Source: http://kirschenbaumesq.com/article/in-re-christine-c-parisi-debtor-chapter-7-case-no-10-70021-478-memorandum-decision-and-order
Timestamp: 2019-08-20 04:59:19
Document Index: 464364139

Matched Legal Cases: ['§ 1334', '§ 541', '§ 283', '§ 541', '§ 24', '§ 24', '§ 1334', '§ 541', '§ 283', '§ 541', '§ 24', '§ 24']

In re Christine C. Parisi, Debtor, Chapter 7, Case no. 10-70021-478, Memorandum, Decision and Order
2010 Bankr. LEXIS 1530
May 6, 2010, Decided
COUNSEL: For Debtor: Richard E. Borda, Esq., Borda, Kennedy, Alsen & Gold, LLP,
Bayshore, New York.
For Chapter 7 Trustee: Kenneth Kirschenbaum, Esq., Stacy Spector, Esq.,
Kirschenbaum & Kirschenbaum, P.C., Garden City, New York.
JUDGES: Honorable Dorothy T. Eisenberg, United States Bankruptcy Judge.
OPINION BY: Dorothy T. Eisenberg
The issue before the Court is whether $ 1,000 of the Debtor's tax refund
which the Debtor argues represents her entitlement to the federal child tax
credit is property of the bankruptcy estate and needs to be turned over to the
Chapter 7 Trustee. This Court has jurisdiction over this core proceeding under
28 U.S.C. Â§Â§ 1334(b) and 157(b)(2)(A), (B), (E) and (O) and 11 U.S.C. Â§Â§ 541 and
542. The following constitutes the Court's finding of fact and conclusions of
law pursuant to Fed. R. Bankr. P. 7052.
Debtor is a single mother with one child who is six years of age. The Debtor
filed for Chapter 7 bankruptcy relief on January 4, 2010 (the "Petition Date").
Kenneth Kirschenbaum, Esq. was appointed the Chapter 7 Trustee in this case. A
Stipulation and Order was entered by the Court on February 24, 2010 whereby the
Debtor agreed to file her 2009 federal and state income tax returns and turn
over to the Trustee the non-exempt portion in any 2009 tax refund that she
receives immediately upon receipt.
The Debtor had $ 15,587 of gross income for the 2009 tax year. The Debtor
received her federal tax refund in the sum of $ 5,134 on February 12, 2010 and
her state tax refund in the sum of $ 1,397 on March 2, 2010 for a total of $
6,531. On March 3, 2010, the Trustee filed a motion seeking the turnover of the
non-exempt portion of the tax refunds. On March 15, 2010, the Debtor filed an
amended Schedule B reflecting the tax refunds as an asset and an amended
Schedule C claiming a $ 2,500 cash exemption in the tax refunds under New York
Debtor and Creditor Law Â§ 283(2). The Debtor subsequently turned over $ 3,000 to
the Trustee after subtracting the Debtor's $ 2,500 cash exemption and $ 1,000
for the federal child tax credit.
The Debtor argues that the child tax credit is not property of the bankruptcy
estate and therefore, she is entitled to retain the funds. Debtor asserts that
the child tax credit is not a refund of taxes but rather a trust fund or a grant
for the families with dependent children in which she, the taxpayer, is a
conduit for the funds. The Debtor states that while the funds are payable to her
and she may control the funds, it does not mean that the funds are dedicated to
her and she never owned the money. Rather, the funds are analogous to a stipend
for a specific purpose by Congress which has as its ultimate goal the best
interest of the child. Debtor asserts the child tax credit is a bailout for
parents in order to improve the economic environment of families below the
poverty line and Congress could not have intended the credit to be a bailout for
creditors at the expense of children.
A hearing was held on the Trustee's motion for turn over of the non-exempt
portion of the tax refund on April 6, 2010.
The bankruptcy estate is comprised of "all legal or equitable interests of
the debtor in property as of the commencement of the case." 11 U.S.C. Â§ 541(a).
