In re Fiels
| Decision Date | 03 April 2001 |
| Docket Number | No. 00-19543-DK.,00-19543-DK. |
| Citation | 260 BR 362 |
| Parties | In re David Luke FIELS and Joanne Aleia Fiels, Debtors. |
| Court | U.S. Bankruptcy Court — District of Maryland |
John K. Nilan, Marilyn J. Brasier, O'Malley, Miles, Nylen & Gilmore, Calverton, MD, for debtors.
Charles H. Keene, Trial Attorney, Tax Division, United States Department of Justice, Stephen M. Schenning, United States Attorney, Washington, DC, Morton A. Faller, Rockville, MD, for creditors.
Thomas L. Lackey, Bowie, MD, Chapter 13 Trustee.
David Luke Fiels and Joanne Aleia Fiels ("Debtors") filed a voluntary petition under Chapter 13 on September 5, 2000. The Internal Revenue Service ("IRS") filed a claim for unpaid 1995 and 1996 federal income taxes, designating $11,046.56 of the total claim as an unsecured priority claim under 11 U.S.C. § 507(a)(8).
The Debtors objected to the priority claim of the IRS contending that the tax liabilities at issue were too old to qualify for priority treatment as more than three years had passed since such returns were last due. The United States of America ("United States"), on behalf of the IRS, defended the priority claim by arguing that the three-year priority period provided in 11 U.S.C. § 507(a)(8)(A)(i) was tolled because the Debtors had filled a prior Chapter 13 case on April 18, 1997, which was later dismissed on December 9, 1999.1 In defense of its priority claim status, the Government made several arguments relying upon various sections of Bankruptcy Code. In sum, the United States contended that the Bankruptcy Code gives the IRS three years to collect an unpaid tax. Because the Debtors filed a previous case, the IRS's collection efforts were stayed pursuant to 11 U.S.C. § 362(a) during the pendency of that case. Accordingly, it would be unfair to debit the Government for the time the Debtors were afforded protection under the Bankruptcy Code. In reply, the Debtors asserted that there is no statutory basis for suspending the 11 U.S.C. § 507(a)(8)(A)(i) period.
The Bankruptcy Code provides to a debtor a safe harbor from creditors under 11 U.S.C. § 362(a), the automatic stay provision. Section § 362(a)(6) prohibits creditors from collecting, assessing or recovering a claim that arose against a debtor prior to the filing of the bankruptcy case. The claim of the IRS in this case for 1995 and 1996 federal income taxes was a pre-petition claim in Debtors' 1997 bankruptcy case — i.e., the liability arose before that bankruptcy petition was filed. Upon the filing of the Debtors' first petition in bankruptcy, on April 18, 1997, the automatic stay precluded the IRS from collecting the 1995 and 1996 liabilities. Upon dismissal of the case, the IRS was again free to pursue collection.
Section 507 of the Bankruptcy Code sets forth a list of claims entitled to priority treatment.2 Specifically, 11 U.S.C. § 507(a)(8)(A)(i) provides:
Unless the three years is extended by the amount of time that the IRS was stayed from collecting pursuant to 11 U.S.C. § 362(a) in the prior bankruptcy case, the claim for 1995 and 1996 federal income taxes would not be afforded priority treatment under 11 U.S.C. § 507(a)(8)(A)(i).3 However, the Bankruptcy Code does not specifically provide for tolling of the time period established by 11 U.S.C. § 507(a)(8)(A)(i) where the opportunity to collect has been stayed in a prior bankruptcy case.4
The United States Supreme Court stated in United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 240-41, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), that "there generally is no need for a court to inquire beyond the plain language of the statute." Applying this principle to the subject case would end the court's inquiry as the plain language of the Bankruptcy Code does not provide for tolling of the priority period of 11 U.S.C. § 507(a)(8)(A)(i). However, the Supreme Court further stated that:
The plain meaning of legislation should be conclusive, except in the "rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." Ron Pair Enterprises, Inc., 489 U.S. at 242, 109 S.Ct. 1026 (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982)).
Most of the courts that have explored this issue acknowledge that the plain language of the Bankruptcy Code does not permit tolling of the priority period; nonetheless, for various reasons, including the recognition that literal application of 11 U.S.C. § 507(a)(8) to a serial filing situation would produce absurd results, the courts have found that a debtor's prior bankruptcy case does suspend the running of the period.
