Opinion
CASE NO. : 02-1 0422-BHL-7, ADVERSARY NO: 02-375
August 20, 2003
JUDGMENT
This matter comes before the Court on the Plaintiff's Motion for Summary Judgment filed on June 6, 2003. The Defendant filed its Memorandum in Opposition to Plaintiff's Motion for Summary Judgment on July 9, 2003. Having reviewed the foregoing and finding no genuine issue of material fact, the Court now enters JUDGMENT in favor of the Plaintiff.
IT IS SO ORDERED
MEMORANDUM
The Defendant, Indiana Department of Revenue ["IDR"], assessed a Controlled Substance Excise Tax ["CSET"] against the Plaintiff, Keith A. Hall ["Hall"], pursuant to Indiana Code § 6-7-3, et. seq. in the amount of $5,691,320 on February 16, 1993. When Hall did not pay the tax when the IDR demanded, IDR assessed a 100 percent penalty against Hall pursuant to Indiana Code § 6-7-3-11. On June 17, 2002, Hall filed for bankruptcy under Chapter 7 and was granted a discharge in October of that year. He now brings this action under section 523(a)(1) to determine the dischargeability of his $11,382,640 debt. In his Motion for Summary Judgment, Hall argues that because the CSET and its accompanying penalty were incurred more than three years prior to his filing of the petition for relief, they do not fall within the ambit of section 507(a)(8) and are, therefore, dischargeable.
Summary Judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, 477 U.S. 242 (1986). Any evidence presented must be viewed in the light most favorable to the non-moving party. Adickes v. S. H. Kress and Co., 398 U.S. 144 (1970).
Section 523(a)(1)(A) excepts those tax debts from discharge that are listed as priority debts under section 507(a)(8). Included within section 507(a)(8) are excise taxes on "transactions occurring during the three years immediately preceding the date of the filing of the petition." § 507(a)(8)(E)(ii). By negative implication, excise taxes like Hall's, occurring over ten years ago, are not given priority and, therefore, do not come under section 523(a)(1).
(a) A discharge under section 727 . . . 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. . . .
Knowing this to be the case, the IDR argues that the CSET and accompanying penalty are not tax debts or tax penalties at all, but rather some other form of penalty called a "jeopardy assessment." In so characterizing Hall's debt, the IDR argues that the debts are nondischargeable under § 523(a)(7) as non-tax penalties. After reviewing the Indiana Code and relevant case law, however, the Court believes this argument to be disingenuous.
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt — . . .
(7) to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty —
(A) relating to a tax of a kind not specified in paragraph (1) of this subsection; or
(B) imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition. . . .
In Adams v. State, 762 N.E.2d 737, 740 (Ind. 2002), the Indiana Supreme Court stated that "Chapter 5 of Article 8.1 of the tax code sets forth the Department's generic enforcement procedures applicable to all taxes it collects. This includes CSET and such other taxes as the gross income and retail sales taxes." (emphasis added). A "jeopardy assessment," then, found at Ind. Code § 6-8.1-5-3, is a means of enforcing a tax liability. When the IDR "finds that a person owing taxes intends to quickly leave the state, remove his property from the state, conceal his property in the state, or do any other act that would jeopardize the collection of those taxes, the department may declare the person's tax period at an end, may immediately make an assessment for the taxes owing and may demand immediate payment of the amount due, without providing the notice required in IC 6-8.1-8-2." Ind. Code § 6-8.1-5-3. By making a "jeopardy assessment," the IDR does not magically transform the nature of the underlying tax debt to some other form of nondischargeable debt. It merely alters its allowable form of collection.
By the IDR's logic, all jeopardy assessments would be nondischargeable penalties under § 523(a)(7) whether or not the underlying tax debt was normally dischargeable in bankruptcy. Such reasoning subverts the policies embedded in the Bankruptcy Code.
Furthermore, the IDR asserts that the penalty imposed under Indiana Code section 6-7-3-11 (entitled "Penalty for failure to pay tax") is not a "tax penalty," "but a penalty imposed for failure to do something. In this case it was the failure of HALL to pay the taxes assessed against him." IDR Memorandum in Opposition at 5. Just as in its argument above, IDR argues this distinction makes the penalty a "jeopardy assessment" rather than a "tax penalty" and, therefore, nondischargeable pursuant to section 523(a)(7). Although the Supreme Court in United States v. Sotelo, 426 U.S. 268 (1978), and its progeny suggests that some "tax penalties," labeled as such in the United States Code, are actually additional taxes (which would not be subject to discharge) rather than "penalties" associated with a tax, this Court again finds no merit in the IDR's argument.
As discussed above, designating a tax debt a "jeopardy assessment" has no bearing on the dischargeability of that debt. In addition, the Court finds no reason to determine whether section 6-7-3-11 of the Indiana Code is a tax penalty or merely an additional tax because Hall's debt under the section is dischargeable either way. If the debt is a "tax penalty," then it is dischargeable under section 523(a)(7)(A) and (B). If it is an additional tax, then it is dischargeable because it is a non-priority tax debt according to section 507(a)(8) because it occurred over ten years ago.
Hall characterizes the IDR's arguments herein as "a thinly veiled attempt to mislead the Court." Hall's Reply to Defendant's Response in Opposition at 7. The Court would not go that far but notes that the Attorney General's Office has advocated the State's interest in a questionable manner. Not only is the argument put forth here tenuous at best, but the citations to section 523(a)(7) omitted those portions harmful to the IDR's case. Moreover, counsel did not cite the Court to the relevant Indiana case law.
In conclusion, finding no genuine issues of material fact, Summary Judgment is appropriate. Because the debts in question are non-priority tax debts and, as such, are outside the reach of section 523(a)(1)'s exception to discharge, JUDGMENT is hereby entered in favor of Hall.