UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In re: JAMES A. MOSER, d/b/a 

Gateway Properties; In Re:

ELIZABETH W. MOSER, d/b/a

Gateway Properties,

Debtors.

JAMES A. MOSER, d/b/a Gateway

Properties; ELIZABETH W. MOSER,  No. 01-1075

d/b/a Gateway Properties,

Plaintiffs-Appellants,

v.

UNITED STATES OF AMERICA, on

behalf of the Internal Revenue

Service,

Defendant-Appellee. 

Appeal from the United States District Court

for the Middle District of North Carolina, at Durham.

N. Carlton Tilley, Jr., Chief District Judge.

(CA-00-697-1, BK-98-11766-C-11G)

Argued: September 26, 2001

Decided: January 9, 2002

Before LUTTIG, WILLIAMS, and MICHAEL, Circuit Judges.

Affirmed by unpublished per curiam opinion. 
COUNSEL

ARGUED: Mathew E. Bates, MATHEW E. BATES, P.A., Greensboro, North Carolina, for Appellants. Tamara Wenda Ashford, Tax

Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Claire Fallon, Acting Assistant Attorney General, Thomas J. Clark, Benjamin H. White, Jr.,

United States Attorney, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. 

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c). 

OPINION

PER CURIAM: 

This case concerns a dispute between James A. and Elizabeth W.

Moser, two Chapter 11 debtors, and the Internal Revenue Service

(IRS) over the amount of interest and penalties owed by the Mosers

on unpaid taxes for the 1984 tax year. During the Mosers’ bankruptcy

proceeding, they objected to a proof of claim filed by the IRS as arbitrary and excessive. The bankruptcy court denied the objection and

allowed the IRS’s claim. The district court affirmed the bankruptcy

court’s order, and the Mosers now appeal to this court. Finding no

error, we affirm. 

I.

James A. and Elizabeth W. Moser, d/b/a Gateway Properties, filed

for Chapter 11 bankruptcy in the Bankruptcy Court for the Middle

District of North Carolina on July 16, 1998. On October 13, 1998, the

IRS filed a proof of claim against the Mosers in the amount of

$652,902.16 for unpaid taxes, penalties, and interest for the 1984 and

1988 tax years. The IRS amended its proof of claim three times. The

first amended proof of claim asserted a claim against the Mosers for

2 IN RE: MOSER
$566,608.59, and the second was for $541,249.71. On January 11,

1999, the IRS filed its third and final amended proof of claim, asserting that the Mosers’ debt to the agency totaled $638,238.08. The variance in numbers among the several proofs of claim is due solely to

differences in the IRS’s calculations of the penalties and interest owed

for the 1984 tax year.1

The Mosers objected to the IRS’s third amended proof of claim,

and the bankruptcy court held a hearing on their objection on December 2, 1999. At this hearing the IRS offered testimony and exhibits

explaining how it had arrived at the figures in its third amended proof

of claim. The bankruptcy court denied the Mosers’ objection and

allowed the IRS’s claim as filed in an order dated March 27, 2000.

The court ruled that the Mosers had failed to produce sufficient evidence to rebut the presumption of correctness that attached to the

IRS’s proof of claim. The Mosers then appealed to the United States

District Court for the Middle District of North Carolina pursuant to

28 U.S.C. § 158(a). The district court affirmed the bankruptcy court

in an order dated December 6, 2000. The Mosers filed a timely notice

of appeal to this court. We have jurisdiction over the appeal under 28

U.S.C. §§ 158(d) and 1291. The Mosers’ appeal qualifies as a final

order under § 1291 because of the "more relaxed standard of finality

. . . traditionally assigned bankruptcy appeals." A.H. Robins Co. v.

Piccinin, 788 F.2d 994, 1009 (4th Cir. 1986).

II.

Our review of the district court’s order is de novo. In re Tudor

Associates, Ltd., II, 20 F.3d 115, 119 (4th Cir. 1994). As a "second

court of review" of the bankruptcy court’s order, we conduct an independent review of that order, employing the same standards used by

the district court. In re Club Associates, 951 F.2d 1223, 1228 (11th

1The IRS originally claimed penalties for the 1984 tax year in the

amount of $257,724.42 and interest in the amount of $282,813.07. The

second (and lowest) amended proof of claim used the same figure for

penalties but claimed that the Mosers owed only $171,160.58 in interest

for the 1984 tax year. The third and final amended proof of claim asserts

that the Mosers owe $313,860.64 in penalties and $212,012.77 in interest. 

