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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

No. 87-2297 

IN RE: JOE E. JOPLIN, JR., ) 

and OLIVE MEEKER JOPLIN, d/b/a ) 

JOPLIN & SON FEED MILL, ) 

. ) 

Debtors, ) 

) 

UNITED STATES OF AMERICA, ) 

) 

Plaintiff-Appellant, ) 

) 

V • ) 

) 

STATE FARM FIRE & CASUALTY CO., ) 

) 

Defendant-Appellee, ) 

) 

MICHAELE. CRAIN, ) 

) 

Intervenor, Defendant- ) 

Appellee. ) 

FILED 

U-t1ired Srates Court of Appeals 

Tenrb Cir~uit 

f.\lJG 11 1989 

ROBERT L. HOECKER 

Clerk 

Appeal from the United States District Court 

For the Eastern District of Oklahoma 

(D.C. Nos. 86-577-C and 86-583-C) 

Janet Kay Jones, Attorney, Tax Division, Department of Justice 

(William s. Rose, Jr., Acting Assistant Attorney General; Michael 

L. Paup, Wynette J. Hewett, and Gary R. Allen, Attorneys, Tax 

Division, Department of Justice; Of Counsel: Roger Hilfiger, 

United States Attorney; Washington, D.C., with her on the brief), 

for United States of America, Plaintiff-Appellant. 

Byrne A. Bowman, Oklahoma City, Oklahoma, Attorney for State Farm 

Fire & Casualty Co., Defendant-Appellee. 

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Robert O. O'Bannon of McKinney, Stringer & Webster, P.C. (Robert 

L. Roark of McKinney, Stringer & Webster, P.C., with him on the 

brief), Oklahoma City, Oklahoma, for Michael E. Crain, DefendantAppellee (Intervenor). 

Befor~ TACHA and McWILLIAMS, Circuit Judges, and BRATTON, District 

Judge 

McWILLIAMS, Circuit Judge. 

* Honorable Howard C. Bratton, United States District Judge, 

District of New Mexico, sitting by designation. 

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The issue on appeal is whether the district court correctly 

held that in bankruptcy liquidation proceedings instituted prior 

to the Bankruptcy Tax Act of 1980, the estate of an individual 

bankrupt is not subject to a federal tax on income generated during the bankruptcy proceedings and that the trustee in such 

proceedings is not required to file a federal tax return on behalf 

of the bankrupt estate. We conclude that the district court 

misconstrued the applicable law and, therefore, reverse. 

The debtors, Joe C. Joplin, Jr. and Olive Meeker Joplin, were 

the proprietors of Joplin & Son Feed Mill in Idabel, Oklahoma. 

The debtors received their income from the feed mill, as well as 

from certain rental property, and from oil and gas investment 

property. 

On March 7, 1980, the Joplins petitioned the Bankruptcy Court 

for the Eastern District of Oklahoma for reorganization under 

chapter 11 of the Bankruptcy Code. On January 7, 1981, the 

bankruptcy court, on motion by a secured creditor, formally 

converted the reorganization proceedings to a chapter 7 liquidation proceeding. On February 11, 1981, Michael E. Crain was appointed to replace the estate's interim trustee. Pursuant to his 

appointment as trustee, the bankruptcy court required Crain to 

post a series of surety bonds, which he obtained from State Farm 

Fire & Casualty Company. From 1981 until 1983, the liquidation of 

the estate proceeded. 

Acting on advise of his counsel, Crain did not file any 

federal tax returns for the years 1980, 1981, and 1982, nor did 

the bankruptcy estate pay federal taxes on the income generated by 

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the estate during the liquidation proceedings. Following 

distribution to the creditors, the bankruptcy court discharged the 

debtors on November 30, 1982, and later closed the estate on April 

14, 1983. The closing order provided, in part, that the surety 

was released from further liability under its bond, "except for 

any liability which may have accrued during the time such bond was 

in effect." 

In July, 1983, the Internal Revenue Service began an audit of 

the estate to determine the existence of any liability for federal 

income tax for the years 1980 through 1982. On October 16, 1984, 

a notice of deficiency was issued to the estate, informing Crain 

that as trustee he was liable for $320,330.73, plus interest 

thereon, in federal income taxes and penalties. 

The bankruptcy court, Judge Robert Berry presiding, reopened 

the bankruptcy proceeding on January 11, 1985. Shortly 

thereafter, the United States instituted an adversary proceeding 

in the bankruptcy proceeding against State Farm, the trustee's 

surety, seeking recovery on the surety's bond for the unpaid tax. 

