EL ECTRONI C CI TATI ON: 2011 FE D App. 0005P (6th Cir.) File Na me: 11b0005p.06

BA NK RU P TC Y A P P ELLA TE P AN EL OF THE SI XT H C IR CU IT

In re: ANTHO NY M. Z I NGAL E and ) BA RBARA A. Z I

NGAL E, ) ) No. 10-8054 De bto rs . )

_____________________________________ )

Appea l from the United States B ankruptc y Court for the Norther

n District of Ohio

. Ba nkruptcy Case No. 10-10594

. Argued : May

3, 2011 Dec ided and F iled: J une 15, 2011
B e fo re : B OSWE L L , F UL TO N, and Mc I VO R , B ank

ru ptc y Ap pe llate Pane l Judg e s.

____________________ CO UN SEL ARG UED: Debr a E. B ooher, D EBRA B OOHER & ASSOCI ATES CO., L PA, A kron, Ohio, for Appellants. Mar

y Ann Rabin, RABI

N & RABI

N C O., L .P.A., Cleveland, Ohio, for Appellee

. ON BRIEF: Debr a E. B ooher , Dy nele L . Schinker-K

uharic h, DEB RA BOO HER & A SSOC I ATES CO., L PA, Akron, Ohio, for Appellants. Mar

y Ann Rabin, RABI

N & RABI

N CO., L .P.A., Cleveland, Ohio, for

Appellee

.

____________________

OP IN ION

____________________ MA RCI B

. M c IV O R , B a

nk r u p t c y Ap pe llate Pane l Judg e . In th is a pp e a l, Anth ony

M. Z ing a le and B arba

ra A . Z inga le appe al the ba n k ru p t cy court’s or der sustainingthe Chapter 7 T rustee’ s ob je c tio n to th e De bto rs ’ c la im o f e xemp tio n. Th e De bto rs are se e kin g to e xemp t th e no n- re fu nd a ble portion of the Child Tax C redit cla imed by the Debtors on their 2009 fede ral income tax re turn. The2

bankruptc y

court he ld that the Debtors c ould not claim as exempt the non-ref undable por

tion of the Child Tax Credit beca use it was not consider ed a “pa y ment” under

Ohio Rev. Code § 2329.66(A)( 9)(g ). F or the re asons set for th below, the Panel AFFI RMS t he orde r of the ba nk ru ptc y c ourt

.
ISS UE ON AP P EAL The issue pre sented in this a ppeal is whether

the bankr uptcy court e rre d in determining that the non-re fundable portion of the Child Tax Credit in the amount of $2,903.00 may not be exempted as a “ pay ment” under

Ohio Rev. Code § 2329.66(A) (9)( g ).

JU RI SDI CT ION AN D ST AN DA RD OF RE VI EW Th e B ank ru ptc y Ap pe llate Pane l of the Sixth Cir c uit ha s jur isd ic tio n to de c ide thi s a pp e a l. The United States District Court for the Northe rn District o f Oh io has authorized appe als to the Pane l, a nd no pa rt y tim e ly e le c te d to have th ese a

pp e a ls h e ard

by the dis tr ic t c ourt . 2 8 U .S. C. §§ 15 8( b) (6 ), (c )( 1) . Aba nk ru ptc y c ourt ’s fi na l or de r m ay

be a pp e ale d a s o f r ig ht p ur su ant t o 28 U. S.C. § 1 58 (a )( 1) . Fo r pur po se s of ap pe a l, an

or de r i s f ina l if it “ e nd s th e lit ig a tio n o n th e me ri ts and leave s nothing for the court to do but ex ecute the judg ment.” Midland Asphalt Cor p. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citation and quotation marks omitted). An order sustaining a

trustee’ s objection to debtor’s c laim of exemptions i s a final, appeala ble orde r. Menninge r v. Schramm (

In re Sc hramm ), 4 3 1 B. R

. 3 9 7 , 3 9 9 (B

. A. P

. 6 thC i r. 2 0 1 0 ) ( ci t i n g W ic he ff

v . B au mg ar t ( In reW ic he ff ), 215 B .R. 839, 840 (B.A .P. 6th C ir. 1998)).

T h e b ankruptc y

court’s le g al conc lusions are re viewed de novo. Ca ra do n Do or s & W in dows, Inc. v . Eagle-Pic her Indus., Inc

. ( In re Eagle -Piche r Indus., Inc. ), 447 F.3d 461, 463 ( 6th Cir. 2006). A bankr uptcy court’s de cision that applies or interprets state law is a conc lusion of law re viewed de

novo . In re Sc hramm , 431 B.R. at 399. The interpre tation of a state’ s exempti on statute is review ed de novo beca

use it involves a question of law. Le bo v itz v . H age me y e r ( In reLe bo v itz ), 360 B .R. 612 (B .A.P. 6th Ci r. 2007).3

“‘D e novo mea

ns that the appe llate cour

t determines the la

w independe ntly

o f th e trial c ourt’s deter mination.’” Treinish v. Norw est Bank M inn., N.A. (

In rePe ria nd

ri ), 26 6 B .R. 65 1, 65 3 ( B .A .P. 6th Cir. 2001) (citations omitted). “No de fer ence is give n to the trial court’ s conclusions of law.” Mktg. &Creative Solutions, Inc. v. Sc ripps Howard Broad. Co. ( In re Mk tg. & Cre ati v e So lut ion s, Inc. ), 338 B .R. 300, 302 (B.A .P. 6th C ir. 2006) (c itations omi tted).

