182 B.R. 293 (Bkrtcy.N.D.Ala. 1995), 94-00212, In re Gore
| Citation | 182 B.R. 293 |
| Party Name | In re Michael Lee GORE and Pamela Jo Gore, Debtors. Michael Lee GORE and Pamela Jo Gore, Plaintiffs, v. UNITED STATES of America, Internal Revenue Service, Defendants. Bankruptcy No. 94-02775-BGC-7. |
| Case Date | January 09, 1995 |
| Court | United States Bankruptcy Courts, Eleventh Circuit |
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Stephen Grimes, Gardendale, AL, for plaintiffs-debtors.
Richard O'Neal, Asst. U.S. Atty., Birmingham, AL, for defendants.
MEMORANDUM OPINION
BENJAMIN COHEN, Bankruptcy Judge.
This matter came before the Court for a trial on the Complaint to Determine Dischargeability of Debt filed by the Debtors, Michael Lee Gore and Pamela Jo Gore. Ms. Pamela Jo Gore, the Debtor, Mr. Stephen Grimes, the attorney for the Debtors, and Mr. Richard O'Neal, Assistant United States Attorney, on behalf of the Defendants, appeared. The matter was submitted on the record in the case, and the stipulations, assertions and arguments of counsel, who advised the Court that no testimony would be offered. The Debtors contend that certain 1990 income taxes should be discharged by this Chapter 7 bankruptcy. The IRS disagrees.
This Court's analysis of this matter must begin with the general rule from section 523(a) of the Bankruptcy Code that income taxes which were due more than three years before a bankruptcy was filed are discharged by that bankruptcy. A brief explanation is required. That rule is framed in section 523 in the negative and explains which taxes are not included in a discharge. For instance, from section 523 one learns that a debtor's discharge does not include debts for taxes of the kind described in 11 U.S.C. § 507(a)(7)(A). Moving to section 507(a)(7)(A) one learns that the taxes which may not be discharged by section 523 include income taxes which became due within three years of the date the bankruptcy was filed, income taxes which were assessed within 240 days of the date the bankruptcy was filed, and income taxes which were not assessed before the bankruptcy was filed but which were still assessable after the bankruptcy was filed. In other words, taxes which fall within the three exceptions listed in section 507(a)(7)(A) are not discharged by way of section 523 and are available for collection by the IRS. And as explained later, only one of those exceptions, the three year qualification of section 507(a)(7)(A)(i) is at issue in this case. 1
I. FACTS
The parties agree that the Debtors owe income taxes, as well as related penalties, for the year 1990. A tax return for the 1990
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taxes was due on April 15, 1991. It was timely filed. On October 18, 1991, the Debtors filed a case under Chapter 13 of the Bankruptcy Code. The IRS was not listed as a creditor in that case and did not receive any payment during that case. The Chapter 13 case was dismissed on April 3, 1992, some 169 days after it was filed. The taxes which the Debtors owe were based on 1990 income that was not reported by the Debtors on their tax return. 2 Those taxes were assessed by the IRS on September 6, 1993, some 247 days before the present case was filed, but well after the prior Chapter 13 case was dismissed. The present case was filed on May 12, 1994.
II. CONTENTIONS
The Debtors contend that because their 1990 taxes were due more than three years before they filed their second bankruptcy and because the same taxes were assessed more than 240 days before this bankruptcy was filed, then none of the exceptions of section 507(a)(7) apply and consequently their 1990 taxes do not fall within those excluded from a discharge by section 523. In other words, the 1990 taxes are discharged. The IRS contends that the three year period of section 507(a)(7) was suspended during the time the Debtors were in their first bankruptcy case, which would allow the IRS additional time to collect the delinquent taxes.
III. ISSUE
The issue before this Court is whether the three year periods of sections 507(a)(7)(A)(i) and 523(a)(7)(B) were suspended during the Debtors' prior bankruptcy case. 3 This issue has a statutory and an equitable component.
