In Re: Range

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 23, 2002
• Docket: 00-21152
• Status: Unpublished

Opinion

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-21152

In The Matter Of: SAMUEL H. RANGE,

Debtor.

SAMUEL H. RANGE; CONNIE C. RANGE,

Appellants,

VERSUS

UNITED STATES OF AMERICA,

Appellee.

Appeal from the United States District Court For the Southern District of Texas, Houston Division (USDC No. 4:00-CV-787) August 20, 2002

Before JONES, WIENER, and PARKER, Circuit Judges.

PER CURIAM:*

Appellants Samuel H. Range and Connie C. Range (collectively

* Pursuant to 5TH CIR. R. 47.5, the Court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

-1- hereinafter “Ranges”) appeal the district court’s decision

affirming the bankruptcy court’s ruling pursuant to an adversary

proceeding wherein the bankruptcy court held that Mr. Range’s

income tax liability for the 1983 through 1985 tax years was not

discharged in his 1992 Chapter 7 bankruptcy. The Ranges also

challenge the denial of their Rule 60(b) motion/independent action

for relief from judgment and their motion for attorney’s fees and

costs. For the reasons that follow, we affirm.

BACKGROUND

The Ranges were married in 1980. Prior to 1980, Mr. Range had

filed income tax returns, but Mrs. Range had not. For the 1980 tax

year, the Ranges were granted an extension of time, until August

15, 1981, to file their 1980 joint income tax return. The Ranges

did not file their 1980 return, however, until March 1983. Over

the next several years, the Ranges filed for several more

extensions of time but failed to ever file their income tax

returns. In June 1987, after being contacted by the Criminal

Investigation Division of the Internal Revenue Service (hereinafter

“IRS”), the Ranges filed their 1981 through 1985 income tax

returns. No payment of the taxes was made, however, either prior

to or contemporaneously with the filing of the 1981 through 1985

tax returns.

Although extensions were requested, the Ranges also failed to

timely file their 1986 through 1989 income tax returns. After

-2- requesting an extension, the Ranges timely filed their 1990 return

including a payment of $1,000 toward their reported tax liability.

In 1991, The Ranges were charged in connection with their failure

to file timely income tax returns. In return for dropping the

charge against him for the 1984 tax year and all charges against

Mrs. Range for the 1983 through 1985 tax years, Mr. Range pleaded

guilty to charges of willful failure to file timely income tax

returns for 1983 and 1985. In 1992, Mr. Range filed for Chapter 7

bankruptcy and received a discharge under 11 U.S.C. § 727. In May

1995, the IRS assessed penalties against the Ranges for fraud in

connection with their taxes for the years of 1983 through 1986.

On May 11, 1995, the IRS sent Mr. Range a Notice of Deficiency for

Civil Fraud Penalties for the 1983 through 1985 tax years. On the

same day, a joint notice was sent to the Ranges for fraud penalties

for 1986. In July 1995, Mr. Range filed an adversary proceeding in

the bankruptcy court seeking a determination that his income tax

liability and penalties for the tax years of 1981 through 1985 were

discharged in his 1992 bankruptcy. Mr. Range also sought damages

from the IRS for allegedly violating the discharge injunction

pursuant to 11 U.S.C. § 524 by sending him deficiency notices on

May 11, 1995. Subsequently, the IRS agreed to withdraw the

deficiency notices in exchange for Mrs. Range’s agreement to file

her own Chapter 7 bankruptcy. An Agreed Order was entered

requiring withdrawal of the deficiency notices and an injunction

against administrative collection efforts during the pendency of

-3- the adversary proceeding.

Mrs. Range filed for Chapter 7 bankruptcy on August 8, 1995.

