Perry v. United States

• Decision Date: 30 October 2013
• Docket Number: No. 3:12–CV–913–WKW.,3:12–CV–913–WKW.
• Citation: 500 B.R. 796
• Parties: Daryl Zain PERRY, Appellant, v. The UNITED STATES of America, Department of Treasury, Internal Revenue Service, Appellee.
• Court: U.S. District Court — Middle District of Alabama

500 B.R. 796

Daryl Zain PERRY, Appellant,

v.The UNITED STATES of America, Department of Treasury, Internal Revenue Service, Appellee.

No. 3:12–CV–913–WKW.

United States District Court,

M.D. Alabama,

Eastern Division.

Oct. 30, 2013.

Charles M. Ingrum, Jr., Ingrum, Rice, & Parr, LLC, Opelika, AL, for Appellant.

Deanne M. Calhoon, Robert Randolph Neeley, United States Attorney's Office, Montgomery, AL, Steven C. Woodliff, Washington, DC, for Appellee.

MEMORANDUM OPINION AND ORDER

W. KEITH WATKINS, Chief Judge.

I. INTRODUCTION

Appellant Daryl Zain Perry is a debtor in a Chapter 7 bankruptcy case pending in the United States Bankruptcy Court for the Middle District of Alabama. In October 2012, Mr. Perry initiated an adversary proceeding against the Internal Revenue Service to determine the dischargeability of debts he allegedly owed for federal income taxes for eleven tax years.¹ After the parties resolved Mr. Perry's tax debts for seven of those tax years in Mr. Perry's favor, the bankruptcy court denied Mr. Perry's summary judgment motion and granted the Internal Revenue Service's cross-motion on the basis that 11 U.S.C. § 523(a)(1)(B)(i) excepts from discharge Mr. Perry's federal income tax debts for the tax years 1997, 1999, 2001, and 2003.

This matter comes before the court on Mr. Perry's appeal from the judgment of the bankruptcy court in the adversary proceeding. For the reasons to follow, the judgment of the bankruptcy court is due to be affirmed.

II. JURISDICTION AND VENUE

This is a core proceeding over which appellate jurisdiction is exercised. See28 U.S.C. § 158(a). Venue is proper because an appeal “shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.” Id.

III. STANDARD OF REVIEW

The United States District Court functions as an appellate court when reviewing decisions of the United States Bankruptcy Court. Varsity Carpet Servs., Inc. v. Richardson ( In re Colortex Indus., Inc.), 19 F.3d 1371, 1374 (11th Cir.1994). It “independently examines the factual and legal findings of the bankruptcy court using the same standards as did the [bankruptcy] court.” Martinez v. Hutton (In re Harwell), 628 F.3d 1312, 1316 (11th Cir.2010).

Pursuant to Federal Rule of Civil Procedure 56, incorporated into bankruptcyadversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “Factual findings by the bankruptcy court are reviewed under the limited and deferential clearly erroneous standard.” Club Assocs. v. Consol. Capital Realty Investors (In re Club Assocs.), 951 F.2d 1223, 1228 (11th Cir.1992); see alsoFed. R. Bankr.P. 8013. Legal conclusions are reviewed de novo. Claremont McKenna Coll. v. Asbestos Settlement Trust ( In re Celotex Corp.), 613 F.3d 1318, 1322 (11th Cir.2010). The court may affirm the bankruptcy court's judgment “on any ground that appears in the record, whether or not that ground was relied upon or even considered by the court below.” Thomas v. Cooper Lighting, Inc., 506 F.3d 1361, 1364 (11th Cir.2007).

IV. BACKGROUND

The debtor/appellant is Mr. Perry. The creditor/appellee is the Internal Revenue Service. On December 20, 2011, Mr. Perry filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Middle District of Alabama. On October 18, 2012, he commenced an adversary proceeding against the Internal Revenue Service seeking a ruling that his alleged debts for the tax years 1997 to 2007 were dischargeable pursuant to 11 U.S.C. § 523. The Internal Revenue Service filed an answer, asserting that Mr. Perry's federal income tax debts for the tax years 1997, 1999, 2001, and 2003 were nondischargeable, but conceding that Mr. Perry did not owe a debt for the remaining seven tax years. Hence, only Mr. Perry's tax debts for the tax years 1997, 1999, 2001, and 2003 are at issue.

The bankruptcy court decided the adversary proceeding on cross-motions for summary judgment and undisputed facts. Those facts are as follows. ² Mr. Perry did not file his federal income tax returns (Forms 1040) for the tax years 1997, 1999, 2001, and 2003 on the dates they were due. Pursuant to the Internal Revenue Service's notice-of-deficiency procedures, see26 U.S.C. § 6212, the Internal Revenue Service prepared substitute returns for the tax years 1997, 1999, and 2001 on February 9, 2004. For the tax year 2003, the Internal Revenue Service prepared a substitute return on May 21, 2007. The Internal Revenue Service prepares substitute returns pursuant to 26 U.S.C. § 6020. (Dinita C. White's Decl. 2 (Ex. to Doc. # 2–9).)

