in re Gurney
| Decision Date | 25 January 1996 |
| Docket Number | BAP No. AZ-95-1165-PaRH. Bankruptcy No. 92-03663-PCT-RGM. |
| Citation | 192 BR 529 |
| Parties | In re Brenda J. GURNEY, fka Brenda J. Norris, Debtor. Brenda J. GURNEY, fka Brenda J. Norris, Appellant, v. STATE OF ARIZONA DEPARTMENT OF REVENUE, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
David Allegrucci, Mesa, AZ, for appellant.
Tracy S. Essig, Phoenix, AZ, J. Murray Zeigler, Phoenix, AZ, for appellee.
Before: PAPPAS,1 RUSSELL, and HAGAN, Bankruptcy Judges.
Brenda J. Gurney ("Appellant"), appeals from an order of the bankruptcy court determining that the State of Arizona Department of Revenue ("Appellee") holds, in part, an allowed priority tax claim. The essential facts are not in dispute and the question posed in this appeal is purely an issue of law.
Appellant has filed four bankruptcy cases. Appellant filed her first Chapter 132 petition on November 7, 1988 ("Case 1"). Case 1 was thereafter dismissed on December 27, 1988. Appellant therefore had a pending bankruptcy case for 49 days.
On August 1, 1989, Appellant filed another Chapter 13 petition ("Case 2"). Case 2 was filed 216 days after the dismissal of Case 1. Case 2 was dismissed on June 28, 1990. Therefore, Case 2 was pending for 332 days.
On February 19, 1991, Appellant again filed a Chapter 13 petition ("Case 3"). Case 3 was filed 237 days after the dismissal of Case 2. On December 17, 1991, Case 3 was dismissed. Therefore, Case 3 was pending for 301 days.
On March 27, 1992, Appellant filed a fourth Chapter 13 petition ("Case 4"). Case 4 was filed 99 days after the dismissal of Case 3. Case 4 is still pending and is the case in which this appeal arises.
On April 28, 1993, Appellee filed a proof of claim for taxes owed by Appellant accruing during the period of January, 1986, through December, 1991. Appellee asserted that this tax obligation was entitled to priority under 11 U.S.C. § 507(a)(7)3(E)(i).4 At the time of filing the proof of claim, Arizona Revised Statute ("A.R.S.") § 42-1831 granted Appellee an unlimited period of time to collect delinquent taxes.
On March 14, 1994, Appellant filed an objection to Appellee's proof of claim as to the taxes owed for January, 1986, through March, 1989. Appellant argued that Appellee was not entitled to priority treatment for these taxes because the three-year priority period under Section 507(a)(7)(E)(i) had expired. While this Bankruptcy Code provision is not a statute of limitation per se, it has the practical effect of a statute of limitation for purposes of priority status in bankruptcy. Appellant claimed that Case 4's filing date controlled the calculation of the three-year period and the determination of priority status. As a result, Appellant contends, the taxes owed for January, 1986 through March, 1989 were outside the priority period.
Appellee responded to the objection. It asserted that the priority provisions of Section 507(a)(7) were tolled by operation of Section 108(c) and A.R.S. § 42-1831 during the pendency of Appellant's three prior bankruptcies.
A hearing on Appellant's objection was held before the bankruptcy court on June 13, 1994, at the conclusion of which the bankruptcy court took the matter under advisement. On January 27, 1995, in a memorandum decision, the bankruptcy court held that the priority periods within Section 507(a)(7)(E) were suspended, pursuant to Section 108(c) and A.R.S. § 42-1831, during the pendency of Appellant's multiple bankruptcy filings. The court further held that although A.R.S. § 42-1831 failed to expressly contain a tolling provision, the state statute entitled Appellee to an unlimited period of time within which to collect delinquent tax liabilities. As a result, this statute, in effect, served as a tolling provision which suspended the priority periods of the Bankruptcy Code during the pendency of Appellant's prior bankruptcy cases.
