United States v. James W. WhiteUnited States v. James W. White
Case Information
*1 Before ANDERSON, HULL and CUDAHY,* Circuit Judges.
ANDERSON, Circuit Judge:
_________________
* Hоnorable Richard Cudahy, United States Circuit Judge for the Seventh Circuit, sitting by designation.
The United States appeals the invalidation of its assessment of a tax liability against James White following confirmation of White’s Chapter 11 bankruptcy plan. We reverse and direct entry of summary judgment for the Government.
I. BACKGROUND
A. Facts
White was president and sole shareholder of WCC, Inc. On May 3, 1993, White filed a petition for reorganization under Chapter 11 оf the Bankruptcy Code. The bankruptcy court confirmed his reorganization plan on May 18, 1994. The plan provided that the title and ownership of the estate’s assets would revest in White as of the “Effective Date,” defined as “the date sixty (60) days following the date after which the Order of Confirmation is no longer subject to appeal and on which date no such appeal is pending,” or July 17, 1994. The final decreе was entered in White’s Chapter 11 proceeding on December 12, 1994.
On July 4, 1994, the IRS assessed a liability in the total amount of
$109,724.30 pursuant to
On May 3, 2005, the district court entered judgment for White and the Government timely filed this aрpeal.
B. Statutory Framework
Before discussing the merits of the parties’ arguments, it will be useful to
outline statutory provisions which were in effect and governed the 1994 events in
this case. A debtor who has filed for Chapter 11 bankruptcy enjoys an automatic
stay against actions to enforce, collect, assess or recover claims against the debtor
or against property of the estate.
This case involves the application of
debtor here was effected by confirmation of the plan pursuant to
*5
II. DISCUSSION
We review a district court’s grant of summary judgment de novo.
Morris Communicatiоns Corp. v. PGA Tour, Inc.,
ruling: (A) that the district court correctly held that the confirmation of White’s reorganization plan, although it discharged the debtor, had no effect on the automatic stay with respect to the tax because the tax was a non-dischargeable debt; (B) that the automatic stay remained in effect and the assessment was thus void because the effective date of the plan was delayed until after the assessment; [5] and (C) that the district court correctly held alternatively that the assessment was an act against the property of the estate and thus the autоmatic stay continued until the property revested in the debtor which occurred upon the effective date of the plan (i.e., after the assessment), all of which meant that the automatic stay continued until after the assessment and thus the assessment was void. We address and reject each argument in turn, and reverse the district court. [6] *6 A. The District Court Erred in Holding that the Automatic Stay Against Collection of Non-dischargeable Debts is Not Terminated After a Grant of Discharge.
As noted above, the relevant statutory provisions provide that confirmation of the plan discharges the debtor, and that discharge of the debtor lifts the [7]
automatic stay. White argues, and the district court so held, that the confirmation
[8]
of the plan in this case, and the consequent discharge of the debtor, had no effect
at all with respеct to the instant tax because the instant tax is a non-dischargeable
debt. In other words, White argues that, although the debtor was discharged with
respect to dischargeable debts, the discharge had no effect at all with respect to the
instant non-dischargeable taxes. This position finds no support in the case law,
and, indeed, is contrary to the law of this Circuit. It is generally recognized that
once cоnfirmation has been entered, and a discharge granted, holders of non-
dischargeable debts can seek repayment from the debtor for the original amount.
