In re Milan Steel Fabricators, Inc.
|30 April 1990
|Bankruptcy No. B87-01540.
|113 BR 364
|In re MILAN STEEL FABRICATORS, INC., Debtor.
|U.S. Bankruptcy Court — Northern District of Ohio
Chris L. Hurlbut, Edward R. Brown, Arter & Hadden, Cleveland, Ohio, for debtor.
William J. Kopp, Asst. U.S. Atty., Cleveland, Ohio, for I.R.S.
This memorandum considers whether the amended claim of the Internal Revenue Service (the "IRS") should be allowed in this chapter 11 proceeding over the Debtor's objection. The IRS originally filed a proof of claim for $3,146.26 in July 1987. Two years later it filed an amended proof of claim for $17,948.95. The Debtor filed its objection to the amended proof of claim in January, 1990. In March 1990 the IRS filed a further amendment reducing its total claim to $15,494.35.
Prior to the final hearing on this matter on April 5, 1990, the parties had concluded that the bulk of the IRS' amended claim had been provided for in Debtor's plan through the allowance of state unemployment taxes. This left in dispute only a $1,564.70 priority penalty claim, a $22.99 priority interest claim and a $36.29 general unsecured interest claim relating to the Debtor's 1986 FUTA tax, and a $175.50 priority penalty claim, a $38.80 priority interest claim and a $10.98 general unsecured interest claim relating to the Debtor's 1987 highway use tax. Debtor objects generally that the amended claims are untimely since they were filed some 22 months after the bar date. Its specific objection to the FUTA penalty is that it exceeds the $60 penalty asserted in the original claim by 2600 percent. It also objects to the highway use taxes because no highway use tax claims were asserted in the original proof of claim. It articulated no objection other than tardiness to the 1986 FUTA interest claims. For the reasons noted below, I have allowed the amended interest claims in respect of the FUTA tax and have sustained the Debtor's objections to the 1986 highway use tax claims as well as to the amended penalty claim in respect of the 1986 FUTA tax.
The parties filed several briefs in support of their positions. The IRS supplemental brief filed March 21, 1990 included the affidavit of Rosemary Selepena, a bankruptcy specialist with the IRS in the Cleveland District who was responsible for the IRS claims against the Debtor (the "Selepena Affidavit"). There appears to be no dispute under applicable tax law as to the validity of the taxes, penalties or interest reflected in the IRS amended proof of claim. The parties were content to submit the matter on the basis of their briefs, including the Selepena Affidavit. The facts found in this memorandum are based upon the Selepena Affidavit, the record in the case, the hearings before the Court and the pleadings and briefs submitted by the parties.
This is a core proceeding under 28 U.S.C. § 157(b)(2)(B). This Court has jurisdiction in this matter under 28 U.S.C. § 1334(b) and General Order No. 84 entered in this District on July 16, 1984. This memorandum sets forth the findings of fact and conclusions of law required by Bankruptcy Rule 7052.
Debtor filed its chapter 11 petition on May 4, 1987. The Court set September 14, 1987 as the bar date for asserting claims against the Debtor in the notice of the 341 creditors' meeting sent to all creditors including the IRS. The IRS filed its original proof of claim on July 14, 1987, some two months before the bar date. That proof asserted priority tax claims in the aggregate amount of $3,146.26, all but $16.68 of which related to Debtor's 1986 FUTA taxes. The claim for 1986 FUTA taxes and interest was prefaced by the words "Estimated Amount" under the heading "Date Tax Assessed". The $60 penalty shown in that proof of claim was set forth on a separate line without this preface.
According to the Selepena Affidavit the claim for 1986 FUTA taxes was estimated because the Debtor was tardy in filing its 1986 FUTA tax return. Apparently that return was due January 31, 1987 but was in fact filed on July 6, 1987, three days before the IRS original proof of claim was prepared but more than two months before the bar date. According to Ms. Selepena that return "was posted into the system on October 5, 1987, which was after the claims bar date" and "penalties were subsequently claimed on the amended proofs of claim for failure to file in the amount of $1,020.45; failure to deposit in the amount of $453.54; and failure to pay up to the petition date in the amount of $90.71."