F AC TS The fa cts of this appea l are undisputed.

On J anuar

y 28, 2010, Debtors, Anthony M. Z inga le and Ba rbar a A. Z inga le, filed a pe tition for r elief unde r Chapter

7 of the B ankruptc y

Code.

On Marc h 9, 2010, at the first mee ting of cre ditors, Mary Ann R abin was appointed trustee. At the m eeting of creditors, Barba ra Zing ale testified that she i s a clinica l analy st at the Cleveland Clin ic a nd is the so le wa g e e arn e r o f t he fa mil y . An tho ny Z ing a le te sti fi e d that he is a sta y -at- ho me pare nt who car es for

four minor c hildren.

On Schedule B of the De btors’ bankr uptcy petition, the Debtors listed a joi nt interest in an “Anticipate d 2009 I ncome Tax Refund” a nd listed the value a s “unknown.”

On Marc h 24, 2010, the Debtor s filed amendme nts to S chedu l es B an d C. On Amended Sc he du le B , the De bto rs lis te d $4 ,0 00 a s the po rt ion of anti c ipate d 20 09 inc ome ta x attri buta ble to the Child Tax Credit. On Amended Sche dule C, the Debtors a dded an e x emption under Ohio Rev. Cod e § 232 9. 66 (A )( 9) (g ), in t he amou nt o f $ 4, 00 0 f

or the anti c ipate d in c ome ta x re fu nd a ttr ibuta ble to t he Chi ld T a x Cre dit

.
Debtors f iled joint fe dera l a

nd state income tax re turns for 2009. De btors’ fe dera l tax return lis ts t he fo llo wi ng fi g ur e s: Ad

jus te d g ro ss inc ome : $5 9, 40 2; Pay ro ll t a xes w ithhe ld f

ro m D e bto rs ’T hes e f i gu r es wer e pr ovi ded b y t he D ebt ors an d T r us t ee and a r e n ot i n di s put e. 1
4 wage s : $ 6 , 7 7 7 ; De b t o rs ’ t o t al t ax l i ab i l i ty : $ 2 , 9 3 4 ; No n -r ef un d ab l e C h i l d

T ax C re d it totaling $2,903; “Additional child tax credit” of $1,097; Tota l fede ral tax refund of $8,542. 1
On April 12, 2010, the Trustee filed a Motion for Turnover of the non-e x empt portion of the anticipated inc ome tax refunds. The D ebtors filed a response to Trustee’ s Motion for Turnover

. On April 16, 2010, the Trustee filed an obje ction to Debtors’ a mended c laim of exemptions under O hio Rev. Code § 2329.66(A)( 9)(g ), arg uing in part, that the C hild Tax Credit totaling $2,903 could not be exempted. Debtor s filed a Response to Trustee’ s Objection t o Am en d ed C l aim of Ex emptions. Trustee f

iled a re ply

to Debtors’ r esponse.

On July 7, 20 10 , purs ua

nt to the Sc he du lin g Or de r, the pa rt ie s su bmi tte d a sti pu latio n of

fa c ts and filed br iefs.

On J uly 21, 2010, the bankr

uptcy court issued a bench opinion a nd enter ed orde rs sustaining the Trustee ’s objection to Debtor ’s Claim of E x em ptions and g rantingthe Trustee ’s Motion for Turn ov e r o f n on -e xemp t f un ds

. On Aug u s t 4 , 2 0 1 0 , p ur s u an t t o 2 8 U

. S. C. § 1 5 8 ( a ) ( 1 ) an d F e d e r a l R

u le o f B an kr u p tc y Procedur e 8001(c ), the De btors filed a timely Notice of

App ea l fr o m t h e Or der sustainingthe Trustee ’s objection to exemptions.
On August 4, 2010, the Debtors filed a Motion to Stay Ex ecution of O rder

for Tur n Over and to Stay Distribution of F unds Pending A ppeal. The bankruptc y

court g rante d the Debtor s’ motion for stay and order ed that “any and all distribution of funds subject to said Order ” be sta y ed pending a dec ision by the S ix th Circuit Ba nkruptcy Appellate Pane l (Ba nkr. Ct. Docket #61, Or der G ranting Motion to S tay

Ex ecution of O rder s).11 U

. S. C. § 522( b) ( 3) ( A) pr ov i des t h at pr oper t y l i s t ed i s s u bj ec t t o 2
Stat e o r l o cal l aw t hat i s ap p l i cab l e o n t he d at e o f t he f i l i ng of t he pet i t i on at t he pl ace i n w hi ch t he debt or’ s dom i ci l e h as been l o cat ed f o r t he 7 3 0 da y s i m m ed i at el y prece d i ng t he d at e o f t he f i l i ng of t he pet i t i on or i f

t he debt or ‘ s dom i ci l e h as not been lo c a te d a t a sin g le S ta te fo r su c h 7 3 0 -d a y p e rio d , t h e p la c e in w h ic h the d e b to r’s d o m ic ile w a s lo c a te d fo r 1 8 0 d a ys im m e d ia te ly prec edi ng t he 73 0- day per i od or f or l onger port i on of

s uch 180

- day peri od t han i n a ny ot her pl ace ;

