Opinion
No. 88-0359-8B7
June 5, 1991
Andrew Forman, attorney for the plaintiff.
Mary Jean Apostolakos, attorney for the defendant.
Discharge of Debts — Taxes — Statute of Limitations — Tolling. — Tax debts owed for certain taxable years were nondischargeable in bankruptcy, notwithstanding that federal tax returns were filed more than three years before the current bankruptcy case. The statute of limitations for collecting on these tax debts was tolled and had not expired before this second bankruptcy case was filed. The automatic stay enjoined the Internal Revenue Service from assessing or collecting on the tax debts from the debtor during the pendency of first bankruptcy case, and for six months thereafter. The current bankruptcy case was filed five months after the dismissal of the first bankruptcy case. Thus, for those taxable years where the three year period had not expired before the debtor filed the first bankruptcy, the tax debts are excepted from discharge.
See Sec. 108(c) at ¶ 7050, Sec. 507(a)(7) at ¶ 9032 and Sec. 523(a)(1) at ¶ 9227 and cf. Sec. 362 at ¶ 8602.
THIS CAUSE came on for consideration upon Debtor's Motion for Summary Judgment of the Complaint to Determine Dischargeability pursuant to 11 U.S.C. § 523(a)(1)(A) and for Declaratory Relief; and United States' Cross Motion for Summary Judgment. The Court reviewed the Motions and the record, heard argument of counsel and finds the relevant facts as follows:
1. On November 21, 1985, Debtor, Stuart R. Ringdahl and his wife, Irma Ringdahl, jointly filed for relief under Chapter 13 of the Bankruptcy Code, In re Ringdahl, No. 85-3424-8P7. (First bankruptcy case). The Court dismissed the Chapter 13 on September 4, 1987 for failure of Debtors to cure the delinquent payment under the confirmed Chapter 13 plan as provided in the Order Upon Order to Show Cause dated July 23, 1987.
2. On January 22, 1988, Debtor individually filed for relief under Chapter 7 of the Bankruptcy Code, In re Ringdahl, No. 88-0359-8B7. (Second and present bankruptcy case).
3. On his Schedule A-1 Priority Claims, Debtor listed unsecured tax claims more than three years old in the amount of $15,000 and unsecured tax claims less than three years old in the amount of $9,000 for a total unsecured tax liability in the amount of $24,000. Debtor explained the tax liability totaling $24,000 represents non-priority, personal income taxes for the years ending 1981, 1982, 1983 and 1984.
In his Complaint to Determine Dischargeability and Motion for Summary Judgment, Debtor alleges the $24,000 represents an unsecured, non-priority tax claim.
4. Debtor alleges he timely filed tax returns for the years 1981, 1982, 1983 and 1984 and the taxes are currently due, unpaid and owing to United States of America.
5. Debtor alleges this tax liability is dischargeable under 11 U.S.C. § 523(a)(1)(A) of the Bankruptcy Code.
Debtor moved for summary judgment alleging no genuine issue of material fact exists and he is entitled to judgment as a matter of law. He argues since he timely filed the 1981, 1982,1983 and 1984 tax returns more than three years before the present bankruptcy case, these taxes are dischargeable. United States filed its Opposition to Motion for Summary Judgment and Cross Motion for Summary Judgment. United States argues because of Debtor's prior bankruptcy in 1985, the filing of that petition suspends the three-year period for determining dischargeability pursuant to 11 U.S.C. § 507(a)(7) and 523(a)(1)(A), to allow United States the opportunity to utilize the full three years Congress intended to provide for the collection of delinquent taxes. Brickley v. United States (In re Brickley), 70b B.R. 113, 115-16 (9th Cir. BAP 1986), Molina v. United States (In re Molina), 99 B.R. 792, 795 (S.D. Ohio 1988). Therefore, Debtor's tax liabilities for 1982, 1983, and 1984 are priority claims which are not dischargeable in bankruptcy.
ISSUE
Whether the filing of a prior bankruptcy suspends the time for determining tax claim priority and nondischargeability under 11 U.S.C. § 507(a)(7)(A)(i) and 523(a)(1)(A).
