93-1 USTC P 60,129,
In re: Jack J. GRYNBERG, Celeste C. Grynberg, Debtors,
Jack J. GRYNBERG, Celeste C. Grynberg, Appellants,
v.
UNITED STATES of America, Gerald S. Swanson, as District
Director for the Internal Revenue Service, Appellees.
No. 91-1445.
United States Court of Appeals,
Tenth Circuit.
Feb. 17, 1993.
Neil E. Ayervais of Lohf, Shaiman & Ross (William D. Scheid of Scheid and Horlbeck, with him on the briefs), Denver, CO, for appellants.
Gary D. Gray, Atty., Tax Div. (James A. Bruton, Acting Asst. Atty. Gen.; Michael J. Norton, U.S. Atty., of counsel; and Murray S. Horwitz, Atty., Tax Div., with him on the brief), Dept. of Justice, Washington, DC, for appellees.
Before LOGAN, ANDERSON and BALDOCK, Circuit Judges.
LOGAN, Circuit Judge.
Plaintiffs Jack and Celeste Grynberg appeal the district court's affirmance of the bankruptcy court's order granting summary judgment in favor of defendants, the United States government and the Internal Revenue Service (IRS), and dismissing with prejudice plaintiffs' adversary proceeding against defendants.
The facts in this case are undisputed. In early 1981, plaintiffs filed petitions for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1174.1 Their cases were jointly administered. As provided under §§ 521(1) and 1111(a), plaintiffs' bankruptcy schedules listed the United States as a disputed creditor, both for gift taxes and for income taxes. The disputed gift tax liability arose from intra-family transfers of mineral interests made in the year preceding the bankruptcy filings. Plaintiffs never filed gift tax returns on these transfers, contending that they were not taxable gifts.
On June 19, 1981, the bankruptcy court issued the following bar order:
Creditors holding claims scheduled by Debtor as disputed, contingent, or unliquidated shall file a proof of claim with this Court on or before July 31, 1981.... Failure to file a proof of claim shall forever bar a creditor holding a disputed, contingent, or unliquidated claim from participation in this proceeding or in any distribution under a plan filed by the Debtor....
Appellants' App. at 36. The IRS filed a timely proof of claim for the scheduled income tax liabilities, but not for the gift taxes. In April 1982, the bankruptcy court approved plaintiffs' joint reorganization plan, which made no reference to the disputed gift tax. The IRS did not object to the plan or to its accompanying disclosure statement.
In 1989, after the plan had been fully consummated, the IRS sent Jack Grynberg a notice of a proposed gift tax deficiency and penalties totalling nearly $5 million.2 In response, plaintiffs filed an adversary action in the bankruptcy court, seeking to enjoin the IRS from collecting the deficiency on the grounds that it had been disallowed under the bar order and discharged at the completion of the joint reorganization. The bankruptcy court granted defendants' motion for summary judgment and dismissed plaintiffs' complaint. The district court affirmed, and this appeal followed.
"We review the bankruptcy court's decision under the same standard used by the district court." Citizens Nat'l Bank & Trust Co. v. Serelson (In re Burkart Farm & Livestock),
Section 1141(d)(1)(A) of the Bankruptcy Code provides generally for discharge from any debt that arose before confirmation of the plan, even if no proof of claim was filed or the claim was disallowed. However, § 1141(d)(2) specifically provides that "confirmation of a plan does not discharge an individual debtor from any debt excepted from discharge under section 523 of this title."
Section 523,3 when read in conjunction with § 1141(d)(2), provides that confirmation of a reorganization plan for an individual debtor will not discharge recent excise taxes "whether or not a claim for such tax was filed or allowed," § 523(a)(1)(A), or taxes for which returns should have been but were not filed. The gift taxes at issue here fit within both categories.
Section 6019 of the Internal Revenue Code states that any individual making a transfer by gift in excess of $10,000, other than to a spouse "shall make a return for such year with respect to the gift tax imposed." Plaintiffs argue that there is no evidence in the record to support the district court's conclusion that their transfers were taxable gifts that required the filing of a return. The bankruptcy court has never ruled on the merits of the gift tax liability claim, which remains unresolved. However, plaintiffs cannot bootstrap their argument that returns were not required based on the absence of a ruling on the merits of the government's claim for such taxes. We emphasize that nothing in the district court's order purports to fix plaintiffs' gift tax liability; it merely establishes that whatever that liability may be, it has not been discharged.
