United States v. McAuley

101 B.R. 306 (1989)

UNITED STATES of America, Appellant,
v.
Ralph C. McAULEY, et al., Appellees.

No. 88-1012-CIV-T-17(B), Bankruptcy No. 85-2834-8pl, Adv. No. 87-194.

United States District Court, M.D. Florida, Tampa Division.

February 17, 1989.

Hillary B. Burchuk, Trial Atty., Tax Div., Washington, D.C., and Lynne England, Asst. U.S. Atty., Tampa, Fla., for appellant.

Shirley C. Arcuri, Straske, Farfante, Segall, Tampa, Fla., for appellees.

ORDER

KOVACHEVICH, District Judge.

This cause is before the Court on the Brief of Appellant, Response Brief of Appellees, and Appellant's Reply.

This action is an appeal from an Order of the Bankruptcy Court in an adversary proceeding to determine tax liability and dischargeability of debt. Upon de novo review of the conclusions of law of Bankruptcy Court's Order of May 13, 1988, 86 B.R. 695, the Court concludes that the Order should be reversed as to its conclusions of law.

I. Jurisdiction of Bankruptcy Court to Determine Tax Liability of Nondebtor

The Court finds that the Bankruptcy Court erred in its reliance on In Re Brandt-Airflex, 69 B.R. 701 (Bkrtcy.E.D. N.Y.1987). That decision was reversed, and the reversal was upheld on appeal. In Re Brandt-Airflex, 843 F.2d 90 (2nd Cir. 1988). As the Second Circuit noted, all courts which have considered this issue recently have concluded that Section 505(a) does not extend the bankruptcy court's jurisdiction to parties other than the debtor. The controlling law in this circuit so holds. United States v. Huckabee Auto Co., 783 F.2d 1546 (11th Cir.1986).

II. Lack of Jurisdiction over Nondebtor due to Sovereign Immunity

In the case now before the Court, only the husband filed Chapter 11, and his plan was already confirmed at the time the nondebtor spouse sought determination of liability and amount of her taxes. Any such determination by the Court could have no effect on the administration of the bankruptcy estate.

When a husband and wife file a joint income tax return, their liability for taxes for the time period covered by the return is joint and several. The United States can proceed against either or both to collect deficiencies relating thereto, without regard to the relative contributions of the husband and wife to total income. Where a debtor is liable for taxes, there is no reason for the court to assume jurisdiction over the nondebtor. In Re Brandt Airflex, supra; In Re Panda Development Corp., 76 B.R. 199 (Bkrtcy. M.D. Fla.1987); In Re Booth Tow Services, 53 B.R. 1014 (W.D. Mo.1985). The Court finds that sovereign immunity has not been waived as to the nondebtor. Matter of Interstate Motor Freight System, 62 B.R. 805, 810 Bkrtcy. W.D.Mich.1986). Accordingly, it is

ORDERED that the Order of the Bankruptcy Court dated May 13, 1988 is reversed, and the nondebtor's complaint is dismissed.