PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED _______________ U.S. COURT OF APPEALS ELEVENTH CIRCUIT 12/09/99 No. 99-10668 THOMAS K. KAHN _______________ CLERK
D. C. Docket No. 98-56-CV-3
IN RE: COSTAS J. GUST, Debtor.
COSTAS J. GUST, Plaintiff-Appellant,
versus
UNITED STATES OF AMERICA, acting by and through the Internal Revenue Service,
Defendant-Appellee.
______________________________
Appeal from the United States District Court for the Southern District of Georgia ______________________________ (December 9, 1999)
Before BIRCH and HULL, Circuit Judges and HODGES*, Senior District Judge.
* Honorable William Terrell Hodges, Senior U.S. District Judge for the Middle District of Florida, sitting by designation. PER CURIAM:
We adopt the well-reasoned and thorough opinion of the district court in this
case. The opinion of the district court is annexed hereto.
AFFIRMED.
2 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF GEORGIA DUBLIN DIVISION
IN RE: * COSTAS J. GUST, * Chapter 13 Case, * No. 97-30457 Debtor. * ______________________________* * * COSTAS J. GUST, * * Appellant, * * v. * CIVIL ACTION * CV 398-56 UNITED STATES OF AMERICA * acting by and through the * INTERNAL REVENUE SERVICE, * * Appellee. * _________
O R D E R _________
The Appellant, Costas J. Gust, appeals the Bankruptcy Court’s Order, In re Gust, 229 B.R. 44 (Bankr. S.D. Ga. 1998), overruling
his objection to the Claim of the United States of America acting
by and through the Internal Revenue Service (IRS). Jurisdiction to
hear this appeal exists pursuant to 28 U.S.C. § 158 (a)(1). Upon
review of the proceedings in the court below, the briefs submitted
by the parties, and relevant statutory and case law, the Order of
the Bankruptcy Court is hereby AFFIRMED.
I. BACKGROUND
The facts in this case are not in dispute. During the 1980s,
Costas J. Gust (Gust), was an officer of Con-Fleet Enterprises,
Inc. (Con-Fleet). From June 1986 to March 1989, Con-Fleet failed to pay all of its Form 941 federal employment tax obligations.
Con-Fleet went out of business. Because Gust was a responsible
officer, on May 25, 1989, the IRS assessed a Trust Fund Recovery
Penalty against him pursuant to Section 6672 of the Internal
Revenue Code. This penalty was assessed in the amount of
$18,413.85, plus statutory interest. Subsequently, on August 16,
1989, the IRS filed a Notice of Federal Tax Lien against Gust’s
real and personal property.
On August 29, 1994, Gust filed for Chapter 7 bankruptcy
protection, Case No. 94-30233, in the United States Bankruptcy
Court for the Southern District of Georgia. At the time of the
filing, Gust did not own any real property, but he did list on his
bankruptcy schedules $19,821.00 in personal property, all of which
was exempt. Thus, as a no asset case, the creditors were not
required to file claims. Gust received a discharge on February 9,
1995.
On April 13, 1995, the IRS filed a corrected Notice of Federal
Tax Lien with respect to the original lien. This correction
extended the effective period of the lien from six years to ten
years, making the lien effective through June 24, 1999.
Two years later, Gust filed the current Chapter 13 bankruptcy
case. Again, Gust did not list any real property on his bankruptcy
schedules. Gust, however, listed $51,420.00 in personal property
of which he claimed exemptions totaling $47,320.00. The IRS timely
filed a proof of claim on December 16, 1997, and amended the claim
on May 29, 1998. In the amended proof of claim, the IRS listed a
2 secured claim for $50,255.83 and an unsecured priority claim for
$2,356.43 with a total claim for $52,612.26. The secured claim
included the Trust Fund Recovery Penalty of $18,413.85, plus
accrued interest in the amount of $31,841.98.
Gust filed an objection to the IRS’s claim contending that the
claim was discharged in the Chapter 7 petition because the
Bankruptcy Code § 523(a)(1)(A) 1 only excepts from a Chapter 7 2 discharge debts for taxes as specified in § 507(a)(8).
Specifically, Gust argued that the secured debt was discharged
because § 507(a)(8) only excepts unsecured claims. The Bankruptcy
Court disagreed. This appeal followed. II. ANALYSIS
On appeal, this Court cannot set aside factual findings of the
Bankruptcy Court unless they are clearly erroneous. Bankruptcy
Rule 8013; In re Club Assocs., 951 F.2d 1223 (11th Cir. 1992). However, legal conclusions by the Bankruptcy Court are reviewed by
1 11 U.S.C. § 523(a)(1)(A) provides: (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-- (1) for a tax or a customs duty-- (A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed; (emphasis added). 2 11 U.S.C. 507(a)(8)(c) provides: (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. (emphasis added).
