- Category: Judge Somers
- Published on 09 February 2011
- Written by Judge Somers
SIGNED this 07 day of February, 2011.
Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE
Opinion designated for print publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
JAMES C. MONTGOMERY and CASE NO. 10-20869
SAPORA M. TURNERCHAPTER
MEMORANDUM OPINION AND JUDGMENT GRANTING
DEBTORS’ OBJECTION TO THE PRIORITY CLAIM OF THE INTERNAL
REVENUE SERVICE AND DETERMINING THE INTEREST RATE ON THE
INTERNAL REVENUE SERVICE’S SECURED CLAIM
The matter before the Court is Debtors’ “Objection to Claim #3-1 of Internal
Revenue Service” (hereafter “IRS”) which asserts that Debtors’ 2001 income tax liability
is improperly classified as an unsecured priority claim under 11 U.S.C. § 507(a)(8) and
that challenges the interest rate applicable to the secured claim. Debtors James
Case 10-20869 Doc# 39 Filed 02/07/11 Page 1 of 19
Montgomery and Sapora Turner-Montgomery appear by their counsel, David A. Reed.
The Internal Revenue Service (hereafter “IRS”) appears by Lanny D. Welch, United
States Attorney for the District of Kansas, and David Zimmerman, Assistant United
States Attorney. There are no other appearances. The Court has jurisdiction.1
The parties filed briefs in support of their respective positions. Having reviewed
those materials and the challenged proof of claim, the Court grants Debtors’ Objection to
priority status for their 2001 income tax liability. The Court also holds that the interest
rate on the IRS’s secured claim is governed by 11 U.S.C. § 5112 and applicable
FINDINGS OF FACT.
The underlying facts are not in dispute.
On November 13, 2000, Debtors filed their first voluntary petition under Chapter
13 of the Bankruptcy Code, Title 11 of the United States Code, case number 00-44239jwv-
13. The case was dismissed on February 25, 2002, after Debtors defaulted on their
plan payments. On March 28, 2002, Debtors filed a second voluntary petition under
Chapter 13, case number 02-21000-13-DLS (“Case 02-21000”). In the spring of 2002,
1 This Court has jurisdiction over the parties and the subject matter pursuant to 28 U.S.C. §§ 157(a) and
1334(a) and (b), and the Standing Order of the United States District Court for the District of Kansas that
exercised authority conferred by § 157(a) to refer to the District's bankruptcy judges all matters under the
Bankruptcy Code and all proceedings arising under the Code or arising in or related to a case under the
Code, effective July 10, 1984. Furthermore, this Court may hear and finally adjudicate this matter
because it is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). There is no objection to venue or
jurisdiction over the parties.
2 Future references to Title 11 in the text shall be to the section number only.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 2 of 19
Debtors obtained an extension to file their 2001 income taxes, extending the date the
return was due to August 15, 2002. Case 02-21000 was dismissed on October 1, 2004.
On October 15, 2004, Debtors filed their third voluntary petition under Chapter 13,
case number 04-24389-13-DLS (“Case 04-24389”). An Order Confirming Chapter 13
Plan was filed on December 23, 2005. On August 17, 2006, Debtors filed a Notice of
Voluntary Conversion to Chapter 7, and an order of conversion was entered on August
18, 2006. On January 4, 2007, the Court entered an Order Discharging Debtors in Case
04-24389, and Debtors’ 2001 tax liability was excepted from discharge pursuant to
§ 507(a)(8)(A)(i) and § 523(a)(1).
Debtors filed the instant bankruptcy case on March 24, 2010, as a voluntary
petition under Chapter 13, case number 10-20869-13-DLS (“Case 10-20869”). Pursuant
to 11 U.S.C. § 341(a), the meeting of creditors for Case 10-20869 was held on April 21,
2010. The IRS timely filed its original proof of claim on April 6, 2010, which set forth its
secured claim in the amount of $1,750.00 (comprised of tax due of $0.00, penalty of
$827.50, and interest to the petition date of $922.50), its unsecured priority claim in the
estimated amount of $37,262.48, and its general unsecured claim in the amount of
$28,088.16, for a total estimated claim of $67,100.64. The tax periods included in the
unsecured priority claim were 1998, 1999, 2000, 2001, 2005, 2008, and 2009.
