United States v. Verlinsky
Decision Date | 31 May 1972 |
Docket Number | No. 71-2802 Summary Calendar.,71-2802 Summary Calendar. |
Citation | 459 F.2d 1085 |
Parties | UNITED STATES of America, Plaintiff-Appellee, v. Isadore VERLINSKY, a/k/a Isadore Verlin, and Murray Verlinsky, a/k/a Murray Verlin, Defendants-Appellants. |
Court | U.S. Court of Appeals — Fifth Circuit |
George W. Ericksen, Macfarlane, Ferguson, Allison & Kelly, Tampa, Fla., for defendants-appellants.
John L. Briggs, U. S. Atty., Bernard H. Dempsey, Jr., Tampa, Fla., Francis Dicello, Atty., Tax Div., U. S. Dept. of Justice, Washington, D. C., Scott P. Crampton, Gilbert E. Andrews, Asst. Attys. Gen., Fred B. Ugast, Acting Asst. Atty. Gen., Crombie J. D. Garrett, Gordon S. Gilman, Attys., Tax Div., Dept. of Justice, Washington, D. C., for plaintiff-appellee.
Before THORNBERRY, MORGAN and CLARK, Circuit Judges.
The alloyed tax-bankruptcy issue in this appeal requires that we construe a very narrow, highly technical, seldom invoked, slightly ambiguous—but here hotly contested—section of the Internal Revenue Code. Our interpretation constricts the reach of the aphorism of olde that "the King's debtor dying, the King shall first be paid,"1 by holding that before the sovereign claimed its privilege the statute of limitations had run. Indeed, the parties before us are agreed that but for the possible application of the tolling provisions of the Code section at issue in this case, the sovereign has no right at all to receive payment from these debtor-taxpayers of an amount admittedly owed.
The facts are not in dispute. We treat with them only briefly for most are of no aid to our disposition of the case.2 The United States brought an action in the court below to reduce to judgment four separate tax assessments previously made against the taxpayers (Isadore Verlinsky a/k/a Isadore Verlin, and Murray Verlinsky a/k/a Murray Verlin). The taxpayers admitted that the assessments had been made and were true and correct with respect to dates and amounts assessed; that the alleged unpaid balance, plus interest, was due and owing; but contended that it was all barred by the six-year statute of limitations. 26 U.S.C.A. §§ 6501, 6502. The government replied that the addition of four extensions agreed to by the taxpayers, 26 U.S.C.A. § 6502(a) (2), along with a period during which the taxpayers' assets had been under the control of a bankruptcy court, 26 U.S.C. A. § 6503(b), together served to prolong the otherwise expired statute and brought the filing of the collection suit within the six-year limit. On rebuttal, the taxpayers further sharpened the controversy between the parties by conceding the four extensions, and thereby circumscribed the single issue now before this court to this: within the meaning of § 6503(b),3 for what portion of the period during which a bankruptcy proceeding continues can it be said that assets of a taxpayer, who is eventually discharged as a bankrupt, are under the control or custody of the bankruptcy court.
From the filing of the petition in bankruptcy, to the discharging of the trustee and closing of the estate, approximately two and one-half years elapsed. Due solely to the fortuitous timing of those proceedings, as they related to the running of the statute, the parties are in complete agreement that: if § 6503(b) should operate to toll the statute only until the discharge of the bankrupt, then it had run on the date suit was filed; if, however, the statute should remain tolled by § 6503(b) as late as the final closing of the estate, then none of the assessments were barred and the entire 23,125.85 dollars sought was payable. The district judge concluded that the latter interpretation was correct, and awarded summary judgment for the United States. We reverse.
Other than the Malkin decision, supra n. 2, which dealt with precisely the same question and facts that are now before us, there have been few cases4 dealing with this section of the Code, and though both parties attempt to rely on them, we find none to be helpful. Doubtless though, Chief Judge Carter foresaw our question when in his Mc-Cann decision he observed that "the section leaves much to be desired in definiteness and clarity, and various situations may be spelled out in which real problems would arise." This is what we have here.
Approaching, then, what is a novel question for this circuit, we are convinced that we should be first guided by the purpose Congress intended for § 6503(b), as that purpose is expressed in the legislative history. "The statute generally is suspended where assets are in the control or custody of a court because during this time they are not subject to administration collection procedures."5 Quite obviously, the reason for the rule is that it would be unfair to allow the statute to run against the government's right to enforce a tax lien at a time when, even if the government did bring suit, it couldn't collect because it couldn't "get at" the taxpayer's assets. Other suspensions provided for in § 6503 are similarly designed. For example, the statute is tolled during any period the Secretary is prohibited from collecting by levy or proceeding in court, § 6503(a) (1), and likewise during any period that the taxpayer leaves the country for more than six months. § 6503(c).
Directly put, we must decide at what point during the bankruptcy proceedings did assets which once belonged to the taxpayer cease to be his assets; for at that moment, all assets then belonging to the taxpayer would be subject to collection by the government, and the government would again be charged with the responsibility of pursuing that collection. We hold that that moment occurred when the taxpayer was discharged as a bankrupt. For upon discharge, the taxpayer gave up all interest in his erstwhile assets (title to which had actually passed to the trustee the day the petition was filed, 11 U.S.C.A. § 110(a)), and did so in exchange for release from all save non-dischargeable debts. 11 U.S.C.A. § 1(15). That day, the taxpayer became a new economic person, entitled to retain any non-bankruptcy assets he then held and such other assets as he thereafter could accumulate, without interference from the bankruptcy court.6 As importantly, no later than that day, the taxpayers here were subject to assessment, suit, levy and execution for any debts not discharged, which included the tax assessments sought to be enforced by this action. Insofar as § 6503(b) relates to a bankruptcy proceeding, we refuse to interpret it in a fashion that would delay the hour when a man could finally divorce himself from his former holdings and debts. To do so would undermine the very purpose and policies of the Bankruptcy Act itself and jeopardize this circuit's commitment to letting the bankrupt "start afresh." Menier v. United States, 5th Cir., 405 F.2d 245, 249 (1968). We conclude that if the King wished to be paid, first or otherwise, then beginning on the day of discharge he had the obligation to bestir himself; for that is the day, economically speaking, the King's debtor died.
Though this settles the issue, we feel compelled to make specific wherein we disagree with the Malkin decision, a carefully considered opinion which the court below endorsed. The Malkin court interpreted § 6503(b) in light of another section of the code, 26 U.S.C.A. § 6873(a).7
The Judge reasoned that:
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