Couple Liable for Balance of Unpaid Taxes After Bankruptcy Discharge

SAM R. CAMPAGNA and
ROSE MARIE CAMPAGNA,
Plaintiffs,
v.
INTERNAL REVENUE SERVICE,
Defendant.

(IN THE MATTER OF: SAM R. CAMPAGNA and ROSE MARIE CAMPAGNA, Debtor(s).)

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEBRASKA

CHAPTER 13

ORDER

This matter is before the court on the IRS’s motion for summary judgment (Fil. No. 24) and resistance by the debtors (Fil. No. 26). Albert P. Burnes represents the debtors, and Douglas R. Semisch represents the IRS. Evidence and briefs were filed and, pursuant to the court’s authority under Nebraska Rule of Bankruptcy Procedure 7056-1, the motion was taken under advisement without oral arguments.

The debtors completed their Chapter 13 plan in 2014 and obtained a discharge. The plan included payments on the IRS’s amended claim for federal income taxes for 2003, 2004, 2005, and 2006. The debtors believe the IRS’s priority claim and unsecured claim were fully paid through the plan. The IRS, however, believes otherwise and has commenced steps to collect the amount due on the 2005 tax liability. The debtors filed this adversary proceeding to enforce the automatic stay and discharge order against the IRS. The IRS has moved for summary judgment.

The motion is granted.

Summary judgment is proper if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) (made applicable to adversary proceedings in bankruptcy by Fed. R. Bankr. P. 7056); see, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). On a motion for summary judgment, "facts must be viewed in the light most favorable to the nonmoving party only if there is a ‘genuine’ dispute as to those facts." Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (quoting Scott v. Harris, 550 U.S. 372, 380 (2007)). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Id. (quoting Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

The parties agree on the following facts:

The parties differ on whether the amount of taxes in the amended proof of claim reflect credit for offsets resulting from the IRS’s retention of certain refunds owed to the debtors, and the IRS asserts it was not properly served with the debtors’ objection to its amended proof of claim. The parties identify the issues in the adversary proceeding as the calculation of the appropriate amount of the IRS’s claim and whether any portion remained unpaid at the completion of the plan; whether the IRS was properly served with the objection to the amended proof of claim; whether the allowance of a claim in an incorrect amount extinguishes the IRS’s claim for the remainder due; and whether the 2005 tax liability is non-dischargeable.

The IRS’s evidence shows the assessed taxes, credits, penalties, interest, and payments for each year from 2003 through 2007. When all the additions and subtractions are accounted for, the only remaining balance due is $3,984.16 for the debtors’ 2005 tax liability. This is what the IRS is attempting to collect.

With regard to the matter of whether the IRS was properly served with notice of the debtors’ objection to the amended claim, the local rules of this court in effect when the bankruptcy case was filed provided that notice of an objection to claim was to be served on the United States Attorney General, the United States Attorney for the District of Nebraska, and the IRS at a post office box in Philadelphia, PA. Neb. R. Bankr. P. 9013-1.G., 2002-2, and App. B (effective date March 15, 2008). The IRS’s amended proof of claim listed the same Philadelphia post office box as the address where notices should be sent. Despite this, the debtors served the objection on the IRS’s Omaha office and on the local U.S. Attorney.

The court need not decide here whether defective notice bars the IRS from collecting its debt. The issue of proper service is merely tangential to the real issue in the case, which is whether the 2005 tax liability was discharged or whether the IRS may continue its collection efforts. Regardless of whether the IRS had proper notice¹, the debt survives discharge. See 11 U.S.C. §§ 1328(a)(2) and 523(a)(1)(B)(ii). When tax returns are filed both late and less than two years before bankruptcy, the exception from discharge for the resulting debt "allows ‘the [IRS] a reasonable time to collect the tax’ because ‘[u]ntil [a] return is filed, the [IRS] cannot be expected to take action to assess or collect the tax.’" Reuland v. IRS (In re Reuland), 591 B.R. 342, 346 (Bankr. N.D. Ill. 2018) (quoting Greenstein v. Ill. Dep’t of Revenue (In re Greenstein), 95 B.R. 583, 585 (Bankr. N.D. Ill. 1989)). "The Bankruptcy Code is, in effect, ‘making a policy decision in favor of the tax collector over the debtor’s need for sufficient property to make a fresh start.’" Id. (quoting Etheridge v. Illinois, 127 B.R. 421, 422 (C.D. Ill. 1989)).

On a motion for summary judgment, the movant bears the initial responsibility of informing the court of the basis for the motion, and must identify those portions of the record which the movant believes demonstrate the absence of a genuine issue of material fact. Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). If the movant does so, the non-movant must respond by submitting evidentiary materials that set out specific facts showing the existence of a genuine issue of material fact. Id. The non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts," and must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). In order to show that disputed facts are material, the party opposing summary judgment must cite to the relevant substantive law in identifying facts that might affect the outcome of the suit. Quinn v. St. Louis County, 653 F.3d 745, 751 (8th Cir. 2011).

Here, the evidence submitted by the debtors consists of filings from their bankruptcy case and the IRS’s claims. The debtors did not submit a brief in support of their objection to the motion. The debtors have not established the existence of any material factual issues. The IRS provided an accounting showing how the taxes, penalties, and interest were calculated and what payments were applied to them, which demonstrates that the debtors erroneously computed the amounts due. The automatic stay expired when the debtors were discharged, 11 U.S.C. § 362(c)(2)(C), so the IRS is not in violation of the stay. The discharge injunction of § 524 is not effective against non-dischargeable debts, which is what is at issue here. For these reasons, the IRS’s motion for summary judgment is granted.

IT IS ORDERED: The IRS’s motion for summary judgment (Fil. No. 24) is granted. Separate judgment will be entered.

DATED: September 19, 2019.

BY THE COURT:

Thomas L. Saladino
Chief Judge

Notice given by the Court to:

Movant (*) is responsible for giving notice to other parties if required by rule or statute.