*1 FIRST AMENDMENT district claim, court dismissed that holding Paperwork Reduction Act does Plaintiff next brought a Bivens not private create a right of action. The v. Six Agents Unknown Named Paperwork provides: Reduction Act Narcotics, Federal Bureau (a) Notwithstanding any (1971), provi- other claim, law, sion of no person shall alleging subject that Defendant violated his First any penalty for failing to right comply Amendment to freedom of with a speech. collection claim, A claim, Bivens information that subject like a RFRA can be to this chapter if brought only [listing “against one certain who is condi- engaged (or ‘state’) tions]. in governmental action.” Vin cent v. Trend W. Corp., Technical (b) F.2d protection The provided by this (citation Cir.1987) and inter may section be raised in the form of omitted).
nal quotation mаrks “Whatever complete defense, bar, or otherwise at proper standard finding govern any time during agency administra- mental may be, action it can be no more process judicial tive applicable action inclusive than the standard used to find thereto. state action for the section added). 3512 (emphasis As is 1983.” (emphasis Id. original). As not apparent (b), from subsection the Act au- section, ed in previous Plaintiff cannot thorizes protections to be used as a satisfy (as requirements in The Act does not authorize a defense. RFRA). corporated in We therefore af private right of so, action. That being firm the district court’s dismissal of Plain district court properly dismissed Plaintiffs tiffs First Amendment claim. Paperwork Reduction Act claim. AFFIRMED.
PRIVACY ACT The district court dismissed claim,
Plaintiffs Privacy in part Act be
cause Defendant is agency. federal 7(a)(1)
Section of the Privacy provides Act
that “[i]t shall be any unlawful Federal
... agency deny individual any benefit, right, or privilege provided by law Dudley MERKEL; B. LaDonna K. because of such individual’s refusal to dis Merkel; A. Hepburn, David Nancy close his social security account number.” Hepburn, J. Petitioners-Appellants, (note). 5 U.S.C.A. 552a “The private right of civil action created the Act is specifically limited to actions agen COMMISSIONER OF INTERNAL cies of the United States Government. REVENUE, Respondent- remedy civil provisions of the statute Appellee. do not apply against private individuals private [or] entities.” Unt v. Aero No. 98-70420. space Corp., United States Court of Appeals, 1985). Defendant is not a federal agency Ninth Circuit. but, instead, private is a entity. The dis trict properly court dismissed Plaintiffs Argued and Submitted March Privacy Act claim. Sept. Filed
PAPERWORK REDUCTION ACT
Finally, brought Plaintiff claim Paperwork Reduction Act. The *2 Plattner, MacNabb,
Gregory W. Phoenix, Schneider, Ari- & Schneidman zona, petitioners-appellants. for the Parks, Depart- United States W. Steven Division, Washington Justice, Tax ment D.C., respondent-appellee. for the O’SCANNLAIN, WARDLAW Before: FLETCHER, Judges. Circuit WARDLAW; Dissent Judge Opinion by Judge O’SCANNLAIN.
WARDLAW, Judge: Circuit percent partners, Hep- Merkels and burns each received of discharge This case calls us to decide the of indebtedness as distributable income.1 determining standard for when a contin- Appellants reported this debt gent obligation “liability” is a their 1991 income tax returns. They ex- *3 purposes determining insolvency of under income, however, cluded it from under 26 108(d)(3). § 26 U.S.C. § U.S.C. upon based their Appellants Dudley and La Donna Merk- insolvency.2 claimed Nancy el and David and Hepburn (“Appel- 24, 1995, On March the Commissioner lants”) appeal from Tax Court’s deci- mailеd notices deficiency of pursuant to 26 sustaining sion determinations of income § U.S.C. 6212 to the Merkels Hep- and deficiency year tax for the tax 1991 made burns, that indicating for the year taxable by Commissioner of Internal Revenue 1991, each couple’s federal income tax was (“Commissioner”). The Tax Court found deficient in the amounts of and Appellants that to prove failed that as of $116,347, respectively. 12, 1995, On June the measurement date was they Hepburns Merkels petitions and filed pay” “would called to a claimed in the United States Tax Court challenging liability, and thus Appellants’ total liabili- the Commissioner’s determinations defi- ties did not exceed fair market value of ciency. The granted Tax Court the Com- their Accordingly, assets. the Tax Court missioner’s motion to cоnsolidate the found that Appellants were not insolvent cases. 108(d)(3) § under therefore and could not exclude discharge of indebtedness income The parties stipulated that the be- issue
under the
exclusion set forth in fore the Tax Court was whether Appel-
108(a)(1)(B).
§
26 U.S.C.
juris-
We have
lants were insolvent within the meaning of
pursuant
§
diction
to
U.S.C.
and
108(d)(3)
26 U.S.C.
immediately before
we affirm.
forgiveness
note Great West-
ern Bank on September
1991. Section
108(d)(3) defines “insolvent” as “the excess
For
part,
the most
the facts of this
case
liabilities over the fair market
undisputed.
are
During the
year
taxable
assets.”3 To determine whether Appel-
1991, Appellants
general partners
were
in lants were
statute,
insolvent under the
(“HMH”).
HMH Partners
The Merkels Tax Court had to decide whether Appel-
Hepburns
twenty-five
each
per-
guaranty
108(d)(3)
owned
lants’
a loan
on
was a
HMH,
cent of
party
and third
owned
“liability”
as of August
1991.4 If the
remaining fifty percent.
September
On
guaranty
liability,
was a
Appellants were
1991, Great
Bank granted
Western
for-
insolvent and
debt discharge
prop-
was
giveness
to HMH on a
erly
nonre-
gross
excludable from
income under
result,
course note.
twenty-five
108(a)(1)(B).
As a
as
1. Gross income means all income from what-
excess of liabilities over the fair market value
derived,
ever source
including income from
respect
of assets.
any discharge,
With
to
discharge of
See 26
indebtedness.
insolvent,
taxpayer
or not the
shall
(a)(12).
§ 61
be determined on the basis of the taxpayer's
assets and
immediately
before
108(a)(1)
2.
provides:
Section
“Gross income
discharge.”
108(d)(3).
26 U.S.C.
does include any amount which gross
would be
includible in
income
rea-
4. The Tax
Appellants
Court found that
failed
(in
discharge
son of the
part)
whole or in
prove
allegation
their
that certain state tax
taxpayer
indebtedness of the
charge
if ...
the dis-
obligations
were
"liabilities”
occurs
when the
is insol-
108(d)(3).
108(a)(1)(B).
Appellants
vent. ...”
do
not contest this
finding
appeal.
on
108(d)(3)
provides:
Section
purposes
"For
section,
of this
the term 'insolvent' means the
argued before
The Commissioner
guaranteed
had
personally
Appellants
obligation un-
Appellants’
Pacific
Security
Tax Court
made in 1986
loan
“Bank”)
Leasing
(the
not a
Systems
Guaranty
der
Bank
(“SLC”),
leasing
computer
calculating insolvency under
Corporation
Hep-
Merkels
which the
term “liabilities”
bеcause the
business
the sole
half.5 SLC
obligations
each owned
encompasses only
burns
evidencing the debt
note
maker of the
immediately
be-
existence
ripe
guaran-
Appellants personally
the Bank.
of indebtedness.
fore
to a document
pursuant
note
teed the SLC
determina-
sustaining the Commissioner’s
(and
Guaranty
Securi-
“Continuing
entitled
Tax
deficiency,
of income
tions
(the
As of
“Guaranty”).
ty Agreement)”
tack,
holding
took a different
Court
balance
unpaid
April
by preponder-
Appellants
prove
failed to
*4
$3,100,000, and SLC
note exceeded
SLC
31,
August
that as of
of the evidence
ance
At
obligations.
of its note
default
(the
date), they “would
measurement
1991
any formal
Bank make
did the
time
no
obligation
pay”
to
their
called
be
Appel-
from
payment
for
demand
written
therefore,
Guaranty, and
the
under
Guaranty.
to the
pursuant
lants
pur-
liability
not a
obligation was
the
SLC,
1991,
31,
the Bank
under
May
calculating
poses
On
108(d)(3).
into
guarantors,
Accordingly,
entered
the Tax Court
as
Appellants,
(the “Let-
agreement
workout
total liabilities. so
Appellants’
structured
found
repay-
concerning the
market
Agreement”)
ter
exceed the fair
did not
proved
Bank.
the indebtedness
ment of
and held that
of their assets
(1) SLC
Agreement:
the Letter
Under
income could
discharge of indebtedness
(the
$1,100,000
the Bank
108(a)(1)(B).
agreed
excluded under
(the
2, 1991
August
on or before
“payoff’)
followed.
appeal
This
(2)
date”);
agreed
Bank
“settlement
in the remain-
security interests
its
release
II
payoff
of the
upon payment
ing collateral
(3)
of the Tax
date;
pay-
after
We review decisions
by
settlement
date,
as we would
by
settlement
the same
payoff
Court on
basis
ment of
exercising
court in a
a district
Bank would refrain
rendered
decision
note or the
under
SLC
v. Com
Rapp
remedies
trial. See Estate
bench
filed
1211,
were not
Guaranty
bankruptcy
missioner,
Hepburns,
or
1998).
or the Merkels
or
SLC
are reviewed
findings
factual
Its
others,
involuntarily,
voluntarily or
is,
among
must
we
id. That
for clear error. See
date
days after the settlement
within 400
fact
findings of
Tax
accept the
Court’s
event”).
(a “bankruptcy
definite and
left with the
we are
unless
has been
a mistake
firm conviction that
Bank
paid
SLC
Sawyer Whitley,
committed. See
for under
date as called
settlement
2514,
112 S.Ct.
346 n.
U.S.
thereaf
the Bank
Agreement, and
Letter
(1992).
Tax
con
Court’s
The
security interests
released its
in.
ter
of the
and construction
of law
clusions
bankrupt
No
remaining collateral
SLC.
de
are reviewed
SLC,
Revenue Code
Internal
respect to
was filed with
cy petition
Rapp, 140 F.3d
Estate
novo. See
any other
Hepburns,
or
Merkels
special
has
Tax Court
Because the
1215.
the Letter
or entities relevant
persons
however,
field,
opinions
31, 1991.6
expertise
August
as of
Agreement
fact,
dur-
loan,
event occurred
Security
no
the time SLC
5. At
obtained
expiration
400-day period, and at the
ing the
The Arizona
was known as
Pacific Bank
SLC
400-day period, the Bank released
Bank.
SLC note
maker of the
as the
from its
Guaranty.
Appellants from the
bearing on the Internal Revenue Code are
are to construe
gross
exclusions from
respeсt.”
“entitled to
Bancorp
Harbor
& come narrowly in favor of taxation. See
Commissioner,
Subsidiaries v.
115 F.3d United
States v. Centennial Savs.
Cir.1997),
cert.
573, 583,
U.S.
U.S. —,
(1991);
L.Ed.2d
Ill as by the Agreement, modified Letter 108(d)(3), under we find little A guidance from the text and structure parties agree that the determinative The term statute. “liabilities” is not issue this case is whether on August defined the Internal Revenue Code inor 1991, Appellants’ Guaranty was a “liabili- any Treasury Regulation. Moreover, ty” for purposes of determining insolvency does not indicate how 108(d)(3). In resolving issue, occurrence of a contingency must be in we must take into account that under the- order to count the obligation as a liability. Agreement, Letter Appellants’ obligation Black’s Dictionary Law dеfines “liabili- to pay pursuant to the Guaranty was con- *5 ty” as a legal “broad term ... including tingent upon the occurrence of a bankrupt- every almost character of hazard or re- cy event. absolute, sponsibility, contingent, or like- interpreting statute,
“When
a
ly.”
(6th
we
Black’s Law Dictionary 914
ordinarily
ed.1990).
first look
plain
to the
meaning
definition,
Under this
the Guar-
the language
by Congress.
used
But if
anty
could be considered a liability because
statute
ambiguous,
we
legis
consult the
it is a “responsibility”
is “contingent.”
lative history, to
But,
the extent that it is of
it is not clear from the statute wheth-
value, to aid in our interpretation.” Moyle
er Congress intended
all contingent
Director,
v.
Compensa
Workers’
liabilities to be
considered
the insolven-
Office of
Programs,
(9th
tion
1116,
147 F.3d
1120
cy
108(d)(3).
calculation under
14
Sеe
Cir.1998),
U.S. —,
cert.
119 Mertens Law Federal Income Taxation
1454,
(1999)
S.Ct.
143
(1998) (“It
(quot
54.06
is not clear whether the
ing
Green, Inc.,
Straub v. A.P.
38 F.3d
taxpayer can take into
contingent
account
(9th
448,
Cir.1994)).
a
“When statute
liabilities; however,
or contested
term,
does not define a
we generally inter
if a contingent liability is too remote to be
pret that
term
employing
ordinary,
basis,
reflected in
contingent
such
contemporary, and common meaning of
account.”).
should not be taken into
In-
the words
Congress
deed,
used.”
United
calculating insolvency under
Iverson,
States v.
1015,
(9th
108(d)(3), inclusion of
contingent
all
lia-
Cir.1998).
plain
“If the
meaning
bilities,
of the
remote,
no matter how
could lead
statute
supports
interpretation,
one
to the absurd result of the insolvency ex-
the statute is
ambiguous.”
ception swallowing thе
rule
general
California
v. Montrose
Corp. California,
Chemical
discharge of
income
in-
indebtedness
be
1507,
Cir.1997).
in gross
We
cluded
income.7
7. Were we to conclude
contingent
that all
taxpayer
have
guarantee,
would
on the
liabilities,
remote,
no matter how
are to occurring
likelihood
could be so
counted as
liabilities for
of deter
small that
guarantee
inclusion of the
as a
mining insolvency
108(d)(3),
under
a tax
would be absurd. See also Whitmire
payer claiming
Commissioner,
to be insolvent within
v.
Moreover,
compelled to
we are
reasoning
Kirby
Lumber has
narrowly.
income
See
exclusions
theory.
“freeing-of-assets”
called the
been
499 U.S.
583-
Savs.
Centennial
Tufts,
See Commissioner
U.S.
Accordingly, because
1826,
that when
Tax Act of 1980. See 26
Bankruptcy
demonstrably at
a result
produce
ute will
108(a)(1)(B).
§The
of its drafters
odds with the intentions
judicially-developed
exclusion is based on a
drafters,
rather
the intention of
Kirby
Lumber
exception
controls”)
(quoting
language,
the strict
&
initially
rule
set forth Dallas Transfer
Contractors, Inc., 458
v. Oceanic
v. Commission-
Terminal Warehouse Co.
Griffin
564, 571,
L.Ed.2d
U.S.
(5th Cir.1934).
er,
S.Rep.