In July, 1985, the bankruptcy court granted the trustee's motion 

to intervene in the adversary proceeding brought by the United 

States against State Farm. 

State Farm sought dismissal of the United States adversary 

proceeding against it on the grounds that before suit could be 

maintained against it on the surety bond, it was first necessary 

to determine in a separate proceeding whether the trustee had 

violated his duty as a fiduciary. The bankruptcy court denied 

State Farm's motion to dismiss, noting that both the United States 

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Appellate Case: 87-2297 Document: 01019836044 Date Filed: 08/11/1989 Page: 4 
and the trustee had by then filed cross motions for summary judgment on the single issue of whether, prior to the enactment of the 

Bankruptcy Tax Act of 1980, "a trustee for an individual chapter 7 

bankruptcy estate had a duty to file income tax returns." In connection with the cross motions for summary judgment, the parties 

filed a stipulation of facts, which are above summarized. 

Additionally, both parties agreed that in bankruptcy proceedings instituted after March 31, 1981, "the Bankruptcy Tax Act, 

Section 1398, Internal Revenue Code of 1954 (26 U.S.C.) 

unequivocally [made] liquidating individual estates taxable. 111 

The parties differed, however, concerning the taxability of an 

individual bankruptcy estate under the pre-1980 law which governs 

this case, and the duty, if any, of a trustee to file a return. 

The bankruptcy court held that under the provisions of 26 

U.S.C. § 6012, prior to the 1980 amendments, a trustee for a 

corporation in bankruptcy proceedings had a duty to file a return 

for income generated during bankruptcy, but that the pre-1980 § 

6012 was "silent with regard to a trustee for an individual in 

bankruptcy. 112 Such "silence," the bankruptcy court reasoned, 

meant that a trustee of an individual bankruptcy proceeding had no 

1 The Bankruptcy Tax Act of 1980 was signed into law on December 

24, 1980. Its effective date was January 1, 1981, and by its 

terms, applied to bankruptcy proceedings filed after March 31, 

1981. Tax procedure amendments took effect retroactively to 

October 1, 1979. Provisions of the Act regarding responsibility 

for filing tax returns took effect 90 days after the date of 

enactment of the Act. 

2 The Bankruptcy Tax Act of 1980, inter alia, amended subsection 

6012(b)(4) to provide that "[r]eturns ofanestate, a trust, or an 

estate of an individual under chapter 7 or 11 of title 11 of the 

United States Code shall be made by the fiduciary thereof." 26 

u.s.c. § 6012(b)(4). 

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Appellate Case: 87-2297 Document: 01019836044 Date Filed: 08/11/1989 Page: 5 
duty to file a return for income generated by the estate, even 

though the trustee of a bankrupt corporation had a duty to file a 

tax return for income generated by the bankrupto The court 

further reasoned that such was true even though by other statutes 

a tax may well have been imposed on all income generated in any 

bankruptcy proceeding, be it a corporate or individual bankruptcy. 

In other words, even though by statute a tax may have been imposed 

on the income generated by the bankrupt estate in the Joplin 

bankruptcy proceeding, the trustee had no duty to file a return 

because the pre-1980 statute was "silent" and, therefore, imposed 

no duty on the trustee to file in an individual bankruptcy 

proceeding. 

In line with the foregoing, the bankruptcy court entered summary judgment in favor of the trustee and dismissed the claim made 

by the United States against State Farm. The United States then 

appealed those orders to the United States District Court for the 

Eastern District of Oklahoma. The district court affirmed the 

orders of the bankruptcy court, and from the district court's 

judgment the United States appeals to this court. 

The district court agreed with the bankruptcy court that 

under the pre-1980 version of the statute, 26 U.S.C. § 6012, a 

trustee in an individual bankruptcy proceeding was under no duty 

to file a federal tax return. However, the district court 

disagreed with the suggestion that even though a trustee had no 

duty to file a return for the income generated by an individual 

bankruptcy proceeding, a tax was imposed thereon, labelling such 

to be "inconsistent and illogical.'' Accordingly, the district 

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Appellate Case: 87-2297 Document: 01019836044 Date Filed: 08/11/1989 Page: 6 
court went on to hold that under the applicable statutes, no tax 

was imposed on income generated by an individual bankruptcy 

proceeding. Having found ''no tax," the district court concluded, 

in effect, that the "omission" in the pre-1980 26 U.S.C. § 6012{b) 

was purposeful and consistent. The statutes relied on by the 

district court in its holding that there was no tax imposed on 

income generated by an individual bankruptcy proceeding will be 

discussed later. 

