Jeffrey Scott Trawick and Stephanie F Berry

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re:
JEFFREY SCOTT TRAWICK and
STEPHANIE F. BERRY,
Debtors.
Case No. 2:12-bk-12581-RK
Chapter 7
STATEMENT OF DECISION ON
TRUSTEE’S MOTION OBJECTING TO
DEBTORS’ AMENDED CLAIM OF
EXEMPTION IN THE INHERITED IRA
UNDER 11 U.S.C. § 522(b)(3)(C)
DATE: December 10, 2013
TIME: 1:30 p.m.
PLACE: Courtroom 1675
Roybal Federal Bldg
255 East Temple Street
Los Angeles, CA 90012
The contested matter of the motion of Richard K. Diamond, Chapter 7 Trustee,
objecting to the amended claim of exemption of debtors Jeffrey Scott Trawick and
Stephanie F. Berry in the asset known as the Inherited IRA (or Individual Retirement
Account) came on for hearing before the undersigned United States Bankruptcy Judge
on December 10, 2013. Kevin D. Meek, of the law firm of Danning, Gill, Diamond &
Kollitz, LLP, appeared for the trustee. Mark T. Young, of the law firm of Donahoe &
Young, LLP, appeared for the debtors.
FILED & ENTERED
DEC 20 2013
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	gae
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At the hearing, the parties advised the court that the trustee was not filing any
response to the debtors’ supplemental evidence and briefing to show that the Inherited
IRA has received a favorable determination under Section 7805 of the Internal Revenue
Code, 26 U.S.C.,1 to qualify for exemption pursuant to Section 522(b)(3)(C) of the
Bankruptcy Code, 11 U.S.C., that there were no remaining factual issues regarding
whether the Inherited IRA received such a favorable determination and that the court may
proceed to rule on the trustee’s motion objecting to the amended claim of exemption in
this asset, having ruled upon the other issues pertaining to the motion. The court notes
that at the hearing, the parties reserved their rights to contest the court’s ultimate
disposition of the motion on appeal.
Having reviewed the debtors’ supplemental evidence and briefing on whether the
Inherited IRA received a favorable determination under the Internal Revenue Code, and
having considered the lack of a response to this supplemental evidence and briefing,
the court finds that the debtors have met their burden of showing the Inherited IRA has
received a favorable determination under Section 7805 of the Internal Revenue Code for
purposes of Section 522(b)(3)(C) of the Bankruptcy Code by submitting admissible and
credible evidence that the Inherited IRA was issued by an annuity insurance company
pursuant to a Favorable Determination Letter issued by the Internal Revenue Service. As
attested to in a declaration of an officer and custodian of business records of the annuity
insurance company, Americo Financial Life and Annuity Insurance Company, Dallas,
Texas, the Inherited IRA was an individual annuity policy issued as an individual
retirement account to Roberta J. Berry, debtor Stephanie J. Berry’s mother, which was
issued in April 2003 by the company pursuant to a Favorable Determination Letter issued
by the Internal Revenue Service on or about September 25, 2002. Declaration of M.
Michelle Bridges (“Bridges Declaration”), filed on November 22, 2013, ¶ 3. A copy of the
1 Section 7805 of the Internal Revenue Code authorizes the Secretary of the Treasury to prescribe rules and
regulations for enforcement of the internal revenue laws, including the issuance of rulings. Such authority has been
redelegated to the Internal Revenue Service. 26 U.S.C. § 7805.
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IRS Favorable Determination was attached to the Bridges Declaration, which states in
pertinent part:
“[T]he form of the prototype . . . annuity contract identified above is acceptable
under § 408 of the Internal Revenue Code . . . Each individual who adopts this
approved prototype will be considered to have an IRA that satisfies the
requirements of Code section 408, provided the individual follows the terms of the
approved prototype, does not engage in certain transactions specified in Code
section 408(e). . . .”
Exhibit 2 to Bridges Declaration.2 According to Ms. Bridges, the IRS Favorable
Determination Letter has never been revoked and remains in effect as to the Inherited
IRA. Bridges Declaration, ¶ 4, and Exhibit 2 attached thereto. Furthermore, the notices
sent by the annuity insurance company to Roberta J. Berry, the original owner of the
Inherited IRA and debtor Stephanie J. Berry’s mother, which notices are business
records of the company, further indicate that the Inherited IRA was a tax-exempt account
pursuant to the Internal Revenue Code consistent with the IRS Favorable Determination
Letter. Bridges Declaration, ¶ 5, and Exhibit 3 attached thereto.
