Daniels v. Agin

Citation:
United States Court of Appeals for the First Circuit, No. 12-2376, November 25, 2013
Tag(s):
Ruling:
Affirming the rulings of the courts below, against the Debtor, the Court held first that where the Debtor had entered into numerous transactions prohibited by sections 401 and 4975 of the Internal Revenue Code, such as making loans to disqualified persons and accepting a transfer of assets from a family trust, the assets of a profit-sharing plan of which the Debtor was sole beneficiary would not qualify for favorable tax treatment and would therefore not be exempt from inclusion in the bankruptcy estate, including two IRA accounts that were wholly created from the same plan. A closed tax audit, without more, may not be deemed a "favorable determination" of the plan for purposes of 11 U.S.C. secs. 522(b)(3)(C) and (4), which would have created a presumption that the plan was exempt. Alternatively, the Court accepted the parties' understanding that a bankruptcy court could deny an exemption purely for bad faith by a debtor either (i) intentionally concealing the assets, where material, or being recklessly indifferent to the truth in respect to the assets. With that, the Court determined that the Debtor's omission was material as "pertinent to the discovery of assets," and that his failure to clarify information when able and necessary showed a reckless indifference to the truth. Lastly, based on the collateral estoppel effect of the bad faith holding in the turnover action relating to the retirement plans, the lower court was correct in granting summary judgment on the motion to revoke the discharge.
Procedural context:
Appeal from the United States District Court for the District of Massachusetts of orders affirming orders of the United States Bankruptcy Court for the District of Massachusetts, on motions for summary judgment, determining (i) that assets in certain retirement plans were not exempt and were therefore property of the estate, and (ii) that the debtor's discharge would be revoked.
Facts:
William Daniels, the Debtor, was the trustee and sole participant in a company profit-sharing plan (the "Plan"), from which he transfered nearly $470,000 into two IRA accounts held in his name six months prior to his bankruptcy. While administering the Plan, the Debtor, among other things, had accepted an assignment of funds from a nominee trust of which his wife was beneficiary, had wrongfully transferred funds to the Plan from a joint account held with an uncle, and had loaned Plan money to a disqualified person. Prior to the bankruptcy the IRS had audited the Plan's 2006 tax return and "accepted the return(s) as filed." After filing, the Debtor submitted forms and testified in a way that failed adequately to disclose the existence of the IRAs or explain what had transpired once information on them began to surface. The Debtor received a discharge, but (i) the Trustee sought a turnover of the Plan and IRA assets as non-exempt property of the estate, alleging first, that the neither warranted exempt status because of violations of the IRC's qualifications for favorable tax treatrment, and second, that the Debtor forfeited his exemption claim because of deliberate concealment of the allegedly exempt assets. The U.S. Trusee sought to revoke the discharge based upon the deliberate concealment.
Judge(s):
Lynch, Howard and Kayatta

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