Opinion
No. 88-01753-B-13
April 17, 1990
Kevin Burton, San Diego, California.
David Skeleton, San Diego, California, Chapter 13 Trustee.
Thomas A. Donbrowski, San Diego, California, District Counsel, Internal Revenue Service.
Gregg Addington, Washington, D.C., Trial Attorney, Tax Division, U.S. Department of Justice.
Proof of Claims — Taxes — Legally Insufficient. — A proof of claim filed by the Internal Revenue Service against a debtor's Chapter 13 plan was legally insufficient to constitute a formal claim under Bankruptcy Rule 3001 since its description of the kind of tax, tax period and amount was listed officially as "unknown". The attached claim did not specify the principle amount owed, which interest on the debtor's property secured the claim, nor even if a security interest was claimed. Justification by the IRS pertaining to its heavy workload and a former policy of filing an "unknown" claim in order to preserve its right to file an amendment was unpersuasive to the court.
See Rule 3001 at ¶ 21,101.
Proof of Claims — Taxes — Informal Claim. — A proof of claim filed by the IRS did not meet the requirements of an informal proof of claim since it failed to make an explicit demand showing the nature of the amount of the claim, the kind of tax period, the date the tax was assessed, or interest. The only information given was that the IRS was asserting an intent to look to the estate.
See Rule 3001 at ¶ 21,101.
This matter came on for hearing upon the debtor's objection to the claim of the Internal Revenue Service (IRS). The debtor objects to IRS's claim on the ground that the proof of claim filed by the IRS is not legally sufficient to constitute a claim.
This Court has jurisdiction to hear this matter under 28 U.S.C. § 1334 and General Order 312-D of the United States District Court, Southern District of California. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A),(B).
The essential facts are not in dispute. Bruce Thomas Milton (debtor) filed his petition under Chapter 13 on March 7, 1988. He scheduled the IRS as a creditor for tax years 1980, 1983, 1984, 1985, and 1986. Debtor listed the amount owed for each of the years as "unknown". Prior to filing the petition, the IRS had issued a wage attachment against the debtor's wages. That attachment was lifted by the IRS after the petition was filed.
On or about April 14, 1988 notice of the § 341(a) meeting of creditors was given. The notice designated August 8, 1988 as the last day to file a claim. Notice was served on the IRS, Special Procedures Section, San Diego and IRS, Laguna Niguel, California.
Debtor filed his 1984, 1985, and 1986 tax returns on April 14, 1988 and filed his 1987 tax return on April 15, 1988.
On April 20, 1988 debtor filed an amendment to his Summary of Debts and Assets. The amendment was served by mail on the IRS on April 18, 1988. The amendment set forth the following taxes due the IRS:
1980 $1.00 1981 1.00 1982 1.00 1983 2,338.77 — disputed 1984 892.00 1985 3,261.00 1986 754.00 1987 4,845.00 Debtor's Chapter 13 plan was confirmed on June 24, 1988. IRS did not file an objection to the debtor's plan. The plan provides for 100% payment to the unsecured creditors.The IRS timely filed a purported proof of claim on August 8, 1988 on an Internal Revenue Service form customarily used by it for that purpose. The purported proof of claim described the kind of tax as "UNKNOWN", the tax periods as "UNKNOWN" and the amount due as "UNKNOWN".
Through the Declaration of Ronald E. Adams, Revenue Agent, the IRS asserts that the proof of claim in an unknown amount was filed because an exact dollar amount could not be established by August 8, 1988 due to problems with the IRS's proof of claim computer program. Adams further declares that a follow-up of this claim for purposes of amending the claim for the proper amounts was scheduled for November 1988, but was not performed. The IRS in its response to the debtor's objection to claim filed in August 1989 requests leave to amend its previously filed proof of claim to include all tax, penalty and interest due as of the petition date.
Debtor objects to the IRS's proof of claim on the grounds that it does not constitute a claim. Further, debtor argues that the proof of claim may not now be amended.
