Resyn Corp., Matter of

Decision Date07 October 1991
Docket NumberNo. 91-5205,91-5205
Citation945 F.2d 1279
Parties-5706, 91-2 USTC P 50,498, Bankr. L. Rep. P 74,307 In the Matter of RESYN CORPORATION. RESYN CORPORATION v. UNITED STATES of America, Appellant.
CourtU.S. Court of Appeals — Third Circuit

Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, Chief, Appellate Section, Gary D. Gray, and Teresa T. Milton (argued), Tax Div., U.S. Dept. of Justice, Washington, D.C., for appellant (Michael Chertoff, U.S. Atty., D.N.J., Newark, N.J., of counsel).

Herbert L. Zuckerman (argued) and Robert J. Alter, Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, Newark, N.J., for appellee.

Before STAPLETON, GREENBERG and ALDISERT, Circuit Judges.

OPINION OF THE COURT

ALDISERT, Circuit Judge.

When this case was before us previously, Resyn Corp. v. United States, 851 F.2d 660 (3d Cir.1988) (hereinafter "Resyn I "), we reversed that portion of the district court's judgment that denied the Internal Revenue Service's claim for post-petition interest on fraud penalties of the debtor, Resyn Corporation. We remanded the cause to the district court to determine "whether, and when, notice and demand were given" under the provisions of 26 U.S.C. § 6303(a). 851 F.2d at 669. This appeal by the IRS requires us to consider whether the eighth amended proof of claim filed by the IRS against Resyn in the bankruptcy court on September 19, 1975, constituted sufficient notice and demand under section 6303(a) so as to commence the accrual of post-petition interest on certain fraud penalties assessed against Resyn.

We conclude that the filing of the proof of claim did not satisfy the notice requirements of section 6303(a) and will affirm the district court's judgment of January 17, 1991 on that basis. To the extent that the district court's order suggests, however, that the IRS is not entitled to any interest at all on the penalties, we make clear that the IRS is entitled to nondiscretionary post-judgment interest on the entire bankruptcy court judgment, including the fraud penalties, from the date of entry of the judgment on December 9, 1981.

Jurisdiction was proper in the district court based on 28 U.S.C. § 158(a). We have jurisdiction under 28 U.S.C. §§ 158(d) and 1291. The appeal was timely filed under Rule 4(a), F.R.A.P.

We enjoy plenary review over questions of law. Goldberg v. New Jersey Lawyers' Fund for Client Protection, 932 F.2d 273, 277 (3d Cir.1991). Findings of fact are reviewed for clear error. Id.

I.

Resyn Corporation was incorporated in 1953 to purchase, manufacture and sell resins and other chemicals and oils used in paint manufacturing. On September 3, 1970, it filed a bankruptcy petition under Chapter 11 of the Bankruptcy Act. During the course of the bankruptcy proceedings, the IRS filed several proofs of claim, including "Amendment No. 8" in the amount of $2,376,726.43, which represented unpaid corporate taxes, interest and penalties for the tax years 1963 through 1970, inclusive.

On June 10, 1977, Resyn and the IRS agreed that Resyn would pay taxes in a certain amount, exclusive of penalties, for the years 1968 through 1970. The agreement also provided that Resyn would make a deposit against the remaining claims for the years 1963 through 1967, and that the claims for taxes and assessed penalties for the years 1963 through 1970 would be limited to a certain amount. Resyn reserved its right, however, to contest both the claim for taxes for the years 1963 through 1967 and the imposition of assessed penalties for the years 1963 through 1970. The bankruptcy court subsequently approved a plan of reorganization, and all creditors' claims were paid except those of the IRS.

In February 1981, Resyn commenced an adversary proceeding seeking a judicial determination that the IRS was not entitled to recover the tax deficiencies and fraud penalties for the years 1963 through 1970. On December 9, 1981, the bankruptcy court entered judgment in favor of the IRS. The district court subsequently affirmed most of the bankruptcy court's judgment, but determined that the IRS was not entitled to post-petition interest on fraud penalties from the date of the assessment, notice and demand, to the date of payment. The district court concluded that the critical date of imposition of post-petition fraud penalties was December 9, 1981, the date on which the bankruptcy court entered its judgment.