U.S.C.C.A.N. Transfer, the Commissioner determined *6 B peti- deficiency of income discharge Congress In codified indebted- upon dischаrge based of tioner by the rule announced Su- of indebtedness during petitioner ness which the received Kirby in States preme Court United Board of year. relevant tax After the Co., Lumber 284 U.S. S.Ct. the action of the Appeals approved Tax in Commissioner, L.Ed. See review petitioner sought Commissioner, 61(a)(12); Babin v. the court appeal, the Fifth On Circuit. (6th Cir.1994) (“In 1954, deficiency held that the Commissioner’s at Kirby because ruling codified the determination was erroneous Congress Lumber, gross discharge, petitioner debt specifically providing the time of the insolvent, therefore, the can- discharge and that ‘[i]ncome income includes ”). Lumber, a did not have Kirby past cellation of the due debt indebtedness.’ $12,- making petitioner’s assets the effect of its own bonds for corporation issuеd they before the dis- greater than were 126,800 par their for which it received Kirby distinguished The court charge. year, corpora- During the same value. Lumber, explaining: at some of the same bonds purchased tion The difference ac- par value. in the debtor less This does not result $137,521.30. Supreme The something exchangeable price quiring “re- he had before. corporation concluded that the in addition to what Court extinguishment an accession to a reduction or year within the There is alized Lumber, as- any increase of at liabilities without Kirby come.” gain of such a There is an absence sets. “[a]s 4. The Court reasoned within to come profit required made or as is Kirby dealing[, Lumber] result of its It income. accepted definition of $137,521.30 previously assets [оf] available cies). contingen- upon the occurrence six bution
hardly would be contended that a dis- consideration of how speculative those charged bankrupt be, insolvent or receives obligations may meaning- would render in the amount by taxable income which any inquiry less into whether assets are provable his debts exceed the value of discharge freed of indebtedness.” his surrendered assets.... Taxable in- agree, We also on Congress’ pur- based acquired by come is not a transaction pose of not an burdening insolvent debtor which does not result with an tax liability, immediate that Con- getting having anything or he did not gress considered a ability debtor’s to pay profit have before. Gain or is essential an discharge immediate tax on of indebt- tо the existence of taxable income. A edness income the “controlling factor” whereby nothing transaction of ex- 108(a)(1)(B) determining whether changeable value to or comes is received exception applies. Accordingly, taxpay- by a taxpayer give does not rise to or claiming er to be insolvent for create taxable income. 108(a)(1)(B) and challenging the Com- missioner’s determination deficiency Transfer, Dallas 96. The Sen prove by must a preponderance of the Report ate demonstrates aside from evidence that he or she will be called upon acceptance freeing of assets theo an obligation claimed to be a ry, Congress liabili- intended to ease the tax bur ty and that the totаl amount of den of insolvent debtors enacting : 108(a)(1)(B) proved so exceed the fair market value of his or her assets. The concerning rules of the bill income tax treatment discharge of debt in bank- urges dissent instead that we adopt ruptcy are intended to accommodate construction of bankruptcy policy and tax policy. To which would “liability” define preserve the debtor’s ‘fresh start’ after including as all liabilities discounted bankruptcy, provides bill that no probability of their occurrence. agree We recognized by income is reason of debt with the general dissent that as a proposi “ bankruptcy, so that a debt- tion ‘[discounting a contingent (or coming out an in- by the probability of its good occurrence is ” solvent debtor bankruptcy) outside economics good and therefore law.’ not burdened with an immediate tax lia- Post, at 854 (quoting Covey v. Commercial *7 bility. (7th Nat’l 960 F.2d 660 Cir. 1992) 96-1035, S.Rep. No. 1980 (construing 101(32)(A), § U.S.C.C.A.N. at 11 U.S.C. 7024; Babin, (6th see also 23 F.3d at which insolvency 1035 defines for purposes of Cir.1994) (“The insolvency bankruptcy). exception, As sound as the economic among other things, premised policy is on be, outlined may dissent how ever, belief that it inequitable is ‘to kick it is Congress some- not the law enacted ”) one when he is 1 when it (quoting sought down.’ Boris I. to “accommodate” bank Lokken, Bittker & ruptcy Lawrence policy Federal Tax- with tax policy. See S.Rep. ¶ Income, ation Gifts, Estates and No. 6.4.1 96-1035. Unlike the statutory provi (2d ed.1989)). at 6-27 sion at issue in Covey, the definition of insolvency in the Internal Revenue Code § The origins of dem expressly requires a fair market valuation onstrate that Congress intended for only of assets only and not liabilities. 26 See those liabilities in actually the amount that 108(d)(3). § U.S.C. offset assets to be considered calculat ing insolvency purposes for of the income in Covey issue was whether a firm agree exclusion. We with the Tax was “insolvent” as defined the Bank- Court’s conclusion that “an indiscriminate ruptcy Code, Code. Bankruptcy Under the “ obligations inclusion of ... pay ‘insolvent’ means with reference to statutory insolvency ], without an entity calculation[ other than partnership a a