As the Ninth Circuit Bankruptcy Appellate Panel stated in Mullen v. Hamlin (In re
Hamlin), 465 B.R. 863 (9th Cir. BAP 2012), in order “[f]or an IRA to be exempt under [11
U.S.C.] § 522(b)(3)(C), it must meet only two requirements: (1) the amount debtor seeks
to exempt must be retirement funds; and (2) the retirement funds must be in an account
that is exempt from taxation under one of the provisions of the [Internal Revenue Code]
specified in § 522(b)(3)(C).” 465 B.R. at 870 (internal quotation marks omitted). As
provided in Section 522(b)(4)(A), if the retirement funds are in a retirement fund that has
received a favorable determination under Section 7805 of the Internal Revenue Code and
2 Section 408 of the Internal Revenue Code generally governs the tax treatment of individual retirement accounts and
sets forth the conditions of exemption for such accounts for federal income tax purposes. 26 U.S.C. § 408.
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that determination is in effect when the bankruptcy petition is filed, the funds are
presumed to be exempt from the bankruptcy estate. 11 U.S.C. § 522(b)(4)(A).
As previously discussed in the court’s earlier memorandum decision, the court has
previously concluded that the funds of the Inherited IRA may be otherwise considered
retirement funds qualifying for exempt status based on the plain language of 11 U.S.C. §
522(b)(3)(C) and thus, the first prong of the two-part test of Hamlin is met. Memorandum
Decision on Cross-Motions for Summary Judgment in Adversary Proceeding and on
Trustee’s Objection Exemption in Main Bankruptcy Case, filed on August 29, 2013, at 19-
23, citing inter alia, In re Hamlin, 465 B.R. at 870-873 (citations omitted).
Because as discussed above, the debtors have now shown that the retirement
funds in the Inherited IRA were in a retirement fund that received a favorable
determination under Section 7805 of the Internal Revenue Code that was still in effect as
of the date the debtors filed their bankruptcy petition, the debtors have proven by a
preponderance of the evidence that the funds in the Inherited IRA are in an account
exempt from taxation under one of the Internal Revenue Code provisions specified in
Section 522(b)(3)(C) of the Bankruptcy Code, which is the second prong of the two-part
test of Hamlin. In re Hamlin, 465 B.R. at 870. Specifically, the uncontroverted evidence
before the court shows that the Inherited IRA is in a retirement fund that received a
favorable IRS determination that was in effect as of the petition date, and thus, is entitled
to the presumption of exemption for purposes of Section 522(b)(3)(C) of the Bankruptcy
Code pursuant to Section 522(b)(4)(A). Trustee has not made any evidentiary showing
to rebut this presumption.
Accordingly, the court now concludes that the funds in the Inherited IRA are
exempt based on the debtors’ amended claim of exemption and that the trustee’s motion
objecting to the debtors’ amended claim of exemption as to these funds should be
denied.
///
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By separate order filed concurrently herewith, the court denies the trustee’s motion
objecting to Debtors’ amended exemption in inherited IRA under 11 U.S.C.
§ 522(b)(3)(C).
IT IS SO ORDERED.
###
Date: December 20, 2013
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NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify) STATEMENT OF DECISION ON
TRUSTEE’S MOTION OBJECTING TO DEBTORS’ AMENDED CLAIM OF EXEMPTION IN THE
INHERITED IRA UNDER 11 U.S.C. § 522(b)(3)(C) was entered on the date indicated as “Entered” on the
first page of this judgment or order and will be served in the manner indicated below:
I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (“NEF”) – Pursuant to controlling
General Order(s) and Local Bankruptcy Rule(s) (“LBR”), the foregoing document will be served on the
following person(s) by the court via NEF and hyperlink to the judgment or order. As of December 20, 2013,
the following person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary
proceeding to receive NEF transmission at the email address(es) indicated below:
Richard K Diamond rdiamond@dgdk.com, DanningGill@gmail.com
Richard K Diamond (TR) jlv@dgdk.com,
rdiamond@ecf.epiqsystems.com;DanningGill@Gmail.com
Howard Kollitz HKollitz@DGDK.Com, DanningGill@gmail.com
Ramesh Singh claims@recoverycorp.com
United States Trustee (LA) ustpregion16.la.ecf@usdoj.gov
Mark T Young myoung@donahoeyoung.com
II. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or
order was sent by United States Mail, first class, postage prepaid, to the following person(s) and/or
entity(ies) at the address(es) indicated below:
Debtors
Jeffrey Scott Trawick
Stephanie F Berry
24943 Greensbrier Drive
Stevenson Ranch, CA 91381
Kevin Meek
Danning Gill Diamond and Kollitz
1900 Ave of the Stars 11th Fl
Los Angeles, CA 90067
III. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment
or order which bears an AEntered@ stamp, the party lodging the judgment or order will serve a complete
copy bearing an AEntered@ stamp by U.S. Mail, overnight mail, facsimile transmission or email and file a
proof of service of the entered order on the following person(s) and/or entity(ies) at the address(es),
facsimile transmission number(s), and/or email address(es) indicated below:
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