Both the IRS and Resyn appealed to this court. We essentially affirmed the judgment of the district court, but held that the district court had erred in denying interest on the fraud penalties from the date of notice and demand to the date of payment. After analyzing the relevant tax statutes, we concluded that post-petition interest on fraud penalties should be imposed from the date of assessment, notice and demand, and remanded the case to the district court for the limited purpose of determining "whether, and when, notice and demand were given" by the IRS to Resyn. Resyn I, 851 F.2d at 668-69.

On remand, the district court accepted the recommendations of the magistrate judge and held that the IRS had not met its burden of demonstrating that it had issued Resyn a notice and demand for the fraud penalties. D.C.Mem.Op. at 4-5; App. at 8-9. First, the district court determined that the IRS could not rely on a presumption of administrative regularity in proving the issuance of a notice and demand because it had failed to follow the procedures in the Internal Revenue Manual for issuing a notice and demand. Id. at 3; App. at 7. Second, the court summarily rejected the IRS' contention that the filing of the eighth amended proof of claim triggered the accrual of interest on the fraud penalties. Id. at 1 n. 1; App. at 5 n. 1. The district court declared in its order of January 17, 1991, that "inasmuch as no notice and demand for fraud penalties had been given, interest [is] held not yet to have commenced to run." D.C. Order at 6; App. at 10. This appeal by the IRS followed.

II.

The IRS does not contest the district court's determination that it failed to send Resyn a formal notice and demand for the fraud penalties. It argues instead that the eighth amended proof of claim should be treated as an effective notice and demand. Resyn responds that under the doctrine of the law of the case, we must reject this argument because the issue of law concerning whether the IRS' amended proof of claim constituted a notice and demand was necessarily or implicitly disposed of in Resyn I. Alternatively, Resyn argues that the proof of claim does not qualify as a notice and demand under 26 U.S.C. § 6303(a).

A.

The doctrine of the law of the case dictates that "when a court decides upon a rule of law, that rule should continue to govern the same issues in subsequent stages in the litigation." Devex Corp. v. General Motors Corp., 857 F.2d 197, 199 (3d Cir.1988) (citing Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 815-816, 108 S.Ct. 2166, 2177, 100 L.Ed.2d 811 (1988)), cert. denied, 489 U.S. 1015, 109 S.Ct. 1128, 103 L.Ed.2d 190 (1989). The district court agreed with Resyn that the law of the case doctrine precluded the IRS from arguing on remand that its eighth amended proof of claim constituted an effective notice and demand. The court concluded: "In light of the explicit holding of the Third Circuit in this case, i.e., that interest accrues from the date of the notice and demand, the government's argument that interest should accrue from September, 1975, when the I.R.S. filed its claim, is frivolous." D.C.Mem.Op. at 1 n. 1; App. at 5 n. 1. We disagree.

The focus of our opinion in Resyn I was whether the policy and plain language of the relevant tax statutes required the imposition of post-petition interest on fraud penalties from the date of assessment, notice and demand. 851 F.2d at 668. Although we determined that the IRS was entitled to such interest, we declined to decide whether the IRS had issued Resyn an effective notice and demand. We concluded:

In reversing the district court, however, we are also obliged to remand to that court for a determination as to the date of the notice and demand prescribed by § 6601(e)(2)(A). Although the district court's opinion dated August 19, 1986 may be read as affirming the fact that notice and demand were in fact effected as to Resyn, at oral argument, a substantial question surfaced as to the issuance of such notice and demand. The government agreed that a remand to the district court was indicated in order to clarify the issue as to whether, and when, notice and demand were given.

Id. at 669 (citation omitted).

Resyn contends that the IRS would not have agreed to the remand "to clarify the issue as to whether, and when notice and demand were given" if it believed that its eighth amended proof of claim constituted a notice and demand. We must reject this contention, however, because we believe that at the time the IRS requested the remand, it was hoping to maximize its interest entitlement by convincing the district court that it had issued a proper notice and demand for the fraud penalties long before the filing of the eighth amended proof of claim on September 19, 1975. It was not until the magistrate judge concluded on remand that the IRS had failed to follow the procedures prescribed by the Internal Revenue Manual for the issuance of a notice and demand that the IRS decided to press its argument for interest from a later date, to wit, from the date its proof of claim was filed.

Because Resyn I did not reach the issue of "whether" and "when" the IRS had given Resyn notice and demand of the fraud penalties, we conclude that the doctrine of the law of the case does not preclude us from considering the merits of the IRS' argument.

B.

We now consider whether the IRS' eighth amended proof of claim satisfied the notice and demand requirements of 26 U.S.C. § 6303(a). As we discussed in Resyn I, the ...

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