The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge
Presently before the Court is an appeal from a denial by the United States Bankruptcy Court for the District of Columbia of an Objection made by Debtor-Appellant, Theodore Miles, to a Proof of Claim filed by Appellee-Creditor, the Internal Revenue Service ("IRS"). Based on a searching review of the filings before the Court on appeal, the relevant statutes, regulations, and case law, and the entire record before the Court on appeal, the Court shall affirm the Bankruptcy Court's May 25, 2006 Order denying Miles' Objection to the IRS' Proof of Claim.
Debtor-Appellant, Theodore Miles, was employed as an asbestos worker during the years relevant to this appeal. Miles Br. at 5; IRS Br. at 3. His work involved short-term appointments across the United States, and he sometimes worked in up to twenty different jobs a year. Miles Br. at 6; IRS Br. at 3. Prior to 1988, Miles filed annual federal income tax returns. Miles Br. at 6; IRS Br. at 3 n.2. However, in 1988, Miles' niece allegedly threw away his 1988 W-2 forms while cleaning. Miles Br.at 6. Miles asserts that he requested duplicate W-2 forms from the IRS but was told that the IRS would not provide duplicate forms, id., and that he was unable to obtain duplicate forms from his employers because he could not remember the different contractors he worked for that year, IRS Br. at 4. (citing Tr. of 5/16/06 Hrg. at 8:18-25). As a result, Miles did not file an income tax return for tax year 1988. Miles Br. at 6; IRS Br. at 3. Miles also did not file federal income tax returns for tax years 1989 through 2002, allegedly because he was informed by the IRS that he could not file returns for subsequent years until he filed his return for tax year 1988. Miles Br. at 6. Miles claims that he was unconcerned about accumulating a federal tax debt because he had always been due a refund in the past and believed that all taxes he owed had been paid via withholding. Id.
On July 16, 2004, Miles filed a voluntary petition for relief under Chapter 13 of the United States Bankruptcy Code. Id. On October 25, 2004, the IRS filed a Proof of Claim against Miles for $73,783.44, representing Miles' unpaid pre-petition tax liabilities. See id.; IRS Br. at 1;Miles Obj., Ex. A. The IRS assessed $17,721.36 in tax liabilities for the years 1988 to 1993, and tax liabilities of $5,632.40 for the years 1999 and 2000, as well as interest of $31,954.20 and penalties of $18,475.48. Miles Obj., Ex. A. Of this total debt, the IRS determined that $68,151.04 was secured and $5,632.40 was unsecured. Id. The IRS filed an amended Proof of Claim on February 7, 2005, which did not alter the total amount of assessed tax liabilities, but adjusted the amounts assigned to the secured claim ($36,062.81) and unsecured claim ($37,720.63). IRS Br. at 1.
Miles asserts that at some unspecified time, he requested that the IRS abate the assessed penalties. Miles Br. at 7. Miles does not indicate the form of this request; however, the IRS interpreted it as an "informal request" for abatement. IRS Br. at 6-6. The IRS denied Miles' informal request for abatement. Tr. of 4/25/06 Hrg. at 18:2-8, 19:4-6. On October 7, 2005, Miles filed an Objection to the IRS' Proof of Claim, pursuant to Federal Rule of Bankruptcy Procedure 3003. Miles Obj.; Fed. R. Bankr. P. 3003. Miles' Objection asserts that the "claimed security interest may not be properly perfected," that "applicable statutes of limitations prevent the [IRS] from collecting the Claim amount," and that he "objects to the claim because the Claim amount is improper." Miles' Obj. ¶ 4--6. Miles' Objection requests that the Bankruptcy Court order the IRS to withdraw its Proof of Claim, sustain Miles' Objection, and grant "such other and further relief as [the Bankruptcy] Court may deem just, equitable, and proper." Id. ¶ 8.
The IRS filed a Response to Miles' Objection on October 28, 2005, asserting that "(1) the secured claims were based upon a properly recorded notice of federal tax lien; (2) debtor did not file tax returns for tax years 1988 through 1993 thus the Service calculated Miles' tax liabilities based upon third-party payer information and made assessments based upon defaulted statutory notices of deficiency; (3) debtor did not file tax returns for tax years 1999 and 2000 thus the claim is based upon estimates; and (4) the 10-year statute of limitations on collections has not yet lapsed." IRS Br. at 2; IRS Resp. to Miles' Obj.
