By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com
In re Steen
Oregon Bankruptcy Court Case No. 08-35047-tmb13
April 13, 2009
§507(a)(8) of the Bankruptcy Code is the provision determining which tax debts are priority and thus must be paid in full in a Chapter 13 case. BAPCPA added an unnumbered paragraph to this subsection. Although this opinion by Judge Trish Brown is unpublished, neither the judge nor either party found any case law interpreting this unnumbered paragraph, so this appears to be a case of first impression and worthy of attention.
In her opinion the judge declined to apply equitable principles of tolling urged by the debtors but rather applied "the plain language" of the unnumbered paragraph, ruling that an IRS tax debt was a priority debt because the three-year look-back period was tolled during the 31 days that a prior Chapter 13 case had been pending, plus the 90 additional days referred to in the paragraph, a total of 121 days of tolling. The case at issue had been filed before the passing of this three years plus 121 days. Had the Chapter 13 case been filed about 75 days later, the debtors would have had about $10,000 less in priority debt to pay in their plan.
The BAPCPA "Unnumbered Paragraph"
That added paragraph in §507(a)(8) stated, as pertinent here:
The Critical Facts and the Specific Issue
Chapter 13 debtors objected to the IRS' proof of claim, which treated one tax year's liability of about $10,000 as a priority claim. Debtors had filed their Chapter 13 case 46 days plus three years since that liability's tax return had been due after a tax filing extension. But about a year earlier a prior Chapter 13 case had been filed and then dismissed only 31 days later, all well before the three-year look-back period had expired. How should the three-year look-back period and tolling rules be calculated when the prior case occurred entirely within that period?
The case turned in large part on an interpretation of the Supreme Court's holding in its 2002 unanimous opinion in Young v. U.S., 535 U.S. 43, which the legislative history clearly indicated was intended to be codified in this addition to §507(a)(8).
Debtors' Argument
Debtors looked to the Young opinion for authority that the bankruptcy court should look to the traditional equitable tolling principles "to determine the extent, if any, to which the lookback period was tolled by their prior bankruptcy filing." Under these equitable principles, the IRS rights would be protected not expanded by the tolling, with the result that, as argued by debtors' counsel: “if the three year time period had not run when a prior bankruptcy case was filed, then such period would run the later of 90 days after the end of the prior bankruptcy case or the full three year period." That is, tolling occurs only if the three year period expires less than 90 days after the prior case was over.
IRS' Argument
The IRS appeared to interpret Young instead to say that the three-year period was tolled for the length of time the prior case was pending, regardless that this occurred well within the three-year period. Thus, following the statute, the IRS argued that the look-back period is simply extended for the number of days the prior case was pending plus 90 days.
Judge Brown's Rationale
While finding that "there is some appeal to the Debtors’ argument," the judge determined that "it runs afoul of the plain language of the statute." She said that the clause stating that the "applicable time period . . . shall be suspended for . . . any time during which the stay of proceeding was in effect in a prior case under this title" "clearly contemplates that the lookback period shall cease to run during the time that a debtor is in bankruptcy plus 90 days."
As additional justification, the judge referred to another statute in the Code, §108(c), in which Congress laid out expressly a time calculation very similar to the one that Debtors sought to apply here, as indication that "had Congress intended such a result it clearly knew how to word the unnumbered paragraph to accomplish that goal. It did not do so."
The Bottom Line
The Supreme Court's Young opinion stated that "[i]t is hornbook law that limitations periods are 'customarily subject to equitable tolling,' unless tolling would be 'inconsistent with the text of the relevant statute.' " (Citations omitted.) Although Judge Brown did not refer to this in her opinion, she looked to "the text of the relevant statute" to determine, that the principles of equitable tolling were subservient to "the plain language of the statute." The three-year period of §507(a)(8) is tolled for whatever period of time a prior bankruptcy case is pending, plus 90 days, regardless when that prior case occurred in relation to that three-year period.
