Morris v. Zimmer (In re Zimmer)

• Decision Date: 04 December 2020
• Docket Number: Bankruptcy No. 17-20543-JAD
• Citation: 623 B.R. 139
• Parties: IN RE: David H. ZIMMER, Debtor. Daniel Peter Morris and Lucille Aiosa Morris, Movants, v. David H. Zimmer, Department of Treasury Internal Revenue Service, and Rosemary C. Crawford, Chapter 7 Trustee, Respondents.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

623 B.R. 139

IN RE: David H. ZIMMER, Debtor.Daniel Peter Morris and Lucille Aiosa Morris, Movants,

v.David H. Zimmer, Department of Treasury Internal Revenue Service, and Rosemary C. Crawford, Chapter 7 Trustee, Respondents.

Bankruptcy No. 17-20543-JAD

United States Bankruptcy Court, W.D. Pennsylvania.

Signed December 4, 2020

Donald R. Calaiaro, James A. Prostko, David Z. Valencik, Calaiaro Valencik, Pittsburgh, PA, for Debtor.

Rosemary C. Crawford, Crawford McDonald, LLC., Allison Park, PA, for Trustee.

MEMORANDUM OPINION

The Honorable Jeffery A. Deller, United States Bankruptcy Judge The matter before the Court is a core proceeding, pursuant to which the Court has the requisite subject-matter jurisdiction to enter a final judgment. See 28 U.S.C. §§ 157(b)(2)(B) and 1334(b). This Memorandum Opinion shall constitute the Court's findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.

I.

On July 19, 2019, Mr. Daniel Peter Morris and Mrs. Lucille Aoisa Morris (collectively, the "Morris Creditors") filed a pleading captioned as the "MOTION OF CREDITORS DANIEL PETER MORRIS AND LUCILLE AIOSA MORRIS OBJECTING UNDER 11 U.S.C. § 502 TO CLAIM 13 OF DEPARTMENT OF TREASURY INTERNAL REVENUE SERVICE AND TO DISALLOW AND EXPUNGE CLAIM 13 FROM THE CLAIMS REGISTRY OF CASE NO. 17-20543 JAD."

The gist of the pleading is that the Morris Creditors object to the proof of claim filed by the United States Internal Revenue Service (the "IRS") at Claims Register No. 13-1. The claim of the IRS, in the amount of $12,064.18, is based upon David H. Zimmer's self reported tax liability as reflected on his 2016 federal tax return.

On September 9, 2020, the Court conducted a trial on the Morris Creditors' objection to the IRS claim. The genesis of the Morris Creditors' objection to the claim is that Mr. Zimmer allegedly resided in Canada during part of the time period that is germane to the instant litigation. Given the fact that Mr. Zimmer partly resided in Canada, the Morris Creditors argue that Mr. Zimmer was entitled to a foreign tax credit with respect to his 2016 federal taxes, even though Mr. Zimmer did not file a Canadian tax return and did not claim such a credit in his U.S. tax return and accompanying schedules.

At the trial of this matter, the 2016 tax return filed by Mr. Zimmer with the IRS was authenticated and accepted into evidence. The United States also offered into evidence a Form 4340 Certificate of Assessment for David Zimmer's 2016 income tax return– which is the tax year at issue in this litigation. The Morris Creditors stipulated to the admission of the Certificate of Assessment (ECF No. 393), and the Court admitted it into evidence. See Transcript of September 9, 2020 ("Trial Transcript"), ECF No. 418 at p. 5, line 11, through p. 6, line 4. That exhibit established the United States' prima facie case. United States v. Fior D'Italia, Inc., supra.

Mr. Zimmer also testified at trial. In this regard, Mr. Zimmer testified that he paid no Canadian taxes during the relevant period of time because the income he earned during the relevant period of time was earned outside of Canada. He also testified that he filed no Canadian tax returns because he earned no income in Canada, because Canada denied his ability to have a taxpayer identification number, and because the Canadian authorities would not extend Mr. Zimmer's stay in the country. Accordingly, no admissible evidence was presented by any party at trial reflecting that any foreign credit is due to Mr. Zimmer or the bankruptcy estate on account of the 2016 tax year. This means that no admissible evidence was presented at trial which would cause the elimination of the IRS tax claim based on Mr. Zimmer's 2016 federal tax return.

Further, no party has disputed that the IRS tax assessment giving rise to the IRS claim is based upon Mr. Zimmer's self-reported tax liability as set forth in his 2016 U.S. tax return and is presumed to be correct as a matter of law. See United States v. Loreno, No. 1:10-CV-183-SJM, 2013 WL 2668213, at *2 (W.D. Pa. June 12, 2013), United States v. Kavanaugh, No. 02:07-CV-0432, 2009 WL 1177088 at *5 (W.D. Pa. Apr. 29, 2009), and United States v. Fior D'Italia, Inc., 536 U.S. 238, 242, 122 S.Ct. 2117, 153 L.Ed.2d 280 (2002).

No party has also disputed that a taxpayer is not entitled to a foreign tax credit unless it is claimed on a U.S. tax return and associated forms or schedules. As the United States Tax Court has held: "[P]ermitting a credit for foreign income taxes paid or accrued is an act of grace on the part of Congress, and a taxpayer seeking to benefit from such a credit must prove that all the conditions upon which its allowance depends have been fulfilled." Wilcox v. C.I.R., 96 T.C.M. 193 (T.C. 2008) ; see generally INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84, 112 S.Ct. 1039, 117 L.Ed.2d 226 (1992).

