United States v. Neary (In Re Armstrong)

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

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No. 98-10814

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In the Matter of: BILLY G. ARMSTRONG,

Debtor

_________________________________

UNITED STATES OF AMERICA,

Appellant,

v.

WILLIAM T. NEARY,

Appellee.

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Appeal from the United States District Court

for the Northern District of Texas

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March 8, 2000

Before POLITZ, DeMOSS and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

The United States of America, on behalf of the Internal

Revenue Service [IRS], appeals from the district court’s

affirmation of a bankruptcy decision granting the trustee of

debtor’s estate a refund of taxes. At issue in this case is

which statute controls when the statute of limitations for filing

a tax refund claim, contained in the Internal Revenue Code, and

the turnover provision for Chapter 7 bankruptcy appear to be in

conflict. On the narrow and unusual set of facts before us, we

find that the Internal Revenue Code provisions control in this

case and therefore reverse the judgment of the court below.

I. Facts and Procedural History

Taxpayer Billy Armstrong filed his 1984 federal tax return

in September of 1985. That return resulted in an assessment

against him for the amount of $140,997.80. Armstrong signed IRS

form 872-A on March 10, 1988, which extended the time within

which the IRS could assess additional taxes against him for the

1984 tax year. The IRS executed the form on March 14. By the

terms of the form, the agreement would terminate with the

assessment of additional taxes. Form 872-A provides that the

taxpayer may file a claim for refund at any time up to six months

after the extended assessment period ends.

Armstrong filed for bankruptcy under Chapter 11 on September

1, 1989. The extended assessment period for the 1984 tax year

was still open at that time. The IRS filed a proof of claim for

unpaid taxes, including those thought owed for the 1984 tax year,

on October 5, 1989. The bankruptcy court converted Armstrong’s

action into a Chapter 7 proceeding on November 14, 1989. The

bankruptcy court discharged Armstrong from bankruptcy on March

26, 1990, although the Chapter 7 proceeding itself continued.

Taking the view that his discharge lifted a stay on

assessment against Armstrong, the IRS made an additional

assessment following notice of deficiency in the amount of

$532,726 for the 1984 tax year on January 2, 1991. The IRS

levied and collected $140,034.58 against that amount. According

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to form 872-A, Armstrong would have had six months, or until July

2, 1991, to file a claim for a full refund of taxes paid for

1984. Neither Armstrong nor the bankruptcy trustee filed a

refund claim within that six-month period.

On November 14, 1991, the IRS filed an amended proof of

claim against the bankruptcy estate of which $ 338,510 pertained

to the 1984 tax year. The bankruptcy court denied the IRS proof

of claim relating to 1984 taxes in a judgment dated March 21,

1995.

In May of 1993, Armstrong filed an adversary proceeding

against the United States in which he substantiated losses which,

when carried back to the 1984 tax year, reduced his 1984 tax

liability to $14,758. Armstrong therefore argued that he was

entitled to a refund of the $140,034.58 which he had paid for

1984 taxes since his discharge from bankruptcy. The United

States argued that Armstrong had failed to satisfy the procedural

requirements contained in I.R.C. §§ 7422(a) and 6511, governing

the filing of refund claims.

In March of 1995, Armstrong filed an administrative claim

for refund with respect to the 1984 taxes. The IRS conceded that

Armstrong was entitled to any payments made for the 1984 tax year

in the two years prior to filing the administrative claim, under

I.R.C. § 6511(b)(2)(B). The government further stipulated that

with the carryback of operating losses, Armstrong’s adjusted tax

liability for 1984 was only $14,758. The bankruptcy court found

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that Armstrong’s 1993 initiation of an adversary proceeding

constituted an informal refund claim and that he was therefore

entitled to refund of all money paid in the two years previous to

the commencement of that action. Armstrong therefore received a

refund of $140,034.58 – i.e. the amount collected post-discharge

for his 1984 taxes.

On December 20, 1996, the trustee in Armstrong’s Chapter 7

bankruptcy1 filed an administrative claim, seeking a refund of

the amounts in excess of the recently stipulated 1984 tax

liability that Armstrong had paid prior to filing for bankruptcy.