In her opinion the judge declined to apply equitable principles of tolling urged by the debtors but rather applied "the plain language" of the unnumbered paragraph, ruling that an IRS tax debt was a priority debt because the three-year look-back period was tolled during the 31 days that a prior Chapter 13 case had been pending, plus the 90 additional days referred to in the paragraph, a total of 121 days of tolling. The case at issue had been filed before the passing of this three years plus 121 days. Had the Chapter 13 case been filed about 75 days later, the debtors would have had about $10,000 less in priority debt to pay in their plan.
The BAPCPA "Unnumbered Paragraph"
That added paragraph in §507(a)(8) stated, as pertinent here:
An otherwise applicable time period specified in this paragraph shall be suspended for . . . any time during which the stay of proceedings was in effect in a prior case under this title . . . plus 90 days.The "applicable time period . . . suspended," or tolled, here was the one pertaining to income taxes, "for which a return . . . is last due, including extensions, after three-years before the date of the filing of the petition."
The Critical Facts and the Specific Issue
Chapter 13 debtors objected to the IRS' proof of claim, which treated one tax year's liability of about $10,000 as a priority claim. Debtors had filed their Chapter 13 case 46 days plus three years since that liability's tax return had been due after a tax filing extension. But about a year earlier a prior Chapter 13 case had been filed and then dismissed only 31 days later, all well before the three-year look-back period had expired. How should the three-year look-back period and tolling rules be calculated when the prior case occurred entirely within that period?
The case turned in large part on an interpretation of the Supreme Court's holding in its 2002 unanimous opinion in Young v. U.S., 535 U.S. 43, which the legislative history clearly indicated was intended to be codified in this addition to §507(a)(8).
Debtors' Argument
Debtors looked to the Young opinion for authority that the bankruptcy court should look to the traditional equitable tolling principles "to determine the extent, if any, to which the lookback period was tolled by their prior bankruptcy filing." Under these equitable principles, the IRS rights would be protected not expanded by the tolling, with the result that, as argued by debtors' counsel: “if the three year time period had not run when a prior bankruptcy case was filed, then such period would run the later of 90 days after the end of the prior bankruptcy case or the full three year period." That is, tolling occurs only if the three year period expires less than 90 days after the prior case was over.
IRS' Argument
The IRS appeared to interpret Young instead to say that the three-year period was tolled for the length of time the prior case was pending, regardless that this occurred well within the three-year period. Thus, following the statute, the IRS argued that the look-back period is simply extended for the number of days the prior case was pending plus 90 days.
Judge Brown's Rationale
While finding that "there is some appeal to the Debtors’ argument," the judge determined that "it runs afoul of the plain language of the statute." She said that the clause stating that the "applicable time period . . . shall be suspended for . . . any time during which the stay of proceeding was in effect in a prior case under this title" "clearly contemplates that the lookback period shall cease to run during the time that a debtor is in bankruptcy plus 90 days."
As additional justification, the judge referred to another statute in the Code, §108(c), in which Congress laid out expressly a time calculation very similar to the one that Debtors sought to apply here, as indication that "had Congress intended such a result it clearly knew how to word the unnumbered paragraph to accomplish that goal. It did not do so."
The Bottom Line
The Supreme Court's Young opinion stated that "[i]t is hornbook law that limitations periods are 'customarily subject to equitable tolling,' unless tolling would be 'inconsistent with the text of the relevant statute.' " (Citations omitted.) Although Judge Brown did not refer to this in her opinion, she looked to "the text of the relevant statute" to determine, that the principles of equitable tolling were subservient to "the plain language of the statute." The three-year period of §507(a)(8) is tolled for whatever period of time a prior bankruptcy case is pending, plus 90 days, regardless when that prior case occurred in relation to that three-year period.
New Bulletins on this website will provide summaries of other opinions within the Ninth Circuit shortly after they are published. PLEASE EMAIL ME at Andy@BLSforAttorneys.com IF YOU WOULD LIKE TO BE EMAILED A LINK TO SUCH FUTURE REPORTS.
by Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys
Andy@BLSforAttorneys.com
PLEASE NOTE that the writer is not licensed to practice law in any state. This means that he is not legally permitted to give any legal advice or perform any legal services. Any non-attorney reading this must consult an attorney about ANYTHING contained here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.
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