Elkins, et al. v. United States of America
Memorandum of Opinion and Order For the reasons set forth herein and those that have been articulated in the Brief of the United States (ECF No. 15 ), the bankruptcy court's ruling to deny Debtors' Motions to Reopen their bankruptcy cases pursuant to 11 U.S.C. § 350 is affirmed. Judge Benita Y. Pearson on 12/16/2016. (JLG)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
IN RE: MELINDA LOUISE ELKINS
nka MELINDA LOUISE DAWSON
CLARENCE ARNOLD ELKINS, II
UNITED STATES OF AMERICA,
CASE NO. 5:16CV1628
JUDGE BENITA Y. PEARSON
MEMORANDUM OF OPINION
This case of first impression involving statutory interpretation 26 U.S.C. §139F(a) is
before the Court upon appeals by Debtors-Appellants Melinda Louise Elkins nka Melinda Louise
Dawson and Clarence Arnold Elkins, II from the same order of the bankruptcy court.1 After an
examination of the record, this Court determines that oral argument is not needed.
On June 22, 2016, Debtors each appealed an order of Bankruptcy Judge Russ Kendig
entered in Bankruptcy Case Nos. 05-65317-rk and 05-69543-rk to the Bankruptcy Appellate
Panel (“BAP”). Thereafter, Appellee United States of America filed a timely Statement of
The Memorandum of Opinion (ECF No. 1-1 in Case No. 5:16CV1628) denied
Debtors’ Motions to Reopen their bankruptcy cases pursuant to 11 U.S.C. § 350. In re
Elkins, Nos. 05-65317, 05-69543, 2016 WL 3414823 (Bankr. N.D. Ohio June 14, 2016).
Election to the District Court under 28 U.S.C. §158(c)(1) (ECF No. 2-1). These appeals were
filed in this Court on June 27, 2016. On July 7, 2016, the cases were consolidated and Case No.
5:16CV1631 was administratively closed. Order and Notice of Filing an Appeal From a
Bankruptcy Judge’s Decision (ECF No. 6 in Case No. 5:16CV1628).
Debtors’ Motions to Reopen are based on 26 U.S.C. §139F, a new Internal Revenue Code
section that was enacted into law on December 18, 2015 by the Protecting Americans From Tax
Hikes Act of 2015 (2015 PATH Act, PL 114-113).2 The statute provides:
§ 139F. Certain amounts received by wrongfully incarcerated individuals
(a) Exclusion from gross income.--In the case of any wrongfully incarcerated
individual, gross income shall not include any civil damages, restitution, or other
monetary award (including compensatory or statutory damages and restitution
imposed in a criminal matter) relating to the incarceration of such individual for
the covered offense for which such individual was convicted.
(b) Wrongfully incarcerated individual.--For purposes of this section, the term
“wrongfully incarcerated individual” means an individual-(1) who was convicted of a covered offense,
(2) who served all or part of a sentence of imprisonment relating to that
covered offense, and
(3)(A) who was pardoned, granted clemency, or granted amnesty for that
covered offense because that individual was innocent of that covered
(B)(i) for whom the judgment of conviction for that covered offense was
reversed or vacated, and
As of this writing, the only other federal or state court decision to mention
§139F is Sonoma Apartment Associates v. United States, 127 Fed.Cl. 721, 724 n. 2
(ii) for whom the indictment, information, or other accusatory instrument
for that covered offense was dismissed or who was found not guilty at a
new trial after the judgment of conviction for that covered offense was
reversed or vacated.
(c) Covered offense.--For purposes of this section, the term “covered offense”
means any criminal offense under Federal or State law, and includes any criminal
offense arising from the same course of conduct as that criminal offense.3
The primary issue presented in the case at bar is whether the statute applies or can
reasonably be construed to apply to derivative loss of consortium claims of the family members
of an individual who is wrongfully incarcerated. In 2011, Debtors received a portion of the
settlement proceeds of a wrongful incarceration lawsuit involving Clarence Elkins, Sr., the father
of Clarence Arnold Elkins, II and former husband of Melinda Louise Dawson. See Elkins v.