Despite entry of the Agreed Order, the IRS failed to withdraw the

deficiency notices and attempted to collect from Mrs. Range. In

September 1995, the Ranges filed a motion for contempt against the

IRS for violating the Agreed Order. The motion resulted in the

entry of a second Agreed Order declaring the deficiency notices for

the 1983 through 1986 tax years null and void; ordering the IRS not

to take action to assess and/or collect pre-petition taxes,

interest, or penalties while the adversary proceeding and Mrs.

Range’s bankruptcy petition were pending; and requiring the IRS to

credit one of the Ranges’ civil fraud penalties in the amount of

$3,750.

Mrs. Range was granted a discharge in bankruptcy on April 5,

1996, and subsequently filed an adversary proceeding to determine

the dischargeability of her tax liability and penalties. The two

adversary proceedings were consolidated on September 16, 1996. In

a Joint Pre-Trial Order, the government conceded that the penalties

against Mr. Range for the years 1981 through 1988 and the penalties

against Mrs. Range for the years 1981 through 1990 were discharged

in their respective Chapter 7 bankruptcies pursuant to 11 U.S.C. §

523(a)(7). The bankruptcy court held a trial on the remaining

matters in September 1997.

In February 1998, the bankruptcy court issued its Findings of

Facts and Conclusions of Law wherein the bankruptcy court

-4- determined that the Ranges: (1) had a duty to pay the tax liability

at issue; (2) knew that they had a duty to file tax returns and pay

taxes; and (3) had the financial ability to pay the taxes but

voluntarily and intentionally chose not to pay. The bankruptcy

court further found that the “IRS actually recognized the

‘discharge’ in Bankruptcy of the Ranges’ liability and abated the

taxes in question.” Notwithstanding its findings regarding

discharge and abatement, the bankruptcy court concluded that the

tax liability remained a valid debt still owing and subject to

collection. The bankruptcy court also found that Mr. Range

suffered no damages from the issuance of the deficiency notices

that were not already compensated for by the Agreed Order crediting

the Ranges’ liability for the $3,750 civil fraud penalty.

Additionally, the bankruptcy court noted that regardless of the

Agreed Order, “the United States ha[d] not waived sovereign

immunity from liability for damages for such a violation,” and

thus, damages were not recoverable. Premised upon its findings of

willful evasion and the existence of a valid debt, the bankruptcy

court rendered a Final Judgment on April 13, 1998, ordering that

Mr. Range’s income tax liabilities for 1981 through 1985 and Mrs.

Range’s income tax liabilities for 1981 through 1990 were not

dischargeable pursuant to 11 U.S.C. § 523(a)(1)(C). The Final

Judgment also ordered that Mr. Range was not entitled to damages

from the IRS on his claim for alleged violation of the discharge

injunction provided under 11 U.S.C. § 524(a)(2).

-5- The Ranges appealed the bankruptcy court’s decision to the

district court. In March 1999, the district court affirmed the

bankruptcy court’s decision holding that the Ranges’ tax liability

was not discharged in bankruptcy and remained a valid debt. The

district court vacated the bankruptcy court’s decision with respect

to the award of damages, however, and remanded the issue to the

bankruptcy court for further consideration. Although the

bankruptcy court had addressed the recovery of damages under 11

U.S.C. § 106, the Ranges argued on appeal that damages were

recoverable under 26 U.S.C. § 7430. Because the bankruptcy court’s

factual findings addressed recovery only under § 106, the issue was

remanded to determine whether the Ranges satisfied the requirements

for recovery of damages under § 7430.

