criminal Victims Protection Act, Pub.L. 101-581, § 3, 104 Stat. 2865 (Nov. 15, 1990) (adding § 1328(c)(3)).
From the clear language of the Bankruptcy Code, tax fraud claims are not afforded priority in Chapter 13 cases. 11 U.S.C. § 507(a)(7)(A)(iii). In as much as "the statutory scheme is coherent and consistent, there . . . is no need for a court to inquire beyond the plain language of the statute." United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). It is up to Congress to change this result, not this Court.
The fraud claims of the Service are not priority, they are generally unsecured. If a debtor meets the eligibility requirements for relief under Chapter 13, see 11 U.S.C. § 109(e),5 he may obtain a confirmation plan that tempers the rights of secured or unsecured claim holders, and that "provide for the payment of all or any part of a permitted claim." 11 U.S.C. § 1322(b)(2) and (6).
The Service argues the Debtor should not be permitted to obtain relief under Chapter 13. If the Service has liquidated, noncontingent, unsecured claims in excess of the qualifying limitation, Debtor will fail the jurisdictional requirements of 11 U.S.C. § 109(e).6 At this point, this Court does not find these claims to be noncontingent or liquidated.
Under the Code, "claim means . . . right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." Congress intended by this language to adopt the broadest available definition of "claim." Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990); see also Ohio v. Kovacs, 469 U.S. 274, 279, 105 S.Ct. 705, 707, 83 L.Ed.2d 649 (1985).
The total unsecured claims of the Service are in Debtor's schedules as $297,170.88. Debtor objects to the amount, character as well as the proposed priority in the proof of claim for 1983, 1984, 1985, and 1986. This Court has found that the tax fraud liabilities are not priority, and as stated above, 11 U.S.C. § 109(e) places a limitation of $100,000 in noncontingent, liquidated, unsecured debts. It does not appear from the record that the undisputed 1982 liabilities will be enough to exceed this amount. In addition, the Service avers they are secured for the amount of the bond the Debtor has provided to stop the interest from accruing on 1982 liabilities. There is no doubt that there is a "security" in the bond. 11 U.S.C. § 101(49)(a)(iv). However, to be a secured creditor the Service must satisfy 11 U.S.C. § 506(a). Debtor and the Service refer to the 1982 liabilities as unsecured, therefore this court will treat them as unsecured for the purpose of determining the amounts associated with 11 U.S.C. § 109(e). See also In re Celotex Corp. et al., 128 B.R. 478 (Bkrtcy. M.D.Fla.1991).
A properly filed proof of claim is prima facie evidence of the validity and amount of the claim. Fed.R.Bankr.P. 3001(f). A proof of claim is the creditor's statement of the amount and character of the claim. In re Padget, 119 B.R. 793, 797 (Bankr.D.Colo. 1990). The claim is allowed absent objection. 11 U.S.C. § 502(a).7 Debtor has made an objection to the character and amount of the Service's claim for 1983, 1984, 1985 and 1986. Notwithstanding Debtor's labeling of the Service's claim as unliquidated in his schedule of creditors holding...
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