See In re Gurwitch,
seek collection of tax liabilities after confirmation of bankruptcy plan and before
closure of the case); see also In re DePaolo,
In addition, the rule suggested by the district court contradicts a plain
reading of the relevant statutes. Section 1441 of the Bankruptcy Code states that
“the confirmation of a plan . . . discharges the debtor from any [dischargeable]
debt” and it does not make the discharge contingent upon the typеs of debts the
debtor owes. A debtor cannot receive different discharges for different types of
debt but can be granted only a single discharge applicable to all debts. In re
Cardillo,
B. The Plan Did Not Provide for the Effective Date to be the Date of Discharge.
The validity of the IRS’ assessment depends upon whether a discharge was granted on the date of the plan’s confirmation, May 18, 1994, which was prior to the date of assessment, July 4, 1994. The plan did not contain any provisions explicitly stating that the discharge would take place after confirmation, but the plan did say that it would take effect sixty days after the Order of Confirmation could no longer be appealed, i.e. July 17, 1994. Thus, we must dеtermine whether a discharge was granted upon confirmation of the plan or upon the plan’s effective date. We conclude that a plan’s identification of a post-confirmation effective date is not sufficient to delay the grant of discharge.
We begin by noting that the statutory language does not explicitly refer to an effective date. It does, however, allow that confirmation of a plan need not *9 grant the debtor a discharge if the plan provides otherwise. Thus, White can prevail only if the plan’s stipulation of a post-confirmation effective date satisfies the “otherwise provided” condition. We hold that it does not.
First, we note that while the Bankruptcy Code makes numerous references
to the effective date of the reorganization plan, it doеs not in the instant provision.
If the plan could delay the grant of discharge merely by having a post-
confirmation effective date, then Congress’ statement that “the confirmation of a
plan . . . discharges the debtor from any debt . . .” would be in error. The reason
is that, under this interpretation of
Services, L.L.C.,
Second, our interpretation of
*11 It is true that a plan can delay the payment of nondischargeable debts, but such provisions require the approval of the bankruptcy judge who must consider the merits of such provisions in deciding whether to confirm the plan. But we cannot conclude that court approval of a post-confirmation effective date necessarily entails a further approval of delayed payments to holders of nondischargeable debts. The merits of allowing a debtor to delay payments to holders of debt pursuant to the bankruptcy plan, and the merits of allowing the same debtor to delay payments to holders of nondischargeable debt are quite different. As indicated above, payment of nondischargeable debts has priority.
Finally, holders of debts pursuant to thе plan face formal constraints that holders of nondischargeable debts do not. Holders of debt pursuant to the plan cannot move for collection until the plan becomes effective because the plan defines their rights and the terms of repayment. But by definition, holders of nondischargeable debts need not rely on the terms of the plan to vindicate their rights to collection. In addition, if such creditors hold debts against the debtor, rather than the estate, they can rely on assets not in the estate for payment, such as the debtor’s after-acquired income, and so need not wait until the effective date, when the bankruptcy estate will revest in the debtor. As discussed in the next section, the IRS assessment was an action against White’s person, not the estate, *12 and so the IRS’ right of collection was not dependent upon the plan’s having taken effect.
C.
The Assessment was Made Against White’s Person, Not His Estate
White argues, and the district court agreed in an alternative holding, that the
IRS assessment is invalid because it was made before the plan revested the estate
in him. This fact is not significant, however, because the tax assessment was
made against White’s person, not the estate. In re Armstrong,
(Bankr. N.D. Tex. 1997). While
*13
An IRS tax assessment is clearly an action against a debtor. It is not a lеvy
against property but merely a bookkeeping entry noting a taxpayer’s delinquency.
After the assessment, the taxpayer is provided with notice and a demand for
payment. If the taxpayer remains delinquent, then the IRS may proceed against
the debtor’s property. As the government recognizes, this means that the IRS
cannot proceed against property in the bankruptcy estate beсause the debtor does
not yet own that property. But in this case, the IRS has not taken any action
against the property of the estate. Instead, it has only made an assessment against
White. Thus
D. The Government Is Entitled to Summary Judgment Because White’s Failure to Pay Taxes Was Willful And Because Its Assessments Were Not Erroneous
(2) the stay of any other act under subsection (a) of this section continues until the earliest of--
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied.
The term, “any other act” in
Having decided that the IRS assessment is valid, we further conclude that the Government is entitled to summary judgment.