IV. STATUTORY TIME SUSPENSION
A. Taxes and Plain Language
The IRS contends that the three year priority period of section 507(a)(7)(A)(i) and the three year dischargeability period of section 523(a)(7)(B) are suspended by operation of 11 U.S.C. § 108(c) and 26 U.S.C. § 6503(h). Because those statutes explicitly state that they apply only to nonbankruptcy law, this Court disagrees with the IRS. 4
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The three year periods of sections 507(a)(7)(A)(i) and 523(a)(7)(B) are bankruptcy law. Sections 108(c) and 6503(h) do not apply to bankruptcy laws. In re Quenzer, 19 F.3d 163 (5th Cir.1993); In re Eysenbach, 170 B.R. 57 (Bankr.W.D.N.Y.1994). That plain language interpretation of those sections should be sufficient to decide the issue in this case; however, because so much has been written on this issue which disagrees with this Court's position, further explanation is mandatory. The analysis of the plain language of the statutes has both a bankruptcy law and a nonbankruptcy law component.
(1) Bankruptcy Law Perspective
From the bankruptcy law perspective, the Court of Appeals for the Eleventh Circuit addressed a similar tax, time period, issue and found that the plain language of the statute controlled. In In re Burns, 887 F.2d 1541, 1544 (11th Cir.1989) the debtor contended that the plain language of section 523(a)(7)(B) required discharge of tax penalties imposed with respect to otherwise nondischargeable income taxes that were more than three years old. "Since her tax returns for 1977 through 1979 are transactions or events occurring more than three years prior to her 1984 Chapter 7 filing, Burns reasoned that the penalties associated therewith are discharged." Id. at 1542. The court of appeals agreed with the debtor, based on the plain language of the statute, and rejected the IRS's contention that legislative history dictated that tax penalties be treated the same as the related tax obligations. In that regard, the Court stated:
Pre-Code law was silent on the dischargeability of liability for tax penalties. Courts generally took the position that the penalties survived a discharge in bankruptcy, resting either on the theory that the penalties constituted a nonprovable debt or on the theory that the penalties were to be treated in all respects as taxes because they were assessed and collected in the same manner as taxes. The second of these theories linked the dischargeability of the penalty with the underlying tax liability. The IRS pursued tax penalties in accord with the second theory during the ten years immediately preceding enactment of the Bankruptcy Code. The Commission on Bankruptcy Laws had the intention of clarifying and rationalizing the dischargeability status of various penalties, including tax penalties, when it proposed a predecessor to section 523(a)(7) of the Bankruptcy Code.
Section 523(a)(7), then, innovates on the matter of tax penalties.... While the language of this subsection frames nondischargeable tax penalties as an exception to an exception to an exception, once the triple negative is taken into account the meaning of the provision gains clarity. A tax penalty is discharged if the tax to which it relates is discharged (in the precise terms of the statute, not nondischargeable) or if the transaction or event giving rise to the penalty occurred more than three years prior to the filing of the bankruptcy petition. Since the statute uses the disjunctive, a tax penalty that does not qualify for discharge under one of the two aforementioned circumstances may still qualify under the other.
Because the Bankruptcy Code introduced a sweeping overhaul to a substantial part of the system, "it is not appropriate or realistic to expect Congress to have explained with particularity each step it took. Rather, as long as the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute." [United States v. Ron Pair Enterprises, Inc., 489 U.S. 235 at 240-42, 109 S.Ct. 1026 at 1030, 103 L.Ed.2d 290 (1989) ]. We must therefore look to the language of section 523(a)(7) itself, and where, as here, that language is plain, we must enforce it according
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to its terms. Those terms provide that Burns' tax penalties were not exempt from the discharge entered in her Chapter 7 case.
887 F.2d at 1543-44.
The circuit court's dogged refusal in Burns to embellish or modify the meaning and scope of the plain language of the statute governing the dischargeability of tax penalties leads to the conclusion that the statutes relied on here by the IRS do not operate to toll the time periods specified in sections 507(a)(7)(A)(i) and 523(a)(7)(B) during the pendency of the Debtors' previous bankruptcy case. Accord, In re Quenzer, 19 F.3d 163 (5th Cir.1993); In re Eysenbach, 170 B.R. 57 (Bankr.W.D.N.Y.1994).
(2) Nonbankruptcy Law Perspective
From the nonbankruptcy law perspective, 11 U.S.C. § 108(c) provides that if someone is precluded by bankruptcy from filing suit in a nonbankruptcy forum against a debtor within the time fixed by "applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement," then the period for filing the suit does not expire until the later of the end of such period, "including any suspension of the period occurring on or after the commencement of the [bankruptcy] case," or 30 days after notice of the termination of the automatic stay (parenthetical added).
Section 6503(h) of the Internal...
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