James Nichols Beverly Ann Nichols v. David A. Birdsell

This case presents a new issue for our court: whether debtors’ pre-bankruptcy application of their right to tax refunds to post-bankruptcy tax obligations constitutes an asset that must be turned over to the bankruptcy trustee pursuant to the Bankruptcy Code, 11 U.S.C. § 542 . Plaintiffs-Appellants James W. Nichols and Beverly Nichols (Debtors) appeal from the district court’s order denying their appeal from the bankruptcy court decision. In the underlying case, the bankruptcy court concluded that the pre-petition application of the right to the tax refund was an asset as of the petition date, and that the Debtors must therefore deliver to the trustee the value of the property under section 542(a). We agree, and affirm the district court’s order denying the Debtors’ appeal.

I.

David A. Birdsell, the trustee of the Debtors’ bankruptcy estate (Trustee), filed an amended complaint in the United States Bankruptcy Court alleging a claim in the Debtors’ interest in tax overpay-ments. The facts are not in dispute. The Debtors overpaid their 2001 federal and state income tax returns and were entitled to tax refunds as a result of the overpay-ments. Rather than obtain a current refund of…