Mukamal v. Citibank N.A. (In re Kipnis)

• Decision Date: 31 August 2016
• Docket Number: CASE NO. 14-11370-RAM,ADV. NO. 16-01044-RAM, ADV. NO. 16-01045-RAM
• Citation: 555 B.R. 877
• Parties: In re Donald Jerome Kipnis, Debtor. Barry E. Mukamal, as Chapter 7 Trustee, Plaintiff, v. Citibank N.A. et al, Defendants. Barry E. Mukamal, as Chapter 7 Trustee, Plaintiff, v. Donald Jerome Kipnis, and Analia Kipnis, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Florida

555 B.R. 877

In re Donald Jerome Kipnis, Debtor.

Barry E. Mukamal, as Chapter 7 Trustee, Plaintiff

v.Citibank N.A. et al, Defendants.

Barry E. Mukamal, as Chapter 7 Trustee, Plaintiff

v.Donald Jerome Kipnis, and Analia Kipnis, Defendants.

CASE NO. 14-11370-RAM

ADV. NO. 16-01044-RAM

ADV. NO. 16-01045-RAM

United States Bankruptcy Court, S.D. Florida.

Signed August 31, 2016

Corali Lopez-Castro, Esq., Vincent F. Alexander, Esq., 2525 Ponce de Leon 9 F, Coral Gables, FL 33134, (counsel for the Plaintiff)

Peter D. Russin, Esq., 200 S Biscayne Blvd. #3200, Miami, FL 33131, (counsel for the Defendant, Analia Kipnis)

ORDER DENYING MOTIONS TO DISMISS

Robert A. Mark

, Judge, United States Bankruptcy Court

Trustees typically use 11 U.S.C. § 544(b)

to “step into the shoes” of unsecured creditors in order to apply state statutes of limitations in avoidance actions. While this has been the general use, the language in § 544(b) is broad, and some trustees have brought avoidance actions that would have been time-barred under state law by relying on the Internal Revenue Service (“IRS”) as the triggering creditor. Under federal law, the IRS may pursue collection of taxes for ten years from the assessment date and its collection remedies include the right to avoid transfers under state law without being bound by state statutes of limitations.

The chapter 7 trustee in this case is seeking to do just that, to step into the shoes of the IRS as an unsecured creditor in order to avoid transfers that occurred in 2005. Unless the trustee can pursue all avoidance remedies available to the IRS, avoidance of the transfers would be time-barred under applicable Florida law. The Court, for the reasons more fully explained below, finds that the language of § 544(b)

is clear and allows trustees to step into the shoes of the IRS and to pursue avoidance actions that the IRS, outside of bankruptcy, could have timely pursued on the petition date.

Factual and Procedural History

Prior to the filing of the bankruptcy case, the Debtor was in the construction business and, together with his partner Lawrence Kibler, owned Miller & Solomon General Contractors, Inc. (“M&S”). Both complaints in the above-styled adversary proceedings allege that in December of 2000, the Debtor and Mr. Kibler, in order to “increase the bonding capacity of M&S,” entered into a custom adjustable rate debt structure (the “CARDS Transaction”). The Debtor then claimed the losses generated from the CARDS transaction in his 2000 and 2001 personal income tax returns.

In June 13, 2003, the IRS notified the Debtor that his 2000 and 2001 taxes were under investigation, which ultimately resulted in a March 22, 2005 examination report that determined the Debtor's deficiency for tax year 2000 to be $701,113 and his deficiency for tax year 2001 to be $346,495. The Debtors filed an appeal of the examination report in the United States Tax Court. On November 1, 2012, the Tax Court ruled in favor of the IRS, disallowing the losses claimed by the Debtor, and affirming the tax deficiencies in the examination report.

The Debtor filed a chapter 11 bankruptcy petition on January 21, 2014 (the “Petition Date”) and converted his case to chapter 7 on February 6, 2014. Barry Mukamal was appointed chapter 7 trustee (the “Trustee”). The IRS has filed a proof of claim totaling $1,911,787.23 [Claim 1-2 in the Main Case]. The claim asserts that $1,886,158.02 is secured and $25,629.51 is unsecured. The claim also asserts that $25,253.45 is a priority claim under 11 U.S.C. § 507(a)(8)

.

On January 15, 2016 the Trustee filed two adversary complaints. Both complaints allege, in general, that after the 2005 examination report the Debtor “engaged in various asset conversion strategies” in order to evade creditors. The complaint in Adv. No. 16-1044 seeks to set aside the Debtor's transfer, in August 5, 2005, of a bank account titled solely in his name, to himself and Defendant Analia Kipnis as tenants by the entireties (the “Bank Account Transfer”). The complaint in Adv. No. 16-1045 seeks to avoid the “attempted”¹ transfer of real property located at 2333 Brickell Avenue, Terrace C, in Miami, Florida (the “Property”) by the Debtor to Defendant Analia Kipnis (the “Condominium Transfer”). The attempted transfer of the Property was implemented by execution of a quit-claim deed dated August 5, 2015, and pursuant to a Premarital Settlement Agreement entered into by the parties earlier on July 5, 2005.