While the appeal was pending in the district court, the Ranges

requested the Inspector General’s office to investigate their tax

matter. In June 1999, the Ranges allegedly received information

from an investigator at the Inspector General’s office indicating

that the certified tax transcripts and certificates of assessment

admitted at trial were falsified and testimony of the government’s

witnesses was perjured. In July 1999, the Ranges filed a motion

for costs and fees under 26 U.S.C. § 7430 and a motion for relief

from judgment, or in the alternative, an independent action for

relief from judgment pursuant to Rule 60(b) of the Federal Rules of

Civil Procedure as incorporated by Bankruptcy Rule 9024. In

support of their § 7430 motion, the Ranges argued that they were

-6- entitled to fees and costs because they prevailed in their

contention that the assertion of the fraud penalties violated the

bankruptcy discharge injunction. The crux of the Ranges’ argument

in support of their motion for relief was that the government used

falsified documents at trial and the government witnesses committed

perjury that resulted in a fraud upon the court. The Ranges argued

that but for the alleged falsified documents and perjurious

testimony, they would have prevailed on the issue concerning the

dischargeability of their tax liability and thus, they are entitled

to relief from judgment.

Between August and November of 1999, the Ranges made two

requests for an evidentiary hearing on their motions. The

bankruptcy court denied the Ranges’ motions in January 2000,

without conducting a hearing. Because the Ranges’ arguments in

support of their Rule 60(b) motion for relief demonstrated that

their motion was actually an independent action for relief, the

bankruptcy court treated it as such.

Addressing the procedural aspects of the Ranges’ motion for

relief, the bankruptcy court stated that had the Ranges filed a

Rule 60(b) motion, it would have been untimely in that the motion

was not filed within the one year deadline from the judgment issued

in February 1998. Treating the motion for relief as an independent

action for relief under the savings clause of Rule 60(b), however,

the bankruptcy court held that the motion still failed to satisfy

the more lenient temporal requirement of being filed within a

-7- reasonable time. As to the Ranges’ equitable arguments, the

bankruptcy court further held that the “issues were open to

litigation, were litigated, and plaintiffs had more than a fair

opportunity to make [their] claim or defense,” and thus, were

precluded by res judicata from re-litigating the issues in an

independent action.

With respect to the § 7430 motion, the bankruptcy court held

that the dischargeability of the tax liability was the primary

object of the trial, the bankruptcy court’s judgment, and the

appeal to the district court, and notwithstanding the IRS’s

concession on the discharge of the tax penalties assessed against

Mr. Range, the Ranges failed to show that they were the “prevailing

party” at trial as that term is defined in § 7430(c)(4)(A) and as

required for recovery. Because the bankruptcy court determined

that the Ranges were not the prevailing party at trial and that

relief from judgment was not warranted, the requests for an

evidentiary hearing were also denied.

The Ranges again appealed to the district court. In November

2000, the district court affirmed the decision of the bankruptcy

court. In so doing, the district court found that the fraud upon

the court alleged by the Ranges did not rise to the level of fraud

required under Rule 60(b) because “[a] fraud upon the Court does

not exist where a judgment has simply been ‘obtained with the aid

of a witness who, on the basis of after-discovered evidence, is

believed possibly to have been guilty of perjury.’” The district

-8- court held that the bankruptcy court did not abuse its discretion

in denying the Ranges’ motion for relief because an independent

action is not a viable vehicle for re-litigating issues that were

previously decided in a former action where a party was afforded a

fair opportunity to make their claim or defense in that action.

Upon finding that the Ranges were not the “prevailing party” at

trial as required to recover under § 7430, the district court held

that bankruptcy court did not abuse its discretion in denying the

Ranges’ § 7430 motion for fees and costs. Accordingly, the

district court found that the bankruptcy court did not abuse its

discretion in denying the Ranges’ requests for an evidentiary

hearing.

The Ranges raise three issues in the instant appeal. First,

the Ranges maintain that the bankruptcy court erred in holding that

Mr. Range is liable for income taxes for the years of 1983 through

1985. Second, the Ranges contend that the bankruptcy court abused

its discretion by denying their Rule 60(b) motion/independent

action for relief from judgment without conducting an evidentiary

hearing. Finally, the Ranges assert that the bankruptcy court

improperly denied their § 7430 motion for fees and costs.

STANDARDS OF REVIEW

When reviewing a bankruptcy case on appeal, we must accept the

bankruptcy court’s findings of fact, “whether based on oral or

documentary or evidence,” unless they are clearly erroneous. FED.