IN RE: MOSER 3
Cir. 1992). We review the bankruptcy court’s factual findings for

clear error and its conclusions of law de novo. Tudor, 20 F.3d at 119.

Bankruptcy Rule 3001(f) states that "[a] proof of claim executed

and filed in accordance with these rules shall constitute prima facie

evidence of the validity and amount of the claim." When a claim is

undisputed, this rule allows for efficient resolution by the bankruptcy

court "without the formalities of a complaint, answer, affidavits, and

summary judgment, which might arise in the context of a federal civil

proceeding." In re Landbank Equity Corp., 973 F.2d 265, 269 (4th

Cir. 1992). However, when a tax claim is disputed in the context of

a bankruptcy proceeding, the Bankruptcy Code is not interpreted to

alter the traditional allocation of the burden of proof. See Raleigh v.

Ill. Dep’t of Revenue, 530 U.S. 15, 22 n.2 (2000); see also Landbank,

973 F.2d at 269-70 ("[W]e find nothing in the plain language of the

Bankruptcy Code that expresses an intent to alter the burdens of proof

or persuasion in the context of a disputed claim against the bankruptcy estate."). As a result, "the burden of proof on a tax claim in

bankruptcy remains where the substantive tax law puts it." Raleigh,

530 U.S. at 26. In this case the IRS’s task in proving its claim is akin

to what it would be in a tax deficiency proceeding, and Raleigh

directs us to apply the general burden allocation scheme followed in

such a proceeding. We explained that scheme in Cebollero v. Commissioner, 967 F.2d 986, 991 (4th Cir. 1992):

In this Circuit, the Commissioner always has the burden of

persuasion as to the amount and existence of any deficiency.

Before the Commissioner is required to carry that burden,

however, the taxpayer first must dispense with the so-called

presumption of correctness by carrying his own burden and

persuading the court by a preponderance of the evidence

that the assessment is arbitrary and excessive.2

2We explained in Cebollero that the use of the phrase "presumption of

correctness" in this context is potentially confusing. Whereas a presumption ordinarily affects only a party’s burden of production, here the presumption of correctness "is simply another way of saying that the

taxpayer bears the burden of persuasion on the issue of arbitrariness."

Cebollero, 967 F.2d at 991 n.5. 

4 IN RE: MOSER
We agree with the district court and the bankruptcy court that Cebollero determines the allocation of the burden of proof in this case.

Thus, the Mosers bore the burden in the bankruptcy court of proving

by a preponderance of the evidence that the IRS’s third amended

proof of claim is arbitrary and excessive. On appeal the Mosers offer

four reasons why the bankruptcy court erred by ruling that they failed

to carry their burden of proof. 

The Mosers first argue that the IRS should not benefit from the presumption of correctness because a proof of claim that has been

amended three times is more likely than not to be incorrect. (Indeed,

the IRS admits that even its third amended proof of claim contains

mistakes, albeit mistakes favorable to the debtors.) While we are not

pleased with the IRS’s apparent inability to calculate properly the

penalties and interest on the Mosers’ 1984 tax deficiency, the IRS’s

previous failures cannot be sufficient by themselves to prove that its

final, third amended proof of claim is arbitrary and excessive. Cf. In

re Bates, 81 B.R. 63, 63 (Bankr. D. Or. 1987) (holding that an

amended proof of claim was prima facie valid under Bankruptcy Rule

3001(f)). We therefore reject the Mosers’ first argument. 

The Mosers’ second argument challenges the IRS’s calculation of

interest on their unpaid taxes from 1984 by relying on a 1996 order

of dismissal and decision entered against them by the United States

Tax Court. The Tax Court order established their tax deficiency for

1984 as $118,605. According to the Mosers, the IRS’s proof of claim

must be arbitrary and excessive because the IRS improperly based

some of its interest calculations for the 1984 tax year on a tax deficiency of $195,533. The Mosers claim that the IRS is bound by the

Tax Court’s decision and cannot calculate interest based on any deficiency greater than that found by the Tax Court. This argument rests

on a misunderstanding of the relevant law. The method for calculating

the interest on unpaid taxes is explained in I.R.C. § 6601(d)(1), which

provides:

(1) Net Operating Loss or Capital Loss Carryback — If the

amount of any tax imposed by subtitle A is reduced by reason of a carryback of a net operating loss or net capital loss,

such reduction in tax shall not affect the computation of

interest under this section for the period ending with the filIN RE: MOSER 5
ing date for the taxable year in which the net operating loss

or net capital loss arises.3

Here, the Mosers had a tax liability of $195,533 at the time their 1984

tax return was due to be filed, but that liability was subsequently

reduced to $118,605 by net operating losses in 1985, 1986, and 1987

that were carried back to 1984. Under § 6601(d)(1), the Mosers owed

interest on the full $195,533 until the date when their 1985 return was

filed and the 1985 net operating losses were carried back to reduce

the 1984 tax liability to $151,871. Similarly, the Mosers owed interest

on the $151,871 deficiency for the 1984 tax year until the date when

their 1986 return was filed and the 1986 net operating losses were carried back to further reduce their 1984 tax liability. The Mosers’ 1984

tax liability was reduced to the $118,605 figure found by the Tax

Court only when the Mosers filed their 1987 tax return, and it is only

at that point that this figure became the proper basis for the IRS’s

interest calculations. Accordingly, we hold that the IRS properly

based some of its interest calculations on figures that were larger than

the final 1984 tax liability of $118,605 established by the Tax Court’s

order. The Mosers’ second argument therefore fails. 

The Mosers’ third argument turns on the IRS’s failure to call Brian

Jobe, an IRS employee, as a witness at the bankruptcy court hearing.

The Mosers claim that Jobe prepared the various proofs of claim and

performed the underlying calculations.4 They contend that because the

IRS called other agency employees, and not Jobe, to explain the calculations, the bankruptcy court should have presumed that Jobe’s testimony would have been unfavorable and then should have used that

presumption to conclude that the IRS’s proof of claim was arbitrary

and excessive. This argument also fails to persuade us. The calcula3Unless otherwise noted, all of our citations to the Internal Revenue

Code (Title 26 of the U.S. Code) are to the provisions in effect for the

1984 tax year. Because Congress frequently amends the tax code, most

of the provisions we cite have either been amended or repealed since that

time. 

4The IRS claims in its brief that although Jobe signed the proofs of

claim, he did not actually perform the calculations reflected in those

claims. However, for purposes of this appeal we will assume that Jobe

actually performed the calculations. 

6 IN RE: MOSER
tion of interest and penalties on unpaid taxes does not involve subjective judgments. It does not matter who performs the calculations. All

that matters is whether or not they are performed correctly. As a

result, the IRS was free to call any employee who could explain why

the figures in the third amended proof of claim are correct. The IRS

chose to call Ronnie Branen and Michael Knot rather than Jobe, and

the bankruptcy court correctly refused to draw any adverse inferences

from that decision. 

Finally, the Mosers argue that the penalties calculated by the IRS

for the 1984 tax year are arbitrary and excessive because they exceed

the legal limits prescribed in the Internal Revenue Code. It is not clear

from the record before us whether the Mosers actually made this

argument to the bankruptcy court. Even so, we address the argument

out of an abundance of caution. As explained in the 1996 order of the

Tax Court, the Mosers incurred various penalties (known as "additions to tax") arising from their 1984 tax deficiency of $118,605,

including penalties under I.R.C. § 6651(a)(1) (failure to file tax

return), I.R.C. § 6653(a)(1)-(a)(2) (underpayment of taxes caused by

taxpayers’ negligence), and I.R.C. § 6661 (substantial understatement

of tax). The Mosers correctly point out that the statutes imposing

these penalties had ceilings dictating that the total penalty could not

exceed a certain percentage of the tax deficiency. For example, the

maximum penalty for failing to file a tax return was limited to 25 percent of the tax deficiency. See I.R.C. § 6651(a)(1). The Mosers then

argue that the IRS’s proof of claim must be wrong because the

$313,860.64 in penalties claimed by the IRS greatly exceeds these

statutory ceilings. Unfortunately for the Mosers, Knot’s testimony

during the bankruptcy court hearing plausibly explained that the penalties figure for 1984 is so high because it includes the interest

assessed on those penalties pursuant to § 6601(e)(2). As the bankruptcy court observed, the Mosers "neither refuted the government’s

proof nor [showed] the assessment to be erroneous." In fact, the

Mosers raised no serious challenge to Knot’s explanation of the IRS’s

calculations. Consequently, we also reject the Mosers’ fourth argument. 

III.

Because we are unpersuaded by the Mosers’ arguments that the

IRS’s claims of penalties and interest for the 1984 tax year are arbiIN RE: MOSER 7
trary and excessive, we agree with the bankruptcy court and the district court that the Mosers failed to rebut the presumption of

correctness enjoyed by the IRS’s third amended proof of claim.

Accordingly, the orders of the district court and the bankruptcy court

are 

AFFIRMED.

8 IN RE: MOSER