IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
No. 95-50041 (Summary Calendar)
IN THE MATTER OF: SUPER VAN, INC.,
Debtor.
SUPER VAN, INC.,
Appellant,
versus
STATE OF TEXAS, Texas Employment Commission and USA, Internal Revenue Service,
Appellees.
Appeal from the United States District Court For the Western District of Texas (CA-SA-94-716)
November 15, 1995
Before DUHÉ, WIENER, and STEWART, Circuit Judges. PER CURIAM:*
This is an appeal from a district court decision affirming a
bankruptcy court's holding that the debtor, Appellant Super Van,
Inc., did not qualify for the employment tax liability safeharbor
* Local Rule 47.5 provides: "The publication of opinions that have no precedential value and merely decide particular cases on the basis of well-settled principles of law imposes needless expense on the public and burdens on the legal profession." Pursuant to that Rule, the Court has determined that this opinion should not be published. under section 530 of the Revenue Act of 1978. The bankruptcy
court's decision was based on a finding that a predecessor had
treated its drivers as employees for tax purposes. On appeal,
Super Van complains that this finding is clearly erroneous because
the only evidence on this point was the uncontradicted testimony of
its president, Donald Rullo. Concluding that the bankruptcy court
did not commit reversible error, we affirm.
I.
FACTS AND PROCEEDINGS
Super Van, Inc., which operates a shuttle service business in
San Antonio, Texas, filed a petition for relief under Chapter 11 of
the Bankruptcy Code on November 9, 1992. The Internal Revenue
Service ("IRS") filed a proof of claim in the amount of
$107,363.151 for unpaid federal employment taxes, asserting that
Super Van's drivers were employees and not independent contractors.
The Texas Employment Commission filed a similar claim in the amount
of $27,808.15.
Super Van contested the IRS' claim by filing a Motion for
Determination of Tax Liability under 11 U.S.C. § 505. At trial in
the bankruptcy court, Super Van advanced two reasons why it was not
liable for these taxes. First, it argued that its drivers were
independent contractors, not employees. The bankruptcy court,
however, rejected this argument and concluded that its drivers were
employees. Super Van does not contest this determination on
1 The district court's opinion states this amount to be $107,271.01. The exact amount of this claim, however, is immaterial for purposes of this decision.
2 appeal.
Second, Super Van argued that even if its drivers were found
to be employees for tax purposes, the safeharbor provision of
section 530 of the Revenue Act of 1978 exempted it from liability.
The relevant portion of section 530 provides:
(a) Termination of certain employment tax liability.--
(1) In general.--If-- (A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period, and (B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer's treatment of such individual as not being an employee, then for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis not treating such individual as an employee.
* * *
(3) Consistency required in the case of prior tax treatment.-- Paragraph (1) shall not apply with respect to the treatment of any individual for employment tax purposes for any period ending after December 31, 1978, if the taxpayer (or a predecessor) has treated any individual holding a substantially similar position as an employee for purposes of the employment taxes for any period beginning after December 31, 1977.2
The controversy in this case relates to the consistency
requirement under section 530(a)(3), which provides that in order
to qualify for the safeharbor the taxpayer and its predecessors
must not have treated any individual holding a substantially
similar position as an employee for employment tax purposes for any
period beginning after December 31, 1977.
2 Pub. L. No. 95-600, 92 Stat. 2763, 2885-86. Section 530 is also reproduced in the notes following 26 U.S.C. § 3401.
3 Donald Rullo, president and majority shareholder of Super Van,
had operated several other ground transportation services as sole
proprietorships prior to incorporating Super Van in the fall of
1988. Mr. Rullo testified at trial that neither Super Van nor his
sole proprietorships had ever treated drivers as employees for tax
purposes. No documentary evidence was adduced in support of this
testimony; neither was any contradictory evidence introduced. The
bankruptcy court, however, found that a predecessor had treated its
drivers as employees for federal employment tax purposes, thereby
preventing Super Van from qualifying for the section 530
safeharbor.
The bankruptcy court subsequently denied Super Van's motion
for reconsideration. Super Van appealed to the district court
which affirmed the decision of the bankruptcy court, holding that
its findings were not clearly erroneous. The district court also
denied Super Van's motion for rehearing.
Super Van now appeals to us, contending that the finding that
it failed to meet the consistency requirement of the section 530
safeharbor is clearly erroneous because the only evidence on this
point was uncontradicted oral testimony, which the court could not
disregard.
II.
ANALYSIS
We review a bankruptcy court's factual findings under the
clearly erroneous standard, and we adhere strictly to this standard
4 of review when the district court has affirmed those findings.3
Conclusions of law are reviewed de novo.4
Super Van insists that the only evidence regarding its
predecessors' employment tax treatment of drivers was Mr. Rullo's
uncontradicted testimony that no predecessor of Super Van had ever
treated drivers as employees.5 Thus, Super Van asserts that the
bankruptcy court's finding that it did not meet the consistency
requirement of section 530 is clearly erroneous. Although it
acknowledges that determining credibility is the exclusive province
of the trial court, Super Van maintains that the court cannot
disregard the uncontradicted testimony on this matter.