Summit County, Ohio, 615 F.3d 671 (6th Cir. 2010), in which the underlying facts are set forth at
length. Based on the law in effect prior to the enactment of 26 U.S.C. §139F, Debtors paid
approximately $242,000 in income taxes on the funds they received from the wrongful
incarceration settlement. Because the Debtors filed for bankruptcy in 2005, the income taxes on
their settlement proceeds were paid from Debtors’ bankruptcy estates by the Debtors’ Bankruptcy
There is a special one-year window during which an eligible
wrongfully-incarcerated individual can file a refund claim based on any civil damages,
restitution or other monetary award received and reported in a prior tax year, even if the
normal statute of limitations had already expired for that year. If the credit or refund of
any overpayment of tax resulting from the application of §139F to a period before
December 18, 2015 is prevented, as of that date, by the operation of any law or rule of
law, the credit or refund may nevertheless be allowed or made if a claim is mailed by
December 19, 2016. 12/8/2016 Fed. Taxes Weekly Alert Art. 14.
Following the enactment of 26 U.S.C. §139F, Debtors moved to have their bankruptcy
cases reopened4 to allow the Trustee to submit claims for tax refunds under the new statute. In
the ruling denying the Motions to Reopen, the Bankruptcy Court determined that Debtors have
no possibility of prevailing on their claims under §139F. The Bankruptcy Court held that
Debtors’ Motions were “futile” and refused to reopen their cases, thereby denying Debtors the
ability to request a tax refund under §139F. ECF No. 1-1 in Case No. 5:16CV1628 at PageID #:
8. The Memorandum of Opinion provides, in pertinent part:
Although subsection (a) covers an array of monetary awards, it ties those awards
to the wrongfully incarcerated individual in no less than three places. First, the
statute applies “in the case of any wrongfully incarcerated individual.”
“Wrongfully incarcerated individual” is a specifically defined term that does not
include Debtors. Second, the award must “relat[e] to the incarceration of such
individual” and be connected to the “covered offense for which such individual
was convicted.” “Such individual” can be read in no other way but to refer to the
person who was wrongfully incarcerated. Overlooking these references is the
major flaw in Debtors’ position. They want to focus on the nature of the award,
which the court finds to be of secondary importance. The primary focal point is
whether the award was made to a wrongfully incarcerated individual.
ECF No. 1-1 in Case No. 5:16CV1628 at PageID #: 9. The Debtors contend that the Bankruptcy
Court erred and abused its discretion by refusing to reopen their cases pursuant to 11 U.S.C. §
Debtors present two issues on appeal. First, whether 26 U.S.C. §139F applies to persons
other than wrongfully incarcerated individuals. Second, whether the bankruptcy court abused its
Both Debtors filed a Motion to Reopen. Thereafter, Debtors each filed an
Amended Motion to Reopen and a Second Amended Motion to Reopen on February 29,
2016 and March 14, 2016, respectively.
discretion in interpreting the meaning and application of §139F instead of abstaining from
deciding those issues.
In an appeal from a bankruptcy court, the Court must uphold the findings of fact made by
the bankruptcy court unless such findings are clearly erroneous. The Court reviews de novo the
bankruptcy court’s conclusions of law. In re Gardner, 360 F.3d 551, 557 (6th Cir. 2004).
For federal tax purposes, income generally is interpreted broadly. See 26 U.S.C. § 61(a)
(indicating that “[e]xcept as otherwise provided . . ., gross income means all income from
whatever source derived . . .”); Comm’r. v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955);
Comm’r v. Schleier, 515 U.S. 323, 327-28 (1995). Exclusions from income are construed
narrowly. Glenshaw, 348 U.S. at 430; see also United States v. Centennial Savings Bank FSB,
499 U.S. 573, 583 (1991); Comm’r v. Jacobson, 336 U.S. 28, 49 (1949), Stadnyk v. Comm’r, 367
Fed.Appx. 586, 590 (6th Cir. 2010).
Debtors argue that by its express terms, 26 U.S.C. §139F(a) applies to all civil damages
and awards which relate to the wrongful incarceration. They contend that the second clause of
the single sentence that constitutes 26 U.S.C. §139F(a) (that begins with “relating to”) should be
used to determine the type of person to whom the statute applies and that its application is not
limited to wrongfully incarcerated individuals. The Court holds the title of the statute, as well as
the plain language of the first clause of the single sentence that constitutes §139F(a) (i.e., “[i]n
the case of any wrongfully incarcerated individual”) defines the type of person to whom the
statute applies, and it unequivocally states that its application is limited to wrongfully
incarcerated individuals, not others with derivative claims. See Almendarez-Torres v. United
States, 523 U.S. 224, 234 (1998) (“[T]he title of a statute and the heading of a section are tools
available for the resolution of a doubt about the meaning of a statute.”) (internal quotation marks
omitted)). In addition, the plain language of the second clause that begins with “relating to”
defines the type of claims with respect to which a settlement payment received by a wrongfully
incarcerated individual may be excluded from income under the statute. See United States v.
