In re Turner

• Decision Date: 09 January 1995
• Docket Number: Bankruptcy No. 94-02405-BGC-7. Adv. No. 94-00198.
• Citation: 182 BR 317
• Parties: In re Jimmy Randall TURNER, Debtor. Jimmy Randall TURNER, Plaintiff, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

182 B.R. 317 (1995)

In re Jimmy Randall TURNER, Debtor Jimmy Randall TURNER, Plaintiff, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Defendants.

Bankruptcy No. 94-02405-BGC-7. Adv. No. 94-00198.

United States Bankruptcy Court, N.D. Alabama, Southern Division.

January 9, 1995.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Richard Hughes, Birmingham, AL, for plaintiff-debtor.

Richard O'Neal, Asst. U.S. Atty., Birmingham, AL, for defendants.

Andre Toffel, Trustee.

MEMORANDUM OPINION

BENJAMIN COHEN, Bankruptcy Judge.

This matter came before the Court for a trial on the Petition to Discharge Taxes filed by the Debtor, Jimmy Randall Turner. Mr. Richard Hughes, the attorney for the Debtor, and Mr. Richard O'Neal, Assistant United States Attorney, on behalf of the Defendants, appeared. The matter was submitted on the record in the case, and the stipulations, assertions and arguments of counsel, who advised the Court that no testimony would be offered. The Debtor contends that certain income taxes owed for the years 1986, 1987, 1988, and 1989 should be discharged by this Chapter 7 bankruptcy. The IRS disagrees.

This Court's analysis of this matter must begin with the general rule from section 523(a) of the Bankruptcy Code that income taxes which were due more than three years before a bankruptcy was filed, and which were assessed more than 240 days before the bankruptcy was filed, are discharged by that bankruptcy. A brief explanation is required. That rule is framed in section 523 in the negative and explains which taxes are not included in a discharge. For instance, from section 523 one learns that a debtor's discharge does not include debts for taxes of the kind described in 11 U.S.C. § 507(a)(7)(A). Moving to section 507(a)(7)(A) one learns that the taxes which may not be discharged by section 523 include income taxes which became due within three years of the date the bankruptcy was filed, income taxes which were assessed within 240 days of the date the bankruptcy was filed, and income taxes which were not assessed before the bankruptcy was filed but which were still assessable after the bankruptcy was filed. In other words, taxes which fall within the three exceptions listed in section 507(a)(7)(A) are not discharged by way of section 523 and are available for collection by the IRS.¹

I. FACTS

The Debtor owes income taxes, as well as related interest and penalties, for the years 1986, 1987, 1988, and 1989. Tax returns for the years in question became due on April 15, 1987, April 15, 1988, April 15, 1989, and April 15, 1990, and were timely filed. On January 5, 1988, the Debtor filed a case under Chapter 7 of the Bankruptcy Code. The case remained open for 92 days and was closed on April 5, 1988. The Debtor filed a Chapter 13 case on March 28, 1990, which remained pending for 965 days and was dismissed on November 16, 1992. The Debtor filed another Chapter 13 case on November 20, 1992, which remained pending for 181 days and was dismissed on May 19, 1993. The petition in this case was filed on April 25, 1994.

The taxes owed by the Debtor for the year 1986 were assessed by the IRS on June 1, 1987. The 1987 taxes were assessed on May 16, 1988. The 1988 taxes were assessed on June 5, 1989. The 1989 taxes were assessed on May 28, 1990.

All of the taxes were in the amount shown on the Debtor's tax returns as being owed. The taxes were not paid because the Debtor simply did not have the money to pay the taxes when they became due. For the year 1986, taxes were assessed for $2,566.00, for the year 1987 in the amount of $2,883.00, for the year 1988 in the amount of $3,710.00, and for the year 1989 in the amount of $4,266.00. The total taxes assessed for the years 1986 through 1989 was $13,425.00.

Penalties for late payment have been assessed against the Debtor by the IRS in the amount of $536.41 for 1986 taxes, in the amount of $659.72 for 1987 taxes, in the amount of $960.67 for 1988 taxes, and in the amount of $748.05 for 1989 taxes. Total penalties in the amount of $2,904.85 have been assessed by the IRS against the Debtor in relation to the 1986 through 1989 taxes.

As of the date the petition in this case was filed, interest had accrued on the taxes owed by the Debtor, and had been assessed by the IRS, in the amount of $1,129.61 for 1986 taxes, in the amount of $1,471.84 for the 1987 taxes, in the amount of $2,259.32 for the 1988 taxes, and in the amount of $1,940.47 for the 1989 taxes. Total interest has accrued on the 1986 through 1989 taxes, and been assessed by the IRS, in the amount of $6,804.24.