The bankruptcy court calculated that during the period commencing with the filing of Case 1 on November 7, 1988, and continuing through the filing of Case 4 on March 27, 1992, Appellant enjoyed the protection of the automatic stay for a total of six hundred eighty-two (682) days of that one thousand two hundred thirty-four (1,234) day period. The bankruptcy court held that Appellee was entitled to a priority claim for taxes accruing during the 682 day period prior to March 27, 1989, the date that would normally be the cutoff date at the time of filing Case 4 but for the filing of Appellant's numerous bankruptcy petitions. Consequently, the bankruptcy court allowed Appellee a priority tax claim for taxes accrued from May 15, 1987, through March 27, 1992. Those taxes due prior to May 15, 1987, would not be allowed priority status. Appellant filed a timely appeal from the bankruptcy court's ruling.
The issue presented is whether the running of the three-year priority period in Bankruptcy Code Section 507(a)(7)(E)(i) is tolled while a debtor has a bankruptcy case pending during that period.
Issues of statutory construction are reviewed de novo. West v. United States (In re West), 5 F.3d 423 (9th Cir.1993), cert. denied, ___ U.S. ___, 114 S.Ct. 1830, 128 L.Ed.2d 459 (1994); King v. Franchise Tax Board of California (In re King), 961 F.2d 1423 (9th Cir.1992).
The parties have cited, and the Court can locate, no reported cases discussing the suspension of the priority periods within Section 507(a)(7)(E) during the pendency of a prior bankruptcy case. However, both the Ninth Circuit and the Ninth Circuit Bankruptcy Appellate Panel have addressed suspension of the priority periods within Section 507(a)(7)(A). See West v. United States (In re West), 5 F.3d 423 (9th Cir.1993) (), cert. denied, ___ U.S. ___, 114 S.Ct. 1830, 128 L.Ed.2d 459 (1994); Brickley v. IRS (In re Brickley), 70 B.R. 113 (9th Cir. BAP 1986) (). Although these decisions interpret the operation of Section 507(a)(7)(A), because of the similarity in the language and purpose of that provision, the courts' analysis should apply with equal force to Section 507(a)(7)(E).
The relevant cases, including the Bankruptcy Appellate Panel decision in Brickley and the Ninth Circuit decision in West, interpret and apply several sections of the Bankruptcy Code and the Internal Revenue Code. They are:
First, 11 U.S.C. § 108(c), which in relevant part, states that:
if applicable nonbankruptcy law . . . fixes a period of commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor . . . and such period has not expired before the date of the filing of the petition, then such period does not expire until . . . the end of such period, including any suspension of such period occurring on or after the commencement of the case.
Section 108(c) operates to extend statutes of limitation for creditors as to actions against the debtor, while the creditor is prevented from proceeding outside the bankruptcy court due to the existence of the automatic stay. West, 5 F.3d at 425.
Second, 11 U.S.C. § 507(a)(7)(A)(i) and (ii) provides that:
Third, 11 U.S.C. § 523(a)(1) provides in relevant part that:
Section 507(a)(7)(A) accords priority status to taxes that were either due within three years of filing, or were assessed within 240 days of filing. Section 507(a)(7), operating in tandem with Section 523(a)(1)(A), provides that a debtor's tax obligation is not dischargeable if it were incurred within the priority period. Under Section 1322(a)(2), such tax obligations are entitled to payment in full in a Chapter 13 plan. Conversely, if the debtor files for bankruptcy after the priority period expires, the tax debt is dischargeable.
Finally, 26 U.S.C. § 6503(b) declares that:
(b) The period of limitations on collection after assessment prescribed in section 6502 shall be suspended for the period the assets of the taxpayer are in the control or custody of the court in any proceeding before any court of the United States . . . and for six months thereafter.
Under this provision of the Internal Revenue Code ("IRC"), the statute of limitations in Section 6502 for the collection of federal taxes is suspended for any period the taxpayer's assets are in the control of the courts and extended for six months thereafter.
The first case to address the issue of whether the pendency of a previously filed bankruptcy case suspends the running of the priority periods within Section 507(a)(7) was Brickley v. IRS (In re Brickley), 70 B.R. 113 (9th Cir. BAP 1986). Brickley involved serial filings under Chapter 13 and Chapter 7. In November of 1981, debtors filed a Chapter 13 petition. IRS filed a priority proof of claim for taxes owed within three years of the filing. The Chapter 13 case took several years to complete, and when it ended, debtors filed for relief under Chapter 7 in October of 1984.
...
To continue reading
Request your trial