Pansier v. US, 97-C-647
| Citation | 225 BR 657 |
| Decision Date | 16 October 1998 |
| Docket Number | Adversary No. 90-0173.,No. 97-C-647,Bankruptcy No. 90-00906-JES,97-C-647 |
| Parties | Gary Lee PANSIER, Plaintiff, v. UNITED STATES of America, Defendant. UNITED STATES of America, Appellant, v. Gary Lee PANSIER, Appellee. |
| Court | U.S. District Court — Eastern District of Wisconsin |
COPYRIGHT MATERIAL OMITTED
Gary Pansier, Crivitz, WI, Pro se.
Mary E. Bielefeld, Thomas Schneider, U.S. Atty., Washington, DC, for Defendant.
DECISION
The United States appeals the April 24, 1997, decision and order of the bankruptcy court, in which Bankruptcy Court Chief Judge James E. Shapiro denied the government's summary judgment motion, granted Gary Pansier's motion for contempt, and ordered the government to return an amount of money to Pansier and pay compensatory damages. The issue on appeal is whether disability payments Pansier received after filing a bankruptcy petition and receiving a discharge are considered property to which a pre-petition Internal Revenue Service tax lien extended.
The IRS assessed unpaid income taxes against Pansier on January 23, 1989, and recorded a notice of federal tax lien on August 17, 1989, in the Wisconsin county where Pansier lived. The amount assessed for 1982 was approximately $16,000; the amount assessed for 1983 was about $48,000. The notice of lien was renewed December 6, 1994.
Pansier filed a Chapter 7 petition in bankruptcy on February 26, 1990, and received a discharge on May 30 of that year. The discharge order stated that all creditors whose debts were discharged "are enjoined from commencing, continuing or employing any action, process or act to collect, recover or offset any such debt as a personal liability of the debtor(s), or from property of the debtor(s) whether or not discharge of such debt is waived." (R. 9, Ex. D1).
While his bankruptcy proceedings were pending, Pansier initiated an adversary proceeding against the IRS seeking a determination of the dischargeability of his 1982 and 1983 federal tax obligations. On October 9, 1990, the bankruptcy court ordered Pansier's 1982 and 1983 federal income tax liability discharged. The bankruptcy judge noted, though, that "nothing in this order is determinative of the lien rights being claimed by the Internal Revenue Service against the plaintiff's pre-petition property." (R. 9, Ex. C at 2.)
Pansier had been a commercial airline pilot for Republic Airlines and its successor Northwest Airlines. Northwest provided a disability income benefit for Pansier under the its group accident and sickness insurance policy with AMEX Assurance Company, now known as GE Capital Assurance Company (I'll refer to the policy as the "AMEX policy"). (See Bank. R. 30, 41, Ex. 1.) The policy premiums were paid by the airline. Pansier became disabled in December 1987 due to general neuralgia in his shoulders and arms; he has been on long-term medical leave of absence continuously since then. Disability payments under the AMEX policy also began around the end of 1987.
The AMEX policy precluded Pansier from assigning his benefits and provided for continuation of payments until Pansier reached age sixty, which happened in February 1997. Pansier was required, though, to periodically give proof that he continued to be totally disabled. It is undisputed that at the time he filed his bankruptcy petition, Pansier was receiving the monthly disability payments pursuant to the AMEX policy. He listed the disability payments as income in the schedules regarding his petition.
In the summer of 1996 the IRS levied on Pansier's disability payments. As a result of the levy, the IRS received two payments from the insurer totaling $5,328.66. The IRS applied $3,109.80 of the funds toward tax liabilities for years not discharged in Pansier's bankruptcy. The balance of $2,218.86, however, was applied by the IRS to the 1983 tax year.
On September 30, 1996, and October 30, 1996, Pansier filed in the bankruptcy court motions for injunctive relief against the IRS and for an order holding the IRS in contempt. He claimed that the IRS levy violated the bankruptcy court's prohibition of collection of discharged debts and sought an order requiring the IRS to cease the levies. The IRS responded with a motion for summary judgment, claiming that at the time he filed his bankruptcy petition, Pansier held a vested pre-petition right to receive the payments, and arguing that the IRS should be permitted to keep the levied proceeds applied to the 1983 tax year. Chief Judge Shapiro agreed with Pansier. He ordered the $2,218.86 returned to Pansier2 and further ordered the IRS to pay compensatory damages in the amount of Pansier's travel costs for attending hearings on the matter, which totaled $111.60.