On June 17, 2016 Defendant Analia Kipnis filed motions to dismiss in both adversary proceedings [DE #18 in Adv. No. 16-01045 and DE #36 in Adv. No. 16-01044] (the “Motions to Dismiss”).² The Defendant argues that both complaints are barred by applicable statutes of limitation and that § 544(b)

does not give the Trustee the right to apply the ten-year IRS collection period. The Trustee filed a response to the Motions to Dismiss [DE #22 in Adv. No. 16-01045 and DE #41 in Adversary No. 16-01044]. The Trustee argues that because the IRS is an unsecured creditor in this case, he can step into its shoes under § 544(b) and not be bound by state statutes of limitation. The Defendant filed a reply in support of her Motions to Dismiss [DE #26 in Adv. No. 16-01045 and DE #46 in Adv. No. 16-01044]. The Court held a hearing on the Motions to Dismiss on August 2, 2016. Although the pending motions are in separate adversary proceedings, the relevant background facts and the legal issues in both Motions to Dismiss are the same.

The Court has reviewed the complaints and considered the legal arguments and the applicable law as presented in the Motions to Dismiss, the response, the reply, and at the August 2nd hearing. For the reasons that follow, the Motions to Dismiss will be denied.

Discussion

In his Motions to Dismiss, the Debtor acknowledges that the facts alleged in the complaints must be assumed as true [DE #18 in Adv. No 16-1045, p. 2, n. 1]. Therefore the Court assumes that the Bank Account Transfer and the Condominium Transfer are avoidable under § 726.105

and § 726.106 of the Florida Statutes, unless the claims are barred by the four year statute of limitations in Fla. Stat. § 726.110(1) -(2). If the statute of limitations applies, the avoidance claims must be dismissed. If not, the claims survive. To decide this issue, the Court must determine whether the Florida statute of limitations is inapplicable because the Trustee is purporting to step into the shoes of the IRS, which is not subject to state statutes of limitations.

We start with a review of the strong-arm provision in the Bankruptcy Code that the Trustee relies on and the applicable sections of the Internal Revenue Code (“IRC”) which render state statutes of limitation inapplicable to IRS avoidance actions brought within ten (10) years of a tax assessment. Section 544(b) of the Bankruptcy Code

states that:

the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502(e) of this title.

11 U.S.C. § 544(b)

(emphasis added). For purposes of the Motions to Dismiss, the Defendant concedes that the IRS is a creditor with an allowable unsecured claim within the meaning of § 544(b).

Section 6502(a)(1) of the IRC

provides as follows:

[w]here the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun—(1) within 10 years after the assessment of the tax....

26 U.S.C. § 6502(a)(1)

.

While § 6502(a)(1)

establishes the ten year deadline for the IRS to collect taxes, another IRC section, 26 U.S.C. § 6901(a)(1)(A), provides the authority for the IRS to pursue avoidance actions against transferees of the taxpayers' property. Section 6901 of the IRC is titled “Transferred Assets” and § 6901(a)(1)(A)(i) provides the specific authority for avoiding transfers by a taxpayer who has income tax liability:

(a) METHOD OF COLLECTION The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred:

(1) INCOME, ESTATE, AND GIFT TAXES

(A) The liability, at law or in equity, of a transferee of property—

(i) of a taxpayer in the case of a tax imposed by subtitle A (relating to income taxes)

26 U.S.C. § 6901(a)(1)(A)(i)

.

Although § 6901(a)(1)(A)

is silent as to what “law” or “equity” means, courts interpret the statute as merely establishing a procedure for the collection of taxes, not as a statute that sets the standard for establishing transferee liability. To establish transferee liability the IRS must rely on applicable state law. Frank Sawyer Trust of May 1992 v. Comm'r , 712 F.3d 597, 602–603 (1st Cir.2013)

(“[T]he federal statute authorizing the collection of taxes from transferees, 26 U.S.C. § 6901(a)(1), provides only a procedural remedy against an alleged transferee; substantive state law controls whether a transferee is liable for a transferor's tax liabilities.”)

Although the IRS must prove that a transfer is avoidable under the applicable state law, the limitations period for filing the avoidance action is governed by federal law. As described earlier, 26 U.S.C. § 6502(a)(1)

provides the IRS with authority to collect taxes for ten year after the assessment. In turn, § 6901(a) allows collection from transferees of the taxpayer “subject to the same limitations” applicable to collection from the taxpayer. Therefore, under federal law, the IRS has ten years from the date of assessment to pursue an avoidance action. Ebner v. Kaiser (In re Kaiser) 525 B.R. 697, 710 (Bankr.N.D.Ill.2014) (“Kaiser ”).³ At the ...