The debtor's interest in a federal child tax credit and federal tax refunds is
determined by federal law. In re Landgrebe, No. 08-26271, 2009 Bankr. LEXIS
3216, 2009 WL 3253933, *1 (Bankr. D. Colo. Sept. 23, 2009).
Pursuant to section 24(a) of the Internal Revenue Code, a taxpayer is allowed
a credit of $ 1,000 for each qualifying child if the individual taxpayer's
modified adjusted gross income is below a certain threshold. 26 U.S.C. Â§ 24(a).
This "Child Tax Credit" is nonrefundable as it is credited against the
taxpayer's federal income tax liability but cannot exceed the amount of tax
owed. Any amount of the Child Tax Credit that exceeds the taxpayer's tax
liability is lost and does not result in a refund to the taxpayer.
An "Additional Child Tax Credit" may be available for certain taxpayers who
did not get the full amount of the Child Tax Credit. 26 U.S.C. Â§ 24(d); IRS
Publication 972. Unlike the Child Tax Credit, any amount of the Additional Child
Tax Credit that is not used to offset the taxpayer's federal income tax
liability is refunded to the taxpayer. A taxpayer that qualifies for the
Additional Tax Credit need not owe taxes in order to receive the refundable
child tax credit. In re Landgrebe, 2009 Bankr. LEXIS 3216, 2009 WL 3253933 at *2
The Debtor did not distinguish whether the child tax credit which she
retained is a refundable or nonrefundable tax credit. However, the Court finds
that in this instance, the difference is irrelevant. The Debtor's arguments that
the child tax credit constitutes a trust fund with the Debtor's child as the
beneficiary is not supported by legislative history. Debtor pointed out that
"[t]he Congress believed that a tax credit for families with dependent children
will reduce the individual income tax burden of those families, will better
recognize the financial responsibilities of raising dependent children, and will
promote family values." Joint Committee on Taxation, General Explanation of Tax
Legislation Enacted in 1997 (JCS-23-97), December 17, 1997. However, there is no
evidence that the child tax credit was intended to be given to parents in trust
for their children with the parents being the conduit. Even though the
Additional Child Tax Credit may be refundable to the parent in the absence of
any tax liability, it is simply "an additional tax break to working parents by
allowing a portion of this otherwise nonrefundable [child tax credit] to be
treated as a refundable credit." In re Donnell, 357 B.R. 386, 402 (Bankr. W.D.
Tex. 2006). If Congress intended the child tax credit to be held in trust for
the benefit of the child and exempt from the parent's creditors, it could have
enacted bankruptcy legislation to this effect. However, Congress has not done so
and the Court declines to adopt such an interpretation.
Furthermore, to the extent the $ 1,000 retained by the Debtor is claimed to
be the debtor's entitlement to the nonrefundable Child Tax Credit, none of the
tax credit could constitute any portion of the Debtor's federal income tax
refund. As noted by the court in In re Klostermeier:
Debtors have already obtained the benefit of the entire child tax
credit when they used the credit to reduce their tax liability. They
cannot also use the credit to insulate part of their tax refund from
use by the Trustee for the benefit of their unsecured creditors.
2009 Bankr. LEXIS 1736, 2009 WL 1617090, *4 (Bankr. N.D. Ohio May 29, 2009).
Indeed, courts have held that the debtors do not have a legal entitlement to
claim a federal tax refund attributable to the Child Tax Credit. In re Landgrebe
, 2009 Bankr. LEXIS 3216, 2009 WL 3253933 at *2; In re Donnell, 357 B.R. at 402.