. . . . 5

DI SCU SSIO N Th e fi lin g of

a ba nk ru ptc y pe tit ion un de r C ha

pte r 7 of th e Bank ruptc y Cod e c re a te s a ba nk ru ptc y e state . U nd e r § 54 1 o f t he B ank ru ptc y Cod e “ pr op e rt

y of the e state ” c on sis ts o f “ a ll le g a l or e qu ita ble int e re sts of the de bto r in pr op e rt y a s of the c omm e nc e me nt o f t he c a se .” 11 U. S.C. § 541. Tax ref

unds attributed to income tax pay ments withheld from the ba nkruptcy petitioner prior to the bankruptc y

filing a nd based on pr e-pe tition earning s, are proper ty of the e state. See Kok

oszka

v . B e lfo rd , 417 U.S. 642, 647-48, 94 S. Ct. 2431, 2435 (1974); Ba ile yv . S uh ar ( In re Bailey ), 380 B.R. 486, 490 (B .A.P. 6th Ci r. 2008).

The B ankruptc y

Code al l o ws a de btor to claim ce rtain prope rty as exempt. See11 U. S.C. § 5 22 . U nd e r § 52 2( b) (2 ), a state is a uth or ize d to op t- out of

the fe de ra l e xemp tio ns pr ov ide d in § 522(d), ther eby

restric ting their

residents to the e x empt io n s c h e mec r eate d by

the state’s le g islature. Th e Oh io l e g isl a tur e ha s o pte d o ut o f t he fe de ra l e xemp tio ns . O hio Re v. Cod e § 2 32 9. 66 2. Thus , debtors domiciled in t he st ate of Ohio may only claim exemptions under rele vant Ohio statutes and under a pplicable non- bankruptc y fede ral law . 11 U.S.C. § 522(b)(3)( A). 2

I t is well-e stablished that exemptions are to be construe d liberally in favor of

the debtor. In re Schramm , 4 3 1 B. R

. at4 0 0 (c i t i n g Daugherty v . Cent. Trust Co

. of Ne. Ohio, N.A. , 504 N.E.2d 1100, 1104-05 (Ohio1986) ). Even a li bera l interpre tation of Ohio R ev. Code § 2329.66, howe ver, “d o es not give [t he cour

t] license to e nlarg e . . . or stra in its m eaning .” Id

. a t 1 1 0 5

. A s th e pa rt yT he A p p ell an t s d i d no t claim an E IC o n their i nc o m e tax re t urn s. 3

T he C T C , ad d ed b y t he T ax p aye r R eli ef A ct o f 1 9 9 7 , P ub .L. N o . 1 0 5

- 3 4 , 1 0 5 t h C o ng , 1 st 4 Se ss . , ap p roved A ugust 5, 19 9 7 , f i rs t be cam e avai l ab l e t o t axp ayer s i n 19 9 8

. Since t he enactment o f t he CT C, t h e mec h an i cs of t h e cr edi t h av e u n der g on e appr ec i abl e ch an g es . T h e f or mu l a f or c ompu t at i on of t he cred i t i s co m p l i cat ed

. Fo r purpo ses of t hi s o p i ni o n, t he P anel has si m p l i f i ed t he anal y si s o f

t he C T C a s a p p lied to the fac ts o f t h e insta n t ap p e a l. 6 objectingto the Debtors’ claim of e x emptions, the Trustee “ has the burden of provingthat the exemptions are not properly claimed.” Fe d. R. Bankr . P. 4003©.

In this appeal, the D ebtor s /A p p e lla nts (“Appe llants”) cla imed an exemption under Ohio Rev. Code § 2329.66(A) (9)( g ), for the non-re fundable po rt i o n o f the 2009 fe dera l income tax refund
a tt r ib u te d to th e Ch il d

T a x Cr e d it

in th e amo un t o f

$ 2 , 9 0 3

. 0 0

. Se c ti o n2 3 2 9

. 6 6 ( A ) ( 9 ) ( g ) allows debtors to exempt their i ntere sts in “[ p ] ay me nts under section 24 or 32 of the ‘ Interna l Revenue Code of 1986’.

. . .” (empha sis a dded). The Child Tax Cre dit ( “CTC”) is c odified under § 24 of t he Inte rn a l Re ve nu e Cod e (2 6 U .S. C. § 24 ). 26 U.S .C

. § 24 dis tin g uis he s b e tw e e n “ No nr e fu nd a ble Personal Credits” ( 26 U.S.C. § 24(a)) a nd the “Portion of cr edit ref undable” (2 6 U. S .C. § 24(d)). Th e Ea rn e d Inc ome Tax Cre dit (“EI C” ) i s c od if ie d und e r § 32 of

the Inte rn a l Re ve nu e Cod e , in Subpart C entitled “Refunda ble Credits.” 26 U.S.C. § 32.

