Memorandum of Decision Re: Tax Lien on Pension Plan

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re ALBERT and MURIEL LITTMAN,                                                 No. 94-10968      Debtors. ___________________________/ ALBERT and MURIEL LITTMAN,
       Plaintiffs,    v.                                                                                                   A.P. No. 94-1221 INTERNAL REVENUE SERVICE,        Defendant. ______________________________/
Memorandum of Decision
     I. Introduction      When debtors Albert and Muriel Littman filed their bankruptcy petition, they claimed their pension plan exempt under section 704.115 of the California Code of Civil Procedure. At the time of the filing, the IRS had assessed income taxes against them for 1979, 1980, and 1981 but had not filed a notice of lien. The IRS has stipulated that the tax debt for these years is dischargeable. The issue now before the court is whether the IRS has an unavoidable lien on the pension plan. Generally, IRS liens attach to pension plans. In re Raihl, 152 B.R. 615 (9th Cir.BAP 1993.      II. Relevant Statute      This dispute centers around the interpretation of section 522(c)(2)(B) ofthe Bankruptcy Code. That section provides,in pertinent part:            (c) . . . [P]roperty exempted under this section is            not liable during or after the case for any debt of            the debtor that arose . . . before the commencement of the case, except--            (2) a debt secured by a lien that is--            (B) a tax lien, notice of which is properly            filed[.]      The Littmans argue that they exempted their pension plan and the IRS had never filed a notice of its lien. Therefore, they argue, their pension plan is not liable for the taxes at issue.      III. Jurisdiction      The IRS argues vigorously that the district court (and hence this court, from which its jurisdiction is derived) has no jurisdiction over this dispute. This argument, especially coming from the federal government, leaves the court somewhat nonplussed. 28 U.S.C section 1334(b) gives the district court jurisdiction over all civil proceedings arising under title 11 or arising in or related to a case under title 11. This includes any action whose outcome could alter the debtor's rights, liabilities, or options. Celotex Corp. v. Edwards, -- U.S. --, 115 S.Ct. 1493, 131 L.Ed.2d 403, 411n6 (1995). Moreover, section 1334(e) gives the court exclusive jurisdiction over property of the debtor; the property does not have to be property of the estate to establish jurisdiction. In re Anderson, 149 B.R. 591, 594 (9th Cir.BAP 1992).      The issue in this adversary proceeding is whether a specific provision of federal bankruptcy law bars the IRS from asserting a tax lien. The argument that a federal district court has no jurisdiction over this sort of dispute has no merit. The case upon which the IRS relies, In re Graziadei, 32 F.3d 1408 (9th Cir.1994), is easily distinguished. That case did not involve a dispute over the meaning or effect of a provision of the Bankruptcy Code.      The court accordingly finds district court jurisdiction, and determines that this is a core matter pursuant to 28 U.S.C. 157(b). See In re DeMarah, 62 F.3d 1248 (9th Cir.1995).      IV. Exempt Nature of Pension Plan      Both sides concede the elementary principles of law applicable here. Before notice is filed, the tax lien is effective between the IRS and the debtors but is not effective against creditors. Since liens not effective against creditors are avoidable pursuant to section 544 of the Code, and since tax liens are not voluntary transfers (see In re DeMarah, supra), if the pension plan were exempt property then the tax lien would be avoidable by the Littmans pursuant to section 522(h) of the Code, or by application of 522(c).      However, both 522(c) and 522(h) only apply to exempt property. Pension plans are not property of the bankruptcy estate. Patterson v. Shumate, 504 U.S. 753, 119 L.Ed.2d 519, 112 S.Ct. 2242 (1992). The benefit to debtors under this ruling is that trustees cannot take away their pension rights to satisfy the claims of creditors. An incidental detriment of the ruling is that because pension plans are not property of the estate, they cannot be exempted (section 522(b) only allows exemptions from property of the estate) and are therefore not covered by either 522(c) or 522(h). The mere fact that California has a statute which allows its citizens to exempt pension plans does not make such plans property of the estate under federal bankruptcy law.      For the foregoing reasons, the Littmans' motion for summary judgment will be denied. Since the parties have stipulated that the issues dealt with in this decision are the only remaining issues in the adversary proceeding, judgment shall be entered in favor of the IRS. Counsel for the IRS shall submit appropriate forms of order and judgment.
Dated: October 17, 1995                                                                                                  _______________________                                                                                                                                                    Alan Jaroslovsky                                                                                                                                                    U.S. Bankruptcy