JOHN ROSSMEISSL, Bankruptcy Judge
Ford Elsaesser, the Chapter 11 Liquidating Trustee (Trustee) seeks an order approving distribution of funds. Jerrie VanderHouwen (Debtor) objects to the proposed distribution.
BACKGROUND
Jerrie VanderHouwen filed a voluntary Chapter 11 bankruptcy petition on February 14, 2003. At the time of filing the Debtor's farming operation was in a state court receivership instituted by US Bank. The Bank filed a motion in the bankruptcy court seeking an order allowing the state court receiver to remain in possession of the Debtor's farm assets. In support of its motion, the Bank relied in part upon a state court finding that the Debtor was not adequately caring for his farm, was not paying his laborers (as evidenced by substantiated judgment for unpaid wages) and was in violation of an injunction obtained by the U.S. Department of Labor. In addition the Bank alleged that the Debtor had insufficient funds to finance future farming operations. The U.S. Trustee moved to convert the Debtor's case to one under chapter 7 or in the alternative for dismissal. The attorneys for the unpaid laborers sought appointment of an examiner in the case. The Debtor opposed these various requests for relief and sought use of proceeds of the 2002 crop held by the state court receiver to finance future operations.
The various matters came on for hearing, the result of which was that a trustee was appointed in the chapter 11 case. [Doc. #121; Doc. #87]. The U.S. Trustee appointed Ford Elsaesser to serve as the Chapter 11 trustee.
A Joint Plan of Reorganization was proposed by the unpaid farm workers and US Bank. [Doc. #182]. This plan, including a Non Material Modification, was confirmed over Debtor's objection. [Doc. #239]. Under the plan's terms the Debtor's estate would be liquidated and the estate assets distributed. The plan as modified was confirmed. [Doc. #246]. The liquidating trustee named in the plan was Ford Elsaesser. Mr. Elsaesser has liquidated the estate's assets and is now seeking authorization to make final disbursements of the $436,000.00 on hand. [Doc. #667] The Debtor has objected to the proposed distribution. [Doc. #677].
The estate is insolvent, i.e. there are insufficient funds to pay all of the creditors' claims in full. The Trustee's proposed distribution would pay costs of administration, make a pro rata payment to priority creditors, and provide for Debtor's share of the distribution to be paid to the IRS to satisfy a tax levy. Debtor in his objection challenges the amount of the IRS claim, its levy on his share of the distribution, and payment of the Trustee fees. A hearing was conducted at which testimony was taken and evidence was admitted.
DISCUSSION
I. The IRS Claim
The IRS has filed an amended claim in this case. [Exhibit 1002]. This tax claim totals $1,276,486.48 as of August 13, 2008. Of this sum, $81,450.48 is a secured claim, $388,582.17 is a priority claim pursuant to 11 U.S.C. § 507(a)(8), and $806,453.83 is unsecured.
The Debtor challenges this claim. He contends that the IRS claim is time barred and that the IRS has failed to properly account for payments received.
A. Is the IRS Claim Time Barred?
The Debtor argues that some of the taxes included in the IRS claim are more than ten years old and are barred by the applicable 10 year statute of limitation. 26 U.S.C. §
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Statement. [Debtor's Ex. 11 D-E]. This appears to be a bank statement for the period April 30, 1999 to May 31, 1999. The account bears the name of "Russell Mazzola IOLITA Account." Mr. Mazzola is an attorney who has represented the Debtor. The account indicate a number of checks and deposits during the time period, but no indication as to whom the checks were paid. It does not provide any assistance in support of the Debtor's challenge to the IRS claim.
The next item is a receipt for a wire transfer from Mr. Mazzola's trust account dated October 22, 1999, in the amount of $80,012.00. [Debtor's Ex. 11F]. There is no indication as to whom these funds were sent. Mr. Morgan testified that the IRS had no record of receiving this money.
This is also true of the money referenced in the Debtor's Ex. 11G, a copy of the face of a check dated October 29, 1999, in the sum of $101,635.32 made payable to the Washington State Employment Security Department. Mr. Morgan testified that the IRS did not receive this money, nor is it clear why the Debtor thought the money paid to a state taxing authority should be credited as payment to an IRS claim.
The evidence submitted on behalf of the Debtor in his challenge to the IRS claim is not persuasive. The IRS has met its burden of proof in regard to its claim.
II. The IRS Tax Levy
On February 18, 2009, Daniel Morgan in his capacity as Insolvency Advisor with the IRS issued a "Notice of Levy." [Ex. 1003]. This levy was directed to the Trustee. The levy was in the amount of $498,582.92, as of February 14, 2009. The levy listed seven items which were being collected. Of these seven items, five were trust fund taxes, either 940 or 943. The remaining two were income taxes, 1040.
Trust fund taxes are non-dischargeable obligations in bankruptcy. 11 U.S.C. § 523(a)(1)(A); 11 U.S.C. § 507(a)(8)(C).
The two income tax obligations relate to the tax periods ending 12/31/1999 and 12/31/2000. These income tax liabilities were assessed on 5/15/2000 and 10/01/2001, respectively. [Ex. 1002]. These are priority taxes on which returns were required within three years prior to the date of filing of the Debtor's bankruptcy February 14, 2003. 11 U.S.C. § 507(a)(8)(A)(I). As priority taxes these obligations were not discharged upon confirmation of the plan. 11 U.S.C. § 1141(d)(2); 11 U.S.C. § 523(a)(1)(A); 11 U.S.C. § 507(a)(8)(A)(I).
The IRS levy for $498,582.92 was for non-dischargeable taxes. The levy provides by its terms "THIS LEVY SEEKS ONLY ASSETS THAT ARE NOT ASSETS OF THE ESTATE" the levy attached to two specific funds which the Trustee held and had intended to pay to the Debtor; $80,000.00 due the Debtor under the Federal Crop Disaster Program and $17,425.00, the proceeds of a personal injury claim which Debtor exempted in the bankruptcy. The Trustee now proposed to pay this money to the IRS pursuant to the levy. The court will analyze the Debtor's objection to IRS levy on each of these funds.
A. The Crop Disaster Payment (CDP)
The Agricultural Assistance Act of 2003 was signed into law on February 20, 2003. (www.fsa.usda.gov/FSA File/disaster 03 pdf). It provided assistance for farmers that suffered losses from weather conditions during the years 2001 and 2002. The crops disaster program payments were limited to $80,000.00 per producer. The Debtor filed an application for benefits under this program relating to a hail storm on June 30, 2001. The Debtor's application was received August 13, 2003. [Doc. #694-3 pgs. 2-3]. An $80,000.00 CDP payment was made to Ford Elsaesser on December 22, 2003. [Doc #694-3 pg.4]. The rights to these funds were disputed between the Trustee and the Debtor.
At the time of payment, there was an unresolved legal dispute whether crop disaster payments relating to a pre filing loss were property of the bankruptcy estate. Since that time the circuit cases on the issue agree that the date of enactment of the crop disaster program is determinative as to whether the CDP is property of the bankruptcy estate. In re Burgess, 438 F.3d 493 (5th Cir. en banc 2006); In re Vote, 276 F.3d 1024 (8th Cir. 2002); In re Schmitz, 270 F.3d 1254 (9th Cir. 2001); see also "Who Gets the Check: Determining When Federal Farm Program Payments Are Property of the Bankruptcy Estate," 84 Neb. L. Rev. 469, pgs. 490-496 (2005). In light of the current weight of legal authority on the issue, Mr. Elsaesser conceded that the $80,000.00 crop disaster payment was not property of bankruptcy estate but rather the post petition property of Jerrie VanderHouwen and was prepared to disburse these funds to him. The IRS tax levy intervened.
The court notes that if the Debtor had filed this case seven days later the CDP would have been property of the bankruptcy estate.
The Debtor's post petition property is subject to levy for pre petition non-dischargeable debts. These conditions have been met. The proposed distribution by Mr. Elsaesser to the IRS of the $80,000.00 crop disaster payments is appropriate.
B. The Proceeds of the Personal Injury Settlement
On October 23, 1998, the Debtor, his wife and son were involved in an automobile accident. All were seriously injured. The driver of the other car was uninsured. The Debtor, his wife and son all asserted claims under the uninsured motorist coverage of Debtor's own insurance policy, whose limits were $1,000,000.00. These claims, which exceeded the policy limits, were pending when the Debtor filed his bankruptcy on February 14, 2003.
The Debtor's "Schedules B-Personal Property" filed March 21, 2003, references his "claim for injuries from auto collision with a current value of "$0.00"." [Doc. # 38 pg. 8]. There was no "Schedule C-Property Claimed as Exempt" in the original schedules filed with the court. [#38 pgs. 1-31].
The reason for this omission is unclear
The Debtor filed a "Schedule C-Property Claimed as Exempt" on February 5, 2004. [Doc. #241 pgs. 1-2]. This schedule refers to "claim for injuries" exempt under 11 U.S.C. 522(d)(11)(1) with a $17,425.00 value of claimed exemption, and a current market value of $0.00. This Schedule C indicates the Debtor signed it on February 2, 2004.
The Debtor objected to the confirmation of the Plan proposed by US Bank and the unpaid farm workers on a number of grounds. One of those grounds was the plan's failure to provide for Debtor's exemptions. [Doc. #234 pg. 1 ¶ 1.A]. Debtor through his counsel suggested that this objection could be "easily remedied" by adding the language "subject to debtor's exemptions." [Doc. #243 ¶ 1 pgs. 1-2]. The "Order Confirming Joint Plan of Reorganization" provides for recognition of Debtor's claimed exemptions. [Doc. #246 ¶ 19(a), pg. 4, ¶ 19(d), pg. 5 ¶ 28 pg. 12].
The confirmed plan provided that the liquidation trustee had the authority to prosecute any claim of the Debtor or the estate. [Doc. #246 ¶ 19(e) pg. 9]. The Trustee prosecuted the Debtor's personal injury claim under the Debtor's uninsured motorist coverage. The claim was mediated and the insurance company agreed to settle Debtor's claim for $275,000.00, subject to this court's approval. [Doc. #475]. The Debtor objected to the settlement. [Doc. # 482]. The Court after a contested hearing, approved the compromise of the claim for $275,000.00. [Doc. # 515; Doc. #551]. The Debtor appealed this decision. [Doc. #524; Doc. #560]. The Bankruptcy Appellate Panel dismissed the Debtor's appeal. [Doc. #577].
The end result was that the Debtor's interest in the proceeds of the insurance settlement was limited to his $17,425.00 claimed exemption. Throughout this process the IRS has maintained that its "secured and priority claims each trump Debtor's interest in his exemption." [Doc. #498, ¶ 5 pgs. 2 3].
The Trustee held the $17,425.00 pending an order authorizing its payment to the Debtor. The Trustee does not dispute that the $17,425.00 is the Debtor's property exempt under the terms of the confirmed plan. The IRS levied on this property of the Debtor in the hands of the Trustee. The Debtor challenges the levy on his exempt property.
The IRS has maintained throughout this case that the Debtor's property exempt under the Bankruptcy Code is nonetheless subject to its levy for non discharged taxes. Internal Revenue Code 26 U.S.C. § 6334(a) enumerates thirteen categories of property which are exempt from IRS levy. Personal injury settlements are not among the property exempted from levy. Property exempted under the Bankruptcy Code is not one of its exempt catagories. Sub Section 6334(c) provides:
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III. Payment of the Trustee's Fees
Debtor objects to payment to the Trustee of unpaid fees previously awarded by the Court. The Debtor has multiple complaints about how this case has been handled including the appointment of the Trustee, the confirmation of the plan, the hiring of the liquidating trustee's attorney, the settlement of the personal injury claim, and now to the final disbursement of funds. Many of these complaints were raised by the Debtor in his "Statement of Issues on Appeal." [Doc. #560]. That appeal has been dismissed. [Doc. #577]. The Debtor now attempts to once again raise these issues by objecting to the payment of fees to Mr. Elsaesser.
The Trustee made an initial request for payment of his services on June 30, 2004. [Doc. #353]. In that application he requested payment in the amount of $115,419.75 for his services in the case between April 18, 2003 to June 30, 2004. He also sought allowance for $10,161.75 reimbursement from expenses incurred during the same period. In support of this application the Trustee submitted detailed time records. These records supported an award of fees in the amount of $115,419.75. However this amount was limited by the terms of 11 U.S.C. § 326(a) to $112,082.32. This court approved compensation in the amount of $112,082.32, and reimbursement in the sum of $10,161.75, for total of fees and disbursements of $122,244.07 by order dated September 28, 2004. [Doc. #369]. Of this approved amount, $11,208.23 was to be held back until the case was completed.
The Trustee made a final application for award for services between July 3, 2003, and case closing in the amount of $23,764.00, plus $406.61, for reimbursement of expenses. [Doc. #664]. The award for services was reduced to $20,496.30, pursuant to the terms of 11 U.S.C. § 326(a). An order dated May 20, 2009, was entered approving fees in the sum of $20,090.59, plus costs of $406.01 for expenses, or a total of $20,496.60. [Doc. #679].
The Trustee's proposed disbursement would pay both the $11,208.23 held back in the September 28, 2004 order, plus the $20,496.60 approved in the May 20, 2009 order. The court has heretofore considered and approved these fee requests and the issues raised by the Debtor do not justify a vacation of those awards.
CONCLUSION
The Trustee's Motion for Order Authorizing Final Disbursement Under Liquidation Plan is approved. This memorandum decision constitutes the court's findings of fact and conclusions of law. Fed.R.Bankr.Proc. 7052; Fed.R.Civ.P. 52.