F I L E D

United States Court of Appeals

Tenth Circuit

JUN 1 2004

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

JOHN RODERICK McKOWEN,

Plaintiff-Appellant,

v.

INTERNAL REVENUE SERVICE,

UNITED STATES DEPARTMENT

OF THE TREASURY,

Defendant-Appellee.

No. 01-1345

Appeal from the United States District Court

for the District of Colorado

(D.C. No. 01-M-117)

Jeffrey R. Davine of Ballard Spahr Andrews & Ingersoll, LLP, Denver, Colorado

(Matthew D. Skeen of Skeen & Skeen, P.C., Denver, Colorado, with him on the

briefs) for Plaintiff-Appellant.

Karen D. Utiger, Attorney (Eileen J. O’Conner, Assistant Attorney General,

Richard Farber, Bruce R. Ellisen, and Paula K. Speck, Attorneys, with her on the

brief) Tax Division, Washington, D.C., (John W. Suthers, United States Attorney,

Denver, Colorado, of Counsel) for Defendant-Appellee.

Before BRISCOE, ANDERSON and O’BRIEN, Circuit Judges.

O’BRIEN, Circuit Judge.
1McKowen claims he reported all items of income and losses on his 1987

personal tax return. The I.R.S. states those items should have been reported on

the 1987 New Century corporate tax return.

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John Roderick McKowen appeals the district court’s determination that his

1995 bankruptcy proceeding did not discharge his transferee liability for 1987

corporate taxes not paid by his now-defunct business. See McKowen v. Internal

Revenue Service, 263 B.R. 618, 619-20 (D. Colo. 2001). Exercising jurisdiction

under 28 U.S.C. §§ 158(a) & (d), we affirm.

BACKGROUND

McKowen was the sole owner and shareholder of New Century Corporation

(New Century). Sometime in 1987, the company began to be dismantled, and its

assets were transferred to McKowen. On his 1992 personal income tax return,

McKowen included net operating loss carryforwards based upon net operating

losses sustained by New Century during tax years 1986, 1987, and 1988. In

January 1995, he filed a voluntary Chapter 7 bankruptcy petition. An order of

discharge was entered that May. 

Subsequently, in November 1996, the Internal Revenue Service (I.R.S.)

audited McKowen’s 1992 income tax return. After requesting copies of New

Century’s corporate tax returns for 1987 and 1988, the I.R.S. learned that no

corporate tax return had been filed for 1987.1

 McKowen remedied this omission

by filing an amended return for New Century on April 2, 1998.
2The district court remanded the case to the bankruptcy court, perceiving

McKowen’s argument to raise an equitable claim not decided by the bankruptcy

court. Generally, an order of a district court remanding a case to the bankruptcy

court “for significant further proceedings” is not a final appealable decision

allowing this Court to exercise jurisdiction. Buckner v. Farmer’s Home Admin.,

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Review of New Century’s 1987 amended tax return indicated corporate taxes were

owed. The I.R.S. also concluded the 1987 asset transfer subjected McKowen to

transferee liability, pursuant to 26 U.S.C. § 6901(a), in the amount of

$481,180.00, plus interest and penalties. McKowen, 263 B.R. at 620. 

Questioning the validity of his tax liability, McKowen moved for and was granted

an opportunity to reopen his 1995 bankruptcy case to determine whether his

transferee liability was discharged. In response, the I.R.S. moved for summary

judgment.

The bankruptcy court denied the I.R.S.’s motion for summary judgment,

finding McKowen’s transferee liability for the corporate taxes constituted an

unsecured debt, rather than a tax excepted from discharge. McKowen v. United

States, 2001 WL 241059 (Bankr. D. Colo. 2001). Therefore, the bankruptcy court

held the transferee liability was discharged in bankruptcy.

The I.R.S. appealed to the United States District Court for the District of

Colorado. The district court agreed the transferee liability was not a tax, but

found that 26 U.S.C. § 6901(a) required the debt to be treated like a tax for the

purposes of exception from bankruptcy discharge.2

 Id. Thus, it reversed the
66 F.3d 263, 265 (10th Cir. 1995). However, McKowen remedied this

jurisdictional barrier when, at his request, the district court amended its judgment

to eliminate the equity claim and set aside the order for remand.

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bankruptcy court, concluding McKowen’s liability was not discharged in the 1995

bankruptcy proceeding. McKowen now appeals the district court’s order.