Taxes, interest and penalties in the amount of approximately $23,134.09 were assessed against the Debtor before the filing of the petition in this case. Between April 15, 1987, and April 25, 1994, the Debtor paid the IRS a total of approximately $7,969.58. The balance of the debt due by the Debtor to the IRS is $15,483.02, which total consists of: for 1986, taxes = $0, interest = $684.97, and penalties = $2.72; for 1987, taxes = $0, interest = $1,480.94, and penalties = $40.24; for 1988, taxes = $3,099.64, interest = $2,259.32, and penalties = $960.67; and for 1989, taxes = $4,266.00, interest = $1,940.47, and penalties = $748.05.

Despite the fact that the Debtor has paid almost $8,000 to the IRS, he still owes the IRS over $2,000 more than the combined, total taxes for all four years in question. And of the $15,483 owed by the Debtor to the IRS, less than one half ($7,365.64) represents actual unpaid taxes. The major portion of the debt represents accrued interest ($6,365.70) and penalties ($1,751.68).

II. CONTENTIONS

The Debtor contends that because the tax returns for the taxes in question were due more than three years prior to the filing of the petition in this case, and because the taxes were assessed more than 240 days before bankruptcy, the taxes, including related interest and penalties, are dischargeable. The IRS contends that, by virtue of 11 U.S.C. § 108(c) and 26 U.S.C. § 6503(h), the section 507(a)(7)(A)(i) three year priority period and the section 507(a)(7)(A)(ii) 240 day period and the 523(a)(7)(B) three year dischargeability period were all suspended during the time that the Debtor was in his three prior bankruptcy cases.

III. ISSUES

The issues before this Court are (a) whether the three year priority period of section 507(a)(7)(A)(i) was suspended during the time the Debtor was in his prior bankruptcy cases; (b) whether the 240 day priority period of section 507(a)(7)(A)(ii) was suspended during the time the Debtor was in his prior bankruptcy cases; and, (c) whether the three year dischargeability period of section 523(a)(7)(B) was suspended during the time the Debtor was in his prior bankruptcy cases.² These issues have common statutory and equitable components.

IV. STATUTORY TIME SUSPENSION

A. Taxes and Plain Language

The IRS contends that the three year priority period of section 507(a)(7)(A)(i), and the 240 day priority period of section 507(a)(7)(A)(ii), and the three year dischargeability period of section 523(a)(7)(B) are suspended by operation of 11 U.S.C. § 108(c) and 26 U.S.C. § 6503(h). Because those statutes explicitly state that they apply only to nonbankruptcy law, this Court disagrees with the IRS.³ Section 507(a)(7)(A)(i) and (ii), and section 523(a)(7)(B) are bankruptcy laws. Sections 108(c) and 6503(h) do not apply to bankruptcy laws. In re Quenzer, 19 F.3d 163 (5th Cir.1993); In re Eysenbach, 170 B.R. 57 (Bankr.W.D.N.Y.1994). That plain language interpretation of those sections should be sufficient to decide the issues in this case; however, because so much has been written on these issues which disagrees with this Court's position, further explanation is mandatory. The analysis of the plain language of the statutes has both a bankruptcy law and a nonbankruptcy law component.

(1) Bankruptcy Law Perspective

From the bankruptcy law perspective, the Court of Appeals for the Eleventh Circuit addressed a similar tax, time period, issue and found that the plain language of the statute controlled. In In re Burns, 887 F.2d 1541, 1544 (11th Cir.1989) the debtor contended that the plain language of section 523(a)(7)(B) required discharge of tax penalties imposed with respect to otherwise nondischargeable income taxes that were more than three years old. "Since her tax returns for 1977 through 1979 are transactions or events occurring more than three years prior to her 1984 Chapter 7 filing, Burns reasoned that the penalties associated therewith are discharged." Id. at 1542. The court of appeals agreed with the debtor, based on the plain language of the statute, and rejected the IRS's contention that legislative history dictated that tax penalties be treated the same as the related tax obligations. In that regard, the Court stated:

Pre-Code law was silent on the dischargeability of liability for tax penalties. Courts generally took the position that the penalties survived a discharge in bankruptcy, resting either on the theory that the penalties constituted a nonprovable debt or on the theory that the penalties were to be treated in all respects as taxes because they were assessed and collected in the same manner as taxes. The second of these theories linked the dischargeability of the penalty with the underlying tax liability. The IRS pursued tax penalties in accord with the second theory during the ten years immediately preceding enactment of the Bankruptcy Code. The Commission on Bankruptcy Laws had the intention of clarifying and rationalizing the dischargeability status of various penalties, including tax penalties, when it proposed a predecessor to section 523(a)(7) of the Bankruptcy Code.

Section 523(a)(7), then, innovates on the matter of tax penalties. . . . While the language of this subsection frames nondischargeable tax penalties as an exception to an exception to an exception, once the triple negative is taken into account the

...