In re Klingshirn

• Decision Date: 28 March 1996
• Docket Number: Bankruptcy No. 94-51445. Adv.No. 94-5130.
• Parties: In re Kent M. KLINGSHIRN, Debtor. Kent M. KLINGSHIRN, Plaintiff, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Defendant.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio

194 B.R. 154 (1996)

In re Kent M. KLINGSHIRN, Debtor.

Kent M. KLINGSHIRN, Plaintiff, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Defendant.

Bankruptcy No. 94-51445. Adv.No. 94-5130.

United States Bankruptcy Court, N.D. of Ohio, Eastern Division at Akron.

March 28, 1996.

Kathryn Belfance, Akron, OH, for plaintiff.

Michael Davis, Department of Justice, Tax Division, Washington, DC, for defendant.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING SUMMARY JUDGMENT IN FAVOR OF DEFENDANT

Marilyn SHEA-STONUM, Bankruptcy Judge.

This declaratory judgment action is before the Court on cross-motions for summary judgment filed by Plaintiff-Debtor, Kent Klingshirn (the "Debtor"), and by Defendant, Internal Revenue Service ("IRS"). This proceeding arises in a case referred to this Court by the Standing Order of Reference entered in this District on July 16, 1984. It is determined to be a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (B) and Bankruptcy Rule 7001(9) over which this Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b).

I. PROCEDURAL HISTORY

On September 15, 1994, the Debtor filed a petition under chapter 13 of the Bankruptcy Code. Schedule E of the Debtor's petition listed one unsecured, priority debt owing to the IRS in the amount of $52,454.87. Paragraph 2 of the Debtor's Plan indicated that the amount owing to the IRS was disputed and that it would be subject to an objection by the Debtor. The IRS filed a proof of claim¹ for $174,923.58 in past due taxes, penalties, and interest (the "Claim")² that it claimed were owing as of the date the petition was filed.

On November 29, 1994, the Debtor filed a Complaint for Declaratory Judgment³ requesting that this Court determine that the Claim was barred by the running of the limitations period and that, therefore, the IRS has no viable claim in his pending chapter 13 case. After obtaining an extension, the IRS timely filed its Answer on February 8, 1995 alleging that the statute of limitations for collection of the Debtor's taxes had been tolled by a previous bankruptcy filing and that the Debtor's taxes were therefore still due.

After a pre-trial conference, held on May 10, 1995, it was determined that this matter might be resolved by the filing of dispositive motions. On August 31, 1995, the Debtor filed a Motion for Summary Judgment. On October 2, 1995, the IRS filed a Cross-Motion for Summary Judgment and a response to the Debtor's motion. On November 6, 1995, the Debtor filed a brief in opposition to the IRS' cross-motion and on December 1, 1995, the IRS filed a reply to that document. The matter is now poised for resolution.⁴

II. FACTS

The undisputed, pertinent facts of this case are set forth in the following chronology:

                August-November, 1981   Form 9415 taxes assessed
                                        against the Debtor
                                        for unpaid taxes in
                                        the principal amount of
                                        $49,014.76
                July 11, 1983           Form 9406 taxes assessed
                                        against the Debtor
                                        for unpaid taxes in
                                        the principal amount of
                                        $2,354.97
                June 25, 1986           The Debtor and IRS executed
                                        Tax Collection
                                        Waivers7 (the "Waiver")
                                        and agreed that the
                                        collection period for the
                                        aforementioned taxes
                                        would be extended to
                                        December 31, 1992 and
                                        further agreed that "if
                                        an offer in compromise
                                        is made by the taxpayer(s)
                                        on or before the
                                        date to which the statutory
                                        period has been extended
                                        then the time
                                        for making any collection
                                        will be further extended
                                        beyond that date
                                        by the number of days
                                        ... the offer is pending
                                        ..., plus one year."
                October 21, 1986        The Debtor submitted
                                        an Offer in Compromise
                                        to IRS
                June 10, 1987           The Debtor withdrew
                                        the Offer in Compromise
                March 6, 1991           The Debtor filed for relief
                                        under chapter 7 of
                                        the Bankruptcy Code.
                July 25, 1991           The Debtor received a
                                        discharge.
                December 31, 1992       Original deadline for
                                        commencement of IRS
                                        collection activity as
                                        specified in the Waiver.
                August 20, 1994         Deadline for commencement
                                        of IRS collection
                                        activity as extended according
                                        to the terms of
                                        the Waiver.
                September 13, 1994      IRS attached the Debtor's
                                        checking account
                                        for $179,722.87 in taxes,
                                        penalties and interest
                                        related to the 1981 and
                                        1983 assessments.
                September 15, 1994      The Debtor filed for relief
                                        under chapter 13 of
                                        the Bankruptcy Code.
                

