David H. Zimmer

IN THE UNITED STATES BANKRUPTCY COURT UCO.SU. RBAT N- KWRDUPPATCY

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: ) Bankruptcy No. 17-20543-JAD

)

DAVID H. ZIMMER, ) Chapter 7

)

Debtor. )

___________________________________ X

)

DANIEL PETER MORRIS and )

LUCILLE AIOSA MORRIS, )

)

Movants, ) Related to Doc. No. 241

)

vs. )

)

DAVID H. ZIMMER, )

DEPARTMENT OF TREASURY )

INTERNAL REVENUE SERVICE, )

and ROSEMARY C. CRAWFORD, )

Chapter 7 Trustee, )

)

Respondents. )

___________________________________ X

MEMORANDUM OPINION

The matter before the Court is a core proceeding, pursuant to which the

Court has the requisite subject-matter jurisdiction to enter a final judgment. See

28 U.S.C. §§ 157(b)(2)(B) and 1334(b). This Memorandum Opinion shall

constitute the Court’s findings of fact and conclusions of law pursuant to Federal

Rule of Bankruptcy Procedure 7052.

I.

On July 19, 2019, Mr. Daniel Peter Morris and Mrs. Lucille Aoisa Morris

(collectively, the “Morris Creditors”) filed a pleading captioned as the “MOTION OF

CREDITORS DANIEL PETER MORRIS AND LUCILLE AIOSA MORRIS OBJECTING

UNDER 11 U.S.C. § 502 TO CLAIM 13 OF DEPARTMENT OF TREASURY

INTERNAL REVENUE SERVICE AND TO DISALLOW AND EXPUNGE CLAIM 13

FROM THE CLAIMS REGISTRY OF CASE NO. 17-20543 JAD.”

The gist of the pleading is that the Morris Creditors object to the proof of

claim filed by the United States Internal Revenue Service (the “IRS”) at Claims

Register No. 13-1. The claim of the IRS, in the amount of $12,064.18, is based

upon David H. Zimmer’s self reported tax liability as reflected on his 2016 federal

tax return.

On September 9, 2020, the Court conducted a trial on the Morris Creditors’

objection to the IRS claim. The genesis of the Morris Creditors’ objection to the

claim is that Mr. Zimmer allegedly resided in Canada during part of the time

period that is germane to the instant litigation. Given the fact that Mr. Zimmer

partly resided in Canada, the Morris Creditors argue that Mr. Zimmer was entitled

to a foreign tax credit with respect to his 2016 federal taxes, even though Mr.

Zimmer did not file a Canadian tax return and did not claim such a credit in his

U.S. tax return and accompanying schedules.

At the trial of this matter, the 2016 tax return filed by Mr. Zimmer with the

IRS was authenticated and accepted into evidence. The United States also offered

into evidence a Form 4340 Certificate of Assessment for David Zimmer’s 2016

income tax return– which is the tax year at issue in this litigation. The Morris

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Creditors stipulated to the admission of the Certificate of Assessment (ECF No.

393), and the Court admitted it into evidence. See Transcript of September 9,

2020 (“Trial Transcript”), ECF No. 418 at p. 5, line 11, through p. 6, line 4. That

exhibit established the United States’ prima facie case. United States v. Fior

D’Italia, Inc., supra.

Mr. Zimmer also testified at trial. In this regard, Mr. Zimmer testified that

he paid no Canadian taxes during the relevant period of time because the income

he earned during the relevant period of time was earned outside of Canada. He

also testified that he filed no Canadian tax returns because he earned no income

in Canada, because Canada denied his ability to have a taxpayer identification

number, and because the Canadian authorities would not extend Mr. Zimmer’s

stay in the country. Accordingly, no admissible evidence was presented by any

party at trial reflecting that any foreign credit is due to Mr. Zimmer or the

bankruptcy estate on account of the 2016 tax year. This means that no admissible

evidence was presented at trial which would cause the elimination of the IRS tax

claim based on Mr. Zimmer’s 2016 federal tax return.

Further, no party has disputed that the IRS tax assessment giving rise to

the IRS claim is based upon Mr. Zimmer’s self-reported tax liability as set forth in

his 2016 U.S. tax return and is presumed to be correct as a matter of law. See

United States v. Loreno, No. 1:10-CV-183-SJM, 2013 WL 2668213, at *2 (W.D. Pa.

