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Hutchins v. I.R.S.

October 3, 1995

CHARLES T. HUTCHINS, APPELLANT IN 94-5509

v.

INTERNAL REVENUE SERVICE; UNITED STATES OF AMERICA CHARLES T. HUTCHINS

v.

INTERNAL REVENUE SERVICE; UNITED STATES OF AMERICA UNITED STATES OF AMERICA, APPELLANT



On Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 92-cv-04134)

Before: GREENBERG, ROTH and ALDISERT, Circuit Judges

Roth, Circuit Judge

Submitted Pursuant to Third Circuit LAR 34.1(a) May 24, 1995

Filed October 3, 1995)

OPINION OF THE COURT

In this appeal, Charles T. Hutchins, appearing pro se, and the Internal Revenue Service each challenge aspects of the entry of summary judgment below. The district court granted summary judgment to the I.R.S. on its counterclaim to recoup an erroneous tax credit, but then, disturbed by this result, invoked equitable estoppel sua sponte to bar the I.R.S. from recovering all but a minor portion its claim. This holding necessarily denied Hutchins' standing to sue for the original tax credit. We reverse. Hutchins had standing to pursue his original tax claim because in the bankruptcy proceedings that gave rise to this case, the tax refund descended to him through abandonment as part of a properly scheduled antitrust action. Because the I.R.S. grounded its recoupment claim solely on Hutchins' lack of standing, our ruling on this issue is dispositive. We reach neither the validity of the underlying tax refund, which is not properly before us, nor the application of equitable estoppel, which is rendered superfluous.

I. Factual and Procedural History

In November 1979 Hutchins, as sole proprietor of Hutchins Supply Company, filed a Chapter 7 Bankruptcy Petition in the U.S. Bankruptcy Court in Anchorage, Alaska. After the initial scheduling of all known assets and liabilities pursuant to 11 U.S.C. Section(s) 521(1), Hutchins learned that his business had failed because of his competitors' antitrust violations and unfair business practices. Hutchins instituted an antitrust action against these competitors, amending his schedules to reflect the antitrust cause of action as an asset of the bankrupt estate. By stipulation, the estate trustee allowed Hutchins to pursue the action, reserving the right to all settlement proceeds. In 1986, the resulting claims were settled for $243,000 in cash, which was turned over to the bankruptcy trustee. In addition, the antitrust defendants withdrew claims against the bankrupt estate for approximately $76,000 in business debt. On January 27, 1987, the trustee filed an estate income tax return reflecting both the cash and the retired debt as income.

On September 21, 1988, the trustee petitioned the U.S. Bankruptcy Court to abandon any remaining assets to Hutchins. The requisite order was issued on March 23, 1989. The bankruptcy proceedings were closed sometime prior to February 1989, re-opened on March 1, 1989, and closed a second time on March 14, 1990.

On April 2, 1989, Hutchins filed an amended tax return for 1987, asserting that pursuant to 26 U.S.C. Section(s) 108, the $76,000 in retired business debt was not taxable income. Hutchins sought a tax credit of $38,458, the amount he believed the trustee had overpaid by erroneously including the $76,000 in retired business debt as income. On January 22, 1992, the I.R.S. granted in part the claimed refund and applied a credit of $37,897.04 to Hutchins' tax arrearages. On September 29, 1992, Hutchins responded by filing a complaint against the I.R.S. in the U.S. District Court for the District of New Jersey seeking, among other relief, an additional credit of $650. The I.R.S. responded by counterclaiming for the entire January 1992 tax credit, alleging it was granted erroneously since Hutchins was not the proper party to receive a refund of taxes paid by the bankruptcy estate.

On May 24, 1993, the district court dismissed Hutchins' various prayers for relief on several grounds, leaving the I.R.S.'s counterclaim as the sole remaining dispute. That order has not been appealed. On January 10, 1994, on cross motions for summary judgment, the district court ruled in favor of the I.R.S. on its counterclaim, denied Hutchins' motion to dismiss, and invoked equitable estoppel to bar the I.R.S. from recovering all but $663 plus interest from Hutchins. Both parties appealed to this court.

II. Jurisdiction

The district court properly asserted federal jurisdiction over the I.R.S.'s counterclaim under 26 U.S.C. Section(s) 7405(b). We have jurisdiction over the district court's final order pursuant to 28 U.S.C. Section(s) 1291. Our review of a grant of summary judgment is plenary. Oritani Sav. & Loan Ass'n v. Fidelity & Deposit Co., 989 F.2d 635, 637 (3d Cir. 1993); Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038 (1977). The question ...


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