DISCUSSION
Summary judgment shall be entered if the evidence shows there is no genuine issue of material fact in dispute and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The movant has the burden to show evidence to the Court that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986). This evidence can include affidavits, admissions, answers to interrogatories, or depositions. See generally 10A Wright, Miller Kane, Federal Practice and Procedure, § 2721 (2d ed. 1983). Whenever the movant files an affidavit, the opponent must do likewise or summary judgment, if appropriate, will be rendered against him. Id., at § 2719, 2739; Fed.R.Civ.P. 56(e). Although United States did not file an affidavit in opposition to Debtor's Motion for Summary Judgment, after reviewing all the documents in this case, the Court is satisfied no genuine issue of material fact exists, thus, summary judgment is the appropriate vehicle for determining the dischargeability of Debtor's tax liabilities. Florence v. Internal Revenue Service (In re Florence), 115 B.R. 109, 110 (Bankr. S.D. Ohio 1990).
Before addressing the issue in this case, the Court notes United States, in its Memorandum filed on April 2, 1991, conceded the liability for the 1981 tax year is dischargeable. Therefore, the Court grants Debtor's Motion for Summary Judgment as to the 1981 tax liability and finds the 1981 tax liability is dischargeable pursuant to 11 U.S.C. § 523(a)(1)(A).
11 U.S.C. § 523(a)(1)(A) excepts from discharge "any debt for a tax . . . of the kind and for the periods specified in section . . . 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed. . ." Pursuant to 11 U.S.C. § 507(a)(7)(A)(i), income and gross receipt taxes will be granted seventh priority if the tax return (including extensions) was required to be filed within the three years preceding bankruptcy or after bankruptcy, so long as the tax year ended before bankruptcy. 11 U.S.C. § 507(a)(7)(A)(i); See Senate Report (Reform Act of 1978), reprinted in Norton, Bankr. Code Pamphlet 361 (1990-1991 ed.). See also Treister, Fundamentals of Bankruptcy Law, at 284-85 (2d ed. 1988). Under this rule, the due date of the tax return, rather than the date on which the taxes were assessed, determines the priority. See Senate Report (Reform Act of 1978), reprinted in Norton, Bankr. Code Pamphlet 361 (1990-1991 ed.). In essence, if the tax claim can be granted priority status pursuant to 11 U.S.C. § 507(a)(7)(A)(i), it will be excepted from discharge pursuant to 11 U.S.C. § 523(a)(1)(A). Florence, 115 B.R. at 111; In re Wise, No. 90-04-0893M (Bankr. E.D. Ark. Dec. 18, 1990) (1990 Bankr. LEXIS 2741).
There is no question the tax returns for the years ending in 1982 and 1983 were due and filed more than three years preceding the present bankruptcy case. But for the first bankruptcy case, these tax liabilities would be dischargeable.
The 1982 tax return was due April 15, 1983 and the 1983 tax return was due April 15, 1984. See 26 U.S.C. § 6072(a), ". . .returns made on the basis of the calendar year shall be filed on or before the 15th day of April following the close of the calendar year. . ." Since the present petition was filed on January 22, 1988, these due dates for the tax returns are outside the three-year period preceding the filing of the petition.
[H]owever, for the entire three year period prior to filing the within Chapter 7 bankruptcy, the debtors' assets were under the protection of the Bankruptcy Code as a result of the debtors' prior Chapter 13 case. The debtor's interpretation and application of § 523(a)(1) and § 507(a)(7) would, in a Chapter 7 case that follows a Chapter 13 case, create impenetrable refuge for delinquent taxpayers. Such a result is neither required by, nor consistent with, a holistic interpretation of the Bankruptcy Code.
Florence, 115 B.R. at 111. This Court follows the Brickley, Florence and Molina decisions and finds the filing of a prior bankruptcy suspends the running of the three-year period for determining tax claim priority and nondischargeability. Florence, 115 B.R. at 111, citing Molina, 99 B.R. at 795. The analysis those Courts use start with 11 U.S.C. § 108(c) which extends the statute of limitations for creditors in actions against the debtor, where the creditor is prevented from proceeding outside the bankruptcy court due to the automatic stay provisions of 11 U.S.C. § 362. The automatic stay prevented the I.R.S. from assessing or collecting federal taxes from Debtor during the pendency of his first bankruptcy case. 11 U.S.C. § 362(a)(6); Wise, 1990 B.R. 2741 at 5. The Courts next looked to the Internal Revenue Code, specifically sections 6501, 6502, 6503(b) and (i). (26 U.S.C.). 26 U.S.C. § 6501 provides an assessment of taxes must be made within three years after the taxpayer files a tax return. 26 U.S.C. § 6502 provides a six year limitation on the collection of taxes after the Secretary made the assessment. 26 U.S.C. § 6503(b) and (i) extends these time periods in relation to bankruptcy proceedings:
(b) The period of limitations on collection after assessment prescribed in section 6502 shall be suspended for the period the assests of the taxpayer are in the control or custody of the court in any proceeding before any court of the United States . . . and for six months thereafter.