June 12, 2015), United States v. Kavanaugh, No. 02:07-CV-0432, 2009 WL

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1177088 at *5 (W.D. Pa. Apr. 29, 2009), and United States v. Fior D’Italia, Inc.,

536 U.S. 238, 242 (2002).

No party has also disputed that a taxpayer is not entitled to a foreign tax

credit unless it is claimed on a U.S. tax return and associated forms or schedules.

As the United States Tax Court has held: “[P]ermitting a credit for foreign income

taxes paid or accrued is an act of grace on the part of Congress, and a taxpayer

seeking to benefit from such a credit must prove that all the conditions upon

which its allowance depends have been fulfilled.” Wilcox v. C.I.R., 96 T.C.M. 193

(T.C. 2008); see generally INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

With respect to those conditions, a tax credit simply does not exist for

present purposes unless the taxpayer is eligible for the credit and the taxpayer

properly claims it. Cf. Mourad v. Commissioner, 121 T.C. 1, 7 (2013)(taxpayer who

failed to claim or comply with statutory requirements for claiming low-income

housing credits not eligible for such credits), aff’d 387 F.3d 27 (1st Cir. 2004).

However, in the instant case, the evidence reflects that Mr. Zimmer never claimed

a foreign tax credit in his 2016 U.S. tax return or related documents. See Treas.

Reg. 1-905-2(a)(1)(requiring that any claim for a foreign tax credit in a tax return

must be accompanied with a completed “Form 1116").

Accordingly, since there is no evidence that Mr. Zimmer actually accrued

any 2016 Canadian tax liability, filed a 2016 Canadian tax return, paid any 2016

Canadian income taxes, or furnished proof of the same to the IRS, which is a

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prerequisite for Mr. Zimmer claiming the foreign tax credit, see Treas. Reg. 1.905-

2(a)(2) and (b)(2)(setting forth what records must be presented to substantiate a

foreign tax credit), the weight of the evidence supports allowance of the IRS claim

filed at Claim Register No. 13-1.

II.

In rendering its decision today, the Court has duly considered all of the

arguments presented by the Morris Creditors. For example, the Court has

considered the Morris Creditors’ contention that the IRS claim should be

disallowed because the IRS did not attach IRS Form 4340 to its proof of claim.

Here, the Morris Creditors rest their objection upon Fed.R.Bankr.P. 3001(c)(1),

which dictates that a claim “based upon a writing” shall have “the writing” filed

“with the proof of claim.” This documentary objection interposed by the Morris

Creditors is without merit because:

The majority of courts to consider this issue in the

context of claims by the IRS have concluded that

because tax claims are based on statutory obligations

rather than obligations created by a writing,

Fed.R.Bankr.P. 3001(c) does not apply to proofs of

claims filed by taxing authorities. See U.S. v. Braunstein

(In re Pan), 209 B.R. 152, 156 (D.Mass.1997) (citing

[Spiers v. Ohio Dep't of Natural Resources (In re Jenny

Lynn Mining Co.), 780 F.2d 585 (6th Cir.1986)], district

court held that because proof of claim was based on a

statutory tax penalty, the government had no obligation

under the rules to provide additional documentation in

support of its proof of claim); Vines v. I.R.S. (In re Vines),

200 B.R. 940, 949 (M.D.Fla.1996) (IRS was not required

to attach any documentation to its proof of claim

because the claim and lien were based on federal

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statutes, not a writing, citing Jenny Lynn Mining Co.), In

re Alvstad, 223 B.R. 733, 745 (Bankr.D.N.D.1998)

(“[C]laim [of IRS] does not fall within the compass of the

documentation requirement of Rule 3001 (c), as its basis

lies in statute.”); Bozich v. I.R.S. (In re Bozich), 212 B.R.

354, 360 (Bankr.D.Ariz.1997) (“Courts across the

country have held that tax claims are based on statute,

not on a writing, and that, therefore, such claims do not

need to be supported by the documentation required by

Rule 3001(c).”); In re Shabazz, 206 B.R. 116, 124

(Bankr.E.D.Va.1996) (court rejected argument that IRS

was required to attach a certificate of assessment to

proof of claim, noting that Rule 3001(c) only applies

where claim is based on a writing); Fuller v. U.S. (In re

Fuller), 204 B.R. 894, 898 (Bankr.W.D.Pa.1997) (court

observed that although in the case before it the IRS had

provided detailed supporting documentation, other

courts had concluded that such documentation was

unnecessary); In re Catron, 198 B.R. 905, 907

(Bankr.M.D.N.C.1996) (court concluded that IRS's proof

of claim complied with Rule 3001 because IRS claim was

based on statute rather than writing, no security interest

arising out of an agreement was claimed, and IRS had

attached to its proof of claim an itemization of the

amounts and types of taxes due); In re Hollars, 198 B.R.

