Opinion
Case No. 95-11928-SSM, Case No. 95-11929-SSM
August 7, 1997
John D. Sawyer, Esquire, Vienna, VA, Counsel for the debtors
MEMORANDUM OPINION AND ORDER
Before the court is a "Notice of Hearing and Title 11 Sec. 505 Motion" filed by the debtors pro se on July 30, 1997. Because the debtors' cases have been closed for nearly two years and no motion has been filed to reopen them, the present motion has been referred to the court for determination as to whether a hearing should be scheduled. For the reasons stated in this memorandum opinion and order, the court concludes that the debtors' cases should not be reopened and that their motion to determine tax liability should be dismissed without prejudice.
Procedural History
The case files are in storage at the Federal Records Center. The docket entries, however, reflect that the debtors (who are evidently husband and wife, although at the time their bankruptcy cases were filed, they had different addresses) each filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on May 8, 1995. In each case, the chapter 7 trustee, H. Jason Gold, filed a report of no distribution, and each of the debtors was granted a discharge on August 21, 1995. Both cases were then closed on August 22, 1995.
Notwithstanding the fact that the debtors' cases have been closed for almost two years, the debtors recite in their motion that "[t]he case is [sic] now pending in this court."
The motion before the court seeks to have the court determine the debtors' tax liability to the Internal Revenue Service ("IRS") and to the Commonwealth of Virginia. Neither the motion nor the supporting memorandum of law states what tax years and what type of taxes are in issue. Nor, despite its prolixity (12 single-spaced pages of largely unfocused legal citations) does the memorandum set forth in understandable terms exactly what the controversy consists of, other than a generalized complaint that the IRS has failed to provide them with appropriate citations to the Code of Federal Regulations as evidence that it has "subject matter jurisdiction" to collect taxes from them. The debtors deny in their memorandum that they are "tax protestors," but it is difficult for the court to discern, even giving the memorandum its most generous reading, that the debtors have any sort of good-faith or meritorious defense to the IRS's assessment or collection activities. In their motion, the debtors — who style themselves "Citizens . . . in propria persona, proceeding sui juris without prejudice to our right of property" — state that they are proceeding under the First, Fourth, Fifth, Sixth, Ninth and Tenth Amendments to the Constitution of the United States in objecting to the Internal Revenue Service's "asserted in rem jurisdiction within their claim." The debtors further cite to § 505(a), Bankruptcy Code, 11 U.S.C. § 505(a), as the basis for relief from this court.
The motion does not reflect that it has been served on either the United States or the Commonwealth.
Discussion A.
Under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia, the jurisdiction of this court extends to bankruptcy "cases," civil proceedings "arising in" a bankruptcy case, civil proceedings "arising under" the Bankruptcy Code, and civil proceedings "related to" a bankruptcy case. The debtors recite in their motion that this court has jurisdiction to adjudicate their dispute with the IRS under 28 U.S.C. § 157, 1334 and F.R.Bankr.P. 5005. Pro se pleadings have traditionally been liberally construed by the courts and have not been held to the same standards of precision as pleadings prepared by lawyers. For that reason, this court would be reluctant to dismiss at the pleadings stage an action brought by pro se litigants if there were any apparent basis, however inartfully pleaded, upon which the court might grant relief. The debtors' motion, however, does not, so far as the court can discern, invoke any substantive rights created by the Bankruptcy Code, nor are any facts stated suggesting that a determination of their tax liability would have any effect on their respective bankruptcy cases. Each of their cases was a "no asset" case which has been closed for nearly two years, and there is no suggestion in the pleadings that there is a dispute as to the dischargeability of any of the taxes in question. On the limited record before the court, therefore, it is difficult to see how a determination of tax liability could even be "related to" — let alone "arise in" — the debtors' bankruptcy cases. Of course, if a civil proceeding is not even "related to" a bankruptcy case, a bankruptcy court has no jurisdiction at all. McLean Square Assocs. v. J. W. Fortune, Inc. (In re McLean Square Assoc.), 200 BR. 128, 133 (E.D. Va. 1996), aff'd 107 F.3d 866 (4th Cir. 1997) ("[A] bankruptcy court may not even hear, let alone issue orders in, non-core unrelated matters."); Lux v. Spotswood Construction Loans, 176 BR. 416 (E.D. Va. 1994) (bankruptcy court properly dismissed adversary proceeding challenging foreclosure of debtor's property, since debtor's case was closed).
Federal Rule of Bankruptcy Procedure 5005 concerns the requirements of filing documents with the court and clearly has no bearing on whether this court has jurisdiction to decide this motion.
B.
Notwithstanding that the debtors have not filed formal motions to reopen their respective cases, the court will, in the interest of judicial economy, treat their motion as including a request to reopen their cases. Under § 350(b), Bankruptcy Code, and Federal Rule of Bankruptcy Procedure 5010, "[a] case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause" (emphasis added). The decision whether to permit a debtor to reopen a closed case is discretionary with the court. Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324 (4th Cir. 1984) (bankruptcy court did not abuse discretion in denying motion to reopen 8 months after case was closed in order to file lien avoidance action). A case should not be reopened if doing so would be fufile and a waste of judicial resources because the court could not grant meaningful relief. In re Carberry, 186 BR. 401 (Bankr. E.D. Va. 1995) (Tice, J.) (denying motion to reopen "no asset" case to schedule omitted creditor).