As indicated, the parties differ as to whether prior to 1980 

income generated by an individual's bankruptcy is subject to a tax 

and whether, if so, the trustee thereof has a duty to file a 

return. The United States argues that the answer to both propositions is "Yes~" The trustee, and State Farm, say the answer to 

both questions is "No,'' which was the holding of the district 

court. We believe both questions should be answered in the affirmative. 

At the outset, we note the matters agreed on by the parties: 

(1) income was generated in the Joplin bankruptcy proceedings for 

the years 1980, 1981, and 1982; (2) if the Joplin proceedings had 

corrunenced after March 31, 1981, a tax would be due on such earnings and the trustee would have had a duty to file a return; and 

(3) prior to the 1980 amendments to the tax laws, income generated 

by a corporation in bankruptcy was subject to tax and the trustee 

thereof had a duty to file a return. 

It is also agreed that the Joplin liquidation proceedings 

created an "estate." See 11 u.s.c. § 541(2). With that premise 

the United States asserts that under 26 U.S.C. §§ 1 and 641 the 

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income generated in the Joplin liquidation proceedings was subject 

to federal income tax, and further that under 26 u.s.c. § 

6012(b){4), Crain, as trustee, had a duty to file a tax return. 

We agree with this reading of those statutes. 

In reaching our decision, we address the relevant portions of 

the applicable statutes. First, 26 U.S.C. § l(e) imposes a tax ·on 

the "taxable income of--(1) every estate •.. taxable under this 

subsection II Id. (emphasis added). 3 Second, 26 u.s.c. § 

64l(a) provides that the tax imposed by 26 U.S.C. § l(e) "shall 

apply 

3 

4 

t th t bl • f t t II 4 o e axa e income o es a es .••. 

26 U.S.C. § l(e) provides, in part, as follows: 

Estates and trusts.--There is hereby imposed 

on the taxable income of--

(1) every estate, and 

(2) every trust, 

taxable under this subsection a tax determined 

in accordance with the following table ..•. 

26 U.S.C. § 64l(a) provides as follows: 

Imposition of tax 

(a) Application of tax.--The tax imposed by section l(e) shall apply to the taxable income of 

estates or of any kind of property held in trust, 

including--

(!) income accumulated in trus.t for the 

benefit of unborn or unascertained persons or 

persons with contingent interests, and income 

accumulated or held for future distribution 

under the terms of the will or trust; 

( 2) income 

currently by 

beneficiaries, 

guardian of an 

distributed as 

which is to be distributed 

the fiduciary to the 

and income collected by a 

infant which is to be held or 

the court may direct; 

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Third, 26 

Appellate Case: 87-2297 Document: 01019836044 Date Filed: 08/11/1989 Page: 8 
U.S.C. § 6012(b)(4), prior to 1980, provides that returns of an 

estate "shall be made by the fiduciary thereof." 5 

As indicated, it is agreed that the Joplin liquidation 

proceedings represent an ''estate." Such being the case, a fair 

reading of the foregoing statutes results in a tax on the income 

of the Joplin estate for which Crain, as the trustee (fiduciary) 

thereof, shall file a return. 

Williams v. United States, 667 F.2d 1108 (4th Cir. 1981) 

supports our reading of the applicable statutes. In holding that 

income arising out of an individual bankruptcy proceeding was 

(3) income 

deceased persons 

administration or 

and 

received by estates of 

during the period of 

settlement of the estate; 

(4) income which, in the discretion of 

the fiduciary, may be either distributed to 

the beneficiaries or accumulated. 

Id. (emphasis added). 

5 26 U.S.C. § 6012(b)(3) and 

amendments, provides as follows: 

( 4 ) , before the 

(3) Receivers, trustees and assignees for 

corporations.--In a case where a receiver, 

trustee in bankruptcy, or assignee, by order 

of a court of competent jurisdiction, by 

operation of law or otherwise, has possession 

of or holds title to all or substantially all 

the property or business of a corporation, 

whether or not such property or business is 

being operated, such receiver, trustee, or 

assignee shall make the return of income for 

such corporation· in the same manner and form 

as corporations are required to make such 

returns. 

(4) Returns of estates and trusts.--

Returns of an estate or a trust shall be made 

by the fiduciary thereof. 

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1980 

Appellate Case: 87-2297 Document: 01019836044 Date Filed: 08/11/1989 Page: 9 
taxable even before the Bankruptcy Tax Act of 1980, the Fourth 

Circuit spoke as follows: 

In determining whether the Internal Revenue Code 

(Code) taxes bankruptcy income, we start with the 

general policy of§ 61 that gross income includes "all 

income from whatever source derived." Unfortunately, 

although § 61 and other code provisions enumerate many 

types of income that are taxable, the Code fails to deal 

explicitly with the income of individual bankruptcy 

estates. 