With respect to those conditions, a tax credit simply does not exist for present purposes unless the taxpayer is eligible for the credit and the taxpayer properly claims it. Cf. Mourad v. Commissioner, 121 T.C. 1, 7 (2003) (taxpayer who failed to claim or comply with statutory requirements for claiming low-income housing credits not eligible for such credits), aff'd 387 F.3d 27 (1st Cir. 2004). However, in the instant case, the evidence reflects that Mr. Zimmer never claimed a foreign tax credit in his 2016 U.S. tax return or related documents. See Treas. Reg. 1-905-2(a)(1)(requiring that any claim for a foreign tax credit in a tax return must be accompanied with a completed "Form 1116").

Accordingly, since there is no evidence that Mr. Zimmer actually accrued any 2016 Canadian tax liability, filed a 2016 Canadian tax return, paid any 2016 Canadian income taxes, or furnished proof of the same to the IRS, which is a prerequisite for Mr. Zimmer claiming the foreign tax credit, see Treas. Reg. 1.905-2(a)(2) and (b)(2) (setting forth what records must be presented to substantiate a foreign tax credit), the weight of the evidence supports allowance of the IRS claim filed at Claim Register No. 13-1.

II.

In rendering its decision today, the Court has duly considered all of the arguments presented by the Morris Creditors. For example, the Court has considered the Morris Creditors' contention that the IRS claim should be disallowed because the IRS did not attach IRS Form 4340 to its proof of claim. Here, the Morris Creditors rest their objection upon Fed.R.Bankr.P. 3001(c)(1), which dictates that a claim "based upon a writing" shall have "the writing" filed "with the proof of claim." This documentary objection interposed by the Morris Creditors is without merit because:

The majority of courts to consider this issue in the context of claims by the IRS have concluded that because tax claims are based on statutory obligations rather than obligations created by a writing, Fed.R.Bankr.P. 3001(c) does not apply to proofs of claims filed by taxing authorities. See U.S. v. Braunstein (In re Pan), 209 B.R. 152, 156 (D.Mass.1997) (citing [ Spiers v. Ohio Dep't of Natural Resources (In re Jenny Lynn Mining Co.), 780 F.2d 585 (6th Cir.1986) ], district court held that because proof of claim was based on a statutory tax penalty, the government had no obligation under the rules to provide additional documentation in support of its proof of claim); Vines v. I.R.S. (In re Vines), 200 B.R. 940, 949 (M.D.Fla.1996) (IRS was not required to attach any documentation to its proof of claim because the claim and lien were based on federal statutes, not a writing, citing [In re] Jenny Lynn Mining Co. [780 F.2d 585 (6th Cir.1986) ] ), In re Alvstad, 223 B.R. 733, 745 (Bankr.D.N.D.1998) ("[C]laim [of IRS] does not fall within the compass of the documentation requirement of Rule 3001(c), as its basis lies in statute."); Bozich v. I.R.S. (In re Bozich), 212 B.R. 354, 360 (Bankr.D.Ariz.1997) ("Courts across the country have held that tax claims are based on statute, not on a writing, and that, therefore, such claims do not need to be supported by the documentation required by Rule 3001(c)."); In re Shabazz, 206 B.R. 116, 124 (Bankr.E.D.Va.1996) (court rejected argument that IRS was required to attach a certificate of assessment to proof of claim, noting that Rule 3001(c) only applies where claim is based on a writing); Fuller v. U.S. (In re Fuller), 204 B.R. 894, 898 (Bankr.W.D.Pa.1997) (court observed that although in the case before it the IRS had provided detailed supporting documentation, other courts had concluded that such documentation was unnecessary); In re Catron, 198 B.R. 905, 907 (Bankr.M.D.N.C.1996) (court concluded that IRS's proof of claim complied with Rule 3001 because IRS claim was based on statute rather than writing, no security interest arising out of an agreement was claimed, and IRS had attached to its proof of claim an itemization of the amounts and types of taxes due); In re Hollars, 198 B.R. 270, 272 (Bankr.S.D.Ohio 1996) (The supporting documentation requirement of Rule 3001(c) is not applicable because "the claim of the IRS is not founded upon a writing, but rather is based upon the United States Constitution and federal legislation which grants the federal government the power to lay and collect taxes on income."); In re White, 168 B.R. 825, 834 (Bankr.D.Conn.1994) (even though statutory lien asserted, it was not necessary for IRS to attach relevant sections of the Internal Revenue Code or any other documentation to its proof of claim, citing Jenny Lynn Mining Co. ).

In re Shaver, 247 B.R. 436, 438-39 (Bankr. E.D. Tenn. 1999).

III.

Included among the Morris Creditors' arguments is extensive argument regarding the burden of production and burden of persuasion with respect to objections to federal tax claims in bankruptcy.

One case, cited by the Morris Creditors with approval, describes the shifting burdens as follows:

A proof of claim executed and filed in accordance with the Federal Rules of Bankruptcy Procedure constitutes

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