Even if the Child Tax Credit creates an opportunity for a refund, courts have
found that the overpayment being paid to debtors in their tax refunds are
directly tied to excess wage withholding or some other credit. In re Landgrebe,
2009 Bankr. LEXIS 3216, 2009 WL 3253933 at *2; In re Donnell, 357 B.R. at 402.
To the extent the $ 1,000 relates to the Additional Child Tax Credit, other
courts have found the refundable child tax credit to be property of the
bankruptcy estate. In re Landgrebe, 2009 Bankr. LEXIS 3216, 2009 WL 3253933 at
*2; In re Matthews, 380 B.R. 602, 607 (Bankr. M.D. Fla. 2007); In re Minton, 348
B.R. 467, 474-75 (Bankr. S.D. Ohio 2006); In re Griffin, 339 B.R. 900, 902
(Bankr. E.D. Ky 2006); In re Law, 336 B.R. 144, 146 (Bankr. W.D. Mo. 2005),
aff'd, 336 B.R. 780 (8th Cir. B.A.P. 2006). A debtor's entitlement to the child
tax credit is not finalized until the end of the tax year and the filing of the
tax return claiming such credit. Property of the estate 'has been broadly
construed to encompass a debtor's contingent interest in future payments, as
long as that interest is "sufficiently rooted" in a debtor's prepetition past,
even if that interest is reliant on future contingencies that have not accrued
as of the filing date.' In re Minton, 348 B.R. at 474-75. See also In re
Matthews, 380 B.R. at 607; In re Law, 336 B.R. at 783 (finding the statutory
differences between the earned income credit and the child tax credit to be
significant for tax purposes but not for bankruptcy purposes and from a
bankruptcy standpoint, both types of credits are contingent interests on the
petition date and become property of the estate). But see In re Schwarz, 314
B.R. 433 (Bankr. D. Neb. 2004) (finding that the earned income tax credit and
child tax credit are treated differently for tax purposes and should be treated
distinctly for bankruptcy purposes and where the child credit was acquired at
the end of the tax year after the petition date, it cannot be property of the
In this case, the Debtor had a contingent interest in the child tax credit
which was "sufficiently rooted" in her prepetition past as the credit was for
the 2009 tax year. The Debtor filed her bankruptcy petition in January of 2010.
Although the Debtor did not file her tax return until after the Petition Date,
her contingent interest in the child tax credit existed as of the petition date
as all the Debtor needed to do was fulfill her statutory obligation to file her
tax return. As discussed above, there is no evidence to support the Debtor's
arguments that the child tax credit was intended to be given to the Debtor in
trust for her child. Accordingly, the amount representing the refundable child
tax credit is property of the Debtor's bankruptcy estate.
Based upon the above, the sum of $ 1,000 the Debtor deducted from her tax
refund as her entitlement to the child tax credit is property of the estate. The
Trustee's motion for turnover of the tax refund is granted. Accordingly, the
Debtor is directed to turn over to the Trustee the $ 1,000 which she deducted
from the tax refund she received which represented the child tax credit and any
remaining nonexempt balance of the tax refund not yet turned over within 20 days
of the entry of this Memorandum Decision and Order.
/s/ Dorothy Eisenberg
COUNSEL: For Debtor: Richard E. Borda, Esq., Borda, Kennedy, Alsen & Gold, LLP,Bayshore, New York.
For Chapter 7 Trustee: Kenneth Kirschenbaum, Esq., Stacy Spector, Esq.,Kirschenbaum & Kirschenbaum, P.C., Garden City, New York.
The issue before the Court is whether $ 1,000 of the Debtor's tax refundwhich the Debtor argues represents her entitlement to the federal child taxcredit is property of the bankruptcy estate and needs to be turned over to theChapter 7 Trustee. This Court has jurisdiction over this core proceeding under28 U.S.C. Â§Â§ 1334(b) and 157(b)(2)(A), (B), (E) and (O) and 11 U.S.C. Â§Â§ 541 and542. The following constitutes the Court's finding of fact and conclusions oflaw pursuant to Fed. R. Bankr. P. 7052.
Debtor is a single mother with one child who is six years of age. The Debtorfiled for Chapter 7 bankruptcy relief on January 4, 2010 (the "Petition Date").Kenneth Kirschenbaum, Esq. was appointed the Chapter 7 Trustee in this case. AStipulation and Order was entered by the Court on February 24, 2010 whereby theDebtor agreed to file her 2009 federal and state income tax returns and turnover to the Trustee the non-exempt portion in any 2009 tax refund that shereceives immediately upon receipt.
