UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
LEXINGTON DIVISION
IN RE:
DONNA MARIE BOEHM
DEBTOR CASE
NO. 99-50900
MEMORANDUM
OPINION AND ORDER
This matter is before the Court on the trustees Objection
to Proof of Claim No. 9 Filed by Internal Revenue Service (Doc. #27), and the
Response (Doc. #30) filed by the United States. The trustee seeks to have the claim of the Internal Revenue
Service (IRS) in the amount of $18,245.92 disallowed as a priority
claim. The trustee contends that the
claim is based on a civil penalty which is not granted priority status by 11
U.S.C. §507(a)(8). The trustee further
contends that the proof of claim and attachments thereto provide no
documentation of the debtors status as a person required to collect or
withhold a tax in order for the claim to be granted priority status pursuant to
11 U.S.C. §507(a)(8)(C). The trustee
does not elaborate on his contentions, nor does he provide any support for
them.
The applicable statute, 11 U.S.C. §507(a)(8) provides
in pertinent part,
(a) The
following expenses and claims have priority in the following order:
. . . . . . . .
(8) Eighth, allowed unsecured claims of
governmental units, only to the extent that such claims are for
. . . . . .
(C) a tax required to be collected or
withheld and for which the debtor is liable in whatever capacity;
The
Court believes, however, that the trustees objection implicates the
nondischargeability provision found in 11 U.S.C. §523(a)(7). This section makes a civil penalty other
than a tax penalty nondischargeable.
That section provides that
(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
. . . . . .
(7) to the extent such debt is for a fine,
penalty, or forfeiture payable to and for the benefit of a governmental unit,
and is not compensation for actual pecuniary loss, other than a tax penalty
(A) relating to a tax of a kind not
specified in paragraph (1) of this subsection; or
(B) imposed with respect to a transaction
or event that occurred before three years before the date of the filing of the
petition;
If
the penalty which the IRS seeks to recover as an unsecured priority claim
were to be treated in this manner, the disputed tax liability would be
classified as a general unsecured claim, as set out below.
The IRS contends that its claim is for a trust fund
recovery penalty against the debtor as a responsible person for the unpaid
withholding taxes of Custom Cleaning of Kentucky, Inc. (Custom Cleaning) for
the periods ending June 30, 1996, September 30, 1996, and March 31, 1998. As such, it is entitled to priority pursuant
to 11 U.S.C. §507(a)(8)(C). As stated
in In re Mosbrucker, 227 B.R. 434 (8th Cir.BAP 1998),
The
[debtors] did not remit employee withholding taxes for tax years 1982 and 1983
to the IRS, which resulted in assessment of tax liability under 26 U.S.C.
§6672. The [debtors] argue that the
civil penalties resulting from the failure to remit these taxes are the same
as any other penalty and should be classified as a penalty under the plain
language of 11 U.S.C. §507(a)(7)(B), ...
The [debtors] interpretation would result
in a classification of the disputed tax as a general unsecured claim, which
would have no priority status and would be discharged upon completion of their
Chapter 12 Plan.
...[T]he United States Supreme Court in United
States v. Sotelo, 436 U.S. 268, 282, 98 S.Ct. 1795, 1803, 56 L.Ed.2d 275
(1978), held that tax liability imposed upon a debtor under 26 U.S.C. §6672 is
nondischargeable under Section 17a(1)(e) of the Bankruptcy Act. The Sotelo decision was effective
codified in section 507(a)(7)(C) [now section 507(a)(8)(C)] upon enactment of
the Bankruptcy Code. ....
In Sotelo the debt in question
entailed employee withholding taxes that the employer was required to pay to
the IRS. The Sotelo court held
that this debt was a tax at the time it was collected by the debtor, and the
fact that the funds are referred to as a penalty when the Government later
seeks to recover them does not alter their essential character as taxes for
purposes of the Bankruptcy Act, at least in a case in which ... the §6672
liability is predicated on a failure to pay over, rather than a failure
initially to collect the taxes. Sotelo,
436 U.S. at 275, 98 S.Ct. at 1800.
At 436-437. Documents filed in this case show that
Custom Cleaning was an entity in whose name the debtor did business, apparently
as a cleaning service. The debtor
included the debt to the IRS for 3-31-98 taxes on her Schedule E - Creditors
Holding Unsecured Priority Claims. The
debtor apparently treated the IRSs claim as a trust fund recovery penalty
against her as a responsible person.
The second prong of the trustees objection has to do
with the attachment to the IRSs proof of claim. It identifies the kind of tax owed only as a civil
penalty. It does not mention Custom
Cleaning, or specifically identify the penalty as one for trust fund recovery
against the debtor as a responsible person.
The IRS argues, however, that it is not required to provide supporting
documentation for its claim. Case law
also supports the IRS in this regard.
The trustees objection is apparently based on FRBP
3001(c) which states:
(c)
Claim based on a writing. When a claim,
or an interest in property of the debtor securing the claim, is based on a
writing, the original or a duplicate shall be filed with the proof of
claim. If the writing has been lost or
destroyed, a statement of the circumstances of the loss or destruction shall be
filed with the claim ....
In In
re Hollars, 198 B.R. 270 (Bkrtcy.S.D.Ohio 1996), the Chapter 13 debtor had
objected to the IRSs claim, asserting in part that the proof of claim did not
comply with the requirements of FRBP 3001(c) as there was no documentation
attached to it. The court stated:
Debtor
challenges the claim because no supporting documentation was attached. In this position, debtor is mistaken. Quite simply, the claim of the IRS is not
founded upon a writing, but rather is based upon the United States Constitution
and federal legislation which grants the federal government the power to lay
and collect taxes on income. ... Accordingly, the supporting documentation
requirement of Rule 3001(c) is not applicable in the instant case. (Cites omitted.)
At
272. In fact the IRS did provide
documentation of its claim in the case at bar, although not with the degree of
specificity the trustee contends is necessary.
According to the holding in Hollars, the IRS was not required to any
documentation to its claim.
In consideration of all of the foregoing, it is the
opinion of this Court that the trustees Objection to Proof of Claim No. 9
Filed by Internal Revenue Service should be overruled and that the claim of the
Internal Revenue Service in the amount of $18,245.92 should be allowed as a
priority claim.
It is hereby so ordered this day of September, 2000.
By
the Court -
Judge
William S. Howard
Copies to:
J. James Rogan, Esq., Trustee
Aneida P. Winston, Esq.