851 did, is distinct clearly policy that tax that gress such financial condition municipality, Two of the deci greater bankruptcy policy. is entity’s debts from of such sum interpret a fair property, at the dissеnt entity’s cited all of such sions than 101(32)(A). Rely insolvency. § definition of Bankruptcy 11 U.S.C. Code’s valuation.” 660; in In re Xonics ruling re Xonics prior F.2d at Covey, on 960 ing See (7th Photochemical, Inc., F.2d 198 Cir. Photochemical, Inc., An F.2d at 200. “To de 1988), held: Circuit case, the Seventh the definition interpreting also other ... a court insolvent Code, a firm is Bankruptcy cide insolvency under the willing be buyer ask: What would should principle as exactly opposite for stands of assets and package for the entire the dissent. See attributed to that the firm positive, price If the is liabilities? Air Int’l AG v. Trans World Travellers Covey, solvent; negative, insolvent.” Airlines, (In lines, World Inc. re Trans Circuit’s The Seventh F.2d at 660. (3d Cir.), Inc.), cert. plain language by the analysis supported —, U.S. 101(32)(A), phrase § as the U.S.C. (1998) (“We with agree TWA modify may be read a fair valuation” “at thе face value we must consider that and the defi “property,” both “debts” rather traded debt publicly TWA’s both, as encompasses nition value.”). two Finally, the last market 108(d)(3) contrast, de By modified. so calculating insolvency do not involve cases liabilities “the excess of insolvency as fines Instead, the unrelat they stand for all. at assets.” Un market over the fair liabilities contingent proposition ed 101(32)(A), phrase like U.S.C. market value when to be valued fair 108(d)(3) modifies market value” “fair determining whether test for applying the That Con but not “liabilities.” “assets” ie., fraudulent; conveyance was stated that “assets” explicitly gress received? value” “reasonably equivalent at fair mar were to valued Bell, 263-64 v. FDIC See value, as to the same ket and did state Cir.1997) (determining whether liabilitiеs, intend it did not suggests that occurred under transfer had fraudulent value. fair market to be valued at Act, Transfer Arkansas Fraudulent Moreover, explicitly provid Congress 4-59-204); Nordberg §Ann. Ark.Code 101(32)(A) that both ed under (In & re Chase San Banking Corp. Arab to be valued “property” were “debts” Corp.), 904 F.2d born it knows suggests that “at a fair valuation” 1990) fraudulent (determining whether treatment provide comparable how Bankrupt occurred under had transfer is what when that and assets of liabilities 548). Code, cy to do.8 intends that a Having determined Thus, departs it is the dissent to be insolvent claiming by imbu- meaning of the statute *8 the Com- challenging neither analysis it with an economic ing deficiency determination missioner’s sup- nor statutory language express of the aby preponderance prove must congressional an examination ported by upon called will be that he or she evidence Indeed, import a seeking in to intent. a liabili- to be obligation an claimed pay to upon in five mechanism reliance valuation of liabilities total amount ty and that the exclu- circuits decided from other cases market value of the fair context,” Post, exceed proved so in sively “bankruptcy assets, we address or her now as Con- his 853, recognize, the dissent fails opin- Tax Court’s rejected proposal. The appeal argues on Although party neither 8. context, respect." present Covey the is "entitled applying on this matter ion favor (indeed, Subsidiaries, expressly disa- Appellants' counsel F.3d at Bancorp & Harbor Covey during on an evaluation based vowed 727. considered argument), the Tax Court oral correctly the Tax Court sustained the Appellants cause prove failed to that a Commissioner’s determination of deficien- bankruptcy likely event was to occur and incy this case. that, therefore prove faded to August as of
31, 1991, they would be
called
to pay
any amount to the
the Tax Court
C
correctly
Appellants
found that
were not
Determinations made
31,
insolvent on August
1991.10 The Tax
Commissioner
a notice of deficiency nor
Court’s decision sustaining the Commis-
correct,
mally
presumed
to be
and the
sioner’s determinations of income tax defi-
taxpayer bears the burden of proving that
ciency is affirmed.
those determinations are erroneous. See
AFFIRMED.