3
The CTC allows taxpay ers with an a djusted g ross income below a cer tain threshold amount to claim a tax credit of $1,000 f or ea ch qualify

ing c hild. I f the taxpay ers have a tax liability , the nonref undable por

tion of the CTC is applied to satisfy the t ax liability

. The non-r efunda ble portion of the CTC is li mited to the amount of the taxpay ers’ tax l iability . 26 U.S.C. § 24(b)(3)( A).

Th e re fu nd a ble po rt ion of the CTC a llo ws fo r t he re fu nd of so me of the CTC un de r c e rt a in conditions. See 26 U.S.C. § 24(d)

. I f t he ta xpay e r q

ua lifi es, any

amou nt o f t he c re dit no t us e d to offse t tax liability

is sent to the tax pay er a s an income tax ref und. The re fundable po rt i o n , unlike th e n o n - r e f

un d a b l e p o rt i o no f

t h e C T C , i s tr e a t e d

a s an“ o v e r

p ay me nt” u n d er the tax code. Id . at § 24(d)( 1). 4A l t houg h a n u npubl i s hed opi ni on i s not bi ndi ng on t hi s P ane l , an un publ i s hed deci s i on may 5 b e c o n sid e re d p e rs u a siv e a u tho rity o n the q u e stio n b e fo re the P a n e l. See I n r e But t er m i l k Towne Cent er, LLC , N o s. 10

- 8 0 3 6 , 10

- 8 0 4 6 , 10

- 8 0 6 2 , - - - B

. R

. - - - , 20 1 0 W L 5 1 8 5 8 7 0 (B

. A

. P

. 6th C i r. D e c e m b e r 2 3 , 2 0 1 0 ) (“ [T ]h e P a n e l sho u ld no t d isre g a rd a S ixth C irc u it o p inio n m e re ly b e c a u se it is u n p u b lishe d .” ); G i bs on v. G i bs on ( I n r e G i bs on ) , 219 B

. R. 195, 201 n

. 2 ( B

. A. P. 6t h Ci r . 1998) (“ A l t ho ugh not b i nd i ng, unpub l i shed d eci si o ns o f t he Sixt h C i rcui t m ay b e ci t ed i f pe rs uasi ve and no pu bl i s h ed dec i s i on s w i l l s er v e as w el l

. ”)

. Al t h ou g h t h es e ca s es di s cu s s r el i an ce on u n r epor t ed S ix th C irc u itop i ni o ns, t he same reasoning may be ap p l i ed t o unrepo rt ed l o wer co urt de ci si o ns where t here a re no re p o rte d S ixth C irc u it o p inio n s. 7 Appellants ar g ue that the e ntire CTC ($4,000) should be considered a “pay ment” from the I .R.S. t o Appellants, re g ardle ss of whethe r the CTC is used to offse t their tax l iability or is returne d to Appellants in the form of a ref und. I f the e ntire CTC constitutes a “pay ment,” it may

be exempted under O hio Rev. Code § 2329.66(A)( 9)(g ).

The ba nkruptcy court, howe ver, he ld that the non-re fundable CTC “is not a pay ment from the I RS” and “simply

reduc ed the Debtor’ s tax l iability from $2,900 down to zero dollars.” (Doc ket #57, Tr. of O ral Ruling, p. 8, lines 16, 23- 24). Ther efor e, the c ourt held that the non-re fundable CTC is not ex empt under O hio Rev. Code § 2329.66(A)( 9)(g ).

There is no Six th Circ uit c ase law on the issue befor e this Pane l. However , u n p u b l i s hed decisions from the Norther n District of Ohio, direc tly on point, have consistently held that the non- 5

r e f un d a b l e c h i l d t a x c r e d i tm ay not

be exempted under

Ohio Rev. Code § 2 3 2 9

. 66(A)( 9)(g ). The bankruptc y

court primar ily

incorporated the ana ly sis of these dec isions. Se e In reCam pb e ll , No. 08- 43 45 2, 20 09 WL26 71 28 7 ( B ank r. N. D. Oh io Jun e 8, 20 09 ) ( J. Wood s) ; In re Joy ce , No. 08-43602, 20 09 WL26 71 49 4 ( B ank r. N. D. Oh io Ju ne 5, 20 09 ) ( J. Wood s) ; In re M olina , Nos. 09-30143 (Molina), 08-35543 ( Foos), 09- 30215 (Major) , 2009 WL1587292 (B ankr. N .D. Ohio May 29, 2009) (J. S peer); In re Klostermeie r , 0 8

- 3 6 7 0 0 , 2 0 0 9 W L1 6 1 7 0 9 0 ( B an kr . N

. D

. O h i o M ay 2 9 , 2 0 0 9 ) ( J. Whippl e); In re Ruhl , N o . 0 8

- 3 60 30 , 200 9 WL 1 6 1 7 4 7 0 ( B an kr . N

. D

. O h i o Ap r i l 2 7 , 2 0 0 9 ) ( J. Whip ple ); In re Luke , 08-35623, 2009 WL 1617468 (B ankr. N .D. Ohio April 27, 2009) ( J . Whippl e).