DISCUSSION
At issue is whether filing a proof of claim specifying the nature and amount of such claim as "unknown" is sufficient to constitute a proof of claim, as defined by § 501 and Bankruptcy Rule 3001, which could thereafter be amended.
The IRS seeks leave to amend its proof of claim to include all tax, penalty and interest due as of the petition date. The IRS argues that amendments to claims should be liberally permitted.
The Ninth Circuit has a libral policy regarding amendments to claims. As enunciated in Perry v. Certificate Holders of Thrift Savings, 320 F.2d 584, 590 (9th Cir. 1963), two propositions are firmly established:
(1) that the courts will be liberal in permitting amendments to claims where an attempt has been made, within the time limit, to comply with the requirement that a proof of claim be filed; and
(2) that the courts, in cases in which no injustice will be done, will be liberal in determining that such an attempt has been made.
However, the court went on to say that "there must have been presented, within the time limit, by or on behalf of the creditor, some written instrument which brings to the attention of the court the nature and amount of the claim." Perry at 590, citing Hutchinson v. Otis, 190 U.S. 552, (1903), (emphasis added). Additionally, the court in Perry stated "mere knowledge on the part of the trustee or the referee in bankruptcy as to the existence of a claim is not sufficient basis for allowing the filing of an amended claim nor is the listing of the claim in the bankrupt's schedules sufficient". 320 F.2d at 589.
In line with Perry, this Court recognizes that amendments to claims should be liberally permitted. However, before an amendment can be permitted, there must initially have been a legally sufficient proof of claim filed against the estate.
Bankruptcy Rule 3001 sets forth the required contents of a formal proof of claim. By making reference to Official Forms, Nos. 19, 20, and 21, Rule 3001 provides that a proof of claim shall be a written statement setting forth a creditor's claim specifying the principal amount owed and any additional charges; be executed by the creditor or authorized agent; if founded on a writing, have attached writings on which the claim or the interest in the debtor's property which secures the claim are based; and if a security interest in property of the debtor is claimed, have attached documents evidencing perfection of any security interest.
The IRS timely filed a purported proof of claim on IRS form number 6338(c), labeled Proof of Claim for Internal Revenue Taxes. No supporting documentation, such as Certificates of Assessments and Payments, was attached. The proof of claim contained the following information: (1) the debtor's name; (2) the debtor's social security number, (3) the Chapter 13 case number; (4) total indebtedness to the United States — "UNKNOWN"; (5) kind of tax — "UNKNOWN"; (6) tax period — "UNKNOWN"; (7) date tax assessed — "UNKNOWN"; (8) tax due — "UNKNOWN"; (9) interest to petition date — "UNKNOWN". It was signed by T.J. Dimuzio, Chief, Insolvency Unit, SPS. In this Court's view, the proof of claim filed fails to meet the content requirements of Bankruptcy Rule 3001 for a formal proof of claim.
The next issue to be resolved is whether the proof of claim filed by the IRS meets the requirements of an informal proof of claim. Courts have been willing to ignore a creditor's failure to comply with the format established by the Bankruptcy Rules and have permitted writings filed before the expiration of the bar date to serve as proofs of claims. Such claims are called "informal proofs of claims". Sun Basin Lumber Co. v. United States, 432 F.2d 48 (9th Cir. 1970).
Although the courts have been very liberal in construing instruments to be informal proofs of claims, the content requirement as imposed in Perry has been widely followed in the Ninth Circuit. In re Anderson-Walker Industries, Inc. 798 F.2d 1285 (9th Cir. 1986); In re Matter of Pizza of Hawaii, Inc., 761 F.2d 1374 (9th Cir. 1985); In re Sambo's Restaurants, Inc., 754 F.2d 811 (9th Cir. 1985); In re Franciscan Vineyards, Inc., 597 F.2d 181, 182 (9th Cir. 1979) (per curiam), cert. denied 445 U.S. 915, (1980); In re Basche-Sage Hardware Co., 56 B.R. 3 (Bankr.D.Or. 1985); In re Stewart, 46 B.R. 73 (Bankr. D.Or. 1985).