C.
The debtors apparently rely on § 505, Bankruptcy Code to accord them relief. Under § 505(a)(1), Bankruptcy Code, a bankruptcy court may, with certain exceptions, "determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax" owed by the debtor or the bankruptcy estate. The bankruptcy court, however, has no jurisdiction to determine a tax liability if such tax was "contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the [bankruptcy] case." § 505(a)(2)(A), Bankruptcy Code. The purpose of the section clearly is to allow a prompt determination of the legitimacy or amount of a tax claim, which, if left to other forums, may delay the efficient administration of the bankruptcy estate. Stevens v. United States (In re Stevens), — BR. —, 1997 WL 370844 at *1 (Bankr. M.D. Fla. Feb. 19, 1997); In re Diez, 45 BR. 137, 139 (Bankr. S.D. Fla. 1984). Whether a bankruptcy court chooses to determine a debtor's or estate's tax liability is within its sound discretion. Queen v. United States, (In re Queen), 148 BR. 256, 259 (S.D. W. Va. 1992), aff'd 16 F.3d 411 (table), 1994 WL 12029 (4th Cir. 1994). Factors to be considered in determining whether a bankruptcy court should determine the debtor's or estate's tax liability include:
the complexity of the tax issues to be decided, the need to administer the bankruptcy case in an orderly and efficient manner, the burden on the Bankruptcy Court's docket, the length of time required for trial and decision, the asset and liability structure of the debtor, and the prejudice to the debtor and potential prejudice to the taxing authority.
Other major factors to be considered are the effect that possible alternative resolutions of the tax liability will have on other creditors of the bankruptcy estate and on providing the debtor with a "fresh start."
Id. (citations and original source omitted) (emphasis added). Courts have routinely noted that when a debtor's chapter 7 case is a "no asset case," the bankruptcy court should refrain from adjudicating the debtor's tax liability because nothing is gained or lost by the bankruptcy estate nor is such resolution essential to the administration of the estate. Stevens, 1997 WL 370844 at *2; In re Palij 202 BR. 27, 32-33 (Bankr. D. N.J. 1996); Queen, 148 BR. at 259; Diez, 45 BR. at 138-39; see also Queen, 16 F.3d 411 (table), 1994 WL 12029 at *2 (4th Cir. 1994) (unpublished). As the district court in Queen succinctly noted with regard to a determination of a penalty assessment of the IRS against the debtor,
Of course, all this assumes that the taxes in question arise either pre-petition or in connection with the administration of the bankruptcy estate. As noted above, this court would have no jurisdiction at all to determine tax liabilities arising post-petition or unconnected with the administration of the bankruptcy estate.
In the present case the plaintiff-debtor had no assets for distribution. If the Bankruptcy Court should decide the issue of the penalty assessment in debtor's favor, such determination would simply have eliminated the assessment as one of his debt liabilities; it would not have freed any assets for distribution. Likewise, a decision in favor of the IRS would have no effect on the bankruptcy proceedings; debtor's estate would still be without assets to pay the assessment and the debt would still be nondischargeable. In other words, nothing would be gained by having the Bankruptcy Court, rather than the Tax Court, resolve this issue.
Queen, 148 BR. at 259.
D.
Turning to the present motion, the court declines to reopen the debtors' cases at this time to determine the debtors' tax liability under § 505. Even making every allowance for the inartfulness of their pleadings, the debtors have simply made no showing that a determination by this court of their tax liability would have any effect on the administration of their bankruptcy estate or would affect substantive rights arising under the Bankruptcy Code. Each debtor's case was a "no asset" case. As the district court noted in Queen, if this court were to determine the debtors' tax liability — assuming the disputed liability arose prepetition — such determination would neither free up assets for distribution to creditors nor affect the dischargeability of the claim. If the taxes have accrued post-petition, the controversy would not even be "related to" their bankruptcy case, and this court would have no jurisdiction to adjudicate the debtors' tax liability. But even if this court has jurisdiction, its exercise in this case would not facilitate the administration of the bankruptcy estate nor protect rights enjoyed by the debtor under the Bankruptcy Code. For that reason, nothing would be gained by permitting the debtors' cases to be reopened for the purpose of giving them a forum to litigate with the IRS. Accordingly, the court declines to reopen the debtors' cases, and the motion to determine their tax liability will be dismissed without prejudice.
ORDER
For the foregoing reasons, it is
ORDERED:
1. The debtors' motion to determine tax liability is dismissed without prejudice.
2. The clerk shall mail a copy of this order to the debtors, their counsel of record, the chapter 7 trustee, the United States Attorney, and the United States Trustee.