Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-01445/USCOURTS-ca10-91-01445-0/pdf.json

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

---

PUBLISH FIL ... .. :J 

United States Cm:rt of Appeal, Tenth Circuit 

UNITED STATES COURT OF APPEALS 

FEB 171993 

ROBERT L. HOECKER 

Clerk 

In re : JACK J . GRYNBERG, 

CELESTE C. GRYNBERG, 

Debtors, 

TENTH CIRCUIT 

) 

} 

) 

} 

) 

} 

) 

JACK J. GRYNBERG, CELESTE C. GRYNBERG, ) 

Appellants, 

v. 

UNITED STATES OF AMERICA, GERALDS . SWANSON, as District Director for the 

Internal Revenue Service, 

Appellees. 

) 

) 

} 

) 

) 

) 

} 

) 

} 

) 

No . 91-1445 

Appeal from the United States District Court 

for the District of Colorado 

(D . C. No . 91-F-1025) 

Neil E. Ayervais of Lohf, Shaiman & Ross (William D. Scheid of 

Scheid and Horlbeck, with him on the briefs), Denver, Colorado , for Appellants. 

Gary D. Gray, Attorney, Tax Division, (James A. Bruton, Acting 

Assistant At torney General; Michael J. Norton, United States 

Attorney, of counsel; and Murray S. Horwitz, Attorney, Tax Divi- sion, with him on the brief}, Department of Justice , Washington, 

D.C. , for Appellees. 

Before LOGAN, ANDERSON and BALDOCK, Circuit Judges. 

LOGAN, Circui t Judge . 

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 1 
Plaintiffs Jack and Celeste Grynberg appeal the district 

court's affinnance of the bankruptcy court's order granting summary judgment in favor of defendants, the United States government 

and the Internal Revenue Service (IRS), and dismissing with prejudice plaintiffs' adversary proceeding against defendants. 

The facts in this case are undisputed. In early 1981, plaintiffs filed petitions for reorganization under Chapter 11 of the 

Bankruptcy Code, 11 U.S.C. §§ 1101-1174. 1 Their cases ~ere 

jointly administered. As provided under§§ 521(1) and llll(a), 

plaintiffs' bankruptcy schedules listed the United States as a 

disputed creditor, both for gift taxes and for income taxes. The 

disputed gift tax liability arose from intra-family transfers of 

mineral interests made in the year preceding the bankruptcy filings. Plaintiffs never filed gift tax returns on these transfers, 

contending that they were not taxable gifts. 

On June 19, 1981, the bankruptcy court issued the following 

bar order: 

Creditors holding claims scheduled by Debtor as disputed, contingent, or unliquidated shall file a proof of 

claim with this Court on or before uuly 31, 1981 ...• 

Failure to file a proof of claim shall forever bar a 

creditor holding a disputed, contingent, or unliquidated 

claim from participation in this proceeding or in any 

distribution under a plan filed by the Debtor .... 

Appellants' App. at 36. The IRS filed a timely proof of claim for 

the scheduled income tax liabilities, but not for the gift taxes. 

In April 1982, the bankruptcy court approved plaintiffs' joint 

reorganization plan, which made no reference to the disputed gift 

1 Unless otherwise noted, all statutory references are to title 

11 of the United States Code, the Bankruptcy Code. 

-2-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 2 
tax. The IRS did not object to the plan or to its accompanying 

disclosure statement. 

In 1989, after the plan had been fully consummated, the IRS 

sent Jack Grynberg a notice of a proposed gift tax deficiency and 

penalties totalling nearly $5 million. 2 In response, plaintiffs 

filed an adversary action in the bankruptcy court, seeking to 

enjoin the IRS from collecting the deficiency on the grounds that 

it had been disallowed under the bar order and discharged at the 

completion of the joint reorganization. The bankruptcy court 

granted defendants' motion for summary judgment and dismissed 

plaintiffs' complaint. 

appeal followed. 

The district court affirmed, and this 

"We review the bankruptcy court's decision under the same 

standard used by the district court." Citizens Nat'l Bank & Trust 

co. v. serelson Cin re Burkart Farm & Livestock), 938 F.2d 1114, 

1115 (10th Cir. 1991). Thus, we review legal conclusions, such as 

a grant of summary judgment, de novo and factual findings for 

clear error. Unioil v. H.E. Elledge; 270 Corp. (In re Unioil), 

962 F.2d 988, 990 (10th Cir. 1992). 

Section 1141(d) (1) (A) of the Bankruptcy Code provides generally for discharge from any debt that arose before confirmation of 

the plan, even if no proof of claim was filed or the claim was 

disallowed. However, § 1141(d) (2) specifically provides that 

"confirmation of a plan does not discharge an individual debtor 

2 No such notice has been sent to Celeste Grynberg, although this 

apparently remains a possibility. 