Union Mfg. Co., 240 U.S. 605, 611 (1916) (In interpreting the meaning or application of a
statute, its terms must be given their plain meaning, “in the light of subject-matter and context.”).
Debtors’ arguments all wrongly assume that the second clause of §139F(a) determines who may
exclude a payment under the statute.
Because the text of 26 U.S.C. §139F unambiguously limits its application to amounts
received by individuals who were wrongfully incarcerated, the Court need not consult the
legislative history to interpret the statute. See Scafar Contracting, Inc. v. Sec’y of Labor, 325
F.3d 422, 425-26 (3d Cir. 2003) (a court need not resort to legislative history to interpret a statute
unless the statute is ambiguous).
Next, Debtors argue that because a claim for loss of consortium is treated the same as the
primary claim from which it is derived for all material purposes under state law, it should be
treated the same for Federal tax purposes under 26 U.S.C. §139F. Thus, a payment received for a
loss of consortium claim should be excludable under §139F the same as a payment for the
primary claim from which it is derived. The Court finds this argument lacks merit. The identical
nature of facts and claims of a wrongfully incarcerated individual and those asserting derivative
claims based on the wrongful incarceration of that individual does not permit persons other than
the wrongfully incarcerated individual to exclude from income under §139F the payment she
received. See Lyeth v. Hoey, 305 U.S. 188, 194 (1938) (“Congress establishes its own criteria
and the state law may control only when the federal taxing act by express language or necessary
implication makes its operation dependent upon state law.”). Section 139F does not contain a
provision that state law controls the determination of whom is eligible to exclude a payment from
gross income under it.
Debtors also argue that the bankruptcy court erred and abused its discretion by assuming
the responsibility to interpret 26 U.S.C. §139F; by its determination that Debtors have no
possibility of prevailing on their claims under §139F; and, by its refusal to reopen Debtors’ cases
pursuant to 11 U.S.C. § 350. Because part of the analysis for deciding whether to reopen a
bankruptcy case under § 350 is making a determination of whether to do so would be futile, such
as when the court cannot provide the debtor with any relief or reopening would otherwise be
futile, the bankruptcy court was required to determine whether the bankruptcy estates in the case
at bar had a colorable claim under §139F. See In re Caravona, 347 B.R. 259, 262-63 (Bankr.
N.D. Ohio 2006) (collecting cases). The Court concludes that the bankruptcy court properly
interpreted §139F and determined that claims or suits for refund would be futile because the
Debtors are not wrongfully incarcerated individuals; therefore, they may not avail themselves of
the exclusion from gross income set forth in §139F as a matter of law. The bankruptcy court did
not abuse its discretion in not abstaining from making a determination of tax liability under 11
U.S.C. § 505(a)(1) and (2).
Finally, Debtors argue that the controlling language in 26 U.S.C. §139F(a) is materially
indistinguishable from that utilized by Congress in 26 U.S.C. §104(a)(2). They contend there is
no significant or material difference in the “on account of” language in §104(a)(2) and the
“related to” language in §139F(a). The Court disagrees. Section 104, entitled “Compensation
for injuries or sickness,” provides, in relevant part:
(a) In general.--Except in the case of amounts attributable to (and not in excess
of) deductions allowed under section 213 (relating to medical, etc., expenses) for
any prior taxable year, gross income does not include-* * *
(2) the amount of any damages (other than punitive damages) received
(whether by suit or agreement and whether as lump sums or as periodic
payments) on account of personal physical injuries or physical sickness;
* * * *
There are material differences in the text and purposes of §139F(a) and §104(a)(2). Section
104(a)(2) does not have a clause or term that defines or limits the type of person whom may
exclude a payment from gross income under it. The Court finds that §139F was provided to
insure that wrongfully incarcerated individuals may exclude payments that they receive for their
wrongful incarceration, even when the payments would not be excludable under §104(a)(2)
because it cannot be established that the payments were paid on account of physical injury or
physical sickness that they suffered while incarcerated as required by §104(a)(2). Moreover, that
Congress and the President enacted §139F as a new statute instead of amending §104(a)(2),
which is not limited to a particular type of taxpayer, is a strong indication that they intended to
strictly limit the exclusion from income in §139F only to wrongfully incarcerated individuals.
For these reasons and those that have been articulated in the Brief of the United States
(ECF No. 15), the bankruptcy court’s ruling to deny Debtors’ Motions to Reopen their
bankruptcy cases pursuant to 11 U.S.C. § 350 is affirmed.
IT IS SO ORDERED.
December 16, 2016
/s/ Benita Y. Pearson
Benita Y. Pearson
United States District Judge
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