On April 9, 2010, Debtors filed their “Objection to Claim # 3-1 of Internal
Revenue Service,” challenging the priority classification for tax years 1998, 1999, 2000,
Case 10-20869 Doc# 39 Filed 02/07/11 Page 3 of 19
and 2001. Debtors requested that the claim be amended to allow the tax claims for those
years only as non-priority. Debtors concurred in the secured claim for $1,750, plus
interest at the “discount factor.” The IRS subsequently filed two Amended Proofs of
Claim, restating the 1998, 1999, and 2000 tax year liabilities as general unsecured claims.
On June 25, 2010, the IRS filed a Third Amended Proof of Claim. The secured claim was
not amended. The 2001 tax liability was shown as an unsecured priority claim in the
amount of $8,078.00, plus interest to the petition date of $4,741.33.
I. PRIORITY OF CLAIM FOR 2001 INCOME TAXES.
A. SECTION 507 ESTABLISHES PRIORITY STATUS FOR CERTAIN
INCOME TAX CLAIMS.
Priority status for certain tax claims is established by § 507(a)(8)(A)(i). It provides
in relevant part:
(a) The following expenses and claims have priority in the
. . . .
8) Eighth, 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 for a taxable year ending
on or before the date of the filing of the
(i) for which a return, if required, is last
due, including extensions, after three
years before the date of the filing of the
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Under this provision, “[i]f the IRS has a claim for taxes for which the return was due
within three years before the bankruptcy petition was filed, the claim enjoys eighth
priority under § 507(a)(8)(A)(i) and is nondischargeable in bankruptcy under
§ 523(a)(1)(A).”3 In a Chapter 13 case, the confirmed plan must provide for payment of
the priority tax claim in full.4 The three years is commonly referred to as the “lookback
period.” Generally, the priority status preserves enforcement of a tax liability in a
bankruptcy case if the taxpayer files for relief within three years of the date the return was
In this case, the return for Debtors’ 2001 income taxes was due on August 15,
2002. The instant Chapter 13 case was filed on March 24, 2010, long after the three-year
period expired. However, when the IRS’s ability to enforce the tax liability is impacted
by the stay of a prior bankruptcy or a confirmed plan, the unnumbered paragraph
following § 507(a)(8)(G) (hereafter “Suspension Paragraph”) may operate to preserve the
priority status by altering the method for calculating the three-year lookback period. It
An otherwise applicable time period specified in this
paragraph shall be suspended for any period during which a
governmental unit is prohibited under applicable
nonbankruptcy law from collecting a tax as a result of a
request by the debtor for a hearing and an appeal of any
collection action taken or proposed against the debtor, plus 90
3 Young v. United States, 535 U.S. 43, 46 (2002).
4 11 U.S.C. § 1322(a)(2).
Case 10-20869 Doc# 39 Filed 02/07/11 Page 5 of 19
days; plus any time during which the stay of proceedings was
in effect in a prior case under this title or during which
collection was precluded by the existence of 1 or more
confirmed plans under this title, plus 90 days. (Emphasis
B. POSITIONS OF THE PARTIES.
The parties agree as to the relevant facts. In this case, Debtors’ return was due on
August 15, 2002; however, Case 02-21000 was pending on that date and remained
pending until the case was dismissed on October 1, 2004. Debtors filed Case 04-24389
on October 15, 2004, under Chapter 13, and a plan was confirmed on December 23, 2005.
The 2004 case was converted to Chapter 7 on August 18, 2006. An order of discharge,
which excepted the 2001 taxes from discharge pursuant to § 507(a)(8)(A)(i) and
§ 523(a)(1), was filed on January 4, 2007. This case was filed on March 24, 2010. The
year 2008 was a leap year.
