United States District Court, W.D. Texas, Austin Division
IN RE JAMES QUEZADA AND SIMONA QUEZADA, DEBTORS.
UNITED STATES OF AMERICA, APPELLEE. JAMES QUEZADA AND SIMONA QUEZADA, APPELLANTS
MEMORANDUM OPINION AND ORDER
YEAKEL UNITED STATES DISTRICT JUDGE.
cause arises from an appeal of the Memorandum Opinion and
Final Judgment rendered on August 31, 2018, by the United
States Bankruptcy Court for the Western District of Texas,
Austin Division. Before the court are the Brief for
Appellants James Quezada and Simona Quezada filed March 12,
2019 (Doc. #14); Brief for Appellee United States of America
filed April 29, 2019 (Doc. #17); and the Reply Brief of
Appellants James Quezada and Simona Quezada filed May 13,
2019 (Doc. #18). On May 31, 2019, the court entertained oral
argument, at which all parties appeared through counsel.
Following argument, Appellants James Quezada and Simona
Quezada filed a Motion for Leave to Clarify and Correct the
Record on July 24, 2019 (Doc. #21). Appellee United States of
America's Objection to Appellants' Motion for Leave
to Clarify ad Correct the Record and Response to
Appellants' Post-Submission Brief was filed on August 16,
2019 (Doc. #22). Having carefully considered the briefs,
argument of counsel, and applicable law, the court concludes
that Appellants' Motion for Leave to Clarify and Correct
the Record should be denied and the bankruptcy court's
order should be affirmed for the reasons to follow.
James Quezada, a bricklayer and owner of Quezada Masonry,
builds masonry projects for general contractors. Quezada
typically supplies the materials and hires contract laborers
and subcontractors to perform the labor.
2005-2008, Quezada filed tax returns, which included Forms
1099-Misc, in which he reported payments made to
subcontractors. Quezada claimed deductions for these payments
on his Form 1040 "Individual Income Tax Return" for
each of these years. The Form 1099s filed by Quezada for
years 2005-2008 showed no withholdings on payments made to
his subcontractors, and Quezada did not file Annual Returns
of Withheld Federal Income Tax, Forms 945, for tax years 2005
through 2008. In addition, Quezada did not obtain a Social
Security number ("SSN") or Taxpayer Identification
number ("TIN") from all of his subcontractors.
September 2006, the Internal Revenue Service
("IRS") sent a notice to Quezada that his 2005 Form
1099 had missing or incorrect TINs (which includes SSNs). The
notice also informed Quezada that if he had missing or
incorrect TINs, he had to start backup withholding. The IRS
sent the same notice out in 2007 and twice in 2009 about
Quezada's later-filed Forms 1099. Quezada did not provide
the missing or incorrect TINs for the tax years 2005 through
February 2014, the IRS assessed Quezada's
backup-withholding-tax liability for 2005-2008 totaling $ 1,
269, 561.89, including penalties and interest, pursuant to
Section 3406 of the Internal Revenue Code. See 26
U.S.C. § 3406 (2011). Quezada was sent a Notice of
Determination in March 2015, notifying him of the total
backup-withholding-tax liability assessed.
April 21, 2016, Appellants James Quezada and Simona
Quezada filed for bankruptcy under Chapter 11 of
the Bankruptcy Code. On November 22, 2016, Quezada filed an
Adversary Complaint challenging the assessment of the backup
withholding tax. The parties consented to the bankruptcy
court's rendering of a final judgment with respect to the
issues raised in Quezada's Adversary Complaint. The
adversary case was tried May 3, 2018, and the bankruptcy
court rendered a Memorandum Opinion and a Final Judgment in
favor of the United States on August 31, 2018, concluding
that the taxes assessed by the IRS are valid, allowed, and
non-dischargeable. On September 17, 2018, Quezada timely
filed a Notice of Appeal.
Standard of Review
appeal, this court reviews the bankruptcy court's
findings of fact under a clearly erroneous standard and
reviews conclusions of law de novo. See In re Heartland
Fed. Sav. & Loan Assn. v. Briscoe Enters., Ltd. II (In re
Briscoe Enters., Ltd. II), 994 F.2d 1160, 1163 (5th Cir.
1993). Mixed questions of fact and law are subject to de
novo review. See In re CPDC, Inc., 337 F.3d
436, 441 (5th Cir. 2003).
sole issue on appeal is whether the filing of Forms 1099 and
1040 by Quezada commenced the three-year statute of
limitations under Section 6501 of the Internal Revenue Code,
see 26 U.S.C. § 6501 (2011 & Supp. 2019),
which prohibits tax assessments made after the statute of
limitations has closed. Quezada argues that Quezada's
filings of Forms 1099 and 1040 were "returns"
sufficient to trigger the three-year statute of limitations,
and that Quezada's failure to file Forms 945, which
Quezada asserts were not required, had no bearing on the
start of the statute-of-limitations period.
United States asserts that Quezada was required and failed to
conduct backup withholding from his contract laborers, and
therefore was also required and failed to report this backup
withholding on Forms 945 for tax years 2005 through 2008.
Appellees further contend that because no Forms 945 were
filed, the three-year assessment limitation period imposed by
Section 6501 was never triggered, see Id. at §
6501(c)(3), and the bankruptcy court properly determined that
the backup withholding liability assessed against Quezada in
2014 was not barred by Section 65 01.
reply, Quezada argues that the question is not whether
Quezada should have begun backup withholding or whether Forms
1099 and 1040 are substitute returns for Forms 945, but what
form or forms were necessary to start the running of the
statute of limitations under Section 6501. Quezada contends
that the case law and the IRS's own advice clarify that
the exception under Section 6501(c)(3) that "[i]n the
case of failure to file a return, the tax may be assessed ...
at any time" does not mean that the failure to file any
IRS form nullifies the statute of limitations. The United
States contends that Form ...