-3-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 3 
from any debt excepted from discharge under section 523 of this 

title." 

Section 523, 3 when read in conjunction with § 114l(d) (2), 

provides that confirmation of a reorganization plan for an individual debtor will not discharge recent excise taxes "whether or 

not a claim for such tax was filed or allowed,"§ 523(a) (1) (A), or 

taxes for which returns should have been but were not filed. The 

gift taxes at issue here fit within both categories. 

Section 6019 of the Internal Revenue Code states that any 

individual making a transfer by gift in excess of $10,000, other 

than to a spouse "shall make a return for such year with respect 

to the gift tax imposed. " Plaintiffs argue that there is no evidence in the record to support the district court's conclusion 

that their transfers were taxable gifts that required the filing 

of a return. The bankruptcy court has never ruled on the merits 

3 § 523. Exceptions to discharge 

(a) A discharge under section 727, 1141, 1228(a), 

1228(b), or 1328(b) of this title does not discharge an 

individual debtor from any debt--

(1) for a tax or a customs duty--

(A) of the kind and for the periods specified in section 507(a) (2) or 507(a) (7) of this 

title, whether or not a claim for such tax was 

filed or allowed; 

(B) with respect to which a return, if 

required--

(i) was not filed .. 

With respect to our analysis here, we need only note that 

§ 507(a) (7) (E) refers to excise taxes on transactions occurring 

before the filing of the petition for which returns were due in 

the three years preceding the filing of the petition, or, if 

returns were not required, on transactions occurring during the 

three years inunediately preceding the filing of the petition. 

Gift taxes are excise taxes. 

-4-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 4 
of the gift tax liability claim, which remains unresolved. However, plaintiffs cannot bootstrap their argument that returns were 

not required based on the absence of a ruling on the merits of the 

government's claim for such taxes. We emphasize that nothing in 

the district court's order purports to fix plaintiffs' gift tax 

liability; it merely establishes that whatever that liability may 

be, it has not been discharged. 

In any event, these gift taxes fit within the§ 523(a) (1) (A) 

exception to discharge that covers taxes entitled to priority 

under§ 507(a) (7). Excise taxes include gift taxes, and the 

transfers at issue occurred within the three year statutory window. Although§ 507(a) (7) refers to "allowed unsecured claims of 

governmental units,"§ 523(a) (1) (A) makes clear that these taxes 

remain nondischargeable "whether or not a claim for such tax was 

filed or allowed." Plaintiffs argue strenuously that the failure 

of the IRS to file a proof of claim before the bar date imposed by 

the bankruptcy court subjected their gift tax claim to discharge 

upon confinnation of the plan, and that the bankruptcy court's 

determination under the bar order is res judicata. This contention is contrary to the language of the bar order and to the 

operation of Bankruptcy Rule 3003 under which the bar order was 

issued. 

Bankruptcy Rule 3003(c) (3) requires a bankruptcy court to fix 

a time for filing proofs of claims. The purpose of this deadline 

is to "enable a debtor and his creditors to know, reasonably 

promptly, what parties are making claims against the estate and in 

what general amounts." United States v. Kolstad {In re Kolstad>, 

-5-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 5 
928 F.2d 171, 173 (11th Cir.), cert . denied. 112 s. Ct . 419 

(1991). However, as the language of the bar order itself states, 

failure to file a proof of claim before the bar date simply precludes a creditor from participating in the voting or distribution 

from the debtor's estate. 4 Neither the rules nor the bar order 

prevents a creditor holding a nondischargeable debt who has not 

filed a proof of claim from collecting outside of bankruptcy. See 

In re Olsen, 123 B.R. 312, 314 (Bankr. N.D. Ill. 1991) ("the IRS's 

nondischargeable claim ... would survive bankruptcy even if the 

IRS had never even filed a proof of claim"); Kinney v. IRS (In re 

Kinney), 123 B.R. 889, 891 (Bankr. D. Nev. 1991) ("[t]he IRS's 

failure to file timely a proof of claim would, at most, result in 

a loss of the right to payment under the plan"); In re Howell , 84 

B.R. 834, 836 (Bankr. M.D. Fla. 1988) ("a creditor holding a nondischargeable debt ... may execute or collect on the balance of 

its nondischargeable debt without regard to the discharge provisions of the plan or the Code"); Galbreath v. Illinois Dep't of 

Revenue (In re Galbreath). 83 B.R. 549, 551 (Bankr. S.D. Ill. 

