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United States v. Bush

United States District Court, S.D. Indiana, Indianapolis Division

November 18, 2016

UNITED STATES OF AMERICA, Appellant,
v.
DONALD WAYNE BUSH, and KIMBERLY ANN BUSH, Appellees.

          ORDER ON BANKRUPTCY APPEAL

          LARRY J. McKINNEY, JUDGE.

         This bankruptcy appeal is narrow. The issue before the Court is whether Bankruptcy Judge Carr appropriately found that tax penalties[1] Debtors/Appellees Donald and Kimberly Bush (collectively, “Debtors” or “Appellees”) may owe for the tax years 2009, 2010 and 2011. For the reasons stated herein, the opinion of the Bankruptcy Court is AFFIRMED.

         I. THE BANKRUPTCY COURT'S DECISION

         Judge Carr addressed the issue as follows:

The Court and the parties refer to the issue to be decided herein - the dischargeability of tax penalties Debtors may owe for tax years 2009, 2010 and 2011 - as the “Cassidy issue.” In Cassidy v. C.I.R., 814 F.2d 477, 481 (7th Cir. 1987) (“Cassidy I”), the Seventh Circuit Court of Appeals wrote:
Moreover, subsection 523(a)(7)(A) mandates that fraud penalties are nondischargeable if the underlying tax with respect to which the penalty was imposed is also nondischargeable. S. Rep. No. 989 at 79, U.S. Code Cong. & Admin. News 1976, p. 5864. Because the taxpayer's deficiencies are nondischargeable, his tax penalties are similarly nondischargeable.
[Footnote omitted.] Arguably, if Cassidy I is binding precedent, then the IRS might prevail because Debtors have conceded that their taxes owed for tax years 2009, 2010 and 2011 are nondischargeable and that there is no dispute as to the amounts of such taxes.
However, the binding nature of the ruling in Cassidy I was “disclaimed” by the Seventh Circuit in Matter of Cassidy, 892 F.2d 637, 640 (7th Cir. 1990) (“Cassidy II”). In Cassidy II, the court wrote:
If this action is barred by the earlier litigation, it must be on the strength of this Court's opinion in Cassidy I. But for a ruling to have preclusive effect, it must be necessary to the decision. … United States v. Crawley, 837 F.2d 291 (7th Cir. 1988), defines dicta as that portion of an opinion not entitled to the full weight usually given judicial decisions, including any portion not necessary to the outcome of the case. The portion of Cassidy I which concerned the dischargeability of the debt was, unfortunately, dicta.
[Internal citations omitted.]
After Cassidy II, other courts in this circuit have considered the interpretation of § 523(a)(7)(A) and (B) to be an “open issue, ” not controlled by Cassidy I, and have looked “to other jurisdictions for guidance”. Roberts v. United States (In re Roberts), 129 B.R. 171, 172-73 (C.D. Ill. 1991) (“Illinois Roberts”). See also Torres v. Illinois Dep't of Revenue (In re Torres), 143 B.R. 183, 188-89 (Bankr. N.D.Ill. 1992); and Carlen v. Dep't of the Treasury Internal Revenue Serv. (In re Carlen), 1991 WL 424977 at *27 (Bankr. N.D. Ind. 1991).
The Court agrees - it is bound by Cassidy II's determination that Cassidy I's “ruling” is dicta, and therefore Cassidy I has no preclusive impact. Accordingly, the Court will start its analysis with the plain language of § 523(a)(7)(A) and (B). In re Crane, 742 F.3d 702, 708 (7th Cir. 2013) (“We begin with the language of the statute. When the language of the statute is plain, we enforce it according to its terms.”).
Section 523 provides:
(a) A discharge under section 727 … of this title does not discharge an individual ...

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