Savage v. Internal Revenue Service (In Re Savage)Savage v. Internal Revenue Service (In Re Savage)
OPINION
Thе Internal Revenue Service (“IRS”) appeals a Judgment entered by the United States Bankruptcy Court for the District of Wyoming concluding that (1) a portion of the Debtor’s tax debt for 1987, in the amount of $4,563.29, was nondischargeable pursuant to 11 U.S.C. §§ 507(a)(8)(A)(ii) and 523(a)(1)(A)
1
because the IRS had assessed
JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel, with the consent of the parties, has jurisdiction to hear appeals from the final judgments, orders, and decrees of Bankruptcy Judges within this Circuit. 28 U.S.C. § 158(a)(1), (b)(1), (c)(1). The order appealed by the IRS is a “final” order under 28 U.S.C. § 158(a)(1). On October 15, 1997, the District Court for the District of Wyoming entered an Order transferring this case to thе Bankruptcy Appellate Panel, with the consent of the parties. Accordingly, this Court has jurisdiction over this appeal.
The Bankruptcy Appellate Panel may affirm, modify or reverse a Bankruptcy Court’s Judgment, Order or Decree, or remand with instructions for further proceedings. Fed.R.Bankr.P. 8013. Findings of fact shall not be set aside unless they are clearly erroneous.
Pierce v. Underwood,
FACTS
The Debtor failed to timely file his Form 1040 tax returns for the tax years 1982 through 1988. As a result, the IRS prepared substitute returns for these taxable years, pursuant to 26 U.S.C. § 6020(b)(1). The last substitute return was prepared on April 19, 1990. The IRS sent the Debtor a notice of deficiency for eaсh of the tax years. The notice provided that the Debtor could not file a claim for a refund until he paid the taxes that were due. The Debtor did not file any petitions with the Tax Court. The IRS assessed taxes for the tax years in question as follows:
1982 $2,894.00
1983 $8,332.00
1984 $2,458.00
1985 $4,588.00
1986 $7,007.00
1987 $1,579.00
1988 $3,883.00 2
The substitute returns prepared by the IRS for 1982 and 1983 reflected an address for the Debtor in Stockton, California. The substitute returns prepared for the remaining years in question reflect an address for the Debtor in Farson, Wyoming. The parties agree that the Debtor’s residence was in Farson, Wyoming for all relevant periods subject to this appeal.
On November 6, 1990, the Debtor filed Form 1040 tax returns for the 1986 through 1988 tax years with the IRS’s servicing centеr in Ogden, Utah. Despite language in the IRS’s notice of deficiency prohibiting the Debtor from filing a claim for refund until he had paid the taxes that had been assessed against him, these returns were treated by the IRS as amended returns or claims for refund.
On January 17, 1991, the Debtor hand delivered Form 1040 returns for the tax years 1982 through 1988 to the IRS’s office in Portland, Oregon. The Bankruptcy Court found that the Debtor filed returns in 1991 for the tax years 1982 through 1988 in the IRS’s Portland, Oregon office, despite its finding that the Debtor had filed
In February of 1993, the IRS made an additional assessment of the Debtor’s 1987 taxes (“1993 Additional Assessment”). In addition to amounts that had been assessed by the IRS in or about 1990 for the tax year of 1987, the IRS assessed the Debtor taxes in the amount of $4,563.19. This 1993 Additional Assessment was apparently never contested by the Debtor.
The Debtor filed for protection under chapter 7 of the Bankruptcy Code on June 28, 1993. Subsequently, he filed an adversary proceeding seeking a determination as to the dischargeability of his tax debts for, in relevant part, the years of 1982 through 1988 under §§ 507(a)(8) and 523(a)(1)(A) and (B). The matter was submitted to the Bankruptcy Court on stipulations of fact, memorandum of law, affidavits, and exhibits. The Bankruptcy Court determined that the Debtor properly filed his 1982-1985 tax returns by delivering them to the IRS’s Portland, Oregon office, as opposed to thе IRS’s Ogden, Utah servicing center. It was uncontradict-ed that the returns were signed by the Debt- or. Therefore, the Debtor’s debts for taxes for 1982-1985 were.not excepted from discharge under § 523(a)(1)(B)(i). The Bankruptcy Court also found that the Debtor’s amended tax returns for the 1986-1988 tax years, which were filed in the IRS’s servicing center in Ogden, Utah were also “returns” for рurposes of § 523(a)(1)(B)(i). As a result, the Bankruptcy Court refused to deny the Debtor’s discharge as to his 1986 through 1988 taxes under § 523(a)(1)(B)(i). Finally, the Bankruptcy Court determined that all of the Debtor’s tax debts, with the exception of the portion of the Debtor’s 1987 tax debt set in the 1993 Additional Assessment, were not priority debts under § 507(a)(8)(A)(ii) because they were assessed by the IRS mоre than 240 days prior to the Debtor’s petition date. Therefore, the taxes were not excepted from discharge under § 523(a)(1)(A). Since the debt established in the 1993 Additional Assessment was assessed by the IRS within 240 days of the Debtor’s petition date, it was held to be a priority claim under § 507(a)(8)(A)(ii), and therefore nondischargeable under § 523(a)(1)(A).
Since this matter was submitted to the Bankruptcy Court on stipulations, there are no factual disputes. The IRS contests that portion of the Bankruptcy Court’s Judgment finding that the Debtor’s tax debts for the tax years 1982 through 1986 and 1988 are dischargeable under § 523(a)(1)(B)(i). In addition, the IRS contends that any tax debt owed for the 1987 tax year in excess of the amount of the 1993 Additional Assеssment should be nondischargeable under § 523(a)(1)(B)®.
DISCUSSION
Section 523(a)(1) provides, in pertinent part:
A discharge under section 727 ... does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty—
(B) with respect to which a return, if required—
(i) was not filed; or
(ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition....