The parties disagree as to the construction of the Suspension Paragraph.
Specifically, Debtors allege that a “natural reading” of the paragraph requires only one
addition of 90 days to the three-year lookback period when that period has been tolled
due to the filing of multiple previous bankruptcies.5 In support of the foregoing, Debtors
rely primarily upon Ron Pair,6 along with legislative history. Under this construction,
5 Doc. 28.
6 United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241 (1989) (Court addressed the “natural
reading” of statutory language and the reading mandated by a statute’s grammatical structure).
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Debtors assert that the three-year lookback period, calculated by excluding the tolling
periods defined by the Suspension Paragraph, plus 90 days, expired before this
bankruptcy was filed. Specifically, Debtors would include in the lookback calculation the
thirteen days in October 2004 after Case 02-21000 was dismissed on October 1, 2004,
and the filing on October 15, 2004 of Case 04-24389, the 1,173 days after the discharge
of January 4, 2007, and the 90-day grace period provided by the statute. Under this
calculation, the lookback period expired on March 23, 2010, one day before this case was
filed on March 24, 2010.
The IRS responds that it has properly calculated the period under
§ 507(a)(8)(A)(i), and that an additional 90-day period must be added for each bankruptcy
filing giving rise to a stay and for each period when collection was precluded by the
existence of a confirmed plan. The IRS relies upon a recent decision by the Bankruptcy
Court for the Eastern District of New York, In re Abir,7 legislative history, and public
policy concerns. Under this interpretation of § 507(a)(8), the IRS submits that when
calculating the lookback period, the running of time should be suspended for the period
when no case was pending in 2004, plus 90 days, and from October 15, 2004, when case
04-24389 was filed, until January 4, 2007, when the stay in that case was terminated by
entry of the discharge order, plus 90 days. Based upon this calculation, the IRS argues
7 Abir v.United States (In re Abir), 2010 WL 421124 (Bankr. E.D.N.Y. 2010) (IRS stayed from collection
action for prepetition taxes as a result of both an IRS collection due-process hearing and debtors’
subsequent bankruptcy case filing and dismissal).
Case 10-20869 Doc# 39 Filed 02/07/11 Page 7 of 19
that the 2001 tax liability remains a priority claim since “the debtors’ intervening
bankruptcy cases suspended the three-year look-back period pursuant to 11 U.S.C.
§ 507(a)(8) for so much of the intervening period that the three-year look-back period had
not yet expired when the Debtors filed their petition in the instant bankruptcy case.”8
C. ANALYSIS OF PRIORITY ISSUE.
Tax claims eligible for priority treatment under § 507(a)(8)(A)(i) are those for
which the return was due within three years of the date of filing the petition. Congress
intended the time limitation to reflect a balance between the competing interests of the
debtor, the taxing authority, and the other creditors.9 As an involuntary creditor, the
taxing authority is granted priority treatment. “[T]he taxing authority [has] three years to
pursue delinquent debtors and obtain secured status. If a debtor files bankruptcy before
that three-year period has run, the taxing authority is given a priority in order to
compensate for its temporary disadvantaged position.”10
When initially enacted, the three-year lookback period set forth in
§ 507(a)(8)(A)(i) contained no express tolling provision for time during which collection
was suspended due to a bankruptcy filing. In 2002, the Supreme Court in Young11 held
8 Doc. 30.
9 4 Collier on Bankruptcy, ¶ 507.11[b] (Alan N. Resnick & Henry J. Sommer, eds.-in-chief, 16th ed.
