Gordon Green v. David Leibowitz

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 23-2841

GORDON GREEN,

Debtor-Appellant,

v.

DAVID P. LEIBOWITZ,

Trustee-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 1:22-cv-01402 — Sharon Johnson Coleman, Judge.

____________________

ARGUED MAY 30, 2024 — DECIDED JULY 16, 2024

____________________

Before ST. EVE, KIRSCH, and KOLAR, Circuit Judges.

KOLAR, Circuit Judge. This appeal is both broad and nar-

row. It is broad in that we must consider three areas of law—

the Bankruptcy Code, the Internal Revenue Code, and Illinois

state law—to answer the question presented. It is narrow in

that the question we must answer requires statutory interpre-

tation of a single phrase. Here, Debtor-Appellant Gordon

Green argues that a registered retirement savings plan orga-

nized under Canadian law qualifies for an exemption from his

2 No. 23-2841

bankruptcy estate under an Illinois statute exempting ac-

counts “intended in good faith to qualify as a retirement plan

under applicable provisions of the Internal Revenue Code.”

Trustee-Appellee David P. Leibowitz disagrees, as did the

bankruptcy court and district court, both of which denied the

exemption. Because we find that Green’s account, while in-

tended for use in his retirement, is not a tax-qualified retire-

ment plan under applicable provisions of the Internal Reve-

nue Code, we affirm.

I. Background

On May 11, 2021, Green filed for Chapter 7 Bankruptcy.

His bankruptcy petition listed the “Sun Life: Life Income

Fund” (the Sun Life Fund), a Registered Retirement Savings

Plan organized under Canadian law, as one of his assets.

Green sought to exempt the entire balance of this fund pursu-

ant to 735 ILCS 5/12-1006 (Section 12-1006), which exempts

assets “intended in good faith to qualify as a retirement plan

under applicable provisions of the Internal Revenue Code of

1986.” 735 ILCS 5/12-1006(a)(1).

The Trustee objected to the exemption on the grounds

that, because the Sun Life Fund was organized under the laws

of Canada rather than the United States, it was ineligible for

the exemption even if it was intended to be a retirement plan.

The bankruptcy court sustained the objection, holding that a

“retirement plan” must be a plan organized under 26 U.S.C.

§ 401(a), which requires that the trust be created or organized

in the United States. 1

1 26 U.S.C. §§ 101 et seq. covers the Internal Revenue Code. Going for-

ward, this opinion will refer to any provisions of this Title as “I.R.C.”

No. 23-2841 3

Green appealed. Rejecting the bankruptcy court’s holding

that Section 12-1006 incorporates a country-of-origin require-

ment, the district court nonetheless found that the Sun Life

Fund was not a tax-qualified retirement plan under the Inter-

nal Revenue Code. Accordingly, the district court affirmed

the denial of the exemption. Once again, Green appeals.

II. Analysis

“A debtor’s entitlement to a bankruptcy exemption is a

question of law,” In re Hernandez, 918 F.3d 563, 566 (7th Cir.

2019) (quoting In re Yonikus, 996 F.2d 866, 868 (7th Cir. 1993)),

which we review de novo, Stamat v. Neary, 635 F.3d 974, 979

(7th Cir. 2011).

Filing for bankruptcy creates an estate comprised of a

debtor’s legal and equitable interests in property. 11 U.S.C.

§ 541(a). In turn, this estate is administered by a bankruptcy

trustee and used to satisfy outstanding debts. 11 U.S.C.

§ 704(a). Yet not all property necessarily enters the estate—

Section 522 of the Bankruptcy Code allows debtors to exempt

certain property and protect it from creditors’ claims. See 11

U.S.C. § 522. So, for instance, § 522(b)(3) of the Bankruptcy

Code allows debtors to exempt from the bankruptcy estate re-

tirement funds that are in accounts governed by certain pro-

visions of the Internal Revenue Code.

Ordinarily, debtors can select exemptions provided by ei-

ther federal law or state law. In re O’Malley, 601 B.R. 629, 644

(Bankr. N.D. Ill. 2019) (citing In re Dzielak, 435 B.R. 538, 545–

46 (Bankr. N.D. Ill. 2010)). States, however, can “opt out” of

the federal exemption statute. In re Rosenzweig, 245 B.R. 836,

839 (Bankr. N.D. Ill. 2000); 11 U.S.C § 522(b). Illinois has opted

out, so “[e]xemptions for debtors in Illinois rest on state law”

4 No. 23-2841

and not on any of the federal exemptions (including

§ 522(b)(3)). Matter of Burciaga, 944 F.3d 681, 683 (7th Cir. 2019)

(citing 735 ILCS 5/12-1201).

In this case, Green seeks an exemption under Illinois law,

specifically Section 12-1006 (“Exemption for retirement

plans”). This provision reads, in relevant part:

(a) A debtor’s interest in or right, whether

vested or not, to the assets held in or to re-

ceive pensions, annuities, benefits, distribu-

tions, refunds of contributions, or other pay-

ments under a retirement plan is exempt

from judgment, attachment, distress for rent,

and seizure for the satisfaction of debts if the

plan (i) is intended in good faith to qualify as a

retirement plan under applicable provisions of

the Internal Revenue Code of 1986, as now or

hereafter amended, or (ii) is a public em-

ployee pension plan created under the Illi-

nois Pension Code, as now or hereafter

amended.

(b) “Retirement plan” includes the following:

(1) A stock bonus, pension, profit shar-

ing, annuity, or similar plan or ar-

rangement, including a retirement

plan for self-employed individuals or

a simplified employee pension plan;

(2) A government or church retirement

plan or contract;

(3) An individual retirement annuity or

individual retirement account; and

No. 23-2841 5

(4) A public employee pension plan cre-

ated under the Illinois Pension Code,

as now or hereafter amended.

735 ILCS 5/12-1006 (emphasis added).

This case presents the question of what falls under plans

“intended in good faith to qualify as a retirement plan under

applicable provisions of the Internal Revenue Code….” To an-

swer this question, which involves the interpretation of an Il-

linois statute, we must apply Illinois’s rules of statutory con-

struction. Hernandez, 918 F.3d at 569. In Illinois, “[t]he primary

goal of statutory construction” is “to ascertain and give effect

to the intention of the legislature.” Home Star Bank & Fin.

Servs. v. Emergency Care & Health Org., Ltd., 6 N.E. 3d 128, 134–

35 (Ill. 2014). “Legislative intent is best determined from the

language of the statute itself, which if unambiguous should

be enforced as written,” although, if ambiguous, courts

should also consider “the reason for the law, the problems to

be remedied, and the objects and purposes sought” when giv-

ing effect to statutory intent. Dawkins v. Fitness Int’l, LLC, 210

N.E. 3d 1184, 1190 (Ill. 2022).

Somewhat complicating our analysis, however, is the fact

that the Internal Revenue Code does not specifically define

“retirement plan,” at least for this purpose, or explicitly list

out which provisions cover “retirement plans.” Similarly, Sec-

tion 12-1006—likely for good reason—omitted any specific

statutory reference, opting instead for the general reference to

“applicable provisions” of the Internal Revenue Code.

Courts addressing Section 12-1006 have consistently

found that only “tax-qualified retirement plans” under the In-

ternal Revenue Code are exempt. See In re West, 507 B.R. 252,

6 No. 23-2841

259 (Bankr. N.D. Ill. 2014) (“To qualify for the Illinois exemp-

tion, the retirement plan … must come within the Internal

Revenue Code provisions for tax qualified retirement

plans.”); O’Malley, 601 B.R. at 646 (same). Both parties recog-

nize that the question for this appeal, therefore, is whether the

Sun Life Fund is a “tax-qualified retirement plan” under “ap-

plicable provisions of the Internal Revenue Code.” 2

At least one Illinois court has indicated that we should

look to § 522(b)(3) of the Bankruptcy Code for guidance in de-

termining whether a given plan is a tax-qualified retirement

plan. In re Marriage of Branit, 41 N.E. 3d 518, 523–24 (Ill. App.

Ct. 2015); see also Malone v. Bankhead Enter., Inc., 125 F.3d 535,

539 (7th Cir. 1997) (turning to Illinois precedent for guidance

in interpreting an Illinois statute). Section 522(b)(3) of the

Bankruptcy Code exempts “retirement funds to the extent

that those funds are in a fund or account that is exempt from

taxation under section 401, 403, 408, 408A, 414, 457, or 501(a)

of the Internal Revenue Code of 1986.” 11 U.S.C.

§ 522(b)(3)(C). While Branit addressed the question of

whether an inherited individual retirement account (IRA) was

exempt under Section 12-1006, it noted more generally that

“[t]he fact that the Illinois legislature intended section 12-1006

to be used in bankruptcy cases indicates that it was meant to

2 Briefly, the district court rejected the bankruptcy court’s position that

tax-qualified retirement plans are limited only to those plans which fall

under I.R.C. § 401(a), thereby imposing a country-of-origin requirement.

The Trustee does not contest this holding on appeal. Moreover, the bank-

ruptcy court’s reading of Section 12-1006 appears to directly conflict with

Section 12-1006’s reference to “provisions,” plural, and ignores that courts

have granted the exemption when a retirement plan qualifies under other

provisions of the Internal Revenue Code. See, e.g., In re Ritter, 190 B.R. 323,

326 (Bankr. N.D. Ill. 1995).

No. 23-2841 7

be the Illinois equivalent of [§ 522].” 41 N.E.3d at 523. Accord-

ingly, the Branit court “hew[ed] to the established meaning of

[§ 522] in interpreting whether the term ‘retirement plan’ un-

der section 12-1006 of the Code includes inherited IRAs.” Id.

at 523–24.

If Section 12-1006 mirrors § 522, as Branit suggests, then

the types of retirement plans intended to be exempted should

receive analogous, even if not necessarily identical, tax treat-

ment as those types of tax treatments provided in the provi-

sions outlined in § 522(b)(3). Put another way, § 522(b)(3) can

be seen as a guide as to what provisions of the Internal Reve-

nue Code would be applicable provisions for purposes of Sec-

tion 12-1006. Notably, the provisions mentioned in Section

522(b)(3) explicitly reference plans intended for use in retire-

ment. For instance, I.R.C. § 401 covers “[q]ualified pension,

profit-sharing, and stock bonus plans,” and corresponds to

the first three types of assets listed in Section 12-1006(b)(1)

(which says that a “retirement plan” includes “a stock bonus,

pension, profit sharing, annuity, or similar plan or arrange-

ment”). Similarly, I.R.C. § 403 includes tax-sheltered annuity

plans that function as retirement plans for school and non-

profit employees, I.R.C. § 408 covers IRAs, I.R.C. § 408A co-

vers Roth IRAs, and I.R.C. § 414 covers employer benefit

plans. Stated differently, the provisions themselves make it

clear that they regulate the creation and governance of differ-

ent forms of retirement plans.

Here, Green does not contend that the Sun Life Fund falls

under any of the provisions listed in § 522(b)(3). Instead,

Green proposes that the Sun Life Fund is tax-qualified be-

cause it is subject to special tax treatment under I.R.C. § 404A,

which allows employers to deduct certain contributions to

8 No. 23-2841

qualified foreign plans. 3 I.R.C. § 404A(a). These contributions,

in turn, appear to be required to relate to retirement in order

to be eligible for this deduction. See I.R.C. § 404A(b)(5) (not-

ing that contributions shall only be taken into account if paid

to a trust meeting § 401(a)(2)’s requirements, to a retirement

annuity, or to a participant or beneficiary).

Although this weighs in favor of Green’s argument, there

are still material differences between § 404A and the provi-

sions included in § 522(b)(3). Most importantly, each of the

provisions in § 522(b)(3) contains detailed instructions as to

the structure of the plan, the timing of the plan, the eligibility

requirements of the plan, the treatment of proceeds from the

plan, and so on. See, e.g., § 401(a) (enumerating 38 criteria

necessary for qualifying plans). Conversely, § 404A contains

no such criteria, presumably because foreign law would gov-

ern the actual structure of the plans. Because of this, we can-

not find that just because a plan is qualified for purposes of a

tax deduction under § 404A, it therefore “qualifies” as a retire-

ment plan under § 404A for purposes of Section 12-1006. In-

deed, as the district court noted, § 404A defines “qualified for-

eign plans,” not retirement plans. See I.R.C. § 404A(e) (defin-

ing a qualified foreign plan as “any written plan of an em-

ployer for deferring the receipt of compensation” that satisfies

three specified criteria, none of which explicitly reference re-

tirement). Put another way, that the Sun Life Fund is a “retire-

ment plan” is divorced from any criterion set out in the Inter-

nal Revenue Code. Rather, it is considered a retirement plan

separately from any criteria present in the Internal Revenue

3 This dispute therefore centers around what types of plans may be

eligible for an exemption under Section 12-1006, not whether the Sun Life

Fund was or was not “intended in good faith” to qualify as such a plan.

No. 23-2841 9

Code, and then is subject to favorable tax treatment pursuant

to § 404A. 4

Green resists this conclusion by suggesting that a “retire-

ment plan” is defined not by provisions of the Internal Reve-

nue Code, but by the common definition of the term. But

adopting this position would essentially read out the latter

half of Section 12-1006’s statutory text, that a plan must qual-

ify “under applicable provisions of the Internal Revenue

Code.” When interpreting an Illinois statute, “[e]ach word,

clause, and sentence … must be given a reasonable meaning,

if possible, and should not be rendered superfluous.” State ex

rel. Leibowitz v. Fam. Vision Care, LLC, 181 N.E.3d 790, 797 (Ill.

2020). Here, Section 12-1006 explicitly ties an account’s eligi-

bility for an exemption to the Internal Revenue Code, specifi-

cally, whether it is intended “to qualify as a retirement plan

under applicable provisions.” In other words, “under” modifies

“qualify” in the phrase, making the account’s governance by

provisions of the Internal Revenue Code the reference point

to determine whether Section 12-1006’s exemption applies.

Simply put, the Illinois legislature said what it said. And

it chose to include the phrase “under applicable provisions of

the Internal Revenue Code.” See 735 ILCS 5/12-1006(a). More-

over, in the very next clause, the Illinois legislature provided

specific examples of what is included in the term “retirement

4 We briefly note that, at oral argument, Green’s counsel represented

(and the Trustee did not dispute) that, in addition to any tax deductions

an employer might take under § 404A, Green could also defer his own in-

come taxes on his contributions to the Sun Life Fund. While neither party

clearly explains the precise mechanism by which Green could defer his

income taxes, the authority to do so appears to arise under the U.S.-Can-

ada Tax Treaty, and without reference to the Internal Revenue Code.

10 No. 23-2841

plan.” See id. at 12-1006(b). Had it wanted, the Illinois legisla-

ture could have relied solely on its list of what the term “re-

tirement plan” includes as provided in Section 12-1006(b),

without reference to the Internal Revenue Code, in determin-

ing the scope of the exemption. Or, relatedly, the Illinois leg-

islature could have explicitly defined the term “retirement

plan” and indicated that the funds would have to meet that

definition and obtain some form of special tax treatment in

order to qualify for the exemption. The decision not to write

the statute in this way was one for the Illinois legislature, and

is not one which a court should undo.

On this point, we find In re Jokiel, an earlier decision from

the bankruptcy court, persuasive even if factually distinguish-

able. 453 B.R. 743 (Bankr. N.D. Ill. 2011). There, the bank-

ruptcy court was asked to determine whether a supplemental

executive retirement plan which did not qualify for favorable

tax treatment under the Internal Revenue Code was eligible

for the exemption under Section 12-1006. Id. at 745–46. The

debtor claimed that because Section 12-1006 does not specifi-

cally refer to any section of the Internal Revenue Code, it

meant to refer to the term “retirement plan” generally, re-

gardless of whether it qualified for special tax treatment. Id.

at 747. Green’s position is similar—in his view, it is enough

that the Sun Life Fund was meant for retirement, regardless

of whether it was created in accordance with any Internal

Revenue Code provision addressing retirement plans. But, as

Jokiel notes, Section 12-1006 “does not state that it exempts re-

tirement plans ‘as defined in’ the Internal Revenue Code.” Id.

