In re Klingshirn

Decision Date07 July 1997
Docket NumberBAP No. 97-8011.
Citation209 BR 698
PartiesIn re Kent M. KLINGSHIRN, Debtor. Kent M. KLINGSHIRN, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
CourtU.S. Bankruptcy Appellate Panel, Sixth Circuit

Eve V. Belfance, Belfance & Belfance, Akron, Ohio, argued (Kathryn A. Belfance, on brief), for Appellee.

Michael W. Davis, U.S. Department of Justice, Tax Division, Washington, D.C., (Michael W. Davis, on brief), for Appellant.

Before: LUNDIN, RHODES, and WALDRON, Bankruptcy Appellate Panel Judges.

OPINION

The bankruptcy court granted summary judgment to the debtor and denied summary judgment to the United States, holding that the government's tax claim was time-barred pursuant to the parties' agreement. Klingshirn v. United States (In re Klingshirn), 194 B.R. 154 (Bankr.N.D.Ohio 1996). We reverse.

I. ISSUE ON APPEAL

The issue on appeal is whether 26 U.S.C. § 6503(h), which allows the government additional time to collect taxes upon a taxpayer's bankruptcy filing, applies when the taxpayer had previously agreed to an extension of the deadline to collect the taxes under 26 U.S.C. § 6502(a)(2).

II. JURISDICTION AND STANDARD OF REVIEW

A "final order" of a bankruptcy court may be appealed by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). "Summary judgment constitutes a `final order' for appeal purposes in a bankruptcy context when it is in fact a final disposition of all claims asserted . . . in underlying adversary proceeding." Ernst & Young v. Matsumoto (In re United Ins. Management, Inc.), 14 F.3d 1380, 1383 (9th Cir.1994) (citations omitted). The bankruptcy court's order granting summary judgment to Klingshirn, the debtor, and denying summary judgment to the United States, is final and appealable by right.1

The bankruptcy court's legal conclusions are reviewed de novo. Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 88-89 (6th Cir.1993); Foutz v. United States, 72 F.3d 802, 804 (10th Cir.1995) (construction of the statute of limitations in the Internal Revenue Code is a question of law reviewed de novo).

III. FACTS

The Internal Revenue Service assessed Klingshirn for unpaid taxes on August 10, 1981, October 26, 1981, and November 16, 1981. The principal amount of the unpaid taxes was assessed at $49,014.76. The IRS made another tax assessment against Klingshirn on July 11, 1983. The principal amount of this tax assessment was $2,354.97. At the time that these taxes were assessed, the applicable statute of limitations provided that collection proceedings must be brought within six years of the assessment. 28 U.S.C. § 6502 (1976).

On June 25, 1986, Klingshirn entered into three separate agreements with the IRS waiving the six-year statute of limitations and giving the IRS additional time to collect the taxes. The waivers allowed the IRS to pursue collection of the assessments until December 31, 1992, giving the IRS more than five years beyond the statutory limit to collect the 1981 assessments and approximately three years beyond the statutory limit to collect the 1983 taxes. The waivers also provided that if Klingshirn made an offer to compromise, the collection period would be extended for the number of days that the offer was pending, plus one additional year.

Klingshirn made an offer to compromise on October 21, 1986. This offer remained pending until he withdrew it on June 10, 1987. The parties agree that the offer to compromise extended the deadline for collecting the taxes to August 20, 1994.

On March 6, 1991, Klingshirn filed a chapter 7 bankruptcy case. The bankruptcy court granted Klingshirn a discharge on July 25, 1991.

On September 15, 1994, Klingshirn filed the present chapter 13 case. The United States filed a proof of claim for the 1981 and 1983 tax assessments. Klingshirn filed an adversary proceeding seeking a declaratory judgment disallowing the government's claim for these taxes, asserting that the applicable statute of limitations and Klingshirn's waivers barred collection of the taxes after August 20, 1994. Klingshirn filed a motion for summary judgment.

The United States filed a cross-motion for summary judgment, arguing that under 28 U.S.C. § 6503(h), Klingshirn's chapter 7 case, filed in 1991, extended the collection period by the amount of time that the bankruptcy case was pending, plus six months. This would extend the August 20, 1994 deadline in the waiver to July 8, 1995,2 and the taxes would be subject to collection in the present bankruptcy case.