Commissioner,
INDOPCO Inc. v.
503 U.S.
(1992);
Edelson v.
Judge,
829 F.2d
Circuit
(9th Cir.1987).
dissenting:
presumption
correctness will be rebutted if the taxpay
majority
Because the
interprets
er proves by a preponderance of the evi
108(d)(3)
in a manner which I
deficiency
dence that
is incorrect or believe
plain
conflicts with the
language of
arbitrarily
derived.
See In re
statute,
I respectfully dissent.
Cir.1996),
MacFarlane,
(9th
F.3d
1115, 117
rt.
ce
1243,
(1997);
dano v.
245 charge occurs where the taxpayer is insol-
(5th Cir.1966);
Commissioner,
Smith v.
vent,” where “the term ‘insolvent’ means
(5th Cir.1957);
The Tax Court found that Ap ly, language of section pellants failed to prove that a bankruptcy instructs us to consider all liabilities —ab- event to occur. Appellants do solute and contingent determining in- —in not contest this finding appeal. on solvency, Be- and we are bound to follow the respect 9. With Appеllants examinations argue they commenced obligated were 22, 1998, “[i]f, July after pro- court they Bank because breached *9 ceeding, taxpayer introduces credible evi- Agreement by failing Letter to disclose that respect dence with evant factual rel- issue $980,512 SLC was assessed unpaid sales ascertaining liability the by and use Depart the North Carolina taxpayer ... the shall [Commissioner] have argument ment of Revenue. This was not proof the respect burden of with to such raised before the Tax thereby Court and is issue.” Internal Revenue Service Restruc- waived. See States, First Nat. Idaho Bank v. United 3001, turing Act of 1998 26 U.S.C.A. 6, (9th 1959). 265 F.2d 9 (1999). § 7491
853
text,
contingent
sion of all
meaning of the
see Estate
liabilities would lead
Co.,
Drilling
505 U.S.
to an “absurd result.” Ante at
I
v. Nicklos
848.
Cowart
2589,
469, 475,
and
respectfully disagree
112
more than not fully pay discharge' Y able to taxes on be called Thus, indebtedness income. he should analysis, majority of its touchstone insolvency exception. benefit from take into account the difference fails to majority’s problems inherent рercent percent a 50 one between analysis are made all the more evident really occurrence. What probability of taking example step one further. whether assets exceed discounted counts is pays Y Suppose Taxpayer liabili- that the same Taxpayer X’s discounted liabilities. $600,000) for (say, mil- the fair market rate ty percent times $1 —50 Thus, percent the 51 chance of his in assets. insurance .lion—far exceeds $1 *11 with occurring, respect, agree with the With cannot the majority’s analysis. Upon inspec- Y closer Taxpayer to reimburse agreeing insurer tion, purported if it Tax- the differences between for occurs. Voila! his 101(82)(A) § un- U.S.C. and originally Y—who was insolvent payer § collapse, now be and it becomes clear mаjority’s analysis the der —would that, contention, majority’s contrary majority’s view be- fully the solvent insurance, cause, bankruptcy he the fair value modifier in the after purchasing applies only and no code to the asset side of have assets would (uninsured) is, however, ledger. placement “at a liability. phrase There directly Y fair valuation” after Taxpayer no sensible reason to treat the word 101(32)(A) § in 11 differently depending “property” on whether he U.S.C. indi- that, liability. really He is cates as is the case with 26 U.S.C. sures 108(d)(3), situations, as our sister the fair value modifier is limit- solvent both (i.e., assets); “property” only by the discounted liabilities ed to circuits who use recognize. stretching possible would is it to read this modifi- methodology “property.” er to cover “debts” as well as view, my Taxpayers results? In Absurd phrasing To the extent of the X Y would indeed have absurd results statute leaves room reasonable dis- majority’s if approach prevails. agreement grammar, over issues of is 1(19), insightful to examine U.S.C. II from which 11 prior statute U.S.C. valuing liabilities on a Conceding 101(32)(A) which adopted, provided: economic good discounted basis makes A person shall be deemed insolvent sense, majority approach limits this title provisions within the of this when- context, not the tax con- bankruptcy ex- aggregate