Rather, it “exempts retirement plans that are intended in good

faith to ‘qualify’ under the applicable provisions of the tax code.”

Id. (emphasis added). And, as we have indicated, that a given

account may receive favorable tax treatment generally does

No. 23-2841 11

not necessarily mean that it “qualifies” as a retirement plan

under the Internal Revenue Code.

Jokiel also provides a convincing analysis of why Section

12-1006 refers generally to the Internal Revenue Code rather

than listing specific provisions like § 522(b)(3). As Jokiel notes,

the “Internal Revenue Code is complex and changes fre-

quently,” and it would be a heavy lift for the Illinois legisla-

ture to monitor changes in specific sections and then timely

amend the state statute. Id. at 749. Considering this, we cannot

find that the mere lack of reference to any specific provisions

is reason enough to rely only on the general definition of re-

tirement plan, without consideration of the Internal Revenue

Code, to determine Section 12-1006’s applicability.

Perhaps revealingly, Green’s argument primarily relies

not on case law addressing Section 12-1006, but on a Supreme

Court decision interpreting the Bankruptcy Code’s exemp-

tions. For Green, the operative case is the Supreme Court’s

decision in Clark v. Rameker, which defined the term “retire-

ment funds” for purposes of the Bankruptcy Code. 573 U.S.

122, 127 (2014). But Clark involved a different issue. Specifi-

cally, in Clark there was no question that the account—an in-

herited IRA—was subject to tax treatment under one of

§ 522’s listed provisions. 5 Id. at 125. Rather, the issue in Clark

was whether the funds themselves could be considered “re-

tirement funds” within the meaning of the statute. Id. at 126.

The reverse is true here—the issue is whether the Sun Life

Fund is “tax-qualified,” not whether it is retirement account—

that is, an account “set aside for the day when [Green] stops

5 Inherited IRAs are governed by I.R.C. § 408. See I.R.C.

§§ 408(d)(3)(C).

12 No. 23-2841

working.” Id. at 127. Thus, Clark’s relevance to the issue raised

in this appeal is limited.

Finally, Green makes much of the fact that “personal prop-

erty exemption statutes should be liberally construed.” In re

Barker, 768 F.2d 191, 196 (7th Cir. 1985). But that Section 12-

1006 should be “liberally construed” does not mean “that we

must interpret section 12-1006 in such a way as to defeat the

intent of the legislature.” Branit, 41 N.E.3d at 525. As the above

analysis makes clear, to adopt Green’s interpretation of Sec-

tion 12-1006 would do just that. Liberal construction, there-

fore, will not justify the exemption on its own. 6

III. Conclusion

For the reasons stated, we affirm.

6 In addition to this appeal, Green has moved to certify “the question

of whether the Sun Life Fund is exempt pursuant to Section 1006” to the

Illinois Supreme Court pursuant to Circuit Rule 52. “[W]e certify ques-

tions under [Rule 52] only if we are ‘genuinely uncertain about a question

of state law that is key to a correct disposition of the case.’” Nat’l Police

Ass’n, Inc. v. Gannett Co., 81 F.4th 719, 726 (7th Cir. 2023). To be sure, this

appeal raises a question of state law that is key to the disposition of the

case. But, as the foregoing analysis demonstrates, we are not “genuinely

uncertain” as to its resolution. Id. Accordingly, we see no need to certify

this question to the Illinois Supreme Court and deny that motion. See Ja-

dair Int’l, Inc. v. Am. Nat’l Prop. & Cas. Co., 77 F.4th 546, 557 (7th Cir. 2023)

(holding certification inappropriate where the court was not “genuinely

uncertain” about the answer) (quotation omitted)).