DISCUSSION

Dischargeability of Transferee Liability in Bankruptcy

“'In reviewing the decision of a bankruptcy court pursuant to 28 U.S.C. §

158(a) and (d), the district court and the court of appeals apply the same standards

of review that govern appellate review in other cases.'” In re Country World

Casinos, Inc., 181 F.3d 1146, 1149 (10th Cir. 1999) (quoting In re

Hedged-Investments Assocs., Inc., 84 F.3d 1267, 1268 (10th Cir. 1996). On an

appeal of a bankruptcy case, we review the legal conclusions of the bankruptcy

court and the district court de novo. In re Wise, 346 F.3d 1239, 1241 (10th Cir.

2003); In re Craddock, 149 F.3d 1249, 1257 (10th Cir. 1998). Here, we face an

issue of first impression: whether a debt arising from transferee liability for

unpaid income tax owed by the transferor corporation is discharged by the

transferee’s bankruptcy. Our analysis necessarily construes the interrelationship

between specific provisions of the Bankruptcy Code and the Internal Revenue

Code (I.R.C.).

The Bankruptcy Code identifies the purpose of a voluntary bankruptcy
3A bankruptcy discharge “operates as an injunction against the

commencement or continuation of an action, the employment of process, or an

act, to collect, recover or offset any such debt as a personal liability of the debtor,

whether or not discharge of such debt is waived.” 11 U.S.C. § 524(a)(2). See also

11 U.S.C. 727(b) (a Chapter 7 bankruptcy discharges the debtor from debts

arising before the date of discharge).

411 U.S.C. § 523(a)(1)(A) states in pertinent part:

(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)(8) of this title, whether or not a claim for such tax was filed or

allowed.

11 U.S.C. § 507(a)(8)(A)(iii) reads:

(8) Eighth, allowed unsecured claims of governmental units, only to the

extent that such claims are for--

(A) a tax on or measured by income or gross receipts

(iii) other than a tax of a kind specified in section 523(a)(1)(B) or

523(a)(1)(C) of this title, not assessed before, but assessable, under

applicable law or by agreement, after, the commencement of the case.

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discharge as the opportunity to obtain relief from existing debts. See 11 U.S.C. §

524.3

 Though a fresh start for the debtor is the desired outcome, Congress

determined that some debts should survive despite this general policy; it explicitly

removed certain types of debt from discharge. At issue here is the exception from

discharge for a tax that is on or measured by income or gross receipts, which is

assessable after commencement of the bankruptcy case. See 11 U.S.C. §

523(a)(1)(A); 11 U.S.C. § 507(a)(8)(A); 11 U.S.C. § 507(a)(8)(A)(iii).4 Under

Bankruptcy Code 11 U.S.C. § 523(a)(1)(A), a debtor will not be discharged from
5

In this case, McKowen’s liability as a transferee is not before the Court. 

We assume, without deciding, that McKowen is liable as a transferee for the taxes

owed by New Century for the tax year 1987 in the amount of $481,180.00.

6Section 6901 reads:

(a) The amounts of the following liabilities shall, except as

hereinafter in this section provided, be assessed, paid, and collected

in the same manner and subject to the same provisions and

limitations as in the case of the taxes with respect to which the

liabilities were incurred:

1) Income, estate, and gift taxes.--

A) Transferees.--The liability, at law or in equity, of a transferee of

property–

(i) of a taxpayer in the case of a tax imposed by subtitle A (relating

to income taxes).

(Emphasis added.) Section 6901 goes on to define a transferee as a “donee, heir,

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any debt “for a tax” of the kind stated in § 507(a)(8). In turn, § 507(a)(8)

specifically identifies a tax on income as exempt from discharge. 11 U.S.C. §

523(a)(1)(A); 11 U.S.C. § 507(a)(8)(A)(iii) (see infra nn.6, 7). Under these

statutory provisions, it appears that any debt not designated a tax, would be

discharged in bankruptcy.

On the other hand, the I.R.C. provides that a person receiving property

from a taxpayer who owes income taxes may be liable for the transferor

taxpayer’s tax debt.5

 If so, the I.R.S. may collect the transferor’s income tax

liability from the transferee “in the same manner and subject to the same

provisions and limitations as in the case of the taxes with respect to which the

liabilities were incurred.” 26 U.S.C. § 6901(a);6see Commissioner of Internal
legatee, devisee, and distributee . . . .” 26 U.S.C. § 6901(h). 