Beyond the sweeping language of§ 61, the government points to other Code sections that can be read to 

tax the income of bankruptcy estates. Bankruptcy 

estates, says the government, fall within the general 

provisions of subchapter J, which deals with "Estates, 

Trusts, Beneficiaries, and Decedents." Section 64l(a} 

of subchapter J declares that "[t]he taxes imposed by 

this chapter on individuals shall apply to the taxable 

income of estates or of any kind of property held in 

trust." Although the decisions are admittedly not 

uniform, several courts have found this language broad 

enough to include bankruptcy estates. See Schilder v. 

United States, 71-2 U.S.T.C. 119595, at 87, 383 

(N.D.Cal.1971); In re Steck, 62-2 U.S.T.C. , 9702 

(S.D.Ill.1962); Richardson v. United States, 386 F.Supp. 

424 (C.D.Cal.1974), aff'd, 552 F.2d 291 (9th Cir. 1977). 

The Internal Revenue Service has consistently applied 

this construction of § 641. Thus, Rev. Rul. 68-48, 

1968-1 C.B. 301, 302, citing a 1939 General Counsel 

Memorandum, notes that "income of a bankrupt 

partnership's estate, like that of a bankrupt 

individual's estate, should be taxed as income of an 

estate under section 161 of the Internal Revenue Code of 

1939 {predecessor of§ 641 of the Internal Revenue Code 

of 1954)." 

In re I. J. Knight Realty Corp., 366 F.Supp. 450 

(E.D.Pa. 1973), cited by the trustee in his income tax 

return, does not support his position. First, Knight 

Realty involves a corporate rather than individual 

bankruptcy, and so is not dispositive here. Even if it 

were relevant, the court of appeals reversed the 

district court's holding a year later. 501 F.2d 62 (3d 

Cir. 1974). 

We are persuaded that the · language of § 641 is 

broad enough to cover the income from individual 

bankruptcy estates. The Trustee can point to no exemption of such estates from taxation, cf. I.R.C. § 7507 

(exempting insolvent banks). Exemptions from taxation 

are not to be implied. See Bingler v. Johnson, 394 U.S. 

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741, 751-52, 89 s.ct. 1439, 1445, 22 L.Ed.2d 695 (1969), 

and cases cited at 394 U.S. at 752 n.16, 89 s.ct. at 

1445 n.16. We therefore hold that Congress intended, 

even before the Bankruptcy Tax Act of 1980, to tax the 

income of individual bankruptcy estates. 

Id. at 1110 (footnotes omitted). 

We do not regard the fact that 26 U.S.C. § 64l(a)(l)(2)(3) 

and (4) do not specifically list income from an individual 

bankruptcy estate to be dispositive. The statute initially 

declares in broad language that the tax imposed by § l(e) shall 

apply to the taxable income of estates, "including,'' and 

thereafter lists four types of income from trusts or estates that 

are taxable, but makes no mention of income from individual 

bankruptcy estates. 26 u.s.c. § 770l(c) provides that "[t]he 

terms 'includes' and 'including' when used in a definition 

contained in this title shall not be deemed to exclude other 

things otherwise within the meaning of the term defined." Accordingly, we disagree with the district court's conclusion that the 

only estates taxable under 26 U.S.C. § l(e) are the four examples 

set forth in 26 U.S.C. § 64l(a) (1), (2), (3), and (4). 6 Such 

6 See also S.R. 1622, 83d Cong., 2d Sess. 

1954 U.S. Code Cong. & Admin. News 

Finance Committee commented: 

339-340, reprinted in 

4980, wherein the Senate 

This section [641] corresponds to section 161 of 

the 1939 Code and· provides that the normal and surtaxes 

imposed by chapter I upon individuals shall apply to the 

taxable income of estates and to the taxable income of 

any kind of property held in trust. 

The several classes of income enumerated in 

paragraphs (1) through (4) of subsection (a) are carried 

over from section 161 and are illustrative of estate and 

trust income dealt with in this subchapter; the classification does not exclude other types of estate and 

trust income which may fall within the purview of this 

subchapter. 

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reading of the statute ignores the term "including," and 

substitutes therefor, in effect, the term "limited to." 

The Judgment granting summary judgment in favor of Crain is 

reversed. The judgment dismissing United States' claim against 

State Farm is vacated. The matter is remanded to the district 

court for further proceedings. 7 · 

7 Other issues, including estoppel, were raised by the parties in 

the district court. However, the district court, believing that 

there was no tax liability, did not address the other issues, 

which on remand it shall now address. 

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