The Debtor had $ 15,587 of gross income for the 2009 tax year. The Debtorreceived her federal tax refund in the sum of $ 5,134 on February 12, 2010 andher state tax refund in the sum of $ 1,397 on March 2, 2010 for a total of $6,531. On March 3, 2010, the Trustee filed a motion seeking the turnover of thenon-exempt portion of the tax refunds. On March 15, 2010, the Debtor filed anamended Schedule B reflecting the tax refunds as an asset and an amendedSchedule C claiming a $ 2,500 cash exemption in the tax refunds under New YorkDebtor and Creditor Law Â§ 283(2). The Debtor subsequently turned over $ 3,000 tothe Trustee after subtracting the Debtor's $ 2,500 cash exemption and $ 1,000for the federal child tax credit.
The Debtor argues that the child tax credit is not property of the bankruptcyestate and therefore, she is entitled to retain the funds. Debtor asserts thatthe child tax credit is not a refund of taxes but rather a trust fund or a grantfor the families with dependent children in which she, the taxpayer, is aconduit for the funds. The Debtor states that while the funds are payable to herand she may control the funds, it does not mean that the funds are dedicated toher and she never owned the money. Rather, the funds are analogous to a stipendfor a specific purpose by Congress which has as its ultimate goal the bestinterest of the child. Debtor asserts the child tax credit is a bailout forparents in order to improve the economic environment of families below thepoverty line and Congress could not have intended the credit to be a bailout forcreditors at the expense of children.
A hearing was held on the Trustee's motion for turn over of the non-exemptportion of the tax refund on April 6, 2010.
The bankruptcy estate is comprised of "all legal or equitable interests ofthe debtor in property as of the commencement of the case." 11 U.S.C. Â§ 541(a).The debtor's interest in a federal child tax credit and federal tax refunds isdetermined by federal law. In re Landgrebe, No. 08-26271, 2009 Bankr. LEXIS3216, 2009 WL 3253933, *1 (Bankr. D. Colo. Sept. 23, 2009).
Pursuant to section 24(a) of the Internal Revenue Code, a taxpayer is alloweda credit of $ 1,000 for each qualifying child if the individual taxpayer'smodified adjusted gross income is below a certain threshold. 26 U.S.C. Â§ 24(a).This "Child Tax Credit" is nonrefundable as it is credited against thetaxpayer's federal income tax liability but cannot exceed the amount of taxowed. Any amount of the Child Tax Credit that exceeds the taxpayer's taxliability is lost and does not result in a refund to the taxpayer.
An "Additional Child Tax Credit" may be available for certain taxpayers whodid not get the full amount of the Child Tax Credit. 26 U.S.C. Â§ 24(d); IRSPublication 972. Unlike the Child Tax Credit, any amount of the Additional ChildTax Credit that is not used to offset the taxpayer's federal income taxliability is refunded to the taxpayer. A taxpayer that qualifies for theAdditional Tax Credit need not owe taxes in order to receive the refundablechild tax credit. In re Landgrebe, 2009 Bankr. LEXIS 3216, 2009 WL 3253933 at *2.
The Debtor did not distinguish whether the child tax credit which sheretained is a refundable or nonrefundable tax credit. However, the Court findsthat in this instance, the difference is irrelevant. The Debtor's arguments thatthe child tax credit constitutes a trust fund with the Debtor's child as thebeneficiary is not supported by legislative history. Debtor pointed out that"[t]he Congress believed that a tax credit for families with dependent childrenwill reduce the individual income tax burden of those families, will betterrecognize the financial responsibilities of raising dependent children, and willpromote family values." Joint Committee on Taxation, General Explanation of TaxLegislation Enacted in 1997 (JCS-23-97), December 17, 1997. However, there is noevidence that the child tax credit was intended to be given to parents in trustfor their children with the parents being the conduit. Even though theAdditional Child Tax Credit may be refundable to the parent in the absence ofany tax liability, it is simply "an additional tax break to working parents byallowing a portion of this otherwise nonrefundable [child tax credit] to betreated as a refundable credit." In re Donnell, 357 B.R. 386, 402 (Bankr. W.D.Tex. 2006). If Congress intended the child tax credit to be held in trust forthe benefit of the child and exempt from the parent's creditors, it could haveenacted bankruptcy legislation to this effect. However, Congress has not done soand the Court declines to adopt such an interpretation.