-9- R. BANKR. P. 8013; In re Sims, 994 F.2d 210, 217 (5th Cir. 1993).

The bankruptcy court’s conclusions of law are reviewed de novo. In

re Herby’s Foods, Inc., 2 F.3d 128, 131 (5th Cir. 1993). We review

the denial of a motion for relief from judgment under Rule 60(b)

for abuse of discretion. United States v. O’Keefe, 169 F.3d 281,

286 (5th Cir. 1999); Ergo Science, Inc. v. Martin, 73 F.3d 595, 599

(5th Cir. 1996). Similarly, we review the denial of an independent

action for relief pursuant to Rule 60(b) under an abuse of

discretion standard. Carter v. Dolce, 741 F.2d 758, 760 (5th Cir.

1984); Fuentes v. Stackhouse, 182 B.R. 438, 442 (E.D. Va 1995). We

review a ruling on the award of attorney’s fees under § 7430 for

abuse of discretion, Marre v. United States, 117 F.3d 297, 301 (5th

Cir. 1997), and “[w]e can only reverse if we have a definite and

firm conviction that an error of judgment was committed.”

Wilkerson v. United States, 67 F.3d 112, 120 (5th Cir. 1995)

(internal quotations and citation omitted).

DISCUSSION

The Ranges argue that the bankruptcy court erred in holding

that Mr. Range is liable for income taxes for the years of 1983

through 1985. Specifically, the Ranges assert that Mr. Range’s tax

liability was discharged in his 1992 Chapter 7 bankruptcy. The

Ranges maintain that because the tax liability was discharged in

bankruptcy and subsequently abated, the previous assessment was

eliminated. The Ranges contend that any tax liability after

-10- discharge and abatement would require a reassessment of the tax

pursuant to the Treasury Regulations. The Ranges argue that

because the three-year statutory limitations period expired, and

the tax liability was not properly reassessed within the

limitations period by an assessment officer signing the summary

record of assessment as required by the Treasury Regulations, 26

C.F.R. § 301.6203-1, no tax liability remains for the IRS to

collect.

In support of this argument, the Ranges assert that the

bankruptcy court found that Mr. Range’s tax transcripts reflected

the IRS’s recognition of the discharge in bankruptcy and abatement

of his tax liability. The government argues, however, that Mr.

Range’s tax liability was neither discharged in his 1992 bankruptcy

nor abated. The government contends that although the Ranges’ tax

transcript contained an entry acknowledging Mr. Range’s discharge

in bankruptcy, Mr. Range’s liability was excepted from discharge

under 11 U.S.C. § 523(a)(1)(C) due to his willful attempt to evade

or defeat the tax. The government further contends the entry

acknowledging the discharge was a clerical error resulting from an

IRS technician’s erroneous determination that Mr. Range’s liability

was dischargeable. Additionally, the government asserts that the

tax liability at issue was not abated, but rather transferred from

the Ranges’ joint master file account to a non-master file account

in the name of Mrs. Range as a result of the technician’s erroneous

determination that Mr. Range’s liability was dischargeable.

-11- Finally, the government argues that the IRS is authorized to abate

a tax assessment only where the liability is: (1) excessive in

amount; (2) is assessed after the expiration of the period of

limitations properly applicable thereto; or (3) is erroneously or

illegally assessed, and none of these circumstances apply to tax

liability at issue.

The Ranges initiated adversary proceedings to determine

whether their income tax liabilities were discharged in their

separate Chapter 7 bankruptcies. Both the government and the

Ranges presented the bankruptcy court with documentary evidence

regarding Mr. Range’s tax liability. The documents, however,

reflected two different account balances and each party argued that

they supported their respective position. The government’s

witnesses also testified that the taxes were not abated and the

entry in the transcripts acknowledging a discharge was made in

error.

