Debtor’s Service of Objection to the IRS’s Proof of Claim was Proper

Posted by NCBRC - July 16, 2020

The bankruptcy court had personal jurisdiction over the IRS when the debtor mailed a copy of his objection to the address given with the proof of claim in accordance with Rule 3007, rather than serving the IRS through the Attorney General as required for contested motions under Rules 9014 and 7004. Nicolaus v. United States, No. 19-1155 (8th Cir. July 6, 2020).

After the debtor, Anthony Nicolaus, initiated his bankruptcy, the IRS filed a claim for tax penalties in the amount of $93,000. The debtor mailed a copy of his objection to the address the IRS had listed on the claim. After the IRS failed to respond, the bankruptcy court sustained the objection and disallowed the claim. A year after the debtor received his discharge, the IRS moved to reopen the bankruptcy asking the bankruptcy court to vacate its order of disallowance. The IRS argued that the order was void for lack of personal jurisdiction because the debtor mailed his objection to the wrong address. The bankruptcy court agreed with the IRS and vacated its order of disallowance. The district court affirmed on appeal.

On appeal to the Eighth Circuit, the court began with the finding that the bankruptcy court’s treatment of the IRS’s claim was “final” for purposes of appellate jurisdiction as it fully disposed of a discrete dispute which arose when the debtor objected to the claim.

The court then turned to the substantive issue of whether the IRS was properly served with the debtor’s objection such that it was subject to the personal jurisdiction of the bankruptcy court. The court found the answer in Fed. R. Bankr. Proc. 3007(a), which provides that an objection to allowance of a claim should be delivered to the claimant. The simple answer given by the court was that “the ‘claimant’ here was the IRS, which indisputably received a copy of Nicolaus’s objection by mail. Nothing else was required.”

The court then addressed the reasoning of the bankruptcy and district courts which led them to the opposite conclusion. Those courts relied on Bankruptcy Rules 9014 and 7004. Rule 9014(a) provides that “motion[s]” in “contested matter[s] not otherwise governed by these rules” must be served “in the manner provided for service of a summons and complaint by Rule 7004.” Rule 7004 mandates that a motion against a government entity must be served on the Attorney General of the United States.

The court found that the lower courts erred in failing to distinguish between an objection, which was what Mr. Nicolaus filed in this case, and a motion, which would call into play Rules 9014 and 7004. “An objection is not a motion.” The court was not convinced otherwise by the Bankruptcy court’s reliance on the Advisory Committee Notes to Rule 3007 which state that a “contested matter initiated by an objection to a claim is governed by rule 9014.” The court found this language did not mean that the objection itself was governed by Rule 9014. Rather, the court found that Rule 3007 is clear in its mandate that objection to a claim should be mailed to the claimant.

The court reversed and remanded with instructions to the bankruptcy court to reinstate its order of disallowance.

Nicolaus 8th Cir July 2020


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