Mr. Perry did not assist the Internal Revenue Service with the preparation of the substitute returns. As reported on the Account Transcripts,³ the substitute returns assessed deficiencies against Mr. Perry based upon the following taxable income: (1) $39,561 for 1997; (2) $50,014 for 1999; (3) $52,149 for 2001; and (4) $33,249 for 2003. On February 12, 2005, the Internal Revenue Service initiated efforts to collect the taxes assessed through the substitute returns. The Internal Revenue Service placed liens on Mr. Perry's assets on January 13, 2006, due to the unpaid assessed 1997, 1999, and 2001 tax liabilities, and it placed a lien on Mr. Perry's assets on August 1, 2008, due to the unpaid assessed 2003 tax liability. Moreover, the Internal Revenue Service sent notice to Mr. Perry prior to assessing liabilities for the four tax years at issue and again prior to placing liens on Mr. Perry's property. ( See IRS's Mot. Summ. J. 5 (Doc. # 2–9); see also White's Decl. 1–3, and IRS's Account Transcripts (Exs. to IRS's Mot. Summ. J.).)

Between October 19, 2007, and January 3, 2008, Mr. Perry belatedly filed Form 1040 (individual income tax) returns for each of the four tax years at issue. His returns reported taxable income in amounts substantially less than that reported on the Internal Revenue Services's substitute returns. ( See Perry's Forms 1040 (Doc. # 2–7).) As a result, the Internal Revenue Service reduced Mr. Perry's tax liabilities for the tax years 1997, 1999, 2001, and 2003. ( See generally Doc. # 6, at 16 (citing Account Transcripts); see also Doc. # 6, at 20 (pointing out that “the IRS adjusted [Mr. Perry's] taxes based on the returns [he] filed”).)

In sum, Mr. Perry failed to file his federal income tax returns for the tax years 1997, 1999, 2001, and 2003 until after the Internal Revenue Service sent notices of deficiency and made its assessments of Mr. Perry's tax liabilities. With respect to tax years 1997, 1999, and 2001, Mr. Perry further delayed filing his federal income taxes until after the Internal Revenue Service had placed liens on his assets. To put the time line in perspective, Mr. Perry's Forms 1040 postdate the original filing deadlines by approximately four to ten years and postdate the substitute returns by four months to three-and-a-half years. The following chart summarizes the relevant dates.

+---------------------------------------------------------------------------+
                ¦               ¦Dates of IRS ¦Dates IRS    ¦               ¦               ¦
                +---------------+-------------+-------------+---------------+---------------¦
                ¦               ¦Assessments  ¦Began        ¦Dates IRS      ¦Dates of       ¦
                +---------------+-------------+-------------+---------------+---------------¦
                ¦Tax Year       ¦(Substitute  ¦Collection   ¦Placed Liens on¦Perry's Form   ¦
                +---------------+-------------+-------------+---------------+---------------¦
                ¦Ending Dec. 31 ¦Returns)     ¦Efforts      ¦Perry's Assets ¦1040 Filings   ¦
                +---------------+-------------+-------------+---------------+---------------¦
                ¦1997           ¦Feb. 9, 2004 ¦Feb. 12, 2005¦Jan. 13, 2006  ¦Oct. 15, 2007  ¦
                +---------------+-------------+-------------+---------------+---------------¦
                ¦1999           ¦Feb. 9, 2004 ¦Feb. 12, 2005¦Jan. 13, 2006  ¦Oct. 18, 2007  ¦
                +---------------+-------------+-------------+---------------+---------------¦
                ¦2001           ¦Feb. 9, 2004 ¦Feb. 12, 2005¦Jan. 13, 2006  ¦Oct. 20, 2007  ¦
                +---------------+-------------+-------------+---------------+---------------¦
                ¦2003           ¦May 21, 2007 ¦Feb. 12, 2005¦Aug. 1, 2008   ¦Oct. 27, 2007  ¦
                +---------------------------------------------------------------------------+
                

Based on the undisputed facts, the bankruptcy court analyzed whether Mr. Perry's debts for the tax years 1997, 1999, 2001, and 2003 were nondischargeable pursuant to 11 U.S.C. § 523(a)(1)(B)(i), which excepts from discharge tax debts for which a tax return “was not filed or given.” (Bankr.Mem.Op.(Doc. # 2–10).) Examining § 523(a)'s hanging paragraph, which defines the term “return” for discharge purposes,⁴ the bankruptcy court observed that the Fifth Circuit and other courts “have unanimously concluded that [the hanging paragraph] excludes a late-filed return,” unless it satisfies the “safe harbor” provision for late returns. (Bankr.Mem. Op. 5 (citing, among other cases, McCoy v. Miss. State Tax Comm'n, 666 F.3d 924 (5th Cir.), cert. denied,––– U.S. ––––, 133 S.Ct. 192, 184 L.Ed.2d 38 (2012)).) Applying McCoy and implicitly finding Mr. Perry did not file his Forms 1040 pursuant to the “safe harbor” provision, the bankruptcy court concluded that Mr. Perry's late-filed returns were not “return[s]” for discharge purposes under § 523(a)(1)(B)(i); thus, it held that § 523(a)(1)(B)(i) excepted Mr. Perry's tax debts from discharge. Accordingly, the bankruptcy court granted the Internal Revenue Service's summary judgment motion and denied Mr. Perry's summary judgment motion. This appeal followed.

V. DISCUSSION

To place the bankruptcy court's ruling into proper context, the court begins with some discussion of the current and historical definition of a § 523(a) “return” and of the holding in McCoy (Part A)....