Although the bankruptcy court found that the “IRS transcripts

in evidence reflect[ed] that the IRS actually recognized the

‘discharge’ in Bankruptcy of the Ranges’ liability and abated the

taxes in question,” the bankruptcy court found the documentary

evidence to be merely one form of evidence of the tax liability and

the oral testimony another form of evidence of the tax liability.

The bankruptcy court found that the Ranges: (1) had a duty to pay

the taxes at issue; (2) knew that they had that duty; and (3) had

the financial ability to pay the taxes but voluntarily and

-12- intentionally chose not to pay, and notwithstanding the IRS’s

recognition of the discharge in bankruptcy of the Ranges’ liability

and abatement of the taxes in question, a valid debt existed which

was subject to collection and not dischargeable.

The Ranges’ arguments fail for several reasons. Under 11

U.S.C. § 524(a)(2), a § 727 discharge “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 § 727] as personal liability of the debtor,

whether or not discharge of such debt is waived.” 11 U.S.C. §

524(a)(2). Pursuant to 11 U.S.C. § 727, the court shall grant a

Chapter 7 debtor a discharge from all debts that arose before the

date of the order for relief, unless one of the conditions

enumerated in § 727 is present. 11 U.S.C. § 727. One such

condition enumerated in § 727 is when the liability is excepted

from discharge under § 523. 11 U.S.C. § 727(b). Section 523

excepts from discharge, liabilities for a tax with respect to which

the debtor willfully attempted in any manner to evade or defeat.

11 U.S.C. § 523(a)(1)(C). Except for the provisions of § 523(b)1,

there are no limitations imposed by § 523 on the non-dischargeable

status of these types of liabilities. 11 U.S.C. § 523. Thus, a

tax liability excepted from discharge under § 523(a)(1)(C), because

1 Section 523(b) applies to debts which were excepted from discharge in a prior bankruptcy case concerning the debtor and is not applicable to the instant case.

-13- of a willful attempt in any manner to evade or defeat such tax, is

non-dischargeable as a matter of law, and no additional action is

required by the creditor.2 Furthermore, a tax liability excepted

from discharge under § 523(a)(1)(C) is not protected from

collection by the permanent injunction provided under § 524(a)(2).

In In re Bruner, 55 F.3d 195 (5th Cir. 1995), we approved a

three prong test for determining whether a tax liability is

dischargeable pursuant to § 523(a)(1)(C). In the case of a debtor

who is financially able to pay his taxes, a debt is non-

dischargeable when the debtor: (1) had a duty to pay the taxes at

issue; (2) knew that he had that duty; and (3) voluntarily and

intentionally chose not to pay. Id. at 197.

2 Debts excepted from discharge under § 523(a)(1)(C) differ from some other debts excepted under § 523 in that debts excepted under § 523(a)(1)(C) are excepted automatically and a creditor’s failure to file a proof of claim or object to the discharge does not affect the dischargeability or non-dischargeability of the debt. In contrast, pursuant to § 523(c)(1), debts specified in § 523(a)(2), (4), and (6) are automatically discharged “unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge.” 11 U.S.C. § 523(c)(1). This interpretation is further supported by Bankruptcy Rule 4007 governing the determination of dischargeability of a debt. Rule 4007(c) provides that “[a] complaint to determine the dischargeability of any debt pursuant to § 523(c) (i.e. § 523(a)(2), (4), and (6)) of the Code shall be filed not later than 60 days following the first date set for the meeting of creditors” while Rule 4007(b) provides that “[a] complaint other than under § 523(c) may be filed at any time.” FED. R. BANKR. P. 4007(b) and (c). Furthermore, Rule 4007(a) provides that a complaint may be filed by a debtor or any creditor to obtain a determination of the dischargeability of any debt, but it does not require that a complaint must be filed by either party. FED. R. BANKR. P. 4007(a).