* * *
(i) The running of the period of limitations provided in section 6501 or 6502 on the making of assessments or collections shall, in a case under title 11 of the United States Code, be suspended for the period during which the Secretary is prohibited by reason of such case from making the assessment or from collecting and —
(1) for assessment, 60 days thereafter, and
(2) for collection, 6 months thereafter.
26 U.S.C. § 6503; Molina, 99 B.R. at 795.
After reviewing the Senate Reports, those Courts found Congress, by enacting 11 U.S.C. § 108(c), intended to activate 26 U.S.C. § 6503 and suspend the running of the statute of limitations for tax collection during a taxpayer's bankruptcy proceeding. The statute of limitations for collecting nondischargeable Federal tax claims will resume running six months after the period during which the bankruptcy court has control or custody of the debtor's assets, i.e., six months after the debtor receives a discharge or six months after the case is dismissed. Brickley, 70 B.R. at 115, citing S.Rep. No. 989, 95th Cong., 2d Sess. 30-31 (1978), U.S. Code Cong. Admin. News 1978, pp. 5787, 5816, 5817; In re Baird, 63 B.R. 60, 62-63 (W. Ky. 1986).
Since congress did not intend to allow a taxpayer to escape liability by the expiration of the statute of limitations while his assets are protected by bankruptcy proceedings, we hold that the tax debts in question are subject to the discharge granted in this case.
The Debtors' argument that the IRS failed to collect its taxes within the three-year period of nondischargeability ignores the fact that their property was unreachable during most of that time. To follow the Debtors' argument would render the extension of the statute of limitations in Section 108(c) without meaning, since tax collectibility is obviously useless if the tax debt has been discharged. In addition, such a result would open the door to schemes of tax avoidance by debtors who could simply dismiss and refile their case after the expiration of the three-year period of nondischargeability. Since enforcement of the tax laws against delinquent tax debtors takes time, Congress, through section 523, intended to give the taxing authority at least three full years to pursue such debtors. H.Rep. No. 595, 95th Cong. 1st Sess. 190 (1977), U.S. Code Cong. Admin. News 1978, P. 5787. Congress did not intend to allow tax avoidance through bankruptcy by permitting the discharge of the debtor before the taxing authority has had a fair opportunity to collect taxes due. Id.
Brickley, 70B.R. at 115-116.
In the present case, Debtor was in Chapter 13 from November 21, 1985 to September 4, 1987. During that time, he was afforded the protection of the automatic stay pursuant to 11 U.S.C. § 362. Debtor filed the present bankruptcy case almost five months after the first bankruptcy case was dismissed. Thus, the three-year period had not expired before Debtor filed the present bankruptcy case. Florence, 115 B.R. at 112. Therefore, the Court finds the 1982 and 1983 tax liabilities should be excepted from discharge.
The tax return for the year ending 1984 was due and filed April 15, 1985, less than three years prior to the present bankruptcy case regardless of the first bankruptcy case. In addition, it appears Debtor admitted these taxes are excepted from discharge in his Schedule A-1 Priority Claims. Debtor stated the total tax liability of $24,000 represents his personal taxes for the years ending 1981, 1982, 1983 and 1984. He listed $9,000 of this $24,000 as "tax claims less than 3 years old." (Emphasis added). See Schedule A-1 Priority Claims. After reviewing all of Debtor's statements, the Court must conclude the $9,000 liability represents the 1984 taxes. Therefore, the 1984 taxes should also be excepted from discharge.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that as to the 1981 tax liability, Plaintiff's Motion for Summary Judgment is granted and the 1981 tax liability is discharged. It is further
ORDERED, ADJUDGED AND DECREED that as to the 1982, 1983 and 1984 tax liabilities, Plaintiff's Motion for Summary Judgment is denied, United States Cross Motion for Summary Judgment is granted and the 1982, 1983 and 1984 tax liabilities are excepted from discharge. A separate final judgment will be entered pursuant to Bankruptcy Rule 9021.