1. White has adduced no evidence to disprove willfulness.
It is undisputed that as the president of WCC, Inc., White was responsible
for withholding and paying to the IRS the income and social security taxes of his
employees. Though a “responsible person” under
established as a ‘responsible person,’ he has the burden of disproving willfulness.”) (internal citations omitted). White has adduced no evidence to disprove willfulness and thus, the Government is entitled to prevail on this claim.
2. The IRS assessment was not erroneous.
In reducing an assessment to judgment, the Government must first prove
that the assessment was properly made. Palmer v. United States,
such a presumption. Roberts v. C.I.R.,
While White identifies several purported errors in the Form, none of them seriously impeach the accuracy of the Government’s allegations. The most obvious error in the Form 4340 is its showing of a final balance of $0. The reason for the erroneous balance was an error in the computer program that had completed the form. The computer program assumed that the statute of limitations had expired because it did not recognize that White’s automatic stay had delayed the running of the statute of limitations. Thus, the final balance is little more than a typographical error. White has offered no evidence to suggest that the preceding entries themselves, listing the unpaid taxes, are incorrect.
As for the other alleged deficiencies in the Form to which White has pointed – such as the one-digit discrepancy between White’s Social Security number as listed on the Certificate of Assessment itself and the number as listed on the Certificate of Official Record, certifying the assessment – they are similarly insignificant and do not address the issue of whether the IRS has miscalculated the amount that it claims White owes.
We also reject White’s contention that the IRS is required to provide a Form
4340 for every quarter that it claims taxes were delinquent. Instead, a Form for the
most recent quarter with a total for the delinquencies of the past quarters is
*16
sufficient for the Government to meet its burden of proving the validity of its
assessment. See Purcell v. United States,
III. CONCLUSION For the foregoing reasons, we reverse the judgment of the district court and remand with instructions to enter summary judgment for the Govеrnment.
REVERSED.
Notes
[1] We note that the precedential scope of our holding is quite limited. After White
filed his bankruptcy petition, the statutory provisions relevant to this case were amended so that
the specific questions presented in this appeal no longer arise under the amended versions. In
1994, Congress amended
[2] Of course, under current law, the automatic stay would have no effect on tax
assessments. See
[3]
[4] Because the district court held that the IRS’ July 4, 1994, assessment of the tax was void as a violation of the automatic stay, and because the IRS made no subsequеnt assessment, the district court also ruled that the statute of limitations barred any assessment. However, the district court’s statute of limitations ruling was dependent upon its holding that the assessment was void. Our holding that the IRS’ assessment was valid means that the district court also erred with respect to its statute of limitations holding.
[5] The district court did not rely upon this argument.
[6] Our analysis focuses primarily on the language of the relevant statutory provisions. However, our analysis is supported by the only case which we have located that is squarely on point. See Gehri v. United States, 78 AFTR2d 96-6711 (B.A.P. 9 Cir. 1996) (unpublished) (holding that IRS could validly assess a tax after confirmation of the plan of reorganization discharged the debtor and lifted the automatic stay).
[7]
[8]
[9] The statute reads in relevant part:
(a) A discharge in a case under this title–
. . .
(2) operates as an injunction against the commencement or continuation of
an action, the employment of process, or an act, to collect, recover or
offset any . . . debt [discharged under section 727, 944, 1141, 1228, or
1328 of this title] as a pеrsonal liability of the debtor, whether or not
discharge of such debt is waived.
[10]
[11] On the basis of this argument, we also reject White’s contention that because the plan relies on assets outside of the property of the estate, such as after-acquirеd income, to repay debt holders, it implicitly contemplates discharge only upon its consummation. If Congress had intended to condition discharge on a plan’s completion, rather than its confirmation, it presumably would have said so.
[12] This distinguishes the instant case from In re Wills,
[13] 11 U.S.C. 362(c) reads in relevant part: (1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate;