- In re Borgman, --- F.3d ----, 2012 WL 5201347 (10th Cir. Oct. 23, 2012)
- The Tenth Circuit REVERSED the BAP and REINSTATED the orders of the Bankruptcy Court disallowing claimed exemptions of tax refunds. "The amount of a federal tax refund equivalent to the 'nonrefundable' portion of the child tax credit of 26 U.S.C. s. 24(a) is [not] exempt from a bankruptcy debtor's estate under Colorado Revised Statutes s. 13-54-102(1)(o), [which exempts only 'refunds']." As the nonrefundable portion of the CTC only reduces tax liability, it never gives rise to a refund. Only items treated as "payments" like the refundable portion of the CTC can give rise to a refund, and then only to the extent that they exceed tax liability. Therefore, the nonrefundable portion of the CTC is not included in the "full amount of [a] federal ... income tax refund attributed to ... a child tax credit" under CRS Section 13-54-102(1)(o) and is not exempt from the bankruptcy estate.
- Procedural context:
- The Debtors in two separate cases claimed exemptions in tax refunds equal to the nonrefundable CTC on their tax returns. Cohen, as the Trustee in each case, objected to the exemptions on the grounds that the Debtors were “claiming an exemption on a child tax credit which is related to a ‘non-refundable’ portion credited against the amount of tax owed.” The Debtors argued that the plain language of CRS Section 13-54-102(1)(o) exempted the full amount of a tax refund “attributed to” a CTC, and that a refund that is made larger by operation of a CTC in any form is “attributed to” that credit. The Debtors further argued that even if the statute were ambiguous, it should be construed liberally in favor of the Debtors. The Bankruptcy Court for the District of Colorado (“Bankruptcy Court”) in each case sustained the Trustee’s objections and disallowed the exemptions. The Debtors appealed to the Bankruptcy Appellate Panel for the Tenth Circuit (“BAP”), which issued one opinion reversing the Bankruptcy Court’s decisions in both cases. The Trustee appealed to the Tenth Circuit, arguing the BAP’s interpretation of CRS Section 13-54-102(1)(o) was erroneous. The Tenth Circuit reviewed de novo the BAP’s decision and reversed it.
- The Debtors were entitled to tax refunds and claimed exemptions equal to the nonrefundable child tax credit ("CTC") on their tax returns. An income tax refund is included in the definition of "property" under 11 U.S.C. s. 541, but may be exempted in certain situations from liquidation and sale in a Chapter 7 case. Colorado has codified its own exempt property rules and exempts "[t]he full amount of any federal or state income tax refund attributed to an earned income tax credit or a child tax credit." The Tenth Circuit Court of Appeals ("Tenth Circuit") explained that the Internal Revenue Code ("IRC") distinguishes between "nonrefundable creditors" and "refundable credits." "Nonrefundable" means it can only reduce tax liability to the extent that tax liability exists. It cannot result in a tax refund to the extent the credit exceeds tax liability. The CTC, for some taxpayers, has a nonrefundable and refundable component. The "refundable" component is called the "additional child tax credit." The Tenth Circuit was required to interpret Colorado Revised Statutes ("CRS") Section 13-54-102(1)(o) and determined the statute "unambiguously applies only to 'refunds,' [and] does not encompass the nonrefundable portion of the CTC." The Tenth Circuit reasoned that a "refund attributed to ... a child tax credit" must first be a "refund," which is when a person has made an "overpayment" that exceeds the person's tax liability. Therefore, the prerequisite for a refund is a payment of some form. The nonrefundable CTC is not treated as a payment and, accordingly, cannot give rise to a refund. As such, the nonrefundable portion of the CTC is not included in the "full amount of [a] federal ... income tax refund attributed to ... a child tax credit" under [CRS] Section 13-54-102(1)(o) and is not exempt from the bankruptcy estate.
- Tymkovich, Ebel, Holmes
Church Joint Venture, L.P. v. Earl Blasingame
Summarizing by Amir Shachmurove
3202 in the system
2 Being Processed