10 Id. (quoting H.R. Rep. No. 595, 95th Cong., 1st Sess. 190 (1977)).
11 Young, 535 U.S. at 43.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 8 of 19
that the three-year lookback period is a statute of limitations “because it prescribes a
period within which certain rights (namely, priority and nondischargeability in
bankruptcy) may be enforced.”12 It then applied the “hornbook law” that “limitations
periods are customarily subject to equitable tolling,” finding the rule doubly true in
bankruptcy courts, which are courts of equity. In Young, the debtors’ return for 1992
income taxes was due on October 15, 1993. On May 1, 1996, the Youngs sought
protection under Chapter 13. On March 12, 1997, one day before the Chapter 13 case
was voluntarily dismissed, the debtors filed a new case under Chapter 7. A discharge was
granted on June 17, 1997, and the case was closed. The IRS then demanded payment of
the 1992 tax debt. The debtors responded that the Code provided a loophole whereby
collection of taxes could be stayed because of the pendency of a Chapter 13 case and
discharged in a subsequent Chapter 7 case filed more than three years after the return was
due. The Supreme Court disagreed and closed the alleged loophole, holding that the
lookback period excluded time when the debtors’ Chapter 13 case was pending and, thus,
the lookback period of § 507(a)(8)(A)(i) was tolled during the pendency of the Chapter 13
case, so that the three-year lookback period had not expired when the Chapter 7 case was
filed and the taxes were not discharged.13
In 2005, as a part of the Bankruptcy Abuse Prevention and Consumer Protection
12 Id. at 47.
13 Id. at 54.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 9 of 19
Act (“BAPCPA”), Congress added the Suspension Paragraph, the unnumbered paragraph
after § 507(a)(8)(G) quoted above. It both codified and expanded the rule of Young. In
accord with the holding in Young, the paragraph expressly provides for tolling of the
lookback period. It also adds 90 days to the suspension period. Congress amended
§ 507(a)(8) in line with its previously stated public policy to balance three competing
interests, those of “(1) general creditors, who should not have funds available for
payments of debts exhausted by an excessive accumulation of taxes for past years; (2) the
debtor, whose ‘fresh start’ should likewise not be burdened with such an accumulation;
and (3) the tax collector, who should not lose taxes which he has not had reasonable time
to collect or which the law has restrained him from collecting.”14
The disagreement between Debtors and the IRS presents a question of law as to the
construction of the Suspension Paragraph. The IRS contends that the phrase “plus 90
days” applies independently to each of the bankruptcy events which toll the lookback
period. Its focus is on the phrases “a prior case” and “any time” and the word “or” in the
phrase “any time during which the stay of proceedings was in effect in a prior case under
this title or during which the collection was precluded by the existence of 1 or more
confirmed plans under this title, plus 90 days.”15 Debtors, on the other hand, contend that
14 S. Rep. No. 95-989, 14 (1978), reprinted in D Collier on Bankruptcy App. Pt. 4(e)(i) (15th ed. rev.
15 Suspension Paragraph following § 507(a)(8)(G) (emphasis added). Under this construction, the three-
year lookback period did not begin to run between the dismissal of Case no. 02-21000 on October 1,
2004, and the filing of Case 04-24389 on October 15, 2004, since the separate 90-day period suspended
the commencement of the three-year period until 90 days after October 1, 2004, or until December 30,
Case 10-20869 Doc# 39 Filed 02/07/11 Page 10 of 19
the phrase “plus 90 days” is not dependent upon the preceding two phrases, since it is
separated from them by a comma. They construe that paragraph to mean that the 90 days
is added once if, after deducting the time for the identified tolling events from the
calendar time which expired between the date the return was due and the date of filing of
the current case, more than three years has elapsed.
In a question of statutory interpretation, the Court starts with “the language of the
statute itself.”16 The language of the Suspension Paragraph that determines the central
issue in this case is as follows:
An otherwise applicable time period specified in this
paragraph shall be suspended for any period during which a
governmental unit is prohibited under applicable
nonbankruptcy law from collecting a tax . . . ; plus any time
during which the stay of proceedings was in effect in a prior
case under this title or during which collection was precluded
by the existence of 1 or more confirmed plans under this title,
plus 90 days.
The Court interprets the language of a statute in accordance with its plain meaning.17 In
this case, a plain reading of the language must also emphasize the statute’s grammatical
structure. The last clause — “plus 90 days” — is separated from the rest of the statute by
a comma. In Ron Pair, the issue before the Supreme Court also concerned the
grammatical structure of a statute where the relevant phrase was set aside by commas.