B an kr u p t c y c o urt s i n

o th e r s t a t e s h av e a l s o h e l d

th a t t h e n o n - r e f

un d a b l e C T C m ay not

be exempted under applicable state law. In rePa ris i , 2010 WL 1849386, *2 (B ankr. E.D .N.Y. May 6, 2010) (“ I f Cong ress intende d the child tax credit to be held in trust for the benef it of the child and8

exempt from the pare nt’s cre ditors, it could have ena cted ba nkruptcy leg islation to t his effe ct.”) ; In re Landgrebe, No. 08-26271, 2009 WL3253933, at *3 (B ankr. D . Co l o . S ep t

. 23, 2009) (The Colorado statute exempting “ ‘[t] he full amount of any fede ral or state income tax refund attributed to
. . . a c hil

d ta xc re dit ’ . . . does not specif y what ty pe of ‘ child tax cr ed i t ’ i t re fe rs to . . . . Neve rtheless, the Court concludes that the statute exempts only the re fun da blechild tax credit and not the non-re fundable cre dit.”); In re Koch , 2 99 B .R. 52 3, 52 7 ( B ank r. C.D . I ll. 20 03 ) ( “ I f a

c re dit is not refunda

ble, furthe r inquiry

need not be made. The g ener al child tax cr edit, which only reduc es
a debtor’s tax l iability , cannot be claimed a s exempt.”); In reBe ltz , 263 B.R. 525, 531 (B ankr. W.D. Ky . 2001) (The CTC “is not publi c assistanc e within the meaning of K.R.S. 205.010(3) , and De btors
are no t e nti tle d to e xemp t the c re dit ” un de r the a pp lic a ble Ke ntu c ky

statut e .) ; In re Deve r , 2 50 B .R. 701, 706 (B ankr. D . I daho 2000) (The court concluded that the de btors wer e not entitled to exempt the nonre fundable child tax credit beca use the cre dits “are not themselves re cover able a s a re fund by taxp ay e r s . D e b to r s h av e n o c la im to th e amo un t o f th e c r e d it o th e r th an u s in g it to r educe tax liability .”).

The fa cts of the instant appe al ar e similar to the fa cts of In re Luke , 2 0 0 9 W L 1 6 1 7 4 6 8

. In Luke , the debtors c laimed five minor ch ildren as de pendents on their 2008 f eder al tax return. Debtors we re e ntitled to a total CTC of $5,000. The de btors’ tax return stated that the de btors had paid $4,196 in taxes withheld from wag es, and that their total tax liability was $3,821. Of the $5,000 available CTC, $3,821 was applied pursua nt to 26 U.S

. C. § 24(a) to satisfy the outstanding tax liability

. The balanc e of the CTC in the amount of $1,179, re fer red to unde r 26 U.S.C. § 24(d) as the “por tion of [child tax] cre dit r efunda ble,” wa s ref

unded to the debtor s, toge ther with the amount of the taxes withheld from their w ag es, for a total re fund of $4,196.

T h e d eb t o rs i n Luke ar g u e d th a tth e y s h o u l d b e a b l e t o e xe mp tth e e n t i r e am o un to f t h e ir CTC , n otw ith sta

nd ingthe fa c t th a t a

ma jor ity of the CTC ha d be e n us e d to satis fy the ir ta x lia bil ity and wa s not refunde d to the debtors. The court re j ec t ed the debtors’ argument. The c ourt distinguished betwe en the non- ref undable a nd ref undable por

tions of the CTC, holdi ng that the non-9

ref undable por

tion of the CTC is not pr operty of the estate, a nd there fore cannot be exempted. The court stated:

Th e c ourt is pe rs ua de d by the dis tin c tio ns ma de in . . . c a se s [be tw e e n th e re fu nd a ble and non-r efunda

ble portions of the CTC] and finds dispositi ve of the i ssue pre sented in this case the de termination as to wh et h er the tax credit at issue is proper ty of Deb to rs ' ba

nk ru ptc y e state . A s a

g e ne ra l pr op os iti on , e xemp tio ns are de sig ne d to permit debtors to re tain proper ties that are deeme d nece ssary for their support and the support of their de pendents. I n r e S te v e n s on , 3 7 4 B. R. 891, 894 (Ba nkr. M.D. F la. 2007). Absent a

n available exemption claimed by a debtor in a C hapter 7 case , all of the debtor' s leg al or e quitable intere sts in pr o p erty as of the c ommenceme nt of the bankruptc y case become proper ty of the estate that is subjec t to coll ec t i o n and liq uid a tio n b y

the tr us te e and to d ist

ri butio n in

pa y me nt o f c la ims in a c c or da nc e wi th the B ankruptc y

Code. 11 U.S.C. §§ 541, 7 0 4 , 726. To the extent that the nonref undable c hild tax cre dit is not proper ty of the estate and is, the ref ore, not subjec t to collection and liquidation by the Trustee , Debtors c annot claim it as an e x emption from prope rty

of the e state. See11 U.S.C. 522(b)(1) (providing that a “ debtor may e xemp t fro m p ro

pe rty of t heesta te ” pr op e rt

y a s se t f or th i n th a t st a tut e ); In reLaw, 336 B.R. at 146 ( stating that the issue of wh ether a debtor can c laim an exemption in the child tax cr ed i t i s m o o t unless the cr edit is first considere d proper ty of the bankruptc y

estate)

. Luke , 2009 WL1617468, at * 3. The court conc luded that bec ause the non-re fundable portion of the CTC was not proper

ty of the e state, it could not be exempted as a “pa y ment” under

Ohio law. The c ourt order ed the debtors to tur nover to the truste e the amount of the ref und the debtors soug ht to e xemp t.

