In re Bailey
MEMORANDUM OF LAW
This bаnkruptcy case is another chapter in the decade long struggle between the Internal Revenue Service (“IRS”) and Mr. Bailey over taxes. Much of that story is set forth elsewhere and is not relevant to the decision here. Now, the United States of America, on behalf the IRS, seeks to enforce its federal tax liens on debtor F. Lee Bailey’s pension accounts and right to Social Security benefits. Mr. Bailеy objected to that relief and a hearing was held on September 13, 2017. Following the hearing, the Court took the matter under advisement to determine whether the issue could be determined as a matter of law, as IRS asserts, or whether an evidentiary hearing is necessary, as Mr. Bailey maintains. After consideration of the arguments of counsel, the Court concludes that for the reasons set forth below, IRS’s motion can be addressed without the need of testimony and it will be granted.
I. JURISDICTION AND VENUE.
This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334, and the general order of reference entered in this District pursuant to 28 U.S.C. § 157(a). D. Me. Local R. 83.6(a). Venue herе is proper pursuant to 28 U.S.C. § 1408. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and (b)(2)(G).
II. BURDEN OF PROOF.
Mr. Bailey carries the burden of proof on all issues in connection with this motion for relief from stay except on the issue of thе amount of equity in his pension accounts and Social Security benefits. On that issue, the United States has the burden of proof. 11 U.S.C. § 362(g).
III.BACKGROUND.
In 2007, the IRS issued two statutory notices of deficiency pursuant to 26 U.S.C. § 6212 regarding Mr. Bailey’s federal income tax liabilities for years 1993 through 2001. The United States Tax Court sustained the notices in large part in 2012. Bailey v. C.I.R.,
Approximately seven months later, in June of 2017, Mr. Bailey, now 84 years old, filed a Second bankruptcy case seeking relief under Chapter 13 of the Code from the in rem claims of the IRS and others. As in his Chapter 7 case, Mr. Bailey scheduled his three pensions and his Social Security benefits as assets. In August of
IY. DISCUSSION.
The IRS argues that it is entitled to a modification of the automatic stay on two grounds: (a) cause exists for the modification of the stay under § 362(d)(1) because the IRS’s interests in Mr. Bailey’s pension and Social Security benefits are not being adequately protected, and (b) Mr. Bailey has no equity in either of those benefits due to the magnitude of the IRS tax liens and the benefits are not necessary to an effective reorganization thereby permitting stay relief under § 362(d)(2). Mr. Bailey disagrees. He maintains that the IRS is adequately protected by his proposed treatment of its claims—a bankruptcy court assessment of the cash value of the IRS’s security interests in his pension and Social Security benefits and his payment of that amount through a third-party loan. He further asserts that the IRS cannot prevail on its § 362(d)(2) argument because he has equity in the pension and Social Security benefits and he needs them to effectively reorganize his obligations.
The IRS has the more persuasive position.
There is no dispute that the IRS, as a creditor of Mr. Bailey with a “color-able” tax claim against Mr. Bailey’s property, has standing to seek relief from stay. 2 Norton Bankr. L. & Prac. 3d § 43:44 (2017); In re Farr,
To make that determination here, we must first examine the nature of the property for which thе IRS seeks relief from the stay and then determine its interest in it. Prior to either bankruptcy filing, the IRS obtained tax liens, pursuant to 26 U.S.C. § 6321, on all of Mr. Bailey’s property and interests in property, including his pensions and Social Security benefits.
The statutory language “all property and rights to property,” appearing in § 6321 (and, as well, in §§ 6331(a) and, essentially, in 6332(a), see nn. 1 and 2, supra), is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have. See 4 B. Bittker, Federal Taxation of Income, Estates and Gifts ¶ 111.5.4, p. 111-100 (1981) (Bittker). “Stronger language could hardly have been selected to rеveal a purpose to assure the collection of taxes.” Glass City Bank v. United States, 326 U.S. 265 , 267,66 S.Ct. 108 , 110,90 L.Ed. 56 (1945).
United States v. Nat’l Bank of Commerce,472 U.S. 713 , 719-20,105 S.Ct. 2919 ,86 L.Ed.2d 565 (1985).
“All property and rights to property" includes Mr. Baileys rights to receive future payments from his pension and Sociаl Security benefits. Wessel v. United States of America (In re Wessel),
Although Mr. Bailey and the IRS do not dispute the amount of the tax liens, they differ on their effect. Mr. Bailey asserts that the IRS’s liens on his pension and Social Security benefits reach something far less than $5.2 million of that property. On one level, he is correct because for the liens to сapture that amount from the pension and Social Security benefits, the IRS would need to seize the full monthly payments from both of those income streams for a period much longer than Mr. Baileys lifetime, оver 136 years at the currently monthly amounts. Rather, Mr. Bailey argues that the “value” of the IRS’s in rem claim is the value of the collateral which can be reduced to a fixed amount by determining the present valuе of those streams of income. Mr. Bailey may be correct
What Mr. Bailey seeks is a full adjudication of his challenge to the amount of the IRS secured claim; in other words, his opposition to the motion for relief from stay is essentially a claims adjudication under § 506. While he is entitled to mount such a challenge, the context of this motion for relief from stay is neither the time nor place. Relief from stay motions, such as IRS’s here, are expedited proceedings designed in part to ensure that secured creditors do not lose the value of their security
Y. CONCLUSION.
The IRS’s mоtion for relief from stay ' pursuant to § 362(d)(1) is granted.
Notes
. All references to the "Code” or to specific statutory sections shall be to the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23, 11 U.S.C. § 101, et seq.
. At least the Code is clear on what "adequate protection” is not: it does not include the granting of an administrative expense under § 503(b)(1). § 361(3).
. See, In re Wesche,
. Given the Court’s determination that the IRS is entitled to relief from the automatic stay pursuant to § 362(d)(1), there is no need to address IRS’s § 362(d)(2) arguments.