We find Super Van's argument unpersuasive. It is true that
unimpeached, competent, and relevant testimony may not be
arbitrarily disregarded by the trial court. This does not mean,
however, that a court is compelled to accept uncontroverted
testimony when it doubts the credibility of the testifying
witness.6 The cases relied on by Super Van simply do not stand for
3 In re Young, 995 F.2d 547, 548 (5th Cir. 1993). 4 Id. 5 In its order denying a motion for rehearing, the district court suggests that letters from Mr.
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IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
No. 95-50041 (Summary Calendar)
IN THE MATTER OF: SUPER VAN, INC.,
Debtor.
SUPER VAN, INC.,
Appellant,
versus
STATE OF TEXAS, Texas Employment Commission and USA, Internal Revenue Service,
Appellees.
Appeal from the United States District Court For the Western District of Texas (CA-SA-94-716)
November 15, 1995
Before DUHÉ, WIENER, and STEWART, Circuit Judges. PER CURIAM:*
This is an appeal from a district court decision affirming a
bankruptcy court's holding that the debtor, Appellant Super Van,
Inc., did not qualify for the employment tax liability safeharbor
* Local Rule 47.5 provides: "The publication of opinions that have no precedential value and merely decide particular cases on the basis of well-settled principles of law imposes needless expense on the public and burdens on the legal profession." Pursuant to that Rule, the Court has determined that this opinion should not be published. under section 530 of the Revenue Act of 1978. The bankruptcy
court's decision was based on a finding that a predecessor had
treated its drivers as employees for tax purposes. On appeal,
Super Van complains that this finding is clearly erroneous because
the only evidence on this point was the uncontradicted testimony of
its president, Donald Rullo. Concluding that the bankruptcy court
did not commit reversible error, we affirm.
I.
FACTS AND PROCEEDINGS
Super Van, Inc., which operates a shuttle service business in
San Antonio, Texas, filed a petition for relief under Chapter 11 of
the Bankruptcy Code on November 9, 1992. The Internal Revenue
Service ("IRS") filed a proof of claim in the amount of
$107,363.151 for unpaid federal employment taxes, asserting that
Super Van's drivers were employees and not independent contractors.
The Texas Employment Commission filed a similar claim in the amount
of $27,808.15.
Super Van contested the IRS' claim by filing a Motion for
Determination of Tax Liability under 11 U.S.C. § 505. At trial in
the bankruptcy court, Super Van advanced two reasons why it was not
liable for these taxes. First, it argued that its drivers were
independent contractors, not employees. The bankruptcy court,
however, rejected this argument and concluded that its drivers were
employees. Super Van does not contest this determination on
1 The district court's opinion states this amount to be $107,271.01. The exact amount of this claim, however, is immaterial for purposes of this decision.
2 appeal.
Second, Super Van argued that even if its drivers were found
to be employees for tax purposes, the safeharbor provision of
section 530 of the Revenue Act of 1978 exempted it from liability.
The relevant portion of section 530 provides:
(a) Termination of certain employment tax liability.--
(1) In general.--If-- (A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period, and (B) in the case of periods after December 31, 1978, all Federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the taxpayer's treatment of such individual as not being an employee, then for purposes of applying such taxes for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis not treating such individual as an employee.
* * *
(3) Consistency required in the case of prior tax treatment.-- Paragraph (1) shall not apply with respect to the treatment of any individual for employment tax purposes for any period ending after December 31, 1978, if the taxpayer (or a predecessor) has treated any individual holding a substantially similar position as an employee for purposes of the employment taxes for any period beginning after December 31, 1977.2
The controversy in this case relates to the consistency
requirement under section 530(a)(3), which provides that in order
to qualify for the safeharbor the taxpayer and its predecessors
must not have treated any individual holding a substantially
similar position as an employee for employment tax purposes for any
period beginning after December 31, 1977.
2 Pub. L. No. 95-600, 92 Stat. 2763, 2885-86. Section 530 is also reproduced in the notes following 26 U.S.C. § 3401.
3 Donald Rullo, president and majority shareholder of Super Van,
had operated several other ground transportation services as sole
proprietorships prior to incorporating Super Van in the fall of
1988. Mr. Rullo testified at trial that neither Super Van nor his
sole proprietorships had ever treated drivers as employees for tax
purposes. No documentary evidence was adduced in support of this
testimony; neither was any contradictory evidence introduced. The
bankruptcy court, however, found that a predecessor had treated its
drivers as employees for federal employment tax purposes, thereby
preventing Super Van from qualifying for the section 530
safeharbor.
The bankruptcy court subsequently denied Super Van's motion
for reconsideration. Super Van appealed to the district court
which affirmed the decision of the bankruptcy court, holding that
its findings were not clearly erroneous. The district court also
denied Super Van's motion for rehearing.
