584 B.R. 824
Bankr. E.D. Tenn.2018Background
- Debtor, a former MLB player, filed Chapter 7 on Sept 18, 2017; he owed the IRS about $226,089 in prior income taxes and the IRS had recorded Notices of Federal Tax Lien.
- Debtor receives a continuing MLB disability pension (~$8,400/mo at filing) plus SSA benefits; the IRS issued an administrative levy on that pension in August 2016 (the “2016 Levy”), producing monthly payments to the IRS.
- The 2016 Levy reduced the payment to the IRS to $3,877/mo after allowances (leaving Debtor ~$4,523); certain deductions (guardian ad litem fees, estimated taxes) were accounted for but not paid.
- After Debtor’s bankruptcy filing, the MLB Pension Fund stopped payments pending resolution; the IRS sought relief from the automatic stay to continue the levy and to be permitted to retain amounts collected (including retroactive validation).
- Parties agreed no factual dispute existed; the court decided the matter on stipulated facts and briefs.
Issues
| Issue | Plaintiff's Argument (United States) | Defendant's Argument (Debtor) | Held |
|---|---|---|---|
| Whether the IRS is entitled to relief from the automatic stay to levy future pension payments | IRS: Yes; cause exists (lack of adequate protection) and the levy is valid against future pension payments | Debtor: IRS lacks right to levy payments made after bankruptcy filing absent issuance of a new levy; 2016 Levy is not a continuing levy on "salary or wages" | Held: IRS entitled to prospective stay relief to continue levying the pension (cause exists for lack of adequate protection) |
| Whether the 2016 Levy is a continuing levy reaching future pension payments | IRS: The levy attached to Debtor’s fixed right to future pension payments and therefore is continuing | Debtor: The levy is a one-time levy and cannot reach post-petition payments without a new levy; relies on definition of salary/wages | Held: 2016 Levy is a continuing levy; it validly attached to Debtor’s fixed right to future pension payments |
| Whether the IRS violated the stay and, if so, whether the court should annul the stay retroactively (nunc pro tunc) | IRS: Even if a stay violation occurred, court should retroactively annul/modify the stay because it would have granted relief prospectively and IRS would be prejudiced otherwise | Debtor: Payments made post-petition cannot be retained by IRS; retroactive relief improper because post-petition collections are protected by the stay | Held: Court grants retroactive stay relief/annulment — extraordinary relief justified because court would have granted stay relief prospectively and IRS would be prejudiced if funds were released to Debtor |
| Whether the MLB disability pension is exempt from levy | Debtor: Pension might be protected as wages/salary or otherwise exempt | IRS: Pension is not exempt under 26 U.S.C. § 6334(c) and may be levied | Held: Pension is not exempt from levy and is subject to the continuing levy |
Key Cases Cited
- Easley v. Pettibone Michigan Corp., 990 F.2d 905 (6th Cir. 1993) (bankruptcy courts may annul the automatic stay retroactively where equitable grounds exist)
- In re Elder-Beerman Stores Corp., 195 B.R. 1012 (Bankr. S.D. Ohio 1996) (discussing equitable annulment and factors for retroactive relief)
- Bowers v. United States, 861 F. Supp. 2d 921 (C.D. Ill. 2012) (one-time levy may seize a future stream of payments where taxpayer has fixed, unqualified right)
- In re Bushee, 319 B.R. 542 (Bankr. E.D. Tenn. 2004) (adequate protection inquiry is pragmatic and balanced)
- In re Shivshankar P'ship LLC, 517 B.R. 812 (Bankr. E.D. Tenn. 2014) (cause under § 362(d)(1) is fact-intensive and case-specific)