In re Read

• Decision Date: 19 January 2011
• Docket Number: No. 8:09–bk–25809–MGW.,8:09–bk–25809–MGW.
• Citation: 442 B.R. 839
• Parties: In re Sandra Ann READ, Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

442 B.R. 839

In re Sandra Ann READ, Debtor.

No. 8:09–bk–25809–MGW.

United States Bankruptcy Court, M.D. Florida,Tampa Division.

Jan. 19, 2011.

Herbert R. Donica, Donica Law Firm PA, Tampa, FL, for Debtor.

MEMORANDUM OPINION ON TIMELINESS OF REQUEST FOR DETERMINATION OF AD VALOREM TAX CLAIMS UNDER BANKRUPTCY CODE § 505

MICHAEL G. WILLIAMSON, Bankruptcy Judge.

The issue before the Court is whether the Debtor's request for determination of ad valorem tax liabilities under Bankruptcy Code section 505 was timely filed. The request was filed after the time period for contesting the tax liability under state law had expired. However, because this time period had not expired as of the date of the bankruptcy petition, the Court concludes that pursuant to Bankruptcy Code section 108(a) the time period to make such a request has been extended by operation of law. Accordingly, the Debtor's request under section 505 is timely.

Factual and Procedural Background

The Tax Collector has filed a claim for ad valorem taxes owed with respect to approximately twenty investment properties owned by the Debtor (“Tax Claims”). The Debtor has objected to the Tax Claims on the basis that “the assessed value of each respective property exceeds the actual value” as of the date of assessment.¹

The Tax Claims are for the year 2009. Under Florida law, liens for unpaid ad valorem taxes become fixed on January 1 of the year for which the taxes are owing.² The applicable Florida statutes provide that the time to challenge the assessment values for ad valorem taxes expires 60 days after certification of the tax roll.³ The tax roll that gave rise to the Tax Claims in this case was certified for collection to the Tax Collector by the Property Appraiser on October 12, 2009.⁴ Accordingly, under state law, the time to challenge the assessment values for the Debtor's 2009 ad valorem taxes expired on December 11, 2009.

The Debtor filed her voluntary petition under chapter 11 of the Bankruptcy Code on November 10, 2009. Thus, this case was filed within the time period to challenge the assessment values for the Debtor's 2009 ad valorem taxes. However, the Debtor first objected to the Tax Claims on April 21, 2010, more than four months past the time to challenge the assessment values under state law.⁵ The Objection was filed pursuant to Bankruptcy Code section 502. In the Objection, the Debtor contends that the assessment values exceed the actual values.⁶

The Debtor subsequently amended the Objection on July 2, 2010, to invoke Bankruptcy Code section 505 as a basis for this Court to make a determination of the tax liability as set forth in the Tax Claims.⁷ The Amended Objection also joined the Pinellas County Property Appraiser as a necessary party for proper determination of the Tax Claims. In addition, the Amended Objection also references Bankruptcy Code section 108(a) for the proposition that the applicable period for contesting the amount of the Tax Claims was extended upon the filing of the bankruptcy case for up to two years after the order for relief.

Conclusions of Law

The Court has jurisdiction to determine the Amended Objection pursuant to 28 U.S.C. § 1334(b), 11 U.S.C. § 502, and 11 U.S.C. § 505. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) and (K).

If this case were viewed solely from the perspective of Bankruptcy Code section 108, there would be no question that the time period to challenge the tax valuation, having not expired as of the date of the petition, was extended for two years from the order for relief. In this respect, Bankruptcy Code section 108(a) provides that if applicable nonbankruptcy law fixes a period within which the debtor may commence an action, and such period has not expired before the date of the filing of the petition, the debtor in possession may commence such action before the later of the end of such period or two years after the order for relief.⁸

In this case, the Debtor had a right under state law to contest the tax assessment within 60 days after certification of the tax roll.⁹ Absent her bankruptcy filing, she would have had to file an action in the circuit court in Pinellas County, where the property is located, because that court has original jurisdiction over all matters relating to Pinellas County property taxation.¹⁰ However, because the sixty-day deadline had not expired before the date of the bankruptcy petition, the time period to commence such action was extended for two years by operation of Bankruptcy Code section 108.¹¹

