Agin v. Daniels (In Re Daniels)
452 B.R. 335
| Bankr. D. Mass. | 2011Background
- Debtor William M. Daniels established and controlled the William M. Daniels Profit Sharing Plan as sole participant, trustee, administrator, and employer.
- Funds from the Profit Sharing Plan were directed to or used for related real estate ventures via the Realty Trust and BD Realty Trust, creating related-party transactions.
- IRS scrutiny over 2006 plan loan to the Debtor’s son labeled as a prohibited transaction, with subsequent corrective actions noted.
- In 2007 the Debtor transferred substantial funds from the Profit Sharing Plan to two IRAs, funded exclusively by rollovers, with no new contributions.
- Debtor initially scheduled the Profit Sharing Plan as exempt under 29 U.S.C. § 1056(d) but later sought exemption under 11 U.S.C. § 522(b)(4); IRAs were undisclosed in schedules and meetings.
- Trustee filed adversary proceeding seeking turnover and injunctive relief; Debtor moved for partial relief to reallocate to IRAs, which the Court denied; later, undisclosed IRAs were revealed during discovery and the Trustee moved for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether retirement funds are exempt under 11 U.S.C. § 522(b)(4). | Daniels lacks favorable determination or substantial compliance; funds not exempt. | Profit Sharing Plan had favorable determinations and substantial compliance; IRAs rolled from exempt funds. | Exemption denied; funds not exempt under § 522(b)(4) based on lack of favorable determination and non-compliance. |
| Whether the February 19, 2009 IRS letter constitutes a favorable determination under § 522(b)(4)(A). | Letter, along with MassMutual letters, supports favorable determination. | Letters pertain to a single year/transaction and do not constitute a plan-wide favorable determination. | Not a favorable determination under § 522(b)(4)(A). |
| Whether the Profit Sharing Plan was in substantial compliance with tax law under § 522(b)(4)(B). | Plan violated prohibited transactions; not in substantial compliance. | Some prohibited transactions occurred; attempts at compliance. | Not in substantial compliance; plan assets not exempt. |
| Whether the IRAs, funded by non-exempt Plan funds, are exempt. | IRAs exempt if rolled over from exempt funds. | Rollovers from non-exempt funds do not retain exemption. | IRAs not exempt. |
| Whether failure to disclose the IRAs bars exemption. | Omission immaterial; exemptions should still apply. | There is an absolute duty to disclose; concealment bars exemption. | Debtor barred from claiming exemptions; turnover of undisclosed assets. |
Key Cases Cited
- In re Wood, 291 B.R. 219 (1st Cir. BAP 2003) (prohibited transactions and fiduciary duties under § 4975 affect exemptions)
- In re Harris (Chase v. Harris), 385 B.R. 802 (1st Cir. BAP 2008) (disclosure duties and exemptions in bankruptcy context)
- Triangle Trading Co. v. Robroy Indus., Inc., 200 F.3d 1 (1st Cir. 1999) (summary judgment and evidence standards in First Circuit)