Super Van now appeals to us, contending that the finding that
it failed to meet the consistency requirement of the section 530
safeharbor is clearly erroneous because the only evidence on this
point was uncontradicted oral testimony, which the court could not
disregard.
II.
ANALYSIS
We review a bankruptcy court's factual findings under the
clearly erroneous standard, and we adhere strictly to this standard
4 of review when the district court has affirmed those findings.3
Conclusions of law are reviewed de novo.4
Super Van insists that the only evidence regarding its
predecessors' employment tax treatment of drivers was Mr. Rullo's
uncontradicted testimony that no predecessor of Super Van had ever
treated drivers as employees.5 Thus, Super Van asserts that the
bankruptcy court's finding that it did not meet the consistency
requirement of section 530 is clearly erroneous. Although it
acknowledges that determining credibility is the exclusive province
of the trial court, Super Van maintains that the court cannot
disregard the uncontradicted testimony on this matter.
We find Super Van's argument unpersuasive. It is true that
unimpeached, competent, and relevant testimony may not be
arbitrarily disregarded by the trial court. This does not mean,
however, that a court is compelled to accept uncontroverted
testimony when it doubts the credibility of the testifying
witness.6 The cases relied on by Super Van simply do not stand for
3 In re Young, 995 F.2d 547, 548 (5th Cir. 1993). 4 Id. 5 In its order denying a motion for rehearing, the district court suggests that letters from Mr. Rullo to the IRS describing the operations of Super Van and its predecessors also may have been evidence on this point and would support the bankruptcy court's finding. We need not consider the effect of these letters, however, to reach our decision. 6 Conti v. Commissioner, 39 F.3d 658, 664 (6th Cir. 1994), cert. denied, __ U.S. __, 115 S.Ct. 1793, 131 L.E.2d 722 (1995); accord S.E.C. v. Huffman, 996 F.2d 800, 803 (5th Cir. 1993) ("The district court was not bound, however, to accept his unsubstantiated, self-serving testimony as true."); Lerch v. Commissioner, 877 F.2d 624, 631 (7th Cir. 1989) ("The Tax Court may
5 the proposition that a court must accept testimony that it does not
believe.7
In this case, it is evident that the bankruptcy court doubted
the creditability of Mr. Rullo. The IRS introduced several driver
hiring slips submitted by Mr. Rullo to the City of San Antonio
Transportation Inspector's Office on behalf of Super Van stating
that the listed driver was not a contract driver. In response, Mr.
Rullo testified that regardless of the information provided on
these slips submitted to the city, Super Van had always treated its
drivers as independent contractors for employment tax purposes.
The bankruptcy court observed that the fact "that he would ignore
what a document says and would do the opposite tells us a lot about
Mr. Rullo." Moreover, in an order denying Super Van's motion for
reconsideration, the bankruptcy court stated that "[e]ven assuming
Mr. Rullo's testimony was `unequivocal, uncontradicted and
unimpeached,' the court found Mr. Rullo's testimony also
unbelievable." Doubting Mr. Rullo's credibility, the court was not
compelled to accept his testimony.
The bankruptcy court's literal finding that a predecessor had
disregard uncontradicted testimony by a taxpayer where it finds that testimony lacking in credibility."); Smith v. Commissioner, 800 F.2d 930, 935 (9th Cir. 1986) ("the trial court is not compelled to accept even uncontroverted testimony when it doubts the credibility of a witness."). 7 See Apoliskis v. Concord Life Ins. Co., 445 F.2d 31, 34 n.1 (7th Cir. 1971) ("a trial judge may not totally disregard uncontradicted and apparently creditable testimony where no basis for so doing appears in the record.")(emphasis added). The court in Apoliskis also stated that "[i]ndeed, there is no indication that the district judge questioned any witness' credibility, and he appeared to credit the testimony of all witnesses." Id. at 34.
6 treated its drivers as employees for tax purposes (as opposed to a
finding that Super Van did not meet its burden of proof on this
issue) arguably raises a concern about whether this is clearly
erroneous when there appears to be no evidence in the record on
this point other than Mr. Rullo's testimony. The court did not
commit reversible error, however, in the wording of its finding.
Super Van had the burden of proof on this issue. Disregarding the
testimony that the court did not believe, the record is totally
devoid of evidence about how Super Van's predecessors treated their
drivers for employment tax purposes. Thus, Super Van failed to
meet its burden of proof, and the bankruptcy court did not commit
reversible error in making its ruling.
III.
CONCLUSION
Super Van had the burden of proving that it qualified for the
section 530 safeharbor. The only evidence in support of its having
met the consistency requirement was the oral testimony of its
president. The court simply did not believe this testimony and
thus was not required to accept it, even though the testimony was
uncontradicted. With its sole evidence discredited and rejected,
Super Van could not and did not meet its evidentiary obligation.
Therefore, the bankruptcy court did not commit reversible error in
finding that Super Van had failed to meet its burden of proving
that it had satisfied the consistency requirement of section 530.
AFFIRMED.