11 U.S.C. § 523(a)(1)(B). Exceptions to discharge are to be narrowly construed.
Bellco First Fed. Credit Union v. Kaspar (In re Kaspar),
1. The Debtor’s tax returns for 1982 through 1985 were not “filed” and, therefore, the tax debts for those gеars are nondischargeable under § 523(a)(1)(B)(i).
Because Portland, Oregon was the improper place to file his returns, we find that the Bankruptcy Court erred in determining that the Debtor’s 1982-1985 returns were “filed.” Since, as a matter of law, the returns were not “filed,” the Debtor’s tax debts for those years are nondischargeable under § 523(a)(l)(B)(i).
A tax return is to bе filed (1) in the Internal Revenue District in which is located the legal residence of the debtor, or (2) at the Service Center servicing the district in which the debtor’s residence is located. 26 U.S.C. § 6091. The Wyoming Bankruptcy Court noted that “meticulous compliance with the provisions of the I.R.C. is required and hand delivery to a collection agent has been found insufficient.” Decision at 5 (citing
Espinoza v. Commissioner,
In
McTear,
the issue was whether the debtors had filed their tax returns. The testimony was that the MeTears hand delivered copies of their tax returns to the IRS.
McTear,
Courts have held that filing a return with the wrong IRS agent does not constitute “filing” for statute of limitation purposes.
Winnett v. Commissioner,
The Debtor did not follow the correct procedure when filing his tax returns for 1982 through 1985. As a resident of Wyoming, the Debtor was required to file his tax returns under 26 U.S.C. § 6091 in Wyoming or in Ogdеn, Utah the location of the servicing center for Wyoming. Unfortunately, the Debtor followed his accountant’s advice and delivered his returns for 1982 through 1985 to an IRS office in Portland, Oregon. Therefore, the Debtor’s returns for 1982 through 1985 were not “filed,” and are nondischargeable under § 523(a)(1)(B)(i).
The IRS additionally argues that the returns delivered to the Portlаnd office were not signed. The only evidence before the Trial Court was that those returns delivered to the IRS Service Center in Portland, Oregon were signed. Thus, the Bankruptcy Court’s finding that the returns were signed is not clearly erroneous and this argument must fail.
2. The Debtor’s tax returns for 1986 through 1988 were “filed,” and therefore the Debtor’s tax debts for those yeаrs (except for a portion of the 1987 tax debt held to be nondischargeable under §§ 507(a)(8) and 523(a)(1)(A)) are not excepted from discharge under § 523(a)(l)(B)(i).
The Bankruptcy Court held that the Debtor’s tax returns for 1986 through 1988, which were filed in Ogden, Utah were “filed,” and therefore the Debtor’s tax debts for those years (with the exception of the portion of the Debtor’s 1987 tax debt set under the 1993 Additional Assessment, which is undisputably nondischargeable under §§ 507(a)(8) and 523(a)(1)(A)) were not excepted from discharge under § 523(a)(1)(B)(i). In so doing, the Bankruptcy Court rejected the IRS’s argument, the same argument that it makes on appeal, that the returns filed for the Debt- or were amended returns or. claims for refunds, not thе original returns, and such returns are not deemed filed returns for purposes of § 523(a)(1)(B)(i). We conclude that the Bankruptcy Court did not err in finding that these tax debts were not excepted from discharge under § 523(a)(1)(B)(i).
It is undisputed that substitute returns filed by the IRS on behalf of a taxpayer, such as the substitute returns filed by the IRS in this case, are not “returns” for § 523(a)(l)(B)(i) purposеs.
Bergstrom v. United States (In re Bergstrom),
Relying on
Arenson v. United States Through IRS,
Further, the IRS’s argument requires a departure from the strict statutory language of § 523(a)(1)(B)(i) which does not base the discharge of taxes on whether a return was filed prior to assessment. Such departures have been disfavored in the context of dischargeability of taxes. See e.g., In re Smith, 96 F.3d 800 , 802 (6th Cir.1996) (“We have been rather consistent in denying ‘equitable’ pleas to disregard the strict timing rules of the Tax and Bankruptcy Codes”).
Second, 11 U.S.C. § 523(a)(1)(B)(ii) provides а time requirement for filing a return for dischargeability purposes. In this section, the “2-year rule”, Congress dealt specifically with the issue of when a return must be filed in order for the tax liability for that year to be dischargeable. The section requires filing of a return more than two years prior to the petition date. The section makes nondisсhargeable any tax from a required return which:
(ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition;
11 U.S.C. § 523(a)(1)(B)(ii).
This 2-year rule sets a time line which debtors must observe to gain discharge of their taxes. The section does not include any language concerning the assessment of the tax. Instead, the section creates a bright-line rule which says that if the debt- or’s return was filed less than two years pre-petition, the associated taxes are non-dischargeable. Congress chose not to place significance on the time of assessment. This intent is clear when considering that Congress was aware of the role of assessment in dischargeability by virtue of the requirements of 11 U.S.C. § 607(a)(8)(A)(ii).
When interpreting a statute, the court must first look to the statutory language.
Dalton v. IBS,
Congress specifically excluded any reference to assessment in § 523(a)(l)(B)(i). The Court has to assume that was Congress’ intent.
Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership,
In so holding, we note that numerous courts have relied on the definitiоn of “return” established by the Supreme Court in
Germantown Trust Co. v. Commissioner,
CONCLUSION
Accordingly, for the reasons set forth herein, the decision of the Bankruptcy Court regarding the dischargeability of the Debt- or’s tax debts for 1986 through 1988 is affirmed, and its decision regarding the dis-chargeability of the Debtor’s tax debts for 1982 through 1985 is reversed.