Consist ent with the bankr uptcy court’s opinion in Luke , other c ourts have f ocused on “re fundability ” as a

key fac tor in determiningwhether a d eb t o r m ay ex empt the CTC. Se e In re Koch , 2 99 B .R. 52 3, 52 7 ( B ank r. C.D . I ll. 20 03 ) ( “ [T]he ke y fa c tor is the re fu

nd a bil ity of the c re dit

. I f a cre dit is n ot r e fu

nd a ble , f ur the r i nq uir y ne e d n ot b e ma de .” ); In re De ver , 2 5 0 B

. R. 7 0 1 , 706 (B ank r. D. I da ho 20 00 ) ( Th e no nr e fu

nd a ble c hil d tax cr e di t “are not th e mse lve s r e c ov e ra ble a s a ref und by taxpay ers. De btors have no claim to the amount of the cre dit other than using it to reduce tax l iability .”).10

Courts have a lso consistently held that the non-r efunda ble cre dit is only

available to offset tax l iability . The ba

nkruptcy court in In re Landgrebee xpla ine d th a t

T h e n o n -r ef

un d ab l e p o rt i o ni s cr ed i t edaga i n s tth e a m o un to f t ax o we d , p ro v i d i n g a ta xpay e r a

do lla r- fo r- do lla

r d e c re a se in his ta x bil l .

. . . Sinc e the [ch ild ] ta x cr e dit is o nly a c re dit a g a ins t tax lia

bil ity , a ta xpay e r m

us t ha ve a ta x lia bil ity in o rd e r to u se the non-re fundable cre dit. The amount of t he non-r efunda ble cr edit cannot e x cee d the amount of tax owed by the taxpay er, and there fore cannot result in a ref und to a taxpay er. In other wor ds, it can only reduc e income tax liability to zero. In re Landgrebe , 2009 WL 3253933, at *1 (footnotes omitted).

On the other

hand, cour

ts ha ve held that the ref

undable or “a dditional child tax cre dit,” unlike the no n- re fu

nd a ble po rt ion of the CTC , is tre a te d a s an “ ov e rp ay me nt” under the I nterna l Revenue Code. Id . at § 2 4( d) (1 ); Se e als o In re Krahn , No. 08-41285, 2009 WL 4907034, at *5 (Bankr . D. Kan. De c. 11, 2009) ( “The I RS . . . t reats the additional child tax credit (the re fundable portion of the ta x cr e dit ) a s an o ve rp ay me nt o f t he e nti re . . . tax y e ar. ” ); In re Landgrebe , 2009 WL3253933, at *2 (“ The re fundable [child] tax cre dit, unlike the non-refunda ble [ child tax] cre dit, is t reated as an ‘ove rpay

ment.’”)

. Appellants do not distinguish betwe en the non -r efunda ble and r efunda

ble portions of the CTC. Rather, Appellants ar g ue that the e ntire CTC is property of t he estate, and a s proper ty of the estate, A ppellants have a rig ht to ex empt the entire CTC as a “pa y ment” under

Ohio Rev. Code § 2329.66(A)( 9)(g ). Appe llants do not articulate how a cre dit, which is n ev er p ai d back to the taxpay er, could become a “pay ment” to the t axpay er. Appellants sidestep this problem by arguing that beca use the CTC is used to offset a tax liability , the CTC has value. Appe llants then argue that because th e e n ti r e CT C h a s v a lu e to th e D e b to r , th e e n ti r e CT C b e c o me s p r o p e rty o f th e e s ta te. Ap p e ll an ts c o n c lu d e th a t s in c e th e e n ti r e CT C is p r o p e rty o f th e e s tate , th e e n tire CTC may be
e xemp te d, and

the va lue of

the CTC us e d to of

fs e t th e ir ta x lia bil ity sh ou ld b e de e me d a

“ pa y me nt” authorized by

26 U.S.C. § 24, and exempted under Ohio Rev. Code § 2329.66( A)(9) (g ).11

In s up po rt

of the ir argume nt, Ap pe lla

nts re ly on tw o ca se s that hold that a CTC r e fu nd e d to the debtor is pr operty of the estate. In reBe ltz , 263 B.R. 525 (B ankr. W.D. Ky . 2001); In re Koch , 2 9 9 B. R