1988) ("a creditor with a type of debt listed as nondischargeable 

under [§] 523 (a) (1) . . may wait until the conclusion of the 

4 The bar order essentially follows the contours of the Rule. 

"[A]ny creditor who fails to [file a proof of claim] shall not be 

treated as a creditor with respect to such claim for the pu;r:poses 

of voting and distribution. " Bankruptcy Rule 3003(c) (2) (emphasis 

added). Usually, the threat of exclusion from distribution under 

the reorganization plan is sufficient incentive for a creditor to 

file a proof of claim. Creditors holding nondischargeable debts 

who do not participate in the distribution of the debtor's estate 

under the plan take a large risk that the debtor will have nothing 

left after bankruptcy proceedings are concluded, and that although 

the debt has not been discharged, meaningful recovery will be 

postponed indefinitely. 

-6-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 6 
bankruptcy proceeding and then bring suit on its claim in the 

appropriate nonbankruptcy forum"). Plaintiffs cite numerous cases 

emphasizing the finality of bar orders and prohibiting the IRS 

from filing additional proofs of claim after the bar date has 

passed. 5 These cases establish only that the IRS is bound to submit its proofs of claim like any other creditor or be foreclosed 

from participating in the debtor's reorganization. However, like 

any other holder of a nondischargeable debt, the IRS is also free 

to pursue the debtor outside bankruptcy. 

Plaintiffs' argument that the bar order disallowed the gift 

tax claim is unconvincing. 6 It is undisputed that defendant's 

failure to file a proof of claim for the gift taxes precluded it 

from participating in the voting and distribution under plaintiffs' Chapter 11 plan. It is equally clear, however, that a 

bankruptcy court's determination of a claim's untimeliness does 

not affect application of the§ 523 exceptions to discharge . We 

agree with Spruill v. South Atl. Prod. Credit Assoc. (In re 

Spruill), 83 B.R. 359 (Bankr. E.D.N.C. 1988), which considered 

this issue and concluded -that§ 523(a) (1) (A) "was intended to prevent the discharge of tax claims which were never filed or filed 

late but which would otherwise have been allowable." .Ig. at 361. 

5 ~,~,united States v, Ginley (In re Johnson). 901 F.2d 

513 (6th cir. 1990); United States v. Int'l Horizons, Inc. {In re 

Int'l Horizons), 751 F.2d 1213 (11th Cir. 1985); United States v. 

Stavriotis, 129 B.R. 527 (N.D. Ill. 1991); In re Nalle. 125 B.R. 

164 (Bankr. W.D. Tex. 1991). 

6 Plaintiffs rely on a portion 

"all claims listed as disputed 

be disallowed if a timely proof 

respect to such claims." 

of the bar order providing that 

in the Grynbergs' schedules would 

of claim was not filed with 

-7-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 7 
It held that while disallowance on the merits would have prevented 

the IRS from pursuing the gift tax claim postbankruptcy, disallowance for untimeliness does not act as a bar to asserting nondischargeability in subsequent litigation. Id. See also Olsen, 123 

B.R. at 314 ("[t]he Bankruptcy Code makes it clear that the actual 

allowance of a tax claim as a priority debt and the nondischargeability of a tax claim are not related"); Great Arn. Ins. Co. v. 

Graziano (In re Graziano), 35 B.R. 589, 592 (Bankr. E.D.N.Y. 1983) 

("creditor's failure to file a proof of claim does not act as a 

bar to an action to determine dischargeability"); Massoni v. District Director of IRS (In re Massoni), 20 B.R. 416, 419 (Bankr. D. 

