The Appellants appeal an “Order on Motion for Turnover” entered by the Bankruptcy Court for the District of Wyoming. The order denied the Appellants’ request that the Trustee be ordered to turnover a portion of the Debtor’s 2001 tax refund to Mrs. Kleinfeldt.
The Appellants contend that Mrs. Kleinfeldt, who is a homemaker and is not a co-debtor with her husband, is entitled to half of the tax refund. The Trustee argues that Mrs. Kleinfeldt is not entitled to any part of the tax refund because she had no tax withholdings.
For reasons set forth below, the Court affirms the bankruptcy court’s decision.
I. Standard of Review and Appellate Jurisdiction
Because this appeal involves only a question of law, not questions of fact, the standard of review is
de novo. Pierce v. Underwood,
The Bankruptcy Appellate Panel has jurisdiction over this appeal. Because neither party opted to have this matter heard by the District Court for the District of Wyoming, they have consented to the jurisdiction of this Court. See 28 U.S.C. § 158(c)(1).
II. Background
The facts here are undisputed. Mr. Kleinfeldt is the Debtor in this case. Mr. Kleinfeldt and his non-debtor wife filed them 2001 federal tax return jointly. The Kleinfeldts were entitled to a federal tax refund of $3,233.00. The Trustee intercepted the tax refund and determined that $1,514.64 of it was property of the estate as that portion represented the amount that accrued pre-petition.
On May 15, 2002, the Appellants filed their “Motion to Determine Property of the Estate and for Turnover.” They asked the bankruptcy court to order the Trustee to turnover half of the $1,514.64. They argued that Mrs. Kleinfeldt was entitled to half because there would have been no refund had she not filed jointly with her husband. The Trustee opposed their motion, arguing that Mrs. Kleinfeldt was not entitled to any portion of the refund because she had no tax withholdings for 2001.
The bankruptcy court agreed with the Trustee and denied the Appellants’ motion.
III.Discussion
The issue is whether a non-debtor spouse who had no tax withholdings for the year in question, who is a homemaker, and who filed joint tax returns with a debtor is entitled to receive half of the tax refund. We conclude that the non-debtor spouse is not entitled to any portion of the tax refund.
Three approaches have developed concerning this dilemma.
See Lyall,
A second approach divides the tax refund between the debtor and non-debtor spouses based on each’s income.
See In re Kestner,
A. General Principles of Law
We start with the principle that filing a petition to commence a bankruptcy case creates an estate which is made up of “all legal or equitable interests of the debtor in property.” 11 U.S.C. § 541(a)(1). An income tax refund can be considered property of the bankruptcy estate.
See Segal v. Rochelle,
A tax refund essentially represents a repayment by the government to the taxpayer of an overpayment made by the taxpayer. The Oxford English Dictionary defines the noun “refund” as “repayment.”
See Oxford English Dictionary
(2d ed.1989), http://dictionary.oed.com. It goes on to define the verb “refund” as, “To make return or restitution of (a sum received or taken); to hand back, repay, restore.”
Id.
(definition 2).
See also Dye v. United States,
Furthermore, filing a joint tax return does not convert the income of one spouse into income of another spouse.
See Callaway v. Comm’r of Internal Revenue,
B. Majority Approach
The majority approach holds that a non-debtor spouse who has had no tax with-holdings for the year in question is not entitled to any of a joint tax refund. In
In re Gleason,
In the instant case, it is agreed that the non-debtor spouse neither withheld nor paid estimated taxes. Thus, all of the money withheld and consequently all of the refund originated from monies actually paid by the Debtor from property of the Debtor.
It seems incongruous at best to find that the non-debtor spouse is entitled to a cash refund having paid no taxes. Indeed, had the non-debtor spouse filed a separate tax return, having paid no taxes, she would not receive a cash refund but would only be able to carry forwardthe business losses against future income. If there were no future income, the losses would never be utilized and the non-debtor spouse would never be entitled to a cash refund.
This Court finds that the Debtor has paid all of the withholding out of his property and, thus, the refund is his property and property of this bankruptcy estate. Consequently, the Court grants the Trustee’s motion and orders the Debtor to turn over to the Trustee the sum of $2,631, the amount of the 1994 tax refund.
Id. at 389.
C. Minority Approach
The Appellants argue that we should follow the minority approach. This approach was discussed thoroughly in
In re Aldrich. See Aldrich,
Moreover, it could be said that to hold otherwise would be demeaning and insulting to deserving homemakers, even though the non-filing spouse-homemaker had no taxable income during the taxable year in question.
Finally, this court is further persuaded by the fact that it seems inconsistent and fundamentally unfair under these circumstances that a nonfiling spouse is jointly responsible and liable for a joint federal income tax deficiency yet, ipso facto, prevented from reaping any portion of the deserved, good fortune of a tax refund.
Id. at 912.
D. Analysis
We are convinced that the majority approach is the better-reasoned one. Here, the tax refund was generated only from the tax withholdings of the Debtor. Mrs. Kleinfeldt had no income and therefore had no tax withholdings. Thus, the repayment of tax withholdings by virtue of a tax refund, even though made payable to both Appellants, is property of the Debtor and consequently property of the estate.
2
See, e.g., Kemp v. United States,
We reject Mrs. Kleinfeldt’s argument that she is entitled to half the tax refund simply because there would have been no
IV. Conclusion
Accordingly, we hereby AFFIRM the bankruptcy court’s decision.
Notes
. A similar contention was rejected by this Court in
Zubrod
v.
Kelsey (In re Kelsey),
.
We note that the bankruptcy court states without cited authority that a tax refund under Wyoming law is held as a tenancy in common. Presumably, this conclusion is based on (1) the fact that tenancy by the entireties is now disfavored in Wyoming and (2) that the bankruptcy court’s decision implicitly found that the requirements for establishing tenancy by the entireties were not established.
See generally In re Anselmi,