Furthermore, to the extent the $ 1,000 retained by the Debtor is claimed tobe the debtor's entitlement to the nonrefundable Child Tax Credit, none of thetax credit could constitute any portion of the Debtor's federal income taxrefund. As noted by the court in In re Klostermeier:
Debtors have already obtained the benefit of the entire child tax credit when they used the credit to reduce their tax liability. They cannot also use the credit to insulate part of their tax refund from use by the Trustee for the benefit of their unsecured creditors.
2009 Bankr. LEXIS 1736, 2009 WL 1617090, *4 (Bankr. N.D. Ohio May 29, 2009).Indeed, courts have held that the debtors do not have a legal entitlement toclaim a federal tax refund attributable to the Child Tax Credit. In re Landgrebe, 2009 Bankr. LEXIS 3216, 2009 WL 3253933 at *2; In re Donnell, 357 B.R. at 402.Even if the Child Tax Credit creates an opportunity for a refund, courts havefound that the overpayment being paid to debtors in their tax refunds aredirectly tied to excess wage withholding or some other credit. In re Landgrebe,2009 Bankr. LEXIS 3216, 2009 WL 3253933 at *2; In re Donnell, 357 B.R. at 402.
To the extent the $ 1,000 relates to the Additional Child Tax Credit, othercourts have found the refundable child tax credit to be property of thebankruptcy estate. In re Landgrebe, 2009 Bankr. LEXIS 3216, 2009 WL 3253933 at*2; In re Matthews, 380 B.R. 602, 607 (Bankr. M.D. Fla. 2007); In re Minton, 348B.R. 467, 474-75 (Bankr. S.D. Ohio 2006); In re Griffin, 339 B.R. 900, 902(Bankr. E.D. Ky 2006); In re Law, 336 B.R. 144, 146 (Bankr. W.D. Mo. 2005),aff'd, 336 B.R. 780 (8th Cir. B.A.P. 2006). A debtor's entitlement to the childtax credit is not finalized until the end of the tax year and the filing of thetax return claiming such credit. Property of the estate 'has been broadlyconstrued to encompass a debtor's contingent interest in future payments, aslong as that interest is "sufficiently rooted" in a debtor's prepetition past,even if that interest is reliant on future contingencies that have not accruedas of the filing date.' In re Minton, 348 B.R. at 474-75. See also In reMatthews, 380 B.R. at 607; In re Law, 336 B.R. at 783 (finding the statutorydifferences between the earned income credit and the child tax credit to besignificant for tax purposes but not for bankruptcy purposes and from abankruptcy standpoint, both types of credits are contingent interests on thepetition date and become property of the estate). But see In re Schwarz, 314B.R. 433 (Bankr. D. Neb. 2004) (finding that the earned income tax credit andchild tax credit are treated differently for tax purposes and should be treateddistinctly for bankruptcy purposes and where the child credit was acquired atthe end of the tax year after the petition date, it cannot be property of theestate).
In this case, the Debtor had a contingent interest in the child tax creditwhich was "sufficiently rooted" in her prepetition past as the credit was forthe 2009 tax year. The Debtor filed her bankruptcy petition in January of 2010.Although the Debtor did not file her tax return until after the Petition Date,her contingent interest in the child tax credit existed as of the petition dateas all the Debtor needed to do was fulfill her statutory obligation to file hertax return. As discussed above, there is no evidence to support the Debtor'sarguments that the child tax credit was intended to be given to the Debtor intrust for her child. Accordingly, the amount representing the refundable childtax credit is property of the Debtor's bankruptcy estate.
Based upon the above, the sum of $ 1,000 the Debtor deducted from her taxrefund as her entitlement to the child tax credit is property of the estate. TheTrustee's motion for turnover of the tax refund is granted. Accordingly, theDebtor is directed to turn over to the Trustee the $ 1,000 which she deductedfrom the tax refund she received which represented the child tax credit and anyremaining nonexempt balance of the tax refund not yet turned over within 20 daysof the entry of this Memorandum Decision and Order.