3 this Court de novo. Id. at 1228; In re Thomas, 883 F.2d 991 (11th
Cir. 1989).
A. DISCHARGEABILITY OF TAX DEBTS UNDER 11 U.S.C. § 523
Gust argues that the Bankruptcy Court erred in concluding that
§ 523 (a)(1)(A) excepts secured claims from discharge. Section 727
of the Bankruptcy Code provides that, “except as provided in
section 523 of this title, a discharge under subsection (a) of this
section discharges the debtor from all debts that arose before the
date of the order for relief under this chapter.” 11 U.S.C. §
727(b). Under section 523 of the Bankruptcy Code, “ a discharge
under section 727 . . . of this title does not discharge an
individual debtor from any debt . . . for a tax . . . of the kind
and for the periods specified in section 507(a)(2) or 507(a)(8) of
this title, whether or not a claim for such tax was filed or
allowed.” Id. at § 523(a)(1)(A). In other words, these sections
clearly state that taxes listed in §§ 507(a)(2);(8) are not
discharged.
Section 507 of the Bankruptcy Code establishes priorities for
claims and expenses. Id. at § 507(a). Specifically, § 507(a)(8)
gives eighth-level priority to “ 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.” Id. at § 507(a)(8)(C)
(emphasis added). The Trust Fund Recovery Penalty for employment
taxes is a “tax of the kind” found in § 507(a)(8)(C). In re Haas,
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PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED _______________ U.S. COURT OF APPEALS ELEVENTH CIRCUIT 12/09/99 No. 99-10668 THOMAS K. KAHN _______________ CLERK
D. C. Docket No. 98-56-CV-3
IN RE: COSTAS J. GUST, Debtor.
COSTAS J. GUST, Plaintiff-Appellant,
versus
UNITED STATES OF AMERICA, acting by and through the Internal Revenue Service,
Defendant-Appellee.
______________________________
Appeal from the United States District Court for the Southern District of Georgia ______________________________ (December 9, 1999)
Before BIRCH and HULL, Circuit Judges and HODGES*, Senior District Judge.
* Honorable William Terrell Hodges, Senior U.S. District Judge for the Middle District of Florida, sitting by designation. PER CURIAM:
We adopt the well-reasoned and thorough opinion of the district court in this
case. The opinion of the district court is annexed hereto.
AFFIRMED.
2 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF GEORGIA DUBLIN DIVISION
IN RE: * COSTAS J. GUST, * Chapter 13 Case, * No. 97-30457 Debtor. * ______________________________* * * COSTAS J. GUST, * * Appellant, * * v. * CIVIL ACTION * CV 398-56 UNITED STATES OF AMERICA * acting by and through the * INTERNAL REVENUE SERVICE, * * Appellee. * _________
O R D E R _________
The Appellant, Costas J. Gust, appeals the Bankruptcy Court’s Order, In re Gust, 229 B.R. 44 (Bankr. S.D. Ga. 1998), overruling
his objection to the Claim of the United States of America acting
by and through the Internal Revenue Service (IRS). Jurisdiction to
hear this appeal exists pursuant to 28 U.S.C. § 158 (a)(1). Upon
review of the proceedings in the court below, the briefs submitted
by the parties, and relevant statutory and case law, the Order of
the Bankruptcy Court is hereby AFFIRMED.
I. BACKGROUND
The facts in this case are not in dispute. During the 1980s,
Costas J. Gust (Gust), was an officer of Con-Fleet Enterprises,
Inc. (Con-Fleet). From June 1986 to March 1989, Con-Fleet failed to pay all of its Form 941 federal employment tax obligations.
Con-Fleet went out of business. Because Gust was a responsible
officer, on May 25, 1989, the IRS assessed a Trust Fund Recovery
Penalty against him pursuant to Section 6672 of the Internal
Revenue Code. This penalty was assessed in the amount of
$18,413.85, plus statutory interest. Subsequently, on August 16,
1989, the IRS filed a Notice of Federal Tax Lien against Gust’s
real and personal property.
On August 29, 1994, Gust filed for Chapter 7 bankruptcy
protection, Case No. 94-30233, in the United States Bankruptcy
Court for the Southern District of Georgia. At the time of the
filing, Gust did not own any real property, but he did list on his
bankruptcy schedules $19,821.00 in personal property, all of which
was exempt. Thus, as a no asset case, the creditors were not
required to file claims. Gust received a discharge on February 9,
1995.
