Olson, In re, 90-2248

• Decision Date: 25 March 1991
• Docket Number: No. 90-2248,90-2248
• Parties: -851, 91-1 USTC P 50,163, Bankr. L. Rep. P 73,881 In re Stanley N. OLSON and Margaret M. Olson, Debtors. Edward F. SAMORE, Trustee, Appellee, v. Stanley N. OLSON, Margaret M. Olson, Winther, Stave & Company, and Merlyn Winther, Appellants, and Internal Revenue Service and Iowa Department of Revenue and Finance, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 6

930 F.2d 6

67 A.F.T.R.2d 91-851, 91-1 USTC P 50,163,

Bankr. L. Rep. P 73,881

In re Stanley N. OLSON and Margaret M. Olson, Debtors.

Edward F. SAMORE, Trustee, Appellee, v. Stanley N. OLSON, Margaret M. Olson, Winther, Stave &

Company, and Merlyn Winther, Appellants,

and

Internal Revenue Service and Iowa Department of Revenue and

Finance, Appellees.

No. 90-2248.

United States Court of Appeals,

Eighth Circuit.

Submitted Feb. 13, 1991.

Decided Feb. 25, 1991.

Publication Ordered March 25, 1991.

Christopher A. Bjornstad, Cornwall & Avery, Spencer, Iowa, for appellants.

Shirley D. Peterson, Asst. Atty. Gen., for Federal appellee.

Gary R. Allen, Gary D. Gray, Patricia M. Bowman, Washington, D.C., for Tax Div. Dept. of Justice.

Charles W. Larson, U.S. Atty., for appellee of counsel.

George F. Madsen, Marks & Madsen, Sioux City, Iowa, for appellee-Samore.

Thomas J. Miller, Atty. Gen. of Iowa, Gerald A. Kuehn, Asst. Atty. Gen., Harry M. Griger, Sp. Asst. Atty. Gen., for appellee Iowa Dept. of Revenue & Finance.

James I. Shepard, Fresno, Cal., amicus curiae.

Before FAGG, Circuit Judge, HEANEY, Senior Circuit Judge, and BEAM, Circuit Judge.

PER CURIAM.

Stanley N. and Margaret M. Olson, debtors in a chapter 7 bankruptcy case, and their accountants, Winther, Stave & Company, appeal a judgment of the district court, ¹ affirming an order of the bankruptcy court, ² which held that property abandoned by the trustee during the pendency of a bankruptcy case is not a sale or exchange of assets which gives rise to a tax liability chargeable to the bankruptcy estate. We affirm.

Stanley and Margaret Olson (debtors) owned two tracts of land subject to the mortgage of First Interstate Bank. After the commencement of foreclosure proceedings on the property, debtors filed chapter 7 bankruptcy. During the pendency of the bankruptcy case, the chapter 7 trustee, Edward F. Samore, filed a notice of abandonment of the two tracts of land, and no objections to the abandonment were filed. The land was thereafter abandoned and the bank sold the land under foreclosure proceedings.

After the sale, debtors hired accountants Winther, Stave & Company to file federal and state income tax returns on behalf of the bankruptcy estate. The returns were filed in the name of the bankruptcy estate and reported a gain realized from the sale of debtors' two tracts of land as a liability of the estate. Debtors reported on the tax returns that the gain was realized by the bankruptcy estate upon the abandonment of the land by the trustee. The trustee did not authorize debtors to prepare and file the tax returns.

Based on the tax returns, the Internal Revenue Service filed a claim in the bankruptcy case against the estate for tax liability, interest and penalties of $34,401. Similarly, the Iowa Department of Revenue filed a claim against the estate for $10,120.72. The trustee initiated an adversary proceeding against the debtors, the IRS, and the Iowa Department of Revenue seeking a determination that the estate was not liable for the tax. The IRS withdrew its claim against the estate, and the Iowa Department of Revenue filed an answer stating that it no longer sought payment from the estate. The debtors, however, claimed that the estate was nevertheless liable for tax.

On the trustee's underlying complaint, the bankruptcy court held that abandonment of property by the trustee is not a sale or exchange of assets under either the tax code, I.R.C. Sec. 1398(f)(2) (1986), or under the bankruptcy code, 11 U.S.C. Sec. 346(g)(1)(B) (1978). Therefore, the trustee's abandonment is not a taxable event which triggers a tax liability of the estate. Samore v. Olson (In re Olson), 100 B.R. 458, 463 (Bankr.N.D.Ia.1989). Upon abandonment, property ceases to be property of the estate and title reverts to the debtor. Id. at 462. See Erickson v. United States (In re Bentley), 916 F.2d 431, 432 (8th Cir.1990). Therefore, sale of the land after it was abandoned by the trustee did not give rise to a tax liability of the bankruptcy estate. On appeal, the district court affirmed, holding that "abandonment of bankruptcy estate property by the trustee is not a sale or exchange which triggers tax liability chargeable to the estate." Samore v. Olson (In re Olson), 121 B.R. 346, 349 (N.D.Ia.1990).

We conclude that the judgment of the district court should be affirmed. First, we agree with the bankruptcy and district courts that abandonment of property of the estate is not a sale or exchange, and thus is not a taxable event which gives rise to a tax liability of the estate. No sale or exchange occurs when the trustee abandons property. Although the trustee is relieved from administering a valueless or unprofitable asset when that asset is abandoned, this...