In re: Rogers, BK 13-22983, Doc # 86

In ruling on cross-motions for summary judgment on a creditor’s motion to disallow the Debtor’s exemption of a profit sharing plan estimated to have assets of about $300,000, the Court concluded that material questions of fact still existed as to whether the plan was qualified under 26 U.S.C. § 401 and denied both motions. The Debtor argued that the plan was not property of the bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2) because it had an enforceable spendthrift provision under O.C.G.A. § 53-12-80(g) and that even if the plan was property of the bankruptcy estate he was entitled to exempt it pursuant to O.C.G.A. § 44-13-100(a)(2.1) and 11 U.S.C. § 522(b)(3)(C). The crux of both issues was whether the plan was a qualified plan under § 401 of the Internal Revenue Code. The creditor argued that the plan was not qualified because: (a) it did not have a required distribution clause, (b) it violated the anti-alienation provision, (c) it violated the exclusive benefit rule, and (d) that various prohibited transactions under 26 U.S.C. § 4975 occurred. The Court concluded the plan did contain the required distribution clause and that material questions of fact existed as to whether the anti-alienation provision and exclusive benefit rule were violated. In addition, the Court rejected the creditor’s argument that one prohibited transaction was sufficient to disqualify a profit sharing plan, but concluded that a profit sharing plan may be disqualified if a multitude of prohibited transactions exist such that the form of the plan is being abused; material questions of fact still existed as to the number of the prohibited transactions that occurred. Furthermore, because neither party presented sufficient evidence that the plan received a “favorable determination” as contemplated by 11 U.S.C. § 522(b)(4)(A), to exempt the plan the Debtor had to demonstrate that it was in substantial compliance with the tax code (or if not the Debtor was not materially responsible for its failure) and that it had not previously received an unfavorable determination by a court or the IRS, pursuant to 11 U.S.C. § 522(b)(4)(B). The creditor maintained the overall burden of proof in objecting to the exemption in accordance with Fed. R. Bankr. P. 4003. Because neither the Debtor nor the creditor met its respective burden to be entitled to judgment as a matter of law on either issue the Court denied both motions.