The IRS' amended proof of claim asserting these penalties was filed on July 24, 1989. That amendment for the first time asserted claims in respect of highway use taxes. The Debtor's 1986 highway use tax return, although due August 31, 1986, was in fact not filed until May 28, 1987 or about six weeks prior to the time the IRS filed its original proof of claim and about three and a half months before the bar date. According to Ms. Selepena the original proof of claim was prepared July 9, 1987, and at that point "the claim for Highway Use tax was not included on the original Proof of Claim because it had not yet been posted into the system." She explains that "normally it takes up to four months from the time that a tax return is filed before it is posted into the computer system by the IRS Service Center." According to Ms. Selepena "in this case, the liability was posted into the system on July 20, 1987, six days after the filing of the original Proof of Claim . . ." but about two months before the bar date.
Debtor filed a proposed plan of reorganization and disclosure statement on September 12, 1989 and an amended disclosure statement on September 25, 1989. The disclosure statement was approved at a hearing held November 22, 1989 and was set for confirmation on January 25, 1990 pursuant to the Court's order entered December 13, 1989. Although the IRS initially objected to confirmation, its objection was withdrawn pursuant to the order of confirmation which reserved the parties' dispute as to the FUTA penalty and the other open items for future disposition. Debtor's plan was confirmed at the hearing held on January 25, 1990.
The IRS has been a party to numerous cases in which its right to amend a proof of claim after the bar date has been challenged. The common theme of these cases, as of cases involving other creditors, has been an attempt to reconcile the constraint of bar dates imposed under the Bankruptcy Code and Bankruptcy Rules against a reluctance to disallow otherwise valid claims.
The threshold inquiry for most courts has been whether the amended proof states a brand new claim, in which case it is not allowable as an amendment, or whether the amended claim bears some relationship to the original claim sufficient to escape this disqualification. See United States v. International Horizons, Inc. (In re International Horizons, Inc.), 751 F.2d 1213 (11th Cir.1985); Norris Grain Company v. United States (In re Norris Grain Company), 81 B.R. 103 (Bankr.M.D.Fl.1987). But the cases are in apparent conflict as to what relationships qualify. In In re Midwest Teleproductions Co., Inc., 69 B.R. 675 (Bankr.N.D.Ohio 1987), the case on which the IRS places its primary reliance, the court held the FUTA taxes claimed for the first time in the amendment were of the "same specific genre" as the FICA taxes asserted in the original claim since both were payroll taxes. 69 B.R. at 677. The IRS' standard proof of claim states that "the ground of liability is taxes due under the Internal Revenue laws of the United States."
In this case the amended FUTA penalty claim relates to the same 1986 tax and penalty as the penalty asserted in the original claim. Therefore it pretty clearly meets the same claim test despite its quantum leap in amount from $60 to $1,564.70. There is, on the other hand, no counterpart in the original proof to the highway use tax claims in the amended proof. The IRS has not suggested, nor do I discern, any connection, generic or otherwise, between highway use taxes and FUTA taxes other than the fact that "the ground of liability is taxes due under the Internal Revenue Laws of the United States."
Several cases have suggested that this connection may be sufficient for any tax claimed in the amendment to escape disallowance under the new tax-same tax dichotomy, In re Emerald Green Corp., 2 BCD (CRR) 938, 9 CBC 780 (Bankr.E.D.N.Y. 1976); see also Menick v. Hoffman, 205 F.2d 365 (9th Cir.1953); but most cases have declined to be so liberal. See In re International Horizons Inc., supra; In re Bondi's Valu-King, Inc., 102 B.R. 108 (Bankr. N.D.Ohio 1989); In re Norris Grain Co., supra. But the courts which appear to have embraced this attenuated standard have also involved other factors not present here. In Emerald Green, supra, the amendment was filed one day after the bar date. In Menick v. Hoffman, supra, the debtor, not the IRS, urged allowance of the amended tax claim to enhance its fresh start. In any event I am unaware of any case in this circuit which has allowed a new tax in an amended proof of claim to relate back to the original proof solely because it constituted "taxes due under the Internal Revenue Laws of the United States." "Standing alone, this is certainly insufficient to permit the freewheeling, belated filing of tax claims under the guise of amendments." In re Midwest Teleproductions Co., Inc., supra at 677.
The requirement that creditors file proofs of claim within a limited time in bankruptcy cases is necessary if cases are to be administered effectively. See In re Norris Grain Co., supra at 106. Therefore the bankruptcy bar date expresses a broader and more immediate administrative need and public interest than do statutes of limitation generally. This need for finality is not consistent with allowing amendments to relate back to the...
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