A majority of the jurisdictions addressing the issue, including the United States Courts of Appeals for the First, Third, Seventh, Eighth, Ninth and Tenth Circuits, have found that the priority period is automatically tolled during the time that the IRS is precluded from collecting because of the automatic stay.5 The United States Courts of Appeals for the Fifth, Sixth and Eleventh Circuits permit tolling only after considering the equities on a case-by-case basis.6 The United States Court of Appeals for the Fourth Circuit has not addressed the issue.7
This court adopts the majority of the courts' conclusion providing an automatic tolling of the periods set forth in Section 507(a)(8).
Courts have analyzed the issue differently in support of the same conclusion. Some of the courts explore and/or rely upon the applicability of 11 U.S.C. § 108(c), read in conjunction with 26 U.S.C. § 6503.8 Section 108(c) of Title 11 tolls the running of nonbankruptcy law periods of limitations while a debtor is in bankruptcy and protected by the automatic stay.9 Internal Revenue Code § 6503(h) addresses the suspension of the limitations period for assessment and collection of tax while a debtor is in bankruptcy.10
Section 108(c) specifically addresses "nonbankruptcy" law and would not expressly toll a section of the Bankruptcy Code. Further, 11 U.S.C. § 108(c) tolls periods of limitations. Section 507(a) is not a statute of limitations, but rather it is section of the Bankruptcy Code setting forth the priorities of certain claims and expenses. Nonetheless, the court acknowledges that 11 U.S.C. § 108(c) does reveal Congress' concern about the potential inequitable results that serial bankruptcy filings would have on nonbankruptcy causes of action against a debtor. Further, although 26 U.S.C. § 6503(h) does not govern a claim's eligibility for priority status, the court agrees with those courts finding that Congress clearly recognized the need to suspend the running of the period of limitations for assessment and collection in 26 U.S.C. § 6503(h) during the time when the Secretary of Treasury is prohibited from collecting because of a bankruptcy filing.
These statutes, when read together with 11 U.S.C. § 507(a)(8), persuade the court that Congress intended that a governmental unit shall have the benefit of the prescribed periods in both the Bankruptcy Code and the Internal Revenue Code. In its opinion in United States v. Richards (In re Richards), 994 F.2d 763, 765 (10th Cir.1993), the United States Court of Appeals for the Tenth Circuit reasoned that:
Congress intended to give the government the benefit of certain time periods to pursue its collection efforts. By suspending the 240-day period during Richards\' first bankruptcy, the Bankruptcy Court ensured that the government was not deprived of the full benefit of the 240 days within which it could pursue its post-assessment collection remedies. This use of the equitable authority in 11 U.S.C. § 105(a) is not inconsistent with any specific provision of the Bankruptcy Code, and, in our view, is consistent with the underlying philosophy of the Bankruptcy Code. Id. at 765.11
The Tenth Circuit opined that tolling the priority period fulfills Congress' intent to ensure the government certain time periods to collect unpaid taxes while preventing a debtor from avoiding the payment of a priority tax claim by filing serial cases. United States v. Richards (In re Richards), 994 F.2d at 765.
This court agrees with the Tenth Circuit's analysis and holding that the exercise of the court's equitable powers, as provided by 11 U.S.C. § 105(a), under these circumstances is not inconsistent with more specific provisions of the Bankruptcy Code. The Bankruptcy Code specifically grants the government priority for certain delinquent income tax claims. Section 507(a)(8)(A)(i) of Title 11 unequivocally states that governmental units are entitled to such priority if a return was last due three years or less before the bankruptcy petition date. The statute gives governmental units three years to collect unpaid tax or to hold a priority claim in a bankruptcy filed within that time. This result should not change because a debtor filed serial cases.
This court respectfully disagrees with those decisions12 that hold that the periods in 11 U.S.C. § 507(a)(8) may be tolled on a basis. This court's holding derives from Congress' intent and is not dependent upon the vagaries of a debtor's intent or other factual circumstances.
Accordingly, for the reasons stated above, the court finds that the priority period of 11 U.S.C. § 507(a)(8)(A)(i) was suspended during the pendency of the automatic stay in Debtors' prior Chapter 13 case; therefore, the priority claim for federal income...
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