Kan. 1982) ("the failure of the IRS to file a proof of claim does 

not affect the debt's dischargeability"). The clear provisions of 

Bankruptcy Rule 3003(c) (2) limit the rights of a creditor failing 

to file a proof of claim only with respect to voting and distribution under the plan. Bar orders issued pursuant to this rule have 

no other effect. 7 

7 Plaintiffs suggest that under Hoffman v. Connecticut Dep't of 

Income Maintenance, 492 U.S. 96 (1989), the failure of a governmental unit to submit a proof of claim renders that claim dischargeable even if it falls within the§ 523 exceptions to discharge. We disagree. Hoffman addresses a jurisdictional question 

holding that§ 106(c) "permit[s] a bankruptcy court to determine 

the amount and dischargeability of an estate's liability" to a 

state government. See United States v. Nordic Village Inc., 112 

S. Ct. 1011, 1016 (1992) (citation omitted). However, the fact 

that a governmental unit is subject to bankruptcy court jurisdiction on the question of dischargeability even if it never filed a 

proof of claim does not mean that a governmental unit's failure to 

file a proof of claim on a nondischargeable debt necessarily results in discharge. 

-8-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 8 
Although allowing the IRS to pursue its claim after the confirmation and consummation of a Chapter 11 plan admittedly conflicts with the "fresh start" policy animating the Code's discharge provisions, "it is apparent to us that Congress has made 

the choice between collection of revenue and rehabilitation of the 

debtor by making it extremely difficult for a debtor to avoid payment of taxes under the Bankruptcy Code." United States v. Gurwitch (In re Gurwitch), 794 F.2d 584, 585-86 (11th Cir. 1986). 

This is an express congressional policy judgment that we are bound 

to follow. ~ United States v. Sotelo, 436 u.s. 268, 279-80 

(1978) . 

Finally, plaintiffs maintain that to be excepted from discharge under§ 523, the disputed gift tax must be a "debt." The 

Code defines debt as "liability on a claim." § 101(12). Because 

the IRS never filed a proof of claim for the gift tax, the argument goes, it does not have a debt, and without a debt there is 

nothing to be deemed nondischargeable. Although this syllogism is 

semantically creative, it disregards the broader purposes and 

logic of the Code. Plaintiffs neglected to include in their argument the definition of "claim," which means a "right to payment, 

whether or not such right is reduced to judgment, liquidated, 

unliquidated, fixed, contingent, matured, unmatured, disputed, 

undisputed, legal, equitable, secured, or unsecured." 

§ 101(5) (A). The Supreme Court has held that the language of 

§ 101(5) (A) "reflects Congress' broad rather than restrictive view 

of the class of obligations that qualify as a 'claim' giving rise 

to a 'debt.'" Pennsylvania Dep't of Pub. Welfare v. Davenport, 

-9-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 9 
495 U.S. 552, 558 (1990). Nothing in the definition of the term 

requires the submission of proof to establish a claim's existence. 

Proof is required only to ensure the creditor's participation in 

the reorganization. In view of this expansive definition of the 

term "claim," we have no difficulty characterizing the gift taxes 

as a disputed right to payment, thus qualifying as a "debt" that 

can be excepted from discharge under§ 523. 

Plaintiffs' difficulties might easily have been averted. The 

Bankruptcy Code includes a mechanism specifically to protect 

debtors in those situations in which the creditor's debt is 40ndischargeable. Section 501(c) provides that "[i]f a creditor does 

not timely file a proof of such creditor's claim, the debtor or 

the trustee may file a proof of such claim." Bankruptcy Rule 3004 

gives the debtor or trustee thirty days after the bar date to file 

such claims. Together, § 501(c) and Rule 3004 afford the debtor 

the broadest relief possible in bankruptcy by allowing the debtor 

to bring in all known claimants and, through payment under the 

plan, to reduce the amount of nondischargeable debt owed after the 

closing of the case. Had plaintiffs taken advantage of this provision, § 1129(a) (9) (C) would have permitted confirmation of a 

plan that included deferred cash payments for excise taxes on 

transfers made within the three year window specified in 

§ 507(a) (7) (E). See generally Kolstad. 928 F.2d at 174. Because 

the IRS declined to file the claim and hence did participate in 

plaintiffs' reorganization with respect to this claim, and because 

plaintiffs failed to use the statutory mechanism for mandatory 

participation available to them, the IRS is now free to recover 

-10-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 10 
outside bankruptcy. In re Kloeble. 112 B.R. 379, 381 (Bankr. s .D. 

Cal. 1990) ("[t]he apparent consequence of the debtor' s failure to 

file for the creditor within the time allotted under Rule 3004 is 

that the debtor remains burdened with the debt post-discharge to 

the extent the debt was nondischargeable"). 

AFFIRMED . 

-11-

Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 11 
Appellate Case: 91-1445 Document: 010110175745 Date Filed: 02/17/1993 Page: 12