Bankruptcy Judge S. Martin Teel, Jr. held two hearings on Miles' Objection -- on April 25, 2006 and May 16, 2006. Tr. of 4/25/06 Hrg.; Tr. of 5/16/06 Hrg. Miles was not present at the April 25, 2006 hearing but was represented by counsel. Tr. of 4/25/06 Hrg. at 3:13-4:16. During that hearing, the Bankruptcy Court heard testimony from the IRS' witness, the Bankruptcy Specialist who prepared the IRS' Proof of Claim. Tr. of 4/25/06 Hrg. at 5:3-25. After the Bankruptcy Specialist's testimony, counsel for the IRS attempted to narrow the issues before the Bankruptcy Court by stating that, based on the IRS' evidence, the tax and interest assessments included in the IRS' Proof of Claim were not at issue. Id. at 30:16-31:3. Miles' counsel responded that she was "generally in agreement" with IRS counsel's statement, and that Miles could not readily challenge the IRS' tax assessment because he had been unable to locate his W-2 forms from the tax years included in the IRS' Proof of Claim. Id. at 31:4-11. Thereafter, Miles' counsel asserted that the focus of Miles' Objection "not why the interest and the taxes would not be due, but why the penalties should be reviewed by the [IRS] and should perhaps have been waived by the [IRS] under the circumstances." Id. at 35:2-9. Miles' counsel requested that Miles be allowed to testify in this respect, and the parties agreed to continue the hearing so that Miles could testify to "the only remaining issue" -- whether Miles could demonstrate reasonable cause for his failure to file income tax returns between 1988 and 2002. Id. at 37:9-38:19. At the second hearing, on May 16, 2006, Miles testified regarding the circumstances that led to his failure to file timely tax returns. Tr. of 5/16/06 Hrg.
At the conclusion of the May 16, 2006, Bankruptcy Judge Teel presented conclusions of fact and orally overruled Miles' objection. Id. at 20:25. On May 25, 2006, the Bankruptcy Court issued an Order denying Miles' Objection to the IRS' Proof of Claim and allowing the IRS' amended claim filed on February 7, 2005. Order, In re Theodore Miles, Bankruptcy No. 04-01128 (Bankr. D.C. May 25, 2006) [Docket #159]. On June 1, 2006, Miles filed a Notice of Appeal of the Bankruptcy Court's May 25, 2006 Order. Miles Notice of Appeal. The Bankruptcy Court's denial of Miles' Objection to the IRS's Proof of Claim is the sole matter before this Court on appeal.
United States District Courts have jurisdiction over appeals of bankruptcy court decisions. 28 U.S.C. § 158(a). Orders in bankruptcy cases may be immediately appealed as final orders if they dispose of discrete disputes within the larger case. In re St. Charles Preservation Investors, Ltd., 112 B.R. 469, 471 (D.D.C. 1990). On appeal from a bankruptcy court, a district court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree, or remand with instruction for further proceedings. Findings of fact . . . shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses." Fed. R. Bankr. P. 8013; see also In re Ford Johnson 236 B.R.510, 518 (D.D.C. 1999). In contrast, a district court reviews questions of law de novo on appeal. In re WPG, Inc., 282 B.R. 66, 68 (D.D.C. 2002) (citing Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed. 2d 9359 (1990)).
The burden of proof is on the party that seeks to reverse the bankruptcy court's holding, and that "party must show that the court's holding was clearly erroneous as to the assessment of the facts . . . and not simply that another conclusion could have been reached." Ford Johnson, 236 B.R. at 218. In adversary proceedings, Federal Rule of Bankruptcy Procedure 7052 provides that the district court's review parallels review under Federal Rule of Civil Procedure 52(a). Fed. R. Bankr. P. 7052; Fed. R. Civ. P. 52(a). Thus, an appellate court applying the "clearly erroneous" standard is not entitled to "reverse the finding of the trier of fact simply because it is convinced that it would have decided the case differently. The reviewing court oversteps the bounds of its duty . . . if it undertakes to duplicate the role of the lower court." Anderson v. City of Bessemer, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed. 2d 518 (1985). As such, a finding of fact is clearly erroneous "when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Ford Johnson, 236 B.R. at 518. (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948)).
Miles presents three arguments on appeal: 1) that the Bankruptcy Court erred as a matter of law in placing the burden of proof on Miles; 2) that the Bankruptcy Court erred in deciding that Miles had failed to prove reasonable cause for the abatement of the IRS's penalty charges; and 3) that the Bankruptcy Court erred in failing to require the IRS to follow ...