That amount totaled $126,240. On April 22, 1997, the trustee

filed an adversary proceeding against the United States in the

bankruptcy court, seeking the same refund as in his

administrative claim. The United States moved to dismiss or,

in the alternative, for summary judgment on the grounds that the

trustee’s refund claim was filed too late, i.e. after July 2,

1991 (six months after the final assessment of taxes against

Armstrong for the 1984 tax year). The trustee argued that he was

not bound by the statute of limitations for refund claims in the

Internal Revenue Code because of the automatic stay provisions

under the Bankruptcy Code, and that even if his refund claim was

not timely, the automatic turnover provision in the Bankruptcy

Code would require the government to refund the overpaid amount

1

The trustee at the time was Dale L. McCullough. He has since been

succeeded in that role by appellee here, William T. Neary.

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once that amount was certain.

The bankruptcy court held that the trustee had not filed a

timely refund claim but that the estate was nonetheless entitled

to a refund under the automatic turnover provision in 11 U.S.C. §

542(a). The United States appealed to the district court, which

affirmed the judgment of the bankruptcy court. The United States

appeals.

II. Analysis

The facts in this case are not in dispute. The primary

issues on appeal are whether the trustee’s refund claim was in

fact timely given the automatic stay provision in the Bankruptcy

Code and whether the automatic turnover provision at 11 U.S.C. §

542(a) obviated the need for a refund claim once the amount of

the debtor’s tax overpayment had become certain. Appellee raises

the additional issues of whether the filing of a proof of claim

for 1984 taxes by the IRS exempted him from having to file a

refund claim and whether his refund claim was a compulsory

counterclaim and therefore not barred by any statute of

limitations.

We apply the same standards of review to the bankruptcy

court’s findings of fact and conclusions of law as those applied

by the district court. See Kennard v. MBank Waco, N.A. (In re

Kennard), 970 F.2d 1455, 1457 (5th Cir. 1992). Because the

issues on this appeal are questions of law, we review the

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judgment of the bankruptcy court de novo. See Traina v. Whitney

Nat’l Bank, 109 F.3d 244, 246 (5th Cir. 1997).

A. Whether the trustee’s refund claim was timely.

The IRS argues and the bankruptcy court found that the

trustee’s refund claim, filed in 1996, was outside the statute of

limitations established by I.R.C. § 6511. The trustee argues

that the claim was timely because the automatic stay provision in

the Bankruptcy Code in combination with the agreement between

Armstrong and the IRS to extend the time for assessment of 1984

taxes acted to toll the statute of limitations. We agree with

the IRS and the bankruptcy court on this point and find that the

trustee’s claim was not timely under I.R.C. § 6511.

I.R.C. § 6511 dictates the time frame for filing of refund

claims. I.R.C. § 6511(a) provides that a refund claim must be

filed within three years of the time the return was filed or

within two years from the time the tax was paid. I.R.C. §

6511(b)(1) provides that no refund shall be allowed or made

unless a claim was filed within the limits set up by § 6511(a).

I.R.C. § 6511(c) supplies an addendum to the filing deadlines:

in the case of an agreement to extend the time for additional

assessments, the time for filing will not expire before six

months after the termination or expiration of the agreement.

Thus, according to § 6511, the time for filing a full refund

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claim in the present case would expire six months after the

termination of the agreement contained in Form 872A, or July 2,

1991. Under § 6511, Armstrong could file a refund claim after

that date in order to recover any taxes paid within the two years

prior to filing the claim. The bankruptcy court construed

Armstrong’s 1993 filing of an adversary proceeding as a an

informal refund claim and therefore awarded him the taxes paid

within two years prior to that filing.

The trustee contends that while the statute of limitations

for filing a full refund claim may have run for Armstrong

individually on July 2, 1991, the automatic stay imposed at the

beginning of a bankruptcy proceeding allows a trustee to file for

a refund of pre-petition taxes at any time during the pendency of

the bankruptcy case. The automatic stay provision in the

Bankruptcy Code, 11 U.S.C. § 362, would thus create an implied

exception to the time limits set out in I.R.C. § 6511.