-14- Applying Bruner to the instant case, the bankruptcy court

found that the Ranges attempted to evade or defeat their tax

liabilities for the years of 1983 through 1985 and thus found the

liabilities to be non-dischargeable under § 523(a)(1)(C). The

Ranges fail to address the non-dischargeable status of Mr. Range’s

tax liability pursuant to § 523(a)(1)(C).3 Although the Ranges

argue that oral testimony is insufficient to establish a tax

liability, this argument is not persuasive.

The Ranges’ argument is premised upon the validity of the

underlying abatement. Abatement of income taxes is authorized

when the unpaid portion of the assessment or any liability in

respect thereof is: (1) excessive in amount; (2) assessed after the

expiration of the period of limitation properly applicable thereto;

(3) erroneously or illegally assessed. 26 U.S.C. § 6404(a). The

tax liabilities at issue in the instant case do not fall into any

of the three enumerated categories in § 6404(a), and the Ranges do

3 The Ranges fail to address the non-dischargeable status of Mr. Range’s tax liability pursuant to § 523(a)(1)(C) except to state their belief that Bruner does not accurately state the law on this issue. Rather, the Ranges contend that the issue is controlled by the Eleventh Circuit’s holding in In re Hass, 48 F.3d 1153 (11th Cir. 1994), which requires proof that the taxpayer undertook an affirmative act to defeat or evade a tax in order for a tax liability to be non-dischargeable under § 523(a)(1)(C). This argument is without merit. We have repeatedly held that willful attempts to evade or defeat tax liabilities for purposes of determining dischargeability under § 523(a)(1)(C) include acts of omission as well as acts of commission. See Bruner, 55 F.3d at 200; In re Grothues, 226 F.3d 334, 339 (5th Cir. 2000).

-15- not dispute the validity of the original tax assessments for the

years of 1983 through 1985. Furthermore, an abatement executed

outside of the scope of the statutory authority conferred by §

6404(a) is not effective. Although evidence was presented

indicating that the IRS acknowledged Mr. Range’s discharge in

bankruptcy, neither the certificates of assessments nor the

certified tax transcripts indicated that the IRS abated Mr. Range’s

tax liability. Rather, that the IRS abated the taxes at issue was

simply the position taken by the Ranges because the certified tax

transcripts showed a zero tax liability and did not also show the

entries transferring the tax liabilities to Mrs. Range as a result

of the IRS technician’s erroneous determination that Mr. Range’s

tax liability was discharged in his 1992 bankruptcy. It is not

necessary that we determine whether the bankruptcy court was

correct in determining that the documentary evidence indicated that

the IRS actually abated the tax liabilities. Even assuming that

the bankruptcy court was correct, and the IRS did abate the taxes,

the abatement would be ineffective as it would have been outside

the IRS’s abatement authority because the tax liabilities at issue

did not fall within one of the three categories enumerated in §

6404(a) and thus were not eligible for abatement.

Because Mr. Range’s tax liability was non-dischargeable under

§ 523(a)(1)(C) and no valid authority existed authorizing the IRS

to abate the tax liability at issue, the bankruptcy court’s

determination that Mr. Range’s tax liability for the years of 1983

-16- through 1985 was not discharged in his 1992 bankruptcy and remains

a valid debt subject to collection was not clearly erroneous.

The Ranges contend that the bankruptcy court abused its

discretion and improperly denied their § 7430 motion for fees and

costs and their Rule 60(b) motion/independent action for relief

from judgment without conducting an evidentiary hearing. Having

determined that Mr. Range is liable for income taxes for the years

of 1983 through 1985, we find that the bankruptcy court did not

abuse its discretion in denying either the Ranges’ § 7430 motion

for fees and costs or their Rule 60(b) motion/independent action

for relief from judgment without conducting an evidentiary hearing.

CONCLUSION

For the reasons stated above, the district court’s judgment

affirming the bankruptcy court is AFFIRMED.

-17-