7

In Stern, the United States Supreme Court held that transferee liability

under 26 U.S.C. § 311(a) (the predecessor to 26 U.S.C. § 6901) was not a tax, but

rather, a method of collecting taxes. Specifically, the Court held “§ 311 neither

creates nor defines a substantive liability but provides merely a new procedure by

which the Government may collect taxes.” 357 U.S. at 42.

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Revenue v. Stern, 357 U.S. 39, 44-45 (1958) (existence and extent of transferee

liability determined by state law). Considering the provisions of the Bankruptcy

Code and the I.R.C. in tandem, the district court held Section 6901 would be

nullified if transferee liability was discharged under the Bankruptcy Code, and

concluded it must be treated the same as the underlying tax to harmonize the

potential conflict between these statutes.7

 McKowen, 263 B.R. at 620-21 (citing

26 U.S.C.§ 6901). We agree.

“When Congress has enacted two statutes which appear to conflict, we must

attempt to construe their provisions harmoniously.” United States v. State of

Colo., 990 F.2d 1565, 1575 (10th Cir. 1993), cert. denied, 510 U.S. 1092 (1994). 

Here, McKowen’s transferee liability is derived from a tax owed by New Century

“on or measured by income,” and is thus exempt from discharge in bankruptcy. 

11 U.S.C. §§ 523(a)(1)(A) and 507(a)(8)(A)(iii). Consequently, we hold

McKowen’s transferee liability was not discharged in his prior bankruptcy

proceeding.

In reaching its contrary conclusion, the bankruptcy court relied on Pert v.
8We also recognize the outcome in Pert may have been tempered by a

factual situation not present here. In Pert, the debtor’s transferee liability was

based upon her receipt of assets from her deceased husband’s estate while unpaid

taxes remained assessed against the estate. 201 B.R. at 318-19. In attempting to

collect the deceased husband’s unpaid taxes, the government assessed taxes

against both the joint return filed with her deceased husband and based upon

transferee liability. Id. at 320. The court noted that if it characterized transferee

liability as a tax, it would allow the government two “bites” at the “nondischargeability apple.” Id. Here, the government is not imposing dual liability.

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United States, 201 B.R. 316 (Bankr. M.D. Fla. 1996). There, faced with an issue

similar to the one before us, the bankruptcy court held that transferee liability is

not a tax, but “[a]t best, . . . is a general unsecured claim, assuming a timely proof

of claim is filed.” Id. at 320.8

 We find a better approach in the United States Tax

Court’s decision in Hamar v. Commissioner, 42 T.C. 867 (1964). In Hamar, the

tax court rejected petitioner’s argument that his transferee liability was discharged

by his bankruptcy. Id. at 879. The court stated:

It must be borne in mind that while the liability of a transferee may

not be a tax liability in the ordinary sense, nevertheless it is a

liability for a tax; in other words, the government is seeking to

collect what is primarily a tax and continues to be a tax although,

because of the inability to collect from the taxpayer proper, it seeks

to require his transferee to pay. From the standpoint of the

government the money sought in this case is as much an item of

revenue as it would be were the proceedings to collect directed

toward the transferor.

Id. at 877 (quoting Felland v. Wilkinson, 33 F.2d 961 (D.C. Wis. 1928)). We

agree with this rationale and find it to be a descriptive example of how transferee

liability under Section 6901 should apply in this case. 
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The Bankruptcy Code’s specific exemption of income tax debt from

discharge reflects Congress’ intent to allow the federal government to collect

funds lawfully due, even from a debtor who has received a discharge in

bankruptcy. Nor is this obligation lessened by the fact that the debt has been

transformed from a direct tax liability of a transferor taxpayer into a transferee

liability. Section 6901 provides the direct mechanism for carrying out this

purpose. To ignore section 6901 and discharge McKowen’s transferee liability

would needlessly create a conflict between the discharge provisions of the

Bankruptcy Code and the express language of the I.R.C. § 6901. Such a result

would impermissibly override the specific policy judgments made by Congress in

enacting section 6901. See United States v. Sotelo, 436 U.S. 268, 279 (1978)

(“we as judges cannot override the specific policy judgments made by Congress in

enacting the statutory provisions . . . .”).

CONCLUSION

For the above reasons, we conclude the district court correctly determined

that the treatment of the underlying tax directs the treatment of the transferee

liability in bankruptcy discharge. Accordingly, we AFFIRM.