270, 272 (Bankr.S.D.Ohio 1996) (The supporting

documentation requirement of Rule 3001(c) is not

applicable because “the claim of the IRS is not founded

upon a writing, but rather is based upon the United

States Constitution and federal legislation which grants

the federal government the power to lay and collect taxes

on income.”); In re White, 168 B.R. 825, 834

(Bankr.D.Conn.1994) (even though statutory lien

asserted, it was not necessary for IRS to attach relevant

sections of the Internal Revenue Code or any other

documentation to its proof of claim, citing Jenny Lynn

Mining Co.).

In re Shaver, 247 B.R. 436, 438-39 (Bankr. E.D. Tenn. 1999).

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III.

Included among the Morris Creditors’ arguments is extensive argument

regarding the burden of production and burden of persuasion with respect to

objections to federal tax claims in bankruptcy.

One case, cited by the Morris Creditors with approval, describes the shifting

burdens as follows:

A proof of claim executed and filed in accordance

with the Federal Rules of Bankruptcy Procedure

constitutes prima facie evidence of the validity and

amount of the claim. Fed. R. Bankr.P. 3001(f); see also

Juniper Dev. Group v. Kahn (In re Hemingway Transp..,

Inc.), 993 F.2d 915, 925 (1st Cir.1993). In order to rebut

this prima facie evidence, the objecting party must

produce “substantial evidence.” United States v. Clifford

(In re Clifford), 255 B.R. 258, 262 (D.Mass.2000), citing

Hemingway Transport, 993 F.2d at 925. If the objecting

party produces substantial evidence and thereby rebuts

the prima facie evidence, the burden is restored to the

party on whom it would lie outside of bankruptcy. “[T]he

burden of proof is an essential element of the claim

itself; one who asserts a claim is entitled to the burden

of proof that normally comes with it.” Raleigh v. Illinois

Dept. of Revenue, 530 U.S. 15, 20, 120 S.Ct. 1951, 1955

(2000). “[T]he [Bankruptcy] Code makes no provision for

altering the burden on a tax claim, and its silence says

that no change was intended.” Id ., 530 U.S. at 21, 120

S.Ct. at 1956.

Outside of bankruptcy, where a_ taxpayer

challenges a determination of tax deficiency, “a

deficiency notice carries a presumption of correctness

requiring the taxpayer to prove by a preponderance of

the evidence that the Commissioner's determination was

erroneous.” Andrew Crispo Gallery, 16 F.3d 1336, 1341

(2d Cir.1994)), citing Welch v. Helvering, 290 U.S. 111,

115, 54 S.Ct. 8, 9, 78 L.Ed. 212 (1933). Likewise, the

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burden of clearly showing the right to a claimed

deduction rests in the first instance on the taxpayer.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84, 112

S.Ct. 1039, 117 L.Ed.2d 226 (1992); IRS v. Official

Committee of Unsecured Creditors (In re Industrial

Commercial Electrical, Inc.), 319 B.R. 35, 55

(D.Mass.2005). However, under § 7491(a) of the Internal

Revenue Code, “if, in any court proceeding, a taxpayer

introduces credible evidence with respect to any factual

issue relevant to ascertaining the liability of the taxpayer

for any tax imposed . . ., the Secretary shall have the

burden of proof with respect to such issue.” 26 U.S.C. §

7491(a). . . . ‘[C]redible evidence,’ for purposes of

interpreting and applying § 7491(a)(1), is ‘the quality of

evidence which, after critical analysis, the court would

find sufficient upon which to base a decision on the

issue if no contrary evidence were submitted (without

regard to the judicial presumption of IRS correctness).”

Griffin v. C.I.R., 315 F.3d 1017, 1027 (8th Cir.2003);

Okerlund v. United States, 53 Fed. Cl. 341, 356 n. 23

(Fed.Cl.2002); In re Industrial Commercial Electrical,

Inc., 319 B.R. at 54–55.

See In re Shaw, No. 09-18648-FJB, 2013 WL 625110, at *4-5 (Bankr. D. Mass.

Feb. 20, 2013).

Application of these standards leads to the inescapable conclusion that the

objection of the Morris Creditors is without merit. Specifically, the IRS presented

evidence at trial which established the prima facie validity of its claim ( i.e., the

2016 tax return filed by Mr. Zimmer and the IRS Form 4340 Certificate of

Assessment). By way of contrast, the Morris Creditors presented no admissible

evidence, let alone substantial evidence, supporting the Morris Creditors’ theory

that Mr. Zimmer was entitled to some unknown and unclaimed foreign tax credit

with respect to his 2016 federal income taxes.

