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In re Miller

United States Court of Appeals, Eighth Circuit

February 13, 2015

In re: Joseph Matthias Miller, Debtor; Terri A. Running, Appellant
v.
Joseph Matthias Miller, Appellee, National Association of Consumer Bankruptcy Attorneys, Amicus on Behalf of Appellee(s)

Submitted October 9, 2014.

Page 712

Appeal from the United States Bankruptcy Appellate Panel for the Eighth Circuit.

For Terri A. Running, Appellant: Michael Sherwood Dove, Peter James Hemberger, Gislason & Hunter, New Ulm, MN.

For Joseph Matthias Miller, Appellee: Thomas H. Olive, Olive & Taber, Minneapolis, MN.

For National Association of Consumer Bankruptcy Attorneys, Amicus on Behalf of Appellee(s): JoAnne Mulder Nagjee, Kirkland & Ellis, Chicago, IL.

Before MURPHY, SMITH, and GRUENDER, Circuit Judges.

OPINION

Page 713

GRUENDER, Circuit Judge.

Terri Running, a bankruptcy trustee, appeals from a decision of the Bankruptcy Appellate Panel (" BAP" ) that affirmed the bankruptcy court's[1] conclusion that an annuity owned by bankruptcy debtor Joseph Miller is exempt from the bankruptcy estate. We affirm.

The relevant facts are not in dispute. Miller purchased an annuity from Minnesota Life Insurance Company (" Minnesota Life" ). Under the annuity contract, Miller agreed to make a lump-sum " Purchase Payment" of $267,319.48 to Minnesota Life. Miller used funds from his individual retirement account to make this payment. In return, Minnesota Life agreed to make an annual " Income Payment" of $40,497.95 to Miller for the next eight years. Miller later filed for Chapter 7 bankruptcy and claimed that the annuity was exempt from the bankruptcy estate. Running objected to this classification. The bankruptcy court overruled her objection, and the BAP affirmed. This appeal followed.

When reviewing an appeal from a decision of the BAP, " we act as a second reviewing court of the bankruptcy court's decision, independently applying the same standard of review as the BAP." In re Lasowski, 575 F.3d 815, 818 (8th Cir. 2009). The relevant facts here are not disputed, and we review the bankruptcy court's conclusions of law de novo. Id.

In his bankruptcy petition, Miller identified the funds in his annuity as exempt from the bankruptcy estate under 11 U.S.C. § 522(b)(3)(C). This exemption allows a bankruptcy debtor to protect from creditors " retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section . . . 408 . . . of the Internal Revenue Code." Id. Section 408 of the Internal Revenue Code, in turn, provides that an individual retirement account and an individual retirement annuity are exempt from taxation; that is, they are qualified retirement plans. 26 U.S.C. § 408(a), (b), (e)(1); Griswold v. Comm'r, 85 T.C. 869, 871 (T.C. 1985). Thus, if retirement funds are held in either of these qualified retirement plans, then the funds can be exempted from creditors' claims in bankruptcy. This exemption generally applies even if the debtor transferred the retirement funds to the qualified retirement plan from another qualified retirement plan. 11 U.S.C. § 522(b)(4)(C) (" A direct transfer of retirement funds from 1 fund or account that is exempt from taxation under section . . . 408 . . . shall not cease to qualify for exemption under [§ 522(b)(3)(C)] . . . by reason of such direct transfer." ); id. § 522(b)(4)(D) (explaining that § 522(b)(3)(C) applies if " [a]ny distribution that . . . has been distributed from a fund or account that is exempt from taxation under section . . . 408 . . . and [] to the extent allowed by law, is deposited in such a fund or account not later than 60 days after the distribution of such amount" ).

There is no dispute that the funds used to purchase Miller's annuity were retirement funds that came from Miller's individual retirement account, which was a qualified individual retirement account under 26 U.S.C. ยง 408(a). If Miller simply had left these funds in his individual retirement account, there is no question that ...


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