. 523 (B ankr. C.D. I ll. 2003). A ca ref ul rea ding of

these c ases shows, howe ver, that they support the pos ition of t he Trustee rather than that of Appellants. In Be ltz , chapte r 13 debtors f iled a motion to retain the CTC that the debtors rec eived as part of their income tax refund. The debtors soug ht to ex empt the porti on of their r efund attributable to the CTC under the Ke ntucky exemption statute, which a llows a debtor to exempt a public assistance benef it. The court f

irst held that tax ref unds are proper

ty of the e state, which must be turned over to the trustee unless exempted under the state e xemp tio n s tatut e . T he c ourt we nt o nto e xpla in t

he me c ha nic s o f t he CTC

.
Th e F CTC is c od if

ie d und e r S ub pa

rt A (No nr e fu

nd a ble Pe rs on a l Cr e dit s) of

Sub tit le A (Income Tax es) of t h e I n terna l Revenue Code. G ener ally , this means that the FCTC is only

available to reduc e tax liabili ty and is non-re fundable if n o taxes are ow e d. Sub se c tio n § 24 (d ), ho we ve r, a llo ws a fa mil y wi th t hr e e or mor e c hil dr e n to re c e ive a re fu

nd a ble F CTC in so me c ir c ums tanc e s, e ve n if no ta xes a

re ow e d. Th is additional cre dit is the l esser of (1) the unus ed portion of the child tax cre dit allowed un d er 2 6 U. S

. C

. § 2 4 (a ) or (2 ) ap p ro x i m at el y th e di ff er en ce b et we en th e t ax p ay er 's po rt ion of pa y ro ll t a xes a

nd the a llo we d E I TC.

Be ltz , 263 B.R. at 528 ( footnote omitted).

The Be ltz court thus disting uished betwee n the non-re fundable portion of the CTC codified
a t 26 U. S.C. § 2 4( a ), and

the re fu nd a ble po rt ion of the CTC c od if ie d at 26 U. S.C. § 2 4( d) . T he fa c ts of the c a se make c le ar that deb tor s we re e lig ibl e un de r 26 U. S.C. § 2 4( d) fo r a re fu nd of the ir c hil d tax credit. Th e co u rt co n cluded that be cause debtors we re r ece iving a ref und, the re fund wa s p r o p e rty o f th e e s tate

. T he Bel tz

c ourt the n r ule d th a t de bto rs c ou ld n ot e xemp t th e re fu nd a ble po rt ion of the ir CTC c re dit , b e c a

us e the CTC did

no t c on sti tut e a

pu bli c a ssi sta

nc e be ne fi t.

InKoch , debtors ar g ued that their e ntire CTC should be exempted under a state statute which allowed de btors to exempt publ i c as s i s t ance bene fits. The cour t car efully

analy zed the CTC and conclude d that the non-re fund ab l e p ortion of the CTC was not intended by Congr ess to provide12

a ssi sta nc e to l owinc ome fa

mil ie s and

the re fo re c ou ld n ot b e e xemp te d under th e re le va nt s tate statut e . T he c ourt

he ld t hat th e re fu

nd a ble po rt ion

of the CTC wa s inte nd e d b y Con g re ss t o b e ne fi t poor families and therefor e could be ex empted as “public assist ance .” I t might be argued that, by
even con s i d ering whe ther the non- ref undable por

tion of the CTC could be exempted, the cour t imp lic itl y he ld t hat th e e nti re CTC is p ro pe rt y of the e state

-- an a sse t ne e d on ly be e xemp te d if it i s proper ty of the estate. On the other hand, the court in Koch might simply have f ocused f irst on the leg islative purpose be hind the CTC, and, having conclu d ed t hat the non-r efunda ble portion is not “public assistanc e,” de emed it unn e c e s s a r y to a ddress the br oader

question of whethe r the e ntire CTC
wa s “prope rty

of the e state.” Thus, Koch b y it s e lf d o e s n o t p r o v id e c o mp e ll in g a u th o r it y f or the argument that the non-re fundable portion of the CTC is property of the e state.

In addition to arguing that the entire CTC i s proper ty of the e state which ma

y be exempted
as a “ p ay me n t, ” Ap p e ll an ts ar g u e th a t t h e c o urt s h o u ld

d is r e g ar d

th e In te r n a l R e v e nu e Co de
r e qu i r e m e n tt h a tt a x p aye r s ’ av a i l a b l e C T C mu s t b e a

p p l i e d t o s a t i s f y th e i r o u t s t an d i n g t a x l i a

b i l i ty. Ap pe lla nts argue that th e mann e r i n w hic h th e ir ta x li a bil ity is satis fi e d is arb itr ary ; sin c e Ap pe lla nts ’ withholding fr om wag es ($6,777) was signific antly highe r than their tax liability ($2,934), the tax liabil i ty c o u l d h av e b e e n

s a t i s f i e d w i tht h e am o un tw i th h e l d f r o mAp p e l l an t s ’ w a g e s . Ap p e l l an ts argue that if their l iability had been s atisfied from the amount withheld from wag es, t he entire CTC ($4,000), plus any

additional tax cre dits and the balanc e of their withholding tax es, would have been ref unded to them.
Appellants’ a

rgument ignor es both the clea r languag e of 26 U.S.C. § 24(a) and (d) , and the substantial body

of ca se law which holds that the non-refunda ble porti on of t he CTC may only be
us e d to e xtinguis h e xistin g ta x lia bil ity and is n e ve r r e tur

ne d to the de bto rs a s a

pa rt of a ta xpay e rs ’ ref und. I f a taxp ay e r

d o e s h av e a

tax li a b il it y an d h a s e n o u g hCT C a

n d o th e r c r e d it s to s a ti s f

y the taxpay er’ s liabilit y

in full, all of the pa

y roll tax es withheld fr om a taxpay er’ s ear nings a re r efunde d to the t axpay er toge ther with the unus ed portion of t he C TC. As discussed su pra , e v e ry