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Recognizing the deficiency in their evidentiary record, the Morris Creditors’

post-trial submissions expend much effort rehashing their failed attempt to offer

a hypothetical Canadian tax return (which was prepared by Mr. Morris for

purpose of trial) into the record. The Morris Creditors proclaim that this

document is “evidence” rebutting the IRS claim. Inasmuch as this hypothetical

tax return is both hearsay and opinion testimony which was offered without the

requisite foundation for admissibility, the document was not admitted into

evidence by the Court at trial and is appropriately excluded from consideration.

United States v. Petrossi, CRIMINAL NO. 1:17-CR-192, 2018 WL 1141500 (M.D.

Pa. Mar. 2, 2018)(opinion testimony was precluded pursuant to Fed.R.Evid. 702

where proffered witness lacked requisite knowledge or qualification to provide

opinion testimony; out-of-court lay witness statements regarding a tax return

constituted inadmissible hearsay pursuant to Fed.R. Evid. 801 and 802); United

States v. Peters, No. 4:12–CV–01395–AGF, 2014 WL 6669757 at *2 and *5 (E.D.

Mo. Nov. 24, 2014)(unsigned tax return constituted inadmissible hearsay and

opinion testimony from an undisclosed non-qualified expert witness).

A canvass of the record made at trial reflects that no admissible evidence

was presented by any party reflecting that Mr. Zimmer had any accrued foreign

tax liability giving rise to a foreign tax credit with respect to his U.S. taxes.

Rather, the admissible evidence reflects that Mr. Zimmer resided in Canada for

only part of year 2016, that Mr. Zimmer earned no income in Canada in 2016 and

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did not accrue Canadian income taxes in year 2016, and that Mr. Zimmer filed

neither Canadian tax returns nor paid Canadian income taxes at anytime germane

to this matter. This record therefore supports the conclusion that the Morris

Creditors’ objection is without merit.

For example, at trial Mr. Zimmer testified:

I lived in Canada in 2016, yeah . . . But I earned no

money there, nor did I live there for more than half a

year; it was less than half of the year. I was more so in

Mexico and the United States in 2016 . . .

See Trial Transcript at p. 33, lines 20-23; see also Trial Transcript at p.37, lines

11-13; page 51, lines 1-7; p. 68, lines 14-16.

In response to questioning by Mr. Morris, Mr. Zimmer also testified as

follows:

Q. Do you know that as a resident of Canada that

you may have accrued Canadian tax for 2016 - -

A. Nope.

Q. - - requiring that you file a Canadian income tax return?

A. I wasn’t a resident of Canada. I was a visitor in Canada. I

could never obtain a work permit because of the criminal

charge against me.

. . .

A. . . . in 2018 and they finally said to me, “Mr. Zimmer, you have

to leave the country.” So no, I couldn’t work there.

See Trial Transcript at p. 44, lines 9-19.

Mr. Zimmer elaborated further when he testified regarding his work for

various “Aaron Morgan” entities:

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... One, I didn’t work in 2016. [Aaron Morgan Imports]

didn’t really start until 2017, after the bankruptcy was

filed. . . . I didn’t make any money and I didn’t live there

more than six months of the year. I lived in the United

States for more than six months of the year.

I did, however, in 2017, submit a form for a

taxpayer identification number [in Canada], which

required me to get a work permit or to be a permanent

resident. And when they did the investigation, they

found out that I had a criminal record. And basically the

year after, they said, “We’ve done everything we can.

Please leave the country.” But I did not get the tax payer

identification number, nor did I get the ability to stay

there.

See Trial Transcript at p. 57, lines 18-25; p. 58, lines 1-7.

With respect to filing income tax returns in Canada, Mr. Zimmer testified

as follows:

Q. ... have you filed a Canadian tax return for 2016?

A. No.

Q. Has the Canada Revenue Agency contacted you about owing

tax - - Canada tax for 2016?

A. No.

See Trial Transcript at p. 58, lines 23-25; 59, lines 1-3.

With respect to paying Canadian taxes, Mr. Zimmer testified as follows:

Q. I apologize if this was asked, Mr. Zimmer, but did

you make any payments to the Canadian taxing

authorities on account of the 2016 income tax

year?

A. I never made any payments to the Canadian tax

authorities on anything, ever.

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See Trial Transcript at p. 66, lines 10-14.

When asked about whether he engaged in any business or earned any

income in Canada in 2016 with respect to his work for Aaron Morgan Imports,

Ltd. and Aaron Morgan Group, Ltd., Mr. Zimmer testified unequivocally that he

earned “[a]bsolutely nothing, ever” and “no.” See Trial Transcript at p. 37, lines

23-25; p. 38, lines 1-4 and 11-14; see also Trial Transcript at p. 44, lines 6-8.

When pressed further as to whether he received “any consideration” for his

activity with Aaron Morgan Imports, Mr. Zimmer testified again that he received

“[a]bsolutely nothing” because “the product was being sold for less than what it

cost.” See Trial Transcript at p. 43, lines 14-17; see also Trial Transcript at pp. 6-

8.

Accordingly, regardless of the fact that Mr. Zimmer never claimed a foreign

tax credit on his 2016 U.S. tax return, no admissible evidence has been presented

in this proceeding which demonstrates that Mr. Zimmer had any income in 2016

“derived from sources without the United States” as such phrase is used in 26

U.S.C. §§ 862 and 905. As such, even if the Court were to ignore Mr. Zimmer’s

failure to claim the foreign tax credit in his 2016 U.S. tax return and related

schedules, no evidence has been presented demonstrating that Mr. Zimmer is (or

was) entitled to claim a foreign tax credit in the United States based on his alleged

activities in Canada.

Faced with this evidentiary record, the Morris Creditors challenge Mr.

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Zimmer’s credibility citing, among other things, Mr. Zimmer’s past criminal

conduct. They also attack Mr. Zimmer’s credibility based upon the false

statement(s) he made in his bankruptcy petition regarding his home address and

based upon other alleged inaccurate or incomplete statements or omissions (which

have been disputed by Mr. Zimmer). While the Court is troubled by some of Mr.

Zimmer’s past conduct, during the trial of this matter the Court observed Mr.

Zimmer’s demeanor closely and finds his present testimony to be credible. Even

if the Court did not believe Mr. Zimmer’s trial testimony, the Morris Creditors have

nonetheless introduced no admissible evidence reflecting that Mr. Zimmer had

income in 2016 “derived from sources without the United States.” Absent the

production of a scintilla of evidence, and because the Morris Creditors’ objection

is based upon conjecture and guesswork, the Morris Creditors have not met their

burden of production to overcome the prima facie validity of the IRS claim.

IV.

It is worth emphasizing that the court’s opinion in Shaw, supra., noted that

the prima facie validity of a duly filed claim can be rebutted when “substantial

evidence” is produced by the objecting party. The “substantial evidence” prong in

Shaw is not the law within the Third Circuit.

In Allegheny International, Inc., 954 F.2d 167, 173-74 (3d Cir. 1992), the

Third Circuit Court of Appeals described the quantum of evidence that must be

produced by an objector to overcome the prima facie validity of a claim. There the

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Third Circuit stated that the amount of evidence needed to rebut a duly filed claim

is “evidence equal in force to the prima facie case.” Id. The Third Circuit held that

“[i]n practice, the objector must produce evidence which, if believed, would refute

at least one of the allegations that is essential to the claim’s legal sufficiency.” Id.

Sub judice, the Morris Creditors offered no admissible evidence refuting any

of the allegations that are essential to the legal sufficiency of the IRS’s claim.

Accordingly, the Morris Creditors’ objection is overruled pursuant to the standards

set forth in Allegheny International, Inc.

V.

For sake of completeness, the Court notes that the Morris Creditors argue

that certain tolling provisions of 11 U.S.C. § 108 and 26 U.S.C. § 6511 somehow

bar the IRS’s claim. This argument is apparently being raised by the Morris

Creditors because a taxpayer is required to notify the Secretary of Treasury of

accrued but unpaid foreign taxes “before the date 2 years after the close of the

taxable year to which such taxes relate,” 26 U.S.C. §905(c)(1)(B), and this time

period has now passed.

Upon review of these statutes, the Court concludes that the Morris

Creditors’ reliance upon 11 U.S.C. § 108 and 26 U.S.C. § 6511 to resuscitate their

objection to the IRS claim is misplaced. The Court reaches this conclusion

because there is no evidence of record that Mr. Zimmer accrued foreign taxes

during the tax year in question. Therefore, there is no evidence that Mr. Zimmer

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is entitled to belatedly pursue a foreign tax credit against the United States. As

such, the provisions of 11 U.S.C. § 108 and 26 U.S.C. § 6511 have no present

application to the case at bar.

VI.

In rendering this decision, the Court considered the IRS’s challenge to the

Morris Creditors’ standing to object to claims in this bankruptcy case.

The Morris Creditors contend that they are parties in interest because if the

IRS claim is disallowed, it is undisputed that the Morris Creditors will receive a

greater distribution at the conclusion of this chapter 7 liquidation. The Court

agrees with the Morris Creditors, and holds that the Morris Creditors have a

sufficient stake in the outcome of this matter to have the requisite standing to

object to the IRS claim.

Prior to the adoption of the Bankruptcy Code in 1978, the law of the Third

Circuit was that “a general creditor of a bankrupt has no right to contest another

creditor’s claim or to appeal from the refusal of the court to disallow it unless

upon application the trustee has refused to do so and the district court has

authorized the creditor to proceed in the trustee’s name.” Fred Reuping Leather

Co. v. Fort Greene Nat. Bank of Brooklyn (In re Honesdale Union Stamp Shoe Co.),

102 F.2d 372, 372-73 (3d Cir. 1939).

Interestingly, this was the law of the Third Circuit even though section 57(d)

of the Bankruptcy Act stated unequivocally: “Claims which have been duly proved

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shall be allowed, upon receipt by or upon presentation to the court, unless

objection to their allowance shall be made by parties in interest, or their

consideration be continued for cause by the court upon its own motion.” See 11

U.S.C. § 93(d)(repealed)(emphasis added).

The limitation on standing of general creditors to object to claims under the

Bankruptcy Act appears to have been a prudential or gate-keeping limitation

imposed by the courts. As the Third Circuit observed in Fred Rueping Leather:

As is pointed out in the cases supporting the rule the

trustee represents all the creditors and may therefore be

relied upon to press all proper objections to the claims of

those whose standing is questionable. If he defaults in

his duty the court may upon application direct him in

his duty or, if he be recalcitrant, remove him for

disobedience, or permit a creditor to act in his name. To

allow any creditor, without such leave, to institute

proceedings to reject the claims of other creditors, will

not . . . subserve any necessary purpose, and opens the

door to grave abuse. It enables one creditor at his own

pleasure to subject any one of the other creditors, of all

the other creditors, to the inconvenience and expense of

unnecessary litigation, and to unduly protract the

settlement of the estate.

Fred Reuping Leather, 102 F.2d at 373 (quotations omitted)(quoting In re

Lewensohn, 121 F. 538 (2d Cir. 1903)).

While the opinion in Fred Reuping Leather did not expressly say so, it can

be surmised that a textual basis for courts limiting standing for prudential

reasons was the power granted to bankruptcy courts to generally continue a

claims objection “for cause by the court upon its own motion.” See 11 U.S.C. §

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93(d)(repealed). This provision of the statute, however, was not carried over to the

modern day Bankruptcy Code. Notwithstanding this difference, section 502(a) of

the modern day Bankruptcy Code does similarly state that a timely filed claim is

“deemed allowed, unless a party in interest... objects.” See 11 U.S.C. §

502(a)(emphasis added).

While the term “party in interest” is not defined anywhere in chapter 7 of the

Bankruptcy Code, it is defined in the “right to be heard” provisions of chapter 11

which can be found at 11 U.S.C. § 1109. This section of the Bankruptcy Code

states, in pertinent part, that a “party in interest” includes “a creditor.” See 11

U.S.C. § 1109(b). Accordingly, if this definition of “party in interest” is read into

11 U.S.C. § 502(a), then the Morris Creditors have the capacity to object to the

IRS’s claim.

From a general standing perspective (whether it be Article HI standing or

statutory standing under the Bankruptcy Code), it has been held that “the

relevant query” is whether the creditor “has a legally protectable interest that

could be affected by this bankruptcy proceeding.” Whiteley v. Slobodian (In re

Mechanicsburg Fitness, Inc.), 592 B.R. 798, 804 (Bankr. M.D. Pa. 2013)(citing In

re Global Indus. Techs., Inc., 645 F.3d 201, 210 (8d Cir. 2011)); see also In re

James Wilson Assocs, 965 F.2d 160, 169 (7™ Cir. 1992); and In re Amatax Corp.,

755 F.2d. 1034, 1042 (3d Cir. 1985).

In Global Industrial Technologies, Inc., the Third Circuit Court of Appeals

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held that the term “parties in interest” must be “construed broadly to permit

parties affected by a chapter 11 proceeding to appear and be heard.” In re Global

Indus. Techs, Inc., 645 F.3d at 211 (quoting In re Amatax, 755 F.2d at 1042). It

is worth noting that in that case the Third Circuit was confronted with the issue

of standing in the context of plan objections under 11 U.S.C. § 1128(b), which

states that a “party in interest may object to confirmation of a plan.”

The language employed in section 1128(b) is remarkably similar to the

claims objection language in section 502(a), which states that a claim is allowed

“unless a party in interest ... objects.” As such, the Court sees no reason why

the plain language of 11 U.S.C. § 502(a) should be construed any differently than

other provisions of the Bankruptcy Code that afford standing to creditors as a

“party in interest.”’ See In re Black, Davis and Shue Agency, Inc., 460 B.R. 407,

414 (Bankr. M.D. Pa. 2011).

' That creditors are included in the definition of a “party in interest” for purposes of objecting to

a claim is supported by the plain language of section 502(a) because the statute states that a claim is

“deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership

that is a debtor in a case under chapter 7 of this title, objects.” 11 U.S.C. § 502(a)(emphasis added).

Section 102(3) of the Bankruptcy Code contains various rules of construction for the statute, and states

that the term “including” is “not limiting,” see 11 U.S.C. § 1032(3) and therefore it is obvious that a

general creditor is “included” in section 502(a)’s definition of “party in interest.” Merely being a

creditor, however, is not enough to confer Article I] standing upon a litigant. Rather, the creditor must

also demonstrate that an actual “case and controversy” exists, which includes demonstrating that the

complained of injuries are capable of “redress” in the federal forum. See Whitmore v. Arkansas, 495 U.S.

149, 155 (1990)(discussing the “case and controversy” requirement for federal subject-matter

jurisdiction); Friends of the Earth, Inc. v. Laidlaw Envt’l Servs. (TOC), Inc., 528 U.S. 167, 180-81

(2000)(same), and Crawford v. Hertzberg (In re Hertzberg), Bankr. No. 13-23753-JAD; Adversary No.

14-2141-JAD (Bankr. W.D. Pa. November 13, 2014 (same). This is why only creditors who stand to

receive a dividend (or increased dividend) as a result of the litigation have Article III standing to pursue

an objection to a claim.

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Accordingly, the answer to the question of whether the Morris Creditors

have standing as a party in interest to object to the IRS claim is dependent upon

whether the Morris Creditors have a protectable interest that is affected by the

outcome of this proceeding. The undeniable answer to this question is that the

Morris Creditors do have a protectable interest in the outcome of this proceeding–

that is, if they were to be successful, the dividend paid to them at the conclusion

of the case will materially increase. This Court concludes that these

circumstances are sufficient to confer “party in interest” standing upon the Morris

Creditors pursuant to 11 U.S.C. § 502(a).

The Court recognizes that it has not necessarily plowed new ground

regarding the issue of creditor standing under 11 U.S.C. § 502(a). In fact, United

States Bankruptcy Judge Henry W. Van Eck from the Middle District of

Pennsylvania has written extensively on this issue in the case of In re

Mechanicsburg Fitness, Inc., supra. In his opinion, Judge Van Eck wrote:

. . . the Trustee contends that “absent his refusal to

pursue possible objections to certain claims, he has the

exclusive right to object to proofs of claim and leave to

object should generally not be granted to a third party.”

Resp. Ans. at ¶ 2, Feb. 05, 2018, ECF No. 57. Because

this court believes that the most natural reading of

section 502(a) is that a creditor has an unrestricted right

under section 502(a) to object to claims or interests in a

chapter 7 case, the Trustee's burden to persuade the

court otherwise is “exceptionally heavy”. See Patterson v.

Shumate, 504 U.S. 753, 760, 112 S.Ct. 2242, 119

L.Ed.2d 519 (1992).

The Trustee does not rely upon the language of

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502(a) to carry his burden. Instead, the Trustee relies

upon “the way this section has been interpreted by the

case law” to support his position. Tr. at 43, June 27,

2018, ECF No. 68. To this end, the Trustee cites two

cases in support of his argument. See In re Cremo, 557

B.R. 343; In re Ampal-American, 545 B.R. 802. Review

of these cases and the cases cited therein, however,

exposes meaningful flaws in the reasoning upon which

they rest, and upon which the Trustee relies. These

decisions are therefore unpersuasive to this court.

The cases supporting the Trustee's position each

follow a similar pattern. They begin by recognizing that

section 502(a) unambiguously grants creditors standing

to object to claims in chapter 7 cases. Next, and

notwithstanding the clear mandate to end the judicial

inquiry there, the cases continue their examination into

the controversial realm of legislative intent and policy

consideration. No explanation is offered to justify the

departure from the unambiguous text of the statute.

Thereafter, the decisions cite policy considerations

described in a leading bankruptcy treatise and a 1983

Advisory Committee Note to Federal Rule of Bankruptcy

Procedure 3007 (“Advisory Committee Note”) as sources

of support for the decision to limit a creditor's right to

object to a claim pursuant to section 502(a). Some

decisions supporting the Trustee's position also rely

upon cases decided pursuant to pre-Code practice. See

In re Dominelli, 820 F.2d 313, 317 (9th Cir. 1987) (citing

Fred Reuping Leather Co. v. Fort Greene Nat'l Bank, 102

F.2d 372, 373 (3rd Cir. 1939) ); Thompson, 965 F.2d at

1147 (citing Dominelli, 820 F.2d at 317); In re Morrison,

69 B.R. 586, 589 (Bankr. E.D. Pa. 1987) (citing Fred

Reuping, 102 F.2d at 373).

The approach described above fails to show the

proper respect for the words of Congress. It ignores

conventional doctrines of statutory construction and

places undue emphasis on inappropriate sources such

as Collier and the Advisory Committee Note. It cannot be

contested that Collier “is not part of the Code's legislative

history in any meaningful sense” and should not be

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considered a tool of construction. See Midlantic Nat.

Bank v. New Jersey Dept. of Environmental Protection,

474 U.S. 494, 512, 106 S.Ct. 755, 88 L.Ed.2d 859

(1986). Nor should courts accord any significance to

advisory committee notes as they are not made by

Members of Congress during hearings and are not

included in official Senate and House Reports. See Kelly

v. Robinson, 479 U.S. 36, fn. 13, 107 S.Ct. 353, 93

L.Ed.2d 216 (1986). These sources should never be

considered in the place of the plain, unambiguous text

of the statute at issue.

Moreover, and in defiance of conventional

doctrines of statutory construction, the decisions relied

upon by the Trustee do not identify any ambiguous

language in section 502(a) before straying into the

controversial realm of legislative intent and policy

consideration. Nor do they conclude that the disposition

required by application of the text of section 502(a) is

absurd. Notwithstanding these undisputed facts, the

decisions each violate the first canon of statutory

construction by failing to enforce the provision according

to its unambiguous terms. This error is compounded by

the courts' subsequent consideration of extratextual

sources such as pre-Code practice. Such a practice can

only be appropriate where, unlike the present case, the

provision in question is ambiguous and subject to

interpretation. Lastly, the approach taken by these

cases runs afoul of the prohibition against achieving

better policy outcomes through court interpretation.

Achieving a better policy outcome—if that is what the

Trustee urges—is a task for Congress, not the courts.

Hartford Underwriters, 530 U.S. at 13–14, 120 S.Ct.

1942.

Based upon the foregoing, this court finds the

caselaw upon which the Trustee relies unpersuasive as

it fails to show the proper respect for the words of

Congress and engages in meaningful and improper

departures from conventional doctrines of statutory

interpretation.

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Whiteley v. Slobodian (In re Mechanicsburg Fitness, Inc.), 592 B.R. 798 (Bankr.

M.D. Pa. 2013).

The United States Supreme Court has instructed: “When the words of a

statute are unambiguous, then, this first canon [of statutory construction] is also

the last: judicial inquiry is complete.” Connecticut Nat'l Bank v. Germain, 503

U.S. 249, 253-54 (1992).

This Court agrees with the holding of Judge Van Eck and concludes that

precluding standing to the Morris Creditors to object to other creditor claims runs

afoul of the plain language of section 502(a) of the Bankruptcy Code. Thus, the

Court holds that the Morris Creditors do have standing to object to the IRS claim.

VII.

For all of the reasons set forth above, the Court concludes that the Morris

Creditors have standing to object to the IRS claim. While the Morris Creditors

have standing to prosecute an objection, the merits of it are not supported by the

evidence. An order shall therefore be entered that allows the claim of the IRS at

Claim Registry No. 13-1 and overrules the objection to claim filed by the Morris

Creditors.

Dated: December 4, 2020 - 2

The Honorable Jeffery A. Deller

United States Bankruptcy Judge

cc: Daniel Peter Morris, Esquire

Mrs. Lucille Aiosa Morris

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Ward W. Benson, Esquire

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