2004. Doc. 30, n.2.
16 Ron Pair, 489 U.S. at 241.
17 Patterson v. Shumate, 504 U.S. 753, 757 (1992).
Case 10-20869 Doc# 39 Filed 02/07/11 Page 11 of 19
The Court stated, “[A]s a result [of the commas], the phrase . . . stands independent of the
language that follows.”18
In the Suspension Paragraph, the phrase in question is separated from the
preceding clause by a comma and it stands independent of the language that precedes it.
Thus, the punctuation of the phrase “plus 90 days” indicates that it should be added to the
three-year lookback period after subtraction of the period when the bankruptcy stay was
in effect or collection was precluded by a confirmed plan in a prior bankruptcy case.
The Court rejects the IRS’s argument that the singular reference to “a prior case
under this title” and the singular reference to “any time during which collection was
precluded by the existence of 1 or more confirmed plans” indicates that Congress
intended “plus 90 days” to refer back to each “prior case” and each “time.” The
construction under which the IRS would add 90 days to the period when there was no
bankruptcy case pending in October 2004 fails to properly consider the operation of the
Suspension Paragraph. By its terms, the suspension calculation is relevant only when
calculating the “otherwise applicable time period specified in” § 507(a)(8)(A)(i) for the
purposes of determining priority status in a pending case. The calculation of the lookback
period is made only once, in a pending case when a claim of priority status is asserted.
The impact of all of the intervening suspension periods is fully recognized by inclusion of
18 Ron Pair, 489 U.S. at 241.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 12 of 19
all such periods in the calculation of the three-year lookback without the addition of
another 90 days for each such occasion. Further, if the issue of priority status had arisen
in Case 04-24389, filed on October 15, 2004, the running of the three-year lookback
would have commenced on August 15, 2002 (the due date of Debtors’ 2001 tax return),
and would have ended on October 15, 2004, when Case 04-24389 was filed, a period of
two years and two months. Because the lookback period so computed would have been
less than three years, there would have been no occasion to consider the addition of 90
days. Now that the question of the lookback period is arising in a subsequent case, the
Court finds that the 90 days which could have been added if more than three years had
expired from the date the return was due and the filing of the October 2004 case is
irrelevant, just as it would have been in 2004.
The position of the IRS would penalize Debtors for having filed multiple cases and
would upset the intended balance between the competing interests of Debtors, the IRS,
and other creditors. The Suspension Paragraph provides a statutory basis for calculation
of the equitable tolling period in accord with Young. It also adds 90 days to that period, a
matter not involved in Young.19 The rationale for the addition of 90 days is not apparent,
19 The Court notes that the Young bankruptcy court decision relied on 11 U.S.C. § 108(c) and 26 U.S.C.
§ 6503, a Tax Code statute of limitation which suspended the collection of taxes for any period the
debtor’s assets were in the control or custody of the United States and for six months thereafter. In re
Young, 1999 WL 500799 (Bankr. D.N.H. 1999). The First Circuit also noted that some courts relied upon
these sections when finding the three-year lookback was tolled during the pendency of prior bankruptcy
cases. In re Young, 233 F.3d 56, 60 (1st Cir. 2000). The Supreme Court opinion, however, is silent about
the import of these two statutes and it has been held that, before the BAPCA amendment of § 507(a)(8),
Young precluded the application of an additional six months to the tolling period for each bankruptcy. In
re Distad, 392 B.R. 482, 488 (Bankr. D. Utah 2008).