We agree with the United States and the bankruptcy court

that the trustee’s claim was not timely under I.R.C. § 6511.

Section 6511 contains very specific terms dictating the

circumstances under which a refund claim may be filed. Other

terms tolling the statute should not be implied into it without

evidence of legislative intent. See United States v. Brockamp,

519 U.S. 347, 350-53 (1997) (holding that no implied equitable

tolling term may be read into § 6511 because the language of the

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statute and Congressional intent are to the contrary); see also

Firsdon v. United States, 95 F.3d 444 (6th Cir. 1996)(holding

that the statute of limitations contained in § 6511 is not tolled

during the pendency of the bankruptcy suit). The trustee did not

file his refund claim within the parameters of § 6511 and it was

therefore not timely under that section.

Furthermore, the automatic stay imposed by the Bankruptcy

Code does not operate in the manner that the trustee suggests.

The automatic stay contained in Bankr. Code § 362 would prohibit

further action against property in the bankruptcy estate by the

IRS. The stay would not, however, extend indefinitely the time

for a trustee to take action against the IRS.

According to the trustee’s interpretation of § 362, the

statute of limitations contained in I.R.C. § 6511 would be tolled

until the conclusion of the bankruptcy. Yet the automatic stay

is not designed to suspend all statutes of limitations applicable

to the trustee, see Gordon v. Whitmore (In re Merrick), 175 B.R.

333, 337 n. 6 (B.A.P. 9th Cir. 1994) (listing cases); AMS Realty,

Inc. v. Tao (In re AMS Realty, Inc.), 114 B.R. 229 (Bankr. C.D.

Cal. 1990), and the trustee points to no controlling authority

showing that I.R.C. § 6511, in particular, should be overridden

by Bankr. Code § 362. In absence of such a demonstration, we

conclude that Bankr. Code § 362 does not toll the statute of

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limitations for the filing of a refund claim by a bankruptcy

trustee under I.R.C. § 6511.2 See Bugge v. United States (In re

Bugge), 99 F.3d 740, 745 (5th Cir. 1996) (“We decline judicially

to engraft further exceptions to the statute of limitations

beyond those provided by Congress”).

B. Whether the IRS was compelled to surrender the debtor’s

tax overpayments to the bankruptcy estate by 11 U.S.C. §

542(a).

The trustee contends, and the bankruptcy court agreed, that

it was unnecessary for him to file a refund claim under I.R.C. §

6511 because the automatic turnover provision in the Bankruptcy

Code required the IRS to return Armstrong’s pre-filing

overpayment to the trustee as soon as the amount of overpayment

became certain. According to this theory, the IRS would have had

2

We note that the Bankruptcy Code provides a reprieve from the

statute of limitations clock for both debtor and trustee once bankruptcy

has been filed. 11 U.S.C. § 108 extends the time in which a trustee or

debtor may commence an action or file a pleading, etc. for the later of

the expiration of the statute of limitations or two years after filing

for bankruptcy for commencing an action under § 108(a) and for sixty

days after filing for the actions indicated by § 108(b). The trustee’s

adversary proceeding, commenced in 1997, occurred after both the

expiration of the statute of limitations contained in I.R.C. § 6511 and

any extension of time granted by Bankr. Code § 108. (Bankr. Code § 108

does not apply to the filing of administrative claims under the Internal

Revenue Code. See TLI, Inc. v. United States, 100 F.3d 424, 427

(5th Cir. 1996)).

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to turn over the overpayment when it entered the stipulation with

Armstrong in 1995. This is so even though I.R.C. § 6511(b)(2)(A)

states in mandatory terms that “no credit or refund shall be

allowed” unless the limitations period contained in that section

is adhered to.