property, ever the of his Ante at 850-51. bases this text. See It which any property may clusive of he bankruptcy on the fact that the conclusion transferred, concealed, conveyed, have slightly code defines the term “insolvent” removed, permitted оr to be concealed Compare tax differently from the code. removed, defraud, with intent to hin- or 101(32)(A) (“‘insolvent’ means U.S.C. der, creditors, shall not at delay or his financial condition such that the sum in amount to fair valuation be sufficient entity’s greater than all of of such debts pay his debts. valuation, at a fair entity’s property, such 1(19) (1966). ”), It .... was clear exclusive of with 26 U.S.C. 108(d)(3) (“For section, “at fair placement phrase of this from the 1(19) that this the term ‘insolvent’ means the excess of valuation” within section assets, only to and not to applied over the fair market value of modifier assets.”). majority Although Bankruptcy these debts. Code interprets As the 1(19) section with section provisions, phrase replaced two “at a fair valua- 101(32), adopted code modifies both the new definition bankruptcy tion” 1(19) only whereas with the difference “property” “debts” from section property tax which is excluded. See S. phrase being “fair market value” code this, 95-989, (1978), reprinted in Rep. From at 25 modifies “assets.” (“The 5787, 5811 defini- majority reasons that the code 1978 U.S.C.C.A.N (26) paragraph requires property to be tion of ‘insolvent’ both debts 1(19) value, fair of current law. adopted valued at a market whereas the section great- requires only fairly entity An is insolvent its debts tax code assets to be assets, valuation, exclu- reasoning step er than its fair Taking valued. one further, fraudulently property exempted majority concludes that sive traditional bank- valued at transferred. It is the requires code liabilities to be insolvency.... fair balance sheet test of ruptcy other than value. law, solvency ... is an economic good from that in this definition The difference *12 term.” Id. exempt in the exclusion of law is in current in the all definition property insolvent.”). Ill valuation” that the “fair the decisions of our sis-
The conclusion Consistent with 101(32)(A)applies in 11 modifier U.S.C. ter circuits and adherence “fair market” -just statutory like the I would reverse and only language, to assets— applies proper for a determination modifier in 26 U.S.C. remand by 11 U.S.C. assets exceeded their Appellants’ bolstered only to assets —is 101(32)(B), the term “in- discounted liabilities. which defines “ ‘in- partnerships: applies solvent” as with reference to means....
solvent’ condition such that financial
partnership, debts is partnership’s
the sum such of, at a aggregate than the
greater fair assets and the partnership’s
valuation [the general partner’s nonpartner-
sum of each 101(32)(B). ship assets].” net MONTERO, Ann Carrie phrasing clear from the Again, it is Plaintiff-Appellant, assets, modifies “at a fair valuation” reаson to think Con- and there is no insolvency differ- gress intended to define CORPORATION, AGCO Glenn Car- (covered context ently partnership Newmann, penter, and Russ B) contexts other subsection Defendants-Appellees. A). (covered Thus, the ma- by subsection No. 98-16806 of 11 jority’s interpretation 101(32)(A) in light is untenable of sub- Appeals, United States Court (B) 1(19), and former section as the Ninth section Circuit. expressly Third has concluded. Circuit Aug. Submitted Airlines, 134 F.3d at See Trans World Sept. Filed 196-97.
Thus, that the term “insolvent” is we see law similarly
defined contexts,
and under tax law. both Con-
gress instructed us to include liabilities not ex-
determining insolvency, but did how value liabilities.
pressly delineate concluded, other circuits have the fact
As Congress expressly provided that as- fairly
sets are to be valued but did not so
provide respect with to liabilities does not fairly val-
mean that liabilities must be un
See, e.g., Covey,
ued.
Instead, majority appears as even the discounting approach outlined
agree, good
Part “is economics and therefore 34(a)(2). unanimously R.App. Fed. P. panel finds this case suit- argument. See able for decision without oral