On April 13, 1995, the IRS filed a corrected Notice of Federal
Tax Lien with respect to the original lien. This correction
extended the effective period of the lien from six years to ten
years, making the lien effective through June 24, 1999.
Two years later, Gust filed the current Chapter 13 bankruptcy
case. Again, Gust did not list any real property on his bankruptcy
schedules. Gust, however, listed $51,420.00 in personal property
of which he claimed exemptions totaling $47,320.00. The IRS timely
filed a proof of claim on December 16, 1997, and amended the claim
on May 29, 1998. In the amended proof of claim, the IRS listed a
2 secured claim for $50,255.83 and an unsecured priority claim for
$2,356.43 with a total claim for $52,612.26. The secured claim
included the Trust Fund Recovery Penalty of $18,413.85, plus
accrued interest in the amount of $31,841.98.
Gust filed an objection to the IRS’s claim contending that the
claim was discharged in the Chapter 7 petition because the
Bankruptcy Code § 523(a)(1)(A) 1 only excepts from a Chapter 7 2 discharge debts for taxes as specified in § 507(a)(8).
Specifically, Gust argued that the secured debt was discharged
because § 507(a)(8) only excepts unsecured claims. The Bankruptcy
Court disagreed. This appeal followed. II. ANALYSIS
On appeal, this Court cannot set aside factual findings of the
Bankruptcy Court unless they are clearly erroneous. Bankruptcy
Rule 8013; In re Club Assocs., 951 F.2d 1223 (11th Cir. 1992). However, legal conclusions by the Bankruptcy Court are reviewed by
1 11 U.S.C. § 523(a)(1)(A) provides: (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-- (1) for a tax or a customs duty-- (A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed; (emphasis added). 2 11 U.S.C. 507(a)(8)(c) provides: (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. (emphasis added).
3 this Court de novo. Id. at 1228; In re Thomas, 883 F.2d 991 (11th
Cir. 1989).
A. DISCHARGEABILITY OF TAX DEBTS UNDER 11 U.S.C. § 523
Gust argues that the Bankruptcy Court erred in concluding that
§ 523 (a)(1)(A) excepts secured claims from discharge. Section 727
of the Bankruptcy Code provides that, “except as provided in
section 523 of this title, a discharge under subsection (a) of this
section discharges the debtor from all debts that arose before the
date of the order for relief under this chapter.” 11 U.S.C. §
727(b). Under section 523 of the Bankruptcy Code, “ a discharge
under section 727 . . . of this title does not discharge an
individual debtor from any debt . . . for a tax . . . of the kind
and for the periods specified in section 507(a)(2) or 507(a)(8) of
this title, whether or not a claim for such tax was filed or
allowed.” Id. at § 523(a)(1)(A). In other words, these sections
clearly state that taxes listed in §§ 507(a)(2);(8) are not
discharged.
Section 507 of the Bankruptcy Code establishes priorities for
claims and expenses. Id. at § 507(a). Specifically, § 507(a)(8)
gives eighth-level priority to “ 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.” Id. at § 507(a)(8)(C)
(emphasis added). The Trust Fund Recovery Penalty for employment
taxes is a “tax of the kind” found in § 507(a)(8)(C). In re Haas,
162 F.3d 1087, 1089 (11th Cir. 1998).
4 Gust premises his objection and appeal on the grounds that
because the IRS’s claim was secured, the claim did not qualify as
an exception to discharge because the introductory clause in
§ 507(a)(8) only references “allowed unsecured claims.” In this
regard, Gust argues that the IRS would only be able to recover
unsecured claims, not the secured claim it is seeking. Although
this position seems illogical, Gust has found nonbinding legal
support for his claim. In support of his position, Gust relies on
the Tenth Circuit Court of Appeals opinion in United States v.
Victor, 121 F.3d 1383 (10th Cir. 1997). The Tenth Circuit in
Victor held that by virtue of the introductory language in §
507(a)(8), § 523(a)(1)(A) includes only allowed unsecured claims
for dischargeability purposes.
Victor was an appeal of two consolidated Chapter 11 bankruptcy
cases concerning the issue of whether the IRS was entitled to post-
petition, pre-confirmation interest on its secured claims--commonly
referred to as “gap period interest.” In both cases, assets were
available for partial satisfaction of the secured creditors. The
IRS participated in the confirmed plans but did not assert claims
for gap period interest. Subsequently, the IRS informed the
debtors that they were liable for gap period interest. In
response, the debtors filed declaratory judgments in the bankruptcy
court seeking a determination as to their liability for that
interest.