In Matter of Pizza of Hawaii, Inc., the court concluded that although the complaint did not quantify the damages requested except for $58,335 in dealer fees, the requirement that the amount be stated was fulfilled because under the circumstances the matter regarding damages was going to require an extensive evidentiary presentation. The court held that the request for relief from the automatic stay, together with other documents filed, sufficiently stated an explicit demand showing the nature and amount of the claim against the estate, and evidenced intent to hold the debtor liable.
The court in In re Sambo's Restaurants, Inc., 754 F.2d 811 (9th Cir. 1985), held that the creditor's complaint, together with correspondence and its joint motion with Sambo's to transfer the case to the bankruptcy court, established an amendable informal proof of claim because the creditor's complaint set forth the nature and amount of the claim, and the joint motion with Sambo's to transfer the claim to bankruptcy court evidenced intent to hold the estate liable.
In In re Stewart, 46 B.R. 73 (Bankr. D.Or. 1985) the court was confronted with the same issue as in the instant case, that is, whether a proof of claim must include the nature and amount of a claim. In Stewart, the creditor conceded that no formal proof of claim was timely filed but argued that his extensive participation in the case, combined with the filing of an objection to confirmation, constituted an informal proof of claim which may be amended. The court rejected the creditor's argument and held that the creditor's participation in the proceedings could not be relied on in determining the sufficiency of any writings which were presented to the court within the time limit. Further, the Court concluded that the documents relied upon by the creditor as a proof of claim did not state the nature and amount of the claim and, therefore, were insufficient to constitute an informal proof of claim susceptible to amendment after the claims bar date. 46 B.R. at 76.
It is clear that for an instrument to constitute an informal proof of claim, the instrument must state an explicit demand showing (1) the nature of the claim, (2) the amount of the claim against the estate and (3) must evidence an intent to hold the debtor liable. Perry at 590; Franciscan Vineyards at 183. The proof of claim filed by the IRS in the instant case fails in the first two respects. Since the IRS failed to indicate the kind of tax, the tax period, the date the tax was assessed, the tax due, and the interest to petition date, effectively they filed no demand against the estate. Thus, the proof of claim as submitted by the IRS is legally insufficient to constitute an informal proof of claim. The only information the form gave was that the IRS was asserting an intent to look to the estate.
The IRS argues that the court should not mechanically apply an inflexible content requirement but rather should examine the extent to which any real prejudice or injustice will result by permitting the amendment. Bankruptcy Rule 3002(a) expressly states that a creditor must file a proof of claim in a Chapter 13 case, regardless of whether the creditor is listed in the schedules, in order to receive a distribution from the estate.
Further, the Bankruptcy Rules provide a mechanism whereby the IRS could have obtained an extension to file its proof of claim once it determined that it would be unable to file a sufficient proof of claim by the bar date. Bankruptcy Rule 3002(c)(1) provides:
On motion of the United States, a state, or subdivision thereof before the expiration of such period and for cause shown, the court may extend the time for filing of a claim by the United States, a state, or subdivision thereof.
The IRS chose not to request an extension of time.
The only justifications which the IRS offers for its failure to claim all amounts due on the original proof of claim, or to request an extension of time to file a claim, are (1) the heavy workload in the Special Procedures function (sic), and (2) its former policy that filing an "unknown" claim preserved its right to file an amendment. This Court finds these reasons to be unpersuasive.
The IRS's Proof of Claim for Internal Revenue Taxes filed by the IRS in the instant case is legally insufficient to constitute a formal claim under Bankruptcy Rule 3001, and fails to set forth the nature and amount of its claim in order to constitute an informal proof of claim. Debtor's Objection to Claim of the IRS for taxes due as of the date of the petition is therefore sustained.
IT IS SO ORDERED.