As stated above, the government appealed and the issue before me is whether the tax lien arising from Pansier's 1983 tax liability attached to the post-petition disability payments.
In a bankruptcy appeal, findings of fact are reviewed under a "clearly erroneous" standard, Fed.R.Bank.P. 7052, 8013, while conclusions of law are reviewed de novo, In re Ionosphere Clubs, Inc., 922 F.2d 984, 988 (2d Cir.1990); see In re Boomgarden, 780 F.2d 657, 660 (7th Cir.1985). The issue on appeal is one of law, thus my review will be de novo.
Title 26 U.S.C. § 6321 creates a federal tax lien when a person liable to pay any tax neglects or refuses to pay such tax after demand. The section 6321 lien arises in the amount of unpaid tax, interest, and penalties, and attaches to "all property and rights to property, whether real or personal," belonging to the taxpayer. Id. This language United States v. National Bank of Commerce, 472 U.S. 713, 719-20, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985) (quoting Glass City Bank v. United States, 326 U.S. 265, 267, 66 S.Ct. 108, 90 L.Ed. 56 (1945)).
The lien imposed by section 6321 arises at the time assessment is made and continues until the liability is satisfied or becomes unenforceable by reason of lapse of time. 26 U.S.C. § 6322; National Bank, 472 U.S. at 719, 105 S.Ct. 2919. The lien attaches to the taxpayer's property and rights to property as of the moment of assessment3 and, except as described below, attaches to any property acquired subsequently. Glass City, 326 U.S. at 267, 268, 66 S.Ct. 108; Tillery v. United States (In re Tillery), 204 B.R. 575, 576 (Bank.E.D.Okla.1996). The lien does not attach to property or a right to property acquired by a debtor after a petition in bankruptcy has been filed and the underlying tax liability is discharged against the debtor personally. United States v. Sanabria, 424 F.2d 1121 (7th Cir.1970); Leavell v. United States (In re Leavell), 124 B.R. 535, 540 (Bankr.S.D.Ill.1991). But IRS liens pass through bankruptcy unaffected as to property or rights to property attached prior to the petition's filing. Dewsnup v. Timm, 502 U.S. 410, 417, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992); Isom v. United States (In re Isom), 901 F.2d 744 (9th Cir.1990). In other words, while tax liens securing dischargeable debts do not attach to property acquired post-petition, bankruptcy does not change their effectiveness regarding property interests a debtor held pre-petition.
It is well settled that state law controls the threshold determination of whether rights and interests in property exist. National Bank, 472 U.S. at 722, 105 S.Ct. 2919; United States v. Librizzi, 108 F.3d 136, 137 (7th Cir.1997). Section 6321 "`creates no property rights but merely attaches consequences, federally defined, to rights created under state law.'" National Bank, 472 U.S. at 722, 105 S.Ct. 2919 (quoting United States v. Bess, 357 U.S. 51, 55, 78 S.Ct. 1054, 2 L.Ed.2d 1135 (1958)). Once, though, it has been determined that state law creates a sufficient interest of the taxpayer to satisfy the requirements of section 6321, state law becomes inoperative, and federal law determines the consequences. National Bank, 472 U.S. at 722, 105 S.Ct. 2919 (quoting Bess, 357 U.S. at 56-57, 78 S.Ct. 1054); Hoornstra v. United States, 969 F.2d 530, 532 (7th Cir.1992).
The bankruptcy court, relying primarily on Leighton v. Leighton, 81 Wis.2d 620, 261 N.W.2d 457 (1978), found that under Wisconsin law the levied disability payments were not "property" prior to their actual payment, which occurred post-petition. In Leighton, the Supreme Court of Wisconsin considered how retirement plans and veterans' disability benefits should be treated in divorce cases. The court found that both vested and unvested interests in a pension plan may be considered in the division of property because an "employee's interest in a pension plan, even one that is noncontributory on his part, is not a mere gratuity or expectancy, but an enforceable contract right." Id. at 635-36, 261 N.W.2d 457. The court sharply distinguished, however, between retirement plan interests and veterans' disability benefits received from the federal government. According to the state high court, a disability pension is more like compensation for impairment of one's body rather than an asset acquired or accumulated through the marital relationship. "The disability allowance is a federally-provided replacement for earning capacity lost by reason of injuries sustained while in military service." Id. at 636, 261 N.W.2d 457. The Leighton court analogized to disability benefits payable under the Social Security Act, which it had previously treated as income rather than an asset for divorce purposes:
We similarly view the disability benefits in...
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