The court of appeals conducted a statutory analysis of both
§ 523(a)(1)(A) and § 507(a)(8) and recognized that linguistic
5 imperfections arise with the interplay of the two statutes. The
Victor court acknowledged that § 523(a)(1)(A) expressly provides
that the taxes are not dischargeable whether or not a claim for
such tax was filed or allowed. The court also recognized that the
introductory clause in § 507(a)(8) only excepts allowed claims,
which conflicts with § 523(a)(1)(A). Nevertheless, the Victor
court ignored this conflict and applied the “unsecured”
introductory language to § 523(a)(1)(A) dischargeability. Instead
of focusing on the type of “tax”, the Victor court focused on the
type of “claim.” This focus was in error.
Focusing on the type of claim ignores the express language
concerning whether a claim is “allowed.” In choosing to focus on
the type of claim mentioned in the introductory language, the
Victor court noted that the Eleventh Circuit Court of Appeals reached the opposite conclusion in In re Gurwitch, 794 F.2d 584
(11th Cir. 1986). Gurwitch similarly involved a claim made by the
IRS after the confirmation of a Chapter 11 plan. The Victor court
stated that the Eleventh Circuit “never considered the introductory
language of § 507(a)(7) and thus avoided th[is] linguistic
peril[].”3 Victor, 121 F.3d at 1388. One could easily argue,
however, that the Eleventh Circuit did not avoid a linguistic
peril, but instead, the Tenth Circuit created one by its focus on
the type claim.
3 Section 507(a)(7) was renumbered as section 508(a)(8) by the Bankruptcy Reform Act of 1994.
6 The Bankruptcy Court, however, evaluated these seemingly
inconsistent statutes in its Order and stated that
[t]he status of any possible claim for this debt in the Debtor's chapter 7 case is irrelevant for dischargeability purposes. “The plain meaning of legislation should be conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.” There is no ambiguity in § 523(a)(1)(A). Section 523(a)(1)(A) addresses "debt" arising from "a tax", "of the kind" specified in § 507(a)(8), not debt evidenced by a claim described in § 507(a)(8).
In re Gust , 229 B.R. 44, 47 (Bankr. S.D. Ga. 1998) (internal
citations omitted).
The Bankruptcy Court’s decision is consistent with other
opinions addressing this issue. In re Frengel, 115 B.R. 569, 571 (Bankr. N.D. Ohio 1989) (finding that a secured tax claim under §
523(a) is not discharged under § 727(a)); In re Latulippe, 13 B.R.
526 (Bankr. D. Vt. 1981). “While Sec. 507(a)(7) refers to
'unsecured claims', Congress did not intend to make unsecured
claims for taxes nondischargeable and render taxes dischargeable
where the government has imposed a lien on the taxpayers'
property.” Frengel, 115 B.R. at 571. “Congress stated: Whether or
not the taxing authority's claim is secured will also not affect
the claim's nondischargeability if the tax liability in question is
otherwise entitled to priority.” Id. (citing S.Rep. No. 95-989,
95th Cong., 2d Sess. (1978) at pp. 77-78, U.S. Code Cong. & Admin.
News, 1978, pp. 5787, 5863). Similarly, the Latulippe court stated
the it is illogical that Congress intended to make unsecured claims
nondischargeable while rendering a claim dischargeable if the
7 government has sought to enforce payment by creating a lien. In re
Latulippe, 13 B.R. at 527.
While the Bankruptcy Code generally favors a fresh start,
"Congress has made the choice between collection of revenue and
rehabilitation of the debtor by making it extremely difficult for
a debtor to avoid payment of taxes under the Bankruptcy Code." In
re Gurwitch, 794 F.2d at 585-86. Gust’s position contravenes this
policy and would result in illogical outcomes. Under Gust’s
reasoning, the tax debt would be nondischargeable only if the IRS
had done nothing to secure the tax debt because it would be
“unsecured” under § 507(a)(8). Here, the Bankruptcy Court was
correct in concluding that “Section 523(a)(1)(A) addresses 'debt'
arising from 'a tax', 'of the kind' specified in § 507(a)(8), not
debt evidenced by a claim described in § 507(a)(8).” In re Gust, 229 B.R. at 47. III. CONCLUSION
Upon the foregoing it is hereby ORDERED the Bankruptcy Court’s
Order dated September 28, 1998 is AFFIRMED.
ORDER ENTERED at Augusta, Georgia, this _____ day of April,
1999.
__________________________________ CHIEF UNITED STATES DISTRICT JUDGE