Case 10-20869 Doc# 39 Filed 02/07/11 Page 13 of 19
as the Court knows of no principle of law or equity upon which it is based. Since the
lookback period and the Suspension Paragraph, which amends the calculation of the
lookback period, are relevant only after a bankruptcy is filed, they do not define a period
during which the IRS can take affirmative action to protect its position. The statute of
limitations for enforcement of tax liabilities is determined by the Internal Revenue Code,
not the Bankruptcy Code, and the Internal Revenue Code has its own tolling provision.20
The Suspension Paragraph calculates a time period not controlled by the IRS, but based
solely upon conduct of the debtors, which causes the running of the three-year lookback
period to be suspended. The addition of one 90-day period for each time a bankruptcy
stay goes into effect would punish debtors for repeated filings, thereby interfering with
their fresh start. It would conflict with the rule that “‘exceptions to discharge are to be
narrowly construed’ and doubts resolved in the debtor’s favor.”21 Further, the resulting
enhancement of the status of the taxing authority based upon the number of filings would
disturb the balance of interests between Debtors, the IRS, and other creditors created by
the three-year lookback period.
The IRS relies on In re Abir,22 a recent unpublished decision by the Bankruptcy
Court for the Eastern District of New York that deals with the addition of 90 days under
20 See 26 U.S.C. § 6503.
21 In re Sweeney, 341 B.R. 35, 40 (10th Cir. BAP 2006) (quoting Bellco First Fed. Credit Union v.
Kaspar (In re Kaspar), 125 F.3d 1358, 1361 (10th Cir. 1997)).
22 In re Abir, 2010 WL 421124.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 14 of 19
§ 507(a)(8). The Abir decision determined the dischargeability of tax obligations where
the debtor had filed requests with the IRS for collection due-process hearings, followed
by two involuntary bankruptcy filings. Abir thus illustrates the cumulative effect of the
two aspects of suspension.23 As to the nonbankruptcy suspension, sections of the Internal
Revenue Code were held applicable to suspend the running of any period of limitations
while the requested hearings were pending. Therefore, pursuant to the first portion of the
Suspension Paragraph, the time during which collection was prohibited by nonbankruptcy
law, plus 90 days, was subtracted from the lookback period. There is no nonbankruptcy
stay at issue in this case. In Abir, the nonbankruptcy suspension was followed by an
involuntary Chapter 11 case which was dismissed approximately two weeks before the
filing of the Chapter 7 case in which the priority of the taxes was in issue. When
determining that the three-year lookback period had not expired, but without expressly
calculating the total suspension period, the court considered the period of the bankruptcy
stay, plus 90 days.24 However, in Abir, unlike this case, there were not two bankruptcy
stays included in the bankruptcy suspension calculation. Therefore, Abir does not address
23 See 4 Collier on Bankruptcy ¶507.11 (“The suspension of time periods established by either of these
provisions [the nonbankuptcy prohibition arising from a request for hearing and the bankruptcy stay] is
cumulative.”). The Court rejects the IRS’s interpretation of this statement as supporting its view that 90
days should be added to the suspension period for each bankruptcy stay.
24 Under this Court’s construction of the Suspension Paragraph, the 90 days would not be considered
unless more than three years would have expired when the nonbankruptcy stay and the bankruptcy stay
were applied to the period between the date the returns were last due and the filing of the instant case.
The Abir court, when concluding that three-year lookback had not expired, without explanation, started
with the date that the returns were filed, rather than the date the returns were due. Under this calculation,
three years had not expired even if the extra 90 days for the bankruptcy stay was not considered.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 15 of 19
the issue in this case or support the IRS’s construction of the Suspension Paragraph.
For the foregoing reasons, the Court rejects the IRS’s position that when
enforcement of a tax liability is interrupted by the filing of multiple bankruptcy cases, 90
days is to be added to each suspension period. This Court interprets the “plus 90 days” as
being applicable only once, after the total number of days of suspension caused by
bankruptcy filings is subtracted from the time elapsed between the due date of the tax
return and the filing of the bankruptcy case in which priority is an issue. To construe the
statute otherwise would not be consistent with the language of the Code or the
Congressional balancing of competing interests reflected in the three-year lookback
The next step in determining priority status is to apply the foregoing interpretation
of the Suspension Paragraph. In calculating the number of days when the IRS’s ability to
collect was suspended, the Court begins with the day after Debtors’ tax return was due25
and excludes all days when the IRS could not have undertaken enforcement during any
part of the day. The three-year lookback period to determine the priority of the IRS’s tax
claim began on August 16, 2002 (the day after the 2001 tax return was due), and ended on
March 24, 2010, when this case was filed, a total of 2778 days (which equals 7 years, 7
months, and 9 days).26 Pursuant to the Suspension Paragraph, the running of the three
