Curtis v. United States Department of the Treasury

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 22, 2025
• Docket: 24-2566
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 22 2025 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In RE: MALCOLM CURTIS; JUDITH No. 24-2566 CURTIS, D.C. Nos. 5:22-cv-01966-SSS Debtors. 5:22-cv-02159-SSS --------------------------- MEMORANDUM*

MALCOLM CURTIS; JUDITH CURTIS, husband and wife, in their capacity as Debtors-in-Possession, as Trustee for this Bankruptcy Estate,

Plaintiffs - Appellants,

v.

UNITED STATES DEPARTMENT OF THE TREASURY; UNITED STATES INTERNAL REVENUE SERVICE,

Defendants - Appellees.

Appeal from the United States District Court for the Central District of California Sunshine Suzanne Sykes, District Judge, Presiding

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Submitted May 20, 2025** Pasadena, California

Before: GRABER, WARDLAW, and JOHNSTONE, Circuit Judges.

Malcolm and Judith Curtis (“Debtors”) bring two consolidated appeals

associated with their Chapter 11 bankruptcy. Debtors challenge the bankruptcy

court’s pretrial sanctions and the court’s final judgment sustaining the IRS’s

deficiency determination and tax assessment. We have jurisdiction pursuant to 28

U.S.C. § 1291. We “review[] a bankruptcy court decision independently and

without deference to the district court’s decision.” In re Point Ctr. Fin., Inc., 957

F.3d 990, 995 (9th Cir. 2020) (quoting In re JTS Corp., 617 F.3d 1102, 1109 (9th

Cir. 2010)). We affirm.

1. The bankruptcy court did not abuse its discretion by excluding Debtors’

exhibits from trial. The court’s trial procedures require a plaintiff to “file and

submit to opposing counsel all exhibits comprising plaintiff’s case in chief not later

than twenty-eight days before the trial date.” Debtors failed to comply with this

deadline, filing their exhibits nine days before trial. The court found that Debtors

lacked a good reason for the late filing and that the Government was prejudiced

because it had to file its exhibits without first seeing Debtors’ exhibits.

** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2).

2 24-2566 We review a trial court’s imposition of sanctions for abuse of discretion.

United States v. Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365, 1369 (9th Cir.

1980). A bankruptcy court does not abuse its discretion when it excludes evidence

that was not submitted pursuant to the court’s specified procedures. In re Gergely,

110 F.3d 1448, 1452 (9th Cir. 1997). The court’s exclusion of the exhibits was not

“tantamount to dismissal,” Sumitomo Marine & Fire Ins. Co., 617 F.2d at 1369,

because Debtors were still able to try their case through witness examination and

could rely on the Government’s exhibits.

2. The bankruptcy court did not clearly err in upholding the deficiency

determination and tax assessment. To state a prima facie case for tax liability for

unreported income, the Government must supply “some substantive evidence that

the taxpayer received unreported income.” Rapp v. Comm’r, 774 F.2d 932, 935

(9th Cir. 1985). Once the Government carries its initial burden, “the burden shifts

to the taxpayer to rebut the presumption by establishing by a preponderance of the

evidence that the deficiency determination is arbitrary or erroneous.” Id.

In 2014, the IRS issued Debtors a notice of deficiency for the 2011 tax year.

Debtors owned 80 percent of the stock of Simnat Global, Inc. (“Simnat”), an S-

corporation. The IRS found that Simnat underreported its income. At trial, the

Government substantiated this assessment with income reconstructions based on

various methods, including by examining Simnat’s bank account deposits. Each

3 24-2566 method suggested that Simnat earned more income in 2011 than shown on

Debtors’ tax return. Because Simnat was an S-corporation its income is attributed

to individual shareholders on a pro rata basis. See Bufferd v. Comm’r, 506 U.S.

523, 524–25 (1993) (citing 26 U.S.C. §§ 1366–1368). Simnat’s unreported income

thus is linked to Debtors as a matter of law. The court did not clearly err in finding

that the Government met its initial burden.

In response, Debtors relied mainly on J. Curtis’s testimony, which the

bankruptcy court found not credible. See McKay v. Comm’r, 886 F.2d 1237, 1238

(9th Cir. 1989) (holding that credibility determinations are for the tax court to

make). Debtors did not provide evidence proving that the Government’s

calculations were erroneous or arbitrary. So the court did not clearly err in finding

that Debtors failed to meet their burden. See Rapp, 774 F.2d at 935.

AFFIRMED.

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