case that has addre ssed whethe r the non-r efunda ble portion of the CTC is a component of debtor’s tax ref

und has
c on c lud e d th a t th e no n- re fu nd a ble po rt ion may on ly be us e d to sat isf y the ta xpay e r’ s li a

bil ity and isA t ax pay er ma y on l y r ec ei v e t h e en t i r e av ai l abl e CT C as a r ef u n d if t he t axpay er ha s no t ax 6 liab ili ty and the a m o u n t o f t h e a v a ilab le tax c re d it is les s tha n the tax p a ye r’s p a yro ll ta x e s w ithh e ld fro m w a g e s c o m b ine d w ith ta x p a ye r’s E a rn e d In c o m e T a x C re d it. S e e In re B e ltz , 26 3 B

. R

. 52 5

. I n mo s t ca s es , debt ors wi t h n o t ax l i abi l i t y wi l l not r ecove r an y CT C becau s e t hei r wi t hh ol di ng comb i ned w i t h t h e i r Ea r n e d I n c om e T a x Cr e di t w i l l e x c e e d t h e v a l u e of t h e a v a i l a bl e CT C. 13 not a re fund to the taxpay er. See In r e K lostermeier , 2009 WL1617090; In re Ruhl , 2 0 0 9 WL 16 17 47 0; In re Luke , 2009 WL1617468; In re Koch , 2 99 B .R. 52 3; In reBe ltz , 263 B.R. 525; and In re De ver , 2 50 B .R. 70 1. I mpl ic itl y or e xplic itl y , th e se c a se s a ll c on c lud e tha t on ly the re fu nd a ble 6 portion of the CTC is property of the estate. The only

disag ree ment amongthe ca ses is over whe ther the re fundable portion of the CTC may be exempted under

a par ticular state statute. Se e In reBe ltz , 26 3 B .R. 52 5 ( re fu

nd a ble po rt io n of CT C ma

y no t be e xemp te d) ; In re Koch , 299 B.R. 523 (re fundable portion may

be exempted).

In th is a pp e a l, Ap pe lla

nts state that the y

ha d a tot a l tax lia

bil ity of $2 ,9 34 . B arb ara

Z ing a le had pay roll tax es withheld fr om her wa g es in the amount of $6,777. B eca use Appe llants have four
c hil dr e n a nd the ir inc ome qu a lif

ie s, Ap pe lla

nts we re e nti tle d to a

tot a l CT C of

$4 ,0 00 . App e lla

nts state that th e y

we re e nti tle d to a dd iti on a l c re dit s o f $ 81 3. Pur su ant to 26 U. S.C. § 2 4( a ), De bto rs ’ tax l iability

was satisfied w ith $2,903 of the ava ilable CTC and other available c redits. Debtors
re fu nd of $8 ,5 42 re su lte d fr om $6, 77 7 in pay ro ll taxe s withhe ld fr om wa g e s, the a dd iti on a l ava ila ble CTC of $1,097, and additional cr edits not used to satisfy the tax li ability

($668).

The ba nkruptcy court c orre ctly

ruled with reg ard to A

ppellants’ attempt to e x empt the entire CTC that only

the portion of t h e C T C t h at was a ctually ref unded to Appellants ($1,097) could be exempted under Ohio’s e x emption statute as a “ pay ment”under

26 U.S.C. § 24. The balanc e of the CTC wa s n o t refunde d to Appellants and wa s, theref ore, not prope rty

of the e state that could be
e xemp te d. Ap pe lla

nts ’ a tte mpt to s hie ld a po rt ion of

the ir re fu nd by c la imi ngan e xemp tio n in proper ty that was ne ver pa

rt of the ba

nkruptcy estate, is not s u p p orted by the ca se law. The court noted in In re Luke :

De bto rs havin g no int e re st i n a “ pa y me nt” wi th r e sp e c t to the no n- re fu nd a ble c hil d tax credit and no cla im with respect to the c redit other than in using it to reduce tax14

liability , the cour t co n cl u d es that the non-r efunda ble portion of the c redit is not proper ty of De btors' ban kruptcy estate that they

may exempt under § 2329.66(A)( 9)(g ).
Luke , 2009 WL 1617468, at *4.

Ba sed on 26 U.S.C. § 24(a) a nd (d), the bankruptcy

court c orre ctly

ruled that the nonref undable por

tion of the CTC cannot be e x empted as a pay ment under O hio Rev. Code § 2 32 9. 66 (A )( 9) (g ). B e c a us e the no n- re fu

nd a ble po rt ion

of the CT C is not

a pa rt of Ap pe lla nts ’
re fu nd and is not proper ty of the estate, A

ppellants ca

nnot claim an exemption in an amount equal to the non-re fundable portion of t he C TC. Appellants entire tax ref und of $8,542 is property

of the estate f rom which the D ebtor may exempt $1,097 as the ref undable por

tion of the CTC.

CO NC LU SION F or the re a so ns state d, the Pane l a ff ir ms the or de r o f t

he ba nk ru ptc y c ourt

.