Opinion
Bankruptcy No. SL 91-82126. Adv. No. 91-8487.
June 3, 1992. On Motion for Reconsideration June 12, 1992
Edward B. Spence, Lansing, Michigan, attorney for the debtor.
John A. Lindquist, U.S. Attorneys' Office, Washington, D.C., attorney for the Internal Revenue Service.
AMENDED OPINION GRANTING MOTION FOR SUMMARY JUDGMENT IN PART
This adversary proceeding was filed by the Debtor to determine the dischargeability of certain claims of the IRS for unpaid federal income taxes. Debtor filed his chapter 11 petition on April 15, 1991. As of July 2, 1991, the date of the commencement of the adversary proceeding, there were federal income taxes due but unpaid for each tax year from 1984 to 1988. While there appears to be some dispute as to the amount of these taxes, the determination of the exact amount of the taxes due each year does not appear to be necessary to a resolution of this matter.
The Debtor's argument is that 11 U.S.C. § 523(a)(1)(B)(ii) excepted the taxes from discharge. In his prayer for relief the Debtor requests that the Court "grant a discharge of the debtor's debt to the Internal Revenue Service in the amount of $99,856.68."
The IRS's motion alleges that it is entitled to summary judgment because 1) the court cannot discharge a debt prior to the confirmation of a plan, and 2) because the tax years 1987 and 1988 are nondischargeable under 11 U.S.C. § 523(a)(1)(A).
The Court rejects the argument that the IRS is entitled to summary judgment based upon ripeness. Although this Court cannot waive the other requirements necessary to determine whether the Debtor is ultimately entitled to a discharge under chapter 11, the Court certainly may determine the dischargeability of the debts in question prior to confirmation. The applicable rule, FED. R. BANKR. P. 4007, explicitly allows the filing of such complaints at any time, so long as the claim is not brought pursuant to § 523(c). Indeed, in cases under § 523(c), admittedly not applicable in this matter, a creditor objecting to dischargeability of a claim must file suit before a discharge is granted. The Court refuses to dismiss this case on a hypertechnical reading of the prayer for relief contained in the Debtor's complaint.
The Court finds more merit in the IRS's second contention, that the window of nondischargeability for its claims in this case extends back three years from the date of the petition and encompasses the 1987 and 1988 tax years. 11 U.S.C. § 523(a) provides that a debt may not be discharged:
(1) for a tax or a customs duty —
(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;
(B) with respect to which a return, if required —
(i) was not filed; or
(ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition. . .
The referenced portion of § 507 is as follows:
(a) The following expenses and claims have priority in the following order:
. . .
(2) Second, unsecured claims allowed under section 502(f) of this title.
. . .
(7) Seventh, allowed unsecured claims of governmental units, only to the extent that such claims are for —
(A) a tax on or measured by income or gross receipts —
(i) for a taxable year ending on or before the date of the filing of the petition for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition. . . .
Section 523(a)(1)(A) makes all taxes which are administrative expenses under § 507(a)(7) nondischargeable, and incorporates by reference the time periods set forth in § 507(a)(7). The reference to a two year period in § 523(a)(1)(B) is irrelevant to the issue at hand because the IRS is not relying on that section in defending the nondischargeability of its claim, and the three subparagraphs of § 523(a)(1) are alternative provisions.
Debtor apparently concedes that the proper period is three years rather than two. He does assert that "the statute does not clearly set forth this proposition", Debtor's brief at 2, but the language of the statute is quite clear in its reference to the periods set forth in § 507(a)(7) and in its use of the word "or" to separate the subparts of § 523(a)(1). This very issue was discussed in In re Etheridge, 91 B.R. 842, 845 (Bankr. C.D. Ill. 1988), cited by Debtor, in which the court stated:
This Court believes that the rule of construction as applied in the Easton case is likewise applicable in this case. The subparagraphs of Section 523(a)(1)(A) are in the alternative. Even though the tax may not be excepted from discharge pursuant to Section 523(a)(1)(B)(ii) the taxes are not discharged because the State can take advantage of Section 523(a)(1)(A) and Section 507(a)(7)(A)(ii) and (E).
The court goes on to cite the policy considerations behind the various exemptions. A similar result was reached in In re Smith, 109 B.R. 243 (Bankr. W.D. Ky. 1989) aff'd sub nom. Smith v. U.S. 114 B.R. 473.
Even though the IRS prevails on the § 507(a)(7)(A) issue, there is a curious question that arises as a result of the filing this case on tax day, April 15, 1991. The date three years prior to the filing of bankruptcy would have been April 15, 1988. The return was last due for the 1987 taxes on the same day. Neither party addresses the issue of what happens when the Debtor files on tax day. Fortunately, the language of the statute appears unambiguous, if a bit unwieldy. In order to be accorded administrative priority and thus also be accorded non-dischargeable status the tax year in question must be one
ending on or before the date of the filing of the petition for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition. . . .
11 U.S.C. § 507(a)(7)(A)(i). Substituting actual dates from this case for the language in the statute establishes that the tax should be discharged. The tax return for the year in question, 1987, was last due on April 15, 1988. No one has argued that an extension was granted. The date three years before the filing of the petition was April 15, 1988. The tax return for 1987, in order to qualify, must therefore have been last due after April 15, 1988. However, it was last due on April 15, 1988. Therefore, it is not entitled to administrative priority and, a priori, is not nondischargeable under § 523(a)(1)(A).
For these reasons, the IRS's motion is granted as to the tax years 1987 and 1988 only.
IT IS SO ORDERED.