25 See Fed. R. Bankr. P. 9006(a)(1)(A).
26 See www.timeanddate.com.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 16 of 19
year lookback period was suspended from August 16, 2002, through October 1, 2004,
when Case 02-21000 was pending (778 days, which equals 2 years, 1 month, and 17
days), and from October 15, 2004, through January 4, 2007, when Case 04-24389 was
pending (811 days, which equals 2 years, 2 months, and 20 days), for a total bankruptcy
suspension period of 1589 days.27 When the 90 days of the Suspension Paragraph are
added, the maximum suspension period is 1679 days. The three-year lookback period is
1097 days, 365 days per year times three, plus two days since 2004 and 2008 were leap
years. The 2778 days which elapsed between the August 15, 2002, tax return due date
and the date of filing of the instant case, March 24, 2010, minus the maximum suspension
period of 1679 days, is 1099 days, two days more than the three-year lookback period of
Alternatively, the period can be calculated by adding all of the intervening days
when enforcement was permitted and determining if the total time was greater than three
years plus 90 days. The days enforcement was permitted are October 1, 2004, through
October 15, 2004, 14 days, plus January 4, 2007, through March 24, 2010, 1175 days, for
a total of 1189 days. Three years (including two days for the leap years in 2004 and
2008) is 1097 days, plus 90 days is 1187 days, two days less than the available
enforcement time of 1189 days.
27 When calculating the suspension period, both the beginning and end dates are excluded. This is the
method used by the IRS. Doc. 30, p. 12. If the end dates were included, the suspension period would be
increased by two days, so more than the three-year lookback, plus 90 days, would still have elapsed.
Case 10-20869 Doc# 39 Filed 02/07/11 Page 17 of 19
D. CONCLUSION AS TO PRIORITY OF CLAIM FOR 2001 INCOME
Under both calculation methods, more than the permitted lookback period had
expired before the instant bankruptcy case was filed, and the IRS’s claim for 2001 income
taxes is not entitled to priority status. Debtors’ objection is sustained as to this issue.
II. SECURED CLAIM INTEREST RATE.
Debtors also objected to the method by which the IRS calculated interest on the
secured portion of the claim. The IRS argues that pursuant to § 511(a), the interest rate
on its secured claim for $1750.00 is to be “determined under applicable nonbankruptcy
law,” rather than a bankruptcy discount rate of interest, as contended by Debtors. Section
(a) If any provision of this title requires the payment of
interest on a tax claim or on an administrative expense tax, or
the payment of interest to enable a creditor to receive the
present value of the allowed amount of a tax claim, the rate of
interest shall be the rate determined under applicable
If interest is due to the IRS on its secured claim, pursuant to § 511(a), that interest is
determined under applicable nonbankruptcy law.
For the foregoing reasons, the Court sustains Debtors’ objection to the priority
status of the IRS’s claim for 2001 income taxes. In addition, the Court finds that the
interest rate on the IRS’s secured claim is determined under applicable nonbankruptcy
Case 10-20869 Doc# 39 Filed 02/07/11 Page 18 of 19
law, not under bankruptcy law.
The foregoing constitutes Findings of Fact and Conclusions of Law under Rules
7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure, which make Rule 52(a)
of the Federal Rules of Civil Procedure applicable to this matter.
Judgment is hereby entered sustaining Debtors’ objection to the priority status of
their liability for 2001 income taxes. Judgment is entered in favor of the IRS as to the
interest rate applicable to the secured tax claim.
IT IS SO ORDERED.
# # #
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