While Bankruptcy Code section 108 deals generally with extensions of time to initiate certain types of proceedings that might otherwise expire after the filing of bankruptcy, it is Bankruptcy Code section 505 that deals specifically with this Court's jurisdiction to make a determination of tax liability. In this respect, section 505 provides a broad grant of jurisdiction to bankruptcy courts to determine the amount of any tax.¹²

The legislative statements accompanying section 505 make clear that the section “authorizes the bankruptcy court to rule on the merits of any tax claim involving an unpaid tax, fine, or penalty relating to a tax, or any addition to a tax, of the debtor or the estate.” ¹³

The only limitations to a bankruptcy court's jurisdiction to consider tax issues involving the debtor or the estate are the bankruptcy court's discretion to abstain and the express statutory limitations contained within section 505(a)(2).¹⁴ It is upon these express statutory limitations that this case must be decided.

Section 505(a)(2) contains three statutory limitations to a bankruptcy court's power to determine tax liabilities. The first of these is contained in section 505(a)(2)(A) and provides that a bankruptcy court may not determine the amount or legality of a tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the bankruptcy case. ¹⁵ This exception to the bankruptcy court's jurisdiction to adjudicate a tax assessment was first included in the Bankruptcy Act of 1898 and was carried over in the Bankruptcy Code when it was enacted in 1978. ¹⁶ In effect, this provision simply codifies both Supreme Court precedent and principles of res judicata to prevent a debtor from having two opportunities to contest the amount or legality of tax liability where either has been fully adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commencement of the case.¹⁷ This exception does not apply in this case because neither the amount nor legality of the Tax Claims was ever contested or adjudicated before any tribunal prior to the filing of this case.

The second statutory exception to the bankruptcy court's broad jurisdiction to determine tax claims concerns the right of the estate to a tax refund and has no applicability to this case.¹⁸ However, the third exception forms the basis for the Tax Collector's and the Property Appraiser's assertions that the Debtor has failed to timely avail herself of the administrative processes of state law or invoke the jurisdiction of the state courts under Florida law, and by operation of section 505(a)(2)(C), cannot now invoke the jurisdiction of this Court for the purpose of contesting or redetermining the Property Appraiser's assessment values that form the basis for the Tax Claims.¹⁹ This provision provides as follows:

The court may not so determine ... the amount or legality of any amount [of tax] arising in connection with an ad valorem tax on real or personal property of the estate, if the applicable period for contesting or redetermining that amount under any law (other than a bankruptcy law) has expired.²⁰

While this provision, when read in isolation, appears to be fairly straightforward, the parties in this case both offer supportable yet inconsistent interpretations as to how this provision should be read. The Debtor argues that because the time under applicable nonbankruptcy law for the debtor to commence an action to contest the assessment had not expired before the date of filing the petition, Bankruptcy Code section 108 extended for two years after the bankruptcy filing the time in which the debtor as debtor in possession could commence an action to determine the proper amount of the Tax Claims under section 505.

The Tax Collector takes the contrary position that when Congress added section 505(a)(2)(C) in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), it created an exception to the general provision extending deadlines as set forth in section 108(a). Under this interpretation, the state law deadline would be binding on the bankruptcy court notwithstanding Bankruptcy Code section 108. The result of applying this interpretation in this case is that the time to file a motion under section 505 expired approximately one month after the case was filed. There is little case law or secondary source guidance on the proper interpretation of 505(a)(2)(C) and what there is offers different interpretations.²¹

For the reasons set forth below, it is the Court's conclusion that both section 108(a) and section 505(a)(2)(C) can and should be given effect.²² The result of giving both of these statutory provisions effect is that the proper interpretation of the new exception to a bankruptcy court's authority to determine ad valorem tax liability would only prevent the bankruptcy court from determining such tax liability when the period to contest such liability had expired before the bankruptcy petition was filed. In cases when the period to contest such liability had not expired as of the date of filing the bankruptcy petition, section 108(a) is still available to extend the time to contest such liability in the bankruptcy court. It should be noted that this conclusion does not extend to postpetition ad valorem tax claims. Section 108 is only...