In any event, these gift taxes fit within the § 523(a)(1)(A) exception to discharge that covers taxes entitled to priority under § 507(a)(7). Excise taxes include gift taxes, and the transfers at issue occurred within the three year statutory window. Although § 507(a)(7) refers to "allowed unsecured claims of governmental units," § 523(a)(1)(A) makes clear that these taxes remain nondischargeable "whether or not a claim for such tax was filed or allowed." Plaintiffs argue strenuously that the failure of the IRS to file a proof of claim before the bar date imposed by the bankruptcy court subjected their gift tax claim to discharge upon confirmation of the plan, and that the bankruptcy court's determination under the bar order is res judicata. This contention is contrary to the language of the bar order and to the operation of Bankruptcy Rule 3003 under which the bar order was issued.
Bankruptcy Rule 3003(c)(3) requires a bankruptcy court to fix a time for filing proofs of claims. The purpose of this deadline is to "enable a debtor and his creditors to know, reasonably promptly, what parties are making claims against the estate and in what general amounts." United States v. Kolstad (In re Kolstad),
Plaintiffs' argument that the bar order disallowed the gift tax claim is unconvincing.6 It is undisputed that defendant's failure to file a proof of claim for the gift taxes precluded it from participating in the voting and distribution under plaintiffs' Chapter 11 plan. It is equally clear, however, that a bankruptcy court's determination of a claim's untimeliness does not affect application of the § 523 exceptions to discharge. We agree with Spruill v. South Atl. Prod. Credit Assoc. (In re Spruill),
Although allowing the IRS to pursue its claim after the confirmation and consummation of a Chapter 11 plan admittedly conflicts with the "fresh start" policy animating the Code's discharge provisions, "it is apparent to us that Congress has made the choice between collection of revenue and rehabilitation of the debtor by making it extremely difficult for a debtor to avoid payment of taxes under the Bankruptcy Code." United States v. Gurwitch (In re Gurwitch),
Finally, plaintiffs maintain that to be excepted from discharge under § 523, the disputed gift tax must be a "debt." The Code defines debt as "liability on a claim." § 101(12). Because the IRS never filed a proof of claim for the gift tax, the argument goes, it does not have a debt, and without a debt there is nothing to be deemed nondischargeable. Although this syllogism is semantically creative, it disregards the broader purposes and logic of the Code. Plaintiffs neglected to include in their argument the definition of "claim," which means a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." § 101(5)(A). The Supreme Court has held that the language of § 101(5)(A) "reflects Congress' broad rather than restrictive view of the class of obligations that qualify as a 'claim' giving rise to a 'debt.' " Pennsylvania Dep't of Pub. Welfare v. Davenport,
Plaintiffs' difficulties might easily have been averted. The Bankruptcy Code includes a mechanism specifically to protect debtors in those situations in which the creditor's debt is nondischargeable. Section 501(c) provides that "[i]f a creditor does not timely file a proof of such creditor's claim, the debtor or the trustee may file a proof of such claim." Bankruptcy Rule 3004 gives the debtor or trustee thirty days after the bar date to file such claims. Together, § 501(c) and Rule 3004 afford the debtor the broadest relief possible in bankruptcy by allowing the debtor to bring in all known claimants and, through payment under the plan, to reduce the amount of nondischargeable debt owed after the closing of the case. Had plaintiffs taken advantage of this provision, § 1129(a)(9)(C) would have permitted confirmation of a plan that included deferred cash payments for excise taxes on transfers made within the three year window specified in § 507(a)(7)(E). See generally Kolstad,
AFFIRMED.
Notes
Unless otherwise noted, all statutory references are to title 11 of the United States Code, the Bankruptcy Code
No such notice has been sent to Celeste Grynberg, although this apparently remains a possibility
§ 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt--
(1) for a tax or a customs duty--
(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;
(B) with respect to which a return, if required--
(i) was not filed....
With respect to our analysis here, we need only note that § 507(a)(7)(E) refers to excise taxes on transactions occurring before the filing of the petition for which returns were due in the three years preceding the filing of the petition, or, if returns were not required, on transactions occurring during the three years immediately preceding the filing of the petition. Gift taxes are excise taxes.
The bar order essentially follows the contours of the Rule. "[A]ny creditor who fails to [file a proof of claim] shall not be treated as a creditor with respect to such claim for the purposes of voting and distribution." Bankruptcy Rule 3003(c)(2) (emphasis added). Usually, the threat of exclusion from distribution under the reorganization plan is sufficient incentive for a creditor to file a proof of claim. Creditors holding nondischargeable debts who do not participate in the distribution of the debtor's estate under the plan take a large risk that the debtor will have nothing left after bankruptcy proceedings are concluded, and that although the debt has not been discharged, meaningful recovery will be postponed indefinitely
See, e.g., United States v. Ginley (In re Johnson),
Plaintiffs rely on a portion of the bar order providing that "all claims listed as disputed in the Grynbergs' schedules would be disallowed if a timely proof of claim was not filed with respect to such claims."
Plaintiffs suggest that under Hoffman v. Connecticut Dep't of Income Maintenance,