Opinion
18-12218 PROC. 20-1073
11-18-2021
IN RE: GALEN SCOTT PINTER Debtor v. U.S. DEPARTMENT OF EDUCATION INTERNAL REVENUE SERVICE Defendants MARTIN E. SEIFERT, TRUSTEE Plaintiff
NOT INTENDED FOR PUBLICATION
DECISION AND ORDER DENYING MOTION TO DISMISS
Robert E. Grant, Chief Judge, United States Bankruptcy Court
On April 15, 2021
By this adversary proceeding, the plaintiff/trustee seeks recover the prorated portion of the debtor's 2018 federal income tax refund. The matter is before the court on the defendants' motion to dismiss due to the failure to state a claim upon which relief can be granted. Fed.R.Civ.P. Rule 12(b)(6). In making that determination, the court looks only at the well-pleaded allegations in the complaint, accepts them as true, and draws all reasonable inferences in plaintiffs favor. See, Christensen v. County of Boone, Illinois, 483 F.3d 454, 457 (7th Cir. 2007). As such, the focus is upon the facts alleged in the complaint, not its legal theory. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937 ("[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.") Bartholet v. Reishauer A.G. (Zurich), 953 F.2d 1073, 1078 (7th Cir. 1992) ("the complaint need not identify a legal theory, and specifying an incorrect theory is not fatal").
Focusing upon the facts alleged in the complaint, the court is satisfied that it states a claim for relief. Those facts are relatively simple: The debtor filed a petition for relief under chapter 7, on November 16, 2018, and subsequently became entitled to an income tax refund for that year. The complaint alleges that at least a portion of the refund constitutes property of the bankruptcy estate which should be paid to the trustee for the benefit of creditors. The defendants maintain that the refund never became property of the estate because, as of the date of the petition, the debtor's interest in it was only contingent and that, before paying, the government was entitled to set off against the refund any debts it was owed by the debtor.
To the extent that the defendants argue that sovereign immunity bars the trustee's action, it does not. 11 U.S.C. §§ 106(a); 505.
What becomes property of the bankruptcy estate is a very broad and all encompassing concept, and is construed to include practically every conceivable interest the debtor might have as of the petition date. It is: "all legal or equitable interests of the debtor in property as of the commencement of the case" "wherever located and by whomever held." 11 U.S.C. § 541(a)(1). See also, City of Chicago v. Fulton, __U.S. __, 141 S.Ct. 585, 589 (2021); U.S. v. Whiting Pools, Inc., 462 U.S. 198, 204-05, 103 S.Ct. 2309, 2313-14 (1983); Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511 (1966);.Koch Refining v. Farmers Union Cent. Exchange, Inc., 831 F.2d 1339, 1344 (7th Cir. 1987); Moody v. Amoco Oil Co., 734 F.2d 1200, 1213 (7th Cir. 1984); In re Thompson, 396 B.R. 5, 9-10 (Bankr. N.D. Ind. 2008) (Klingeberger, J.); In re Quality Health Care, 215 B.R. 543, 560-61 (Bankr. N.D. Ind. 1997) (Lindquist, J.). That definition is broad enough to include interests that are only contingent. Matter of Yonikus, 996 F.2d 866, 869 (7th Cir. 1993) ("every conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative, is within the reach of § 541") abrogated on other grounds by, Law v. Siegel, 571 U.S. 415, 135 S.Ct. 1188 (2014). Consequently, at least in the Seventh Circuit, the portion of a tax refund attributable to a debtor's pre-petition withholding constitutes property of the bankruptcy estate. See, In re Meyers, 616 F.3d 626 (7th Cir. 2010) (allocating tax refund between debtor and estate); In re Lark, 438 B.R. 652, 655 (Bankr. W.D. Wis. 2010); In re Marvel, 372 B.R. 425, 433 (Bankr. N.D. Ind. 2007) (Klingeberger, J.). See also, In re Smith, 310 B.R. 320, 322 (Bankr.N.D.Ohio 2004) ("it is well-established that the proceeds due from a tax overpayment. . . become property of the estate to the extent that the overpayment was made pre-petition, notwithstanding the lack of any present right to receive the proceeds). But see, In re Luongo, 259 F.3d 323, 335 (5th Cir.2001); In re Lyle, 324 B.R. 128 (Bankr. N.D. Cal. 2005); In re Abbott, 2012 WL 2576469 (Bankr. E.D. N.C. 2012).
As for the defendants' claim to aright of setoff, setoff is an affirmative defense. In re Stirlen, 614 B.R. 837, 844-45 (Bankr. N.D. 111. 2020) (collecting cases). In passing on a motion to dismiss, the court does not consider affirmative defenses. See, Deckard v. General Motors Corp., 307 F.3d 556, 560 (7th Cir. 2002) (granting a motion to dismiss based on an affirmative defense is improper because "the existence of a defense does not undercut the adequacy of the claim."). See also, In re Tower Air, Inc., 416 F.3d 229, 242 (3d Cir.2005) ("affirmative defenses generally will not form the basis for dismissal under Rule 12(b)(6)"). So, the argument over setoff is, at the very least, premature.
Defendants' motion to dismiss is DENIED. They shall file and serve any answer to the plaintiffs complaint within fourteen (14) days.
SO ORDERED.