The bankruptcy court granted Klingshirn's motion for summary judgment and denied the government's motion. The court rejected the government's argument that the limitations period was extended pursuant to 26 U.S.C. § 6503(h), for two reasons. First, the court looked to 11 U.S.C. § 108(c), which incorporates applicable nonbankruptcy law and agreements that fix periods for the commencing or continuing of a civil action against the debtor in a forum other than the bankruptcy court. The bankruptcy court concluded that it had to choose between the applicable nonbankruptcy statute (26 U.S.C. § 6503(h)) and the agreement between the parties (the waiver agreement). The bankruptcy court chose the waiver because 26 U.S.C. § 6502(a)(2) "took the parties outside the purview of the statute of limitations established by 26 U.S.C. § 6502(a)(1)." Klingshirn, 194 B.R. at 158. Looking to the waiver as a self-contained document, the court reasoned that because the waiver provided for an extension of the collection period in the event the debtor submitted an offer in compromise, the absence of any reference to a similar extension or suspension in the event of a bankruptcy filing by the taxpayer or to 26 U.S.C. § 6503(h) indicated an intention not to recognize a bankruptcy filing as a basis to extend or suspend the collection limitations period. The bankruptcy court concluded, "On this state of documentation, the IRS has only the protection of 11 U.S.C. § 108(c)." Klingshirn, 194 B.R. at 160.

Second, the bankruptcy court reasoned that even if 11 U.S.C. § 108(c) did not apply, 26 U.S.C. § 6503(h) would not extend the collection limitation period because it does not apply when there is a date certain waiver executed pursuant to 26 U.S.C. § 6502(a)(2). The court concluded that 26 U.S.C. § 6502(a)(2) uses (at least as applied in this case) a "deadline approach" to fix a date certain for collection action, while 26 U.S.C. § 6502(a)(1), with its six-year3 period of limitation, uses a "computational approach" to fix the limitations period. Id. The court stated that because 26 U.S.C. § 6503(h) uses the phrase "the running of the period of limitations" and refers to a "suspension," that section can only apply to a period that runs, based on a computational approach. Id. It would be difficult, the bankruptcy court concluded, to apply a suspension approach to a period defined by an agreed deadline. Accordingly, the bankruptcy court held that the government's claim was time-barred.

IV. DISCUSSION

A bankruptcy filing can extend a deadline for a nonbankruptcy action against a debtor in two ways. First, 11 U.S.C. § 108(c) extends any statute of limitations that would otherwise expire during the pendency of the automatic stay. Second, applicable nonbankruptcy law may provide that a bankruptcy filing extends the limitations period. The Panel concludes that 11 U.S.C. § 108(c) does not apply in this case, that 26 U.S.C. § 6503(h) does apply, and that therefore the government's right of collection has not expired.

A. 11 U.S.C. § 108(c) does not affect the applicable nonbankruptcy statute of limitations in this case.

11 U.S.C. § 108(c) provides as follows:

Except as provided in section 524 of this title, 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 any suspension of such period occurring on or after the commencement of the 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.

By its language, § 108(c) extends a statute of limitations that would expire while the automatic stay is in effect. Aslanidis v. United States Lines, Inc., 7 F.3d 1067, 1073-74 (2d Cir.1993); Wilkey v. Union Bank & Trust Co. (In re Baird), 63 B.R. 60, 62-3 (Bankr.W.D.Ky.1986). Otherwise, § 108(c)(1) preserves the statute of limitations established under nonbankruptcy law. Aslanidis, 7 F.3d at 1073-74; Baird, 63 B.R. at 62-63.

When Klingshirn filed the present case on September 15, 1994, the collection period had either already expired on August 20, 1994 (if 26 U.S.C. § 6503(h) does not apply), or was set to expire on July 8, 1995 (if 26 U.S.C. § 6503(h) does apply). In the former event, 11 U.S.C. § 108(c) has no application because the bankruptcy was filed after the limitations period expired. In the latter event, the government's right of collection would not have expired by the time the government filed its proof of claim, regardless of the extension provided in 11 U.S.C. § 108(c). Section 108(c) simply does not alter the applicable nonbankruptcy statute of limitations on tax collection in this case and therefore should not be considered.

B. The statute of limitations applicable to the government's tax claim is controlled by applicable nonbankruptcy law found in the ...

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