Based upon these undisputed facts the parties disagree as to the appropriate limitations period governing the IRS' collection of taxes.

III. RELEVANT STATUTES

Section 6502 of the Internal Revenue Code sets forth two alternative time frames in which the IRS may collect taxes from a taxpayer after the taxes have been assessed. That statute states:

(a) Length of period. — Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun —

(1) within 6 years after the assessment of the tax, or

(2) prior to the expiration of any period for collection agreed upon in writing by the Secretary and the taxpayer before the expiration of such 6-year period . . .

The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

26 U.S.C. § 6502 (1989) (omitting provisions not relevant to this case).⁸

Both the Bankruptcy Code and the Internal Revenue Code address the potential modification of certain periods of time due to the pendency of a bankruptcy case. Section 108(c) of the Bankruptcy Code states:

If applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for 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 later of —

(1) the end of such period, including the suspension of such period occurring on or after the commencement of this case; or

(2) 30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim.

11 U.S.C. § 108(c). Section 6503(h) of the Internal Revenue Code states:

Cases under title 11 of the United States Code — The running of the period of limitations provided in section 6501 or 6502 on the making of assessments or collection shall, in a case under title 11 of the United States Code, be suspended for the period during which the Secretary is prohibited by reason of such case from making the assessment or from collecting and —

* * * * * *

(2) for collection, 6 months thereafter.

26 U.S.C. § 6503(h).⁹

IV. THE PARTIES' LEGAL CONTENTIONS

A. THE IRS

The IRS contends that 26 U.S.C. § 6503(h) mandates that the limitations period provided for in the Waiver should be lengthened by the time in which the Debtor's prior chapter 7 case was pending, thus extending that period to June 28, 1995. The IRS argues that the time in which it could properly commence collection activities for the Claim was extended, first, by the execution of the Waiver, second, by the submission of an offer in compromise, and finally, by the filing of the Debtor's chapter 7 bankruptcy in accordance with 26 U.S.C. § 6503(h). The IRS thus implicitly argues that, in the terms of 11 U.S.C. § 108(c), this controversy is controlled by "an applicable nonbankruptcy law that fixed a period for commencing . . . a civil action in a court other than a bankruptcy court on the claim against the debtor." See 11 U.S.C. § 108(c).

B. THE DEBTOR

The Debtor contends that the collection period expired on August 20, 1994, the end of the period specified in the Waiver as lengthened to include the time the offer in compromise was pending plus one year. The Debtor further contends that, because the deadline for commencement of the IRS' collection activity in this case is governed by 26 U.S.C. § 6502(a)(2) and is not a limitations period addressed § 6502(a)(1), the period of time during the pendency of the Debtor's prior chapter 7 case cannot be "tacked on" to the August 20, 1994 date.

The Debtor attempts to distinguish subsection (a)(1) of 26 U.S.C. § 6502, arguing that it contemplates the passing of a defined period of time, from subsection (a)(2) of 26 U.S.C. § 6502, arguing that it contemplates the passing of a certain date established by agreement, and not a "block of time which may run down." The effect of this distinction, the Debtor argues, is that there can be no extension, pursuant to 26 U.S.C. § 6503(h), of the latter, and therefore the duration of a prior bankruptcy filing cannot be "tacked on" to extend the date certain. As authority for this position, the Debtor relies upon ...