The argument on this issue appears to present a question of

first impression in this Circuit and on which there is no direct

instruction from the Supreme Court. We must base our decision

upon the statutory language in question therefore, looking to the

interaction of the statutory schemes apparently in conflict. One

basic principle of statutory construction is that where two

statutes appear to conflict, the statute addressing the relevant

matter in more specific terms governs. See Crawford Fitting Co.

v. J.T. Gibbons, Inc. 482 U.S. 437, 445 (1987) (superseded by

statute on other grounds); Mennor v. Fort Hood Nat’l Bank, 829

F.2d 553, 557 (5th Cir. 1987). A similar principle applies to

interpretation of various sections of the same enactment. A

provision must be considered in context, see United States v.

Deal, 508 U.S. 129, 132 (1993); Reich v. Arcadian Corp., 110 F.3d

1192, 1195-96 (5th Cir. 1997), and the more specific provision

within a statute prevails. See Nobleman v. American Sav. Bank

(In re Nobleman), 968 F.2d 483, 487-88 (5th Cir. 1992). We can

only reason by analogy from decided cases touching on the refund

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provisions of § 6511 and the automatic turnover provision of 11

U.S.C. § 542(a).3

The bankruptcy court held that normally, the trustee would

be bound by the statute of limitations for refund claims under

I.R.C. § 6511 but that where, as here, the amount of overpayment

has been agreed upon the refund becomes “liquidated” and, as a

sum certain paid in error by the debtor before filing for

bankruptcy, must be turned over to the trustee automatically as

property of the estate under 11 U.S.C. § 542(a). While this is

admittedly a close case and without directly controlling

precedent, we disagree with the bankruptcy court’s holding that a

stipulation by the government to the amount of overpayment

exempts the trustee from the filing requirements in I.R.C. §

3

The Eighth Circuit recently considered a case raising the

question of whether a bankruptcy trustee must comply in all

circumstances with I.R.C. §§ 6511 and 7422. See United States v.

Kearns, 177 F.3d 706 (8th Cir. 1999). The Eighth Circuit panel

held that §§ 6511 and 7422 did not deprive a bankruptcy court of

jurisdiction to determine tax liability for a particular year where

a live proof of claim by the IRS was before it and consideration of

an alleged later repayment of embezzled funds was necessary to

decide the validity of the proof of claim. While we express no

opinion on our sister court’s determination of the merits of that

case, we do note that its holding was limited to its narrow set of

facts. More importantly, there was a live claim by the IRS before

the bankruptcy court and according to the panel’s interpretation of

the facts, it would be “without purpose and irrational” to deprive

the bankruptcy court of jurisdiction to consider the deduction

claims. See id. at 711. The decision did not address the

relationship between I.R.C. § 6511 and Bankr. Code § 542(a). The

Eighth Circuit’s holding, thus limited to its unique facts, does

not inform our resolution of the case before us.

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6511.

Bankruptcy Code § 542(a) requires those in possession of

property belonging to the bankruptcy estate to turn over that

property to the trustee.4 The United States argues that § 542(a)

is inapplicable to the refund amount in issue because it does not

constitute property of the estate. The government contends that

monies paid into the treasury become property of the United

States and are therefore different from the kinds of property

normally subject to turnover, in which the current possessor only

holds a lien or other such interest. See United States v. Nordic

Village, 503 U.S. 30, 39 (1992) (abrogated by statute on other

grounds); United States v. Whiting Pools, Inc., 462 U.S. 198, 211

(1983) (seizure and levy do not determine IRS rights to the

property but bring that property within the Service’s custody).

We need not base our decision on whether money in the

Treasury should be subject to turnover, because § 542(a) should

not be construed in isolation and other portions of the

bankruptcy code anticipate use of the refund mechanism under

I.R.C. § 6511. Bankruptcy Code § 505(a)(2)(B) provides, “The

4

11 U.S.C. § 542(a) provides: “Except as provided in

subsection (c) or (d) of this section, an entity, other than a

custodian, in possession, custody, or control, during the case, of

property that the trustee may use, sell, or lease under section 363

of this title, or that the debtor may exempt under section 522 of

this title, shall deliver to the trustee, and account for, such

property or the value of such property, unless such property is of

inconsequential value or benefit to the estate.”

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court may not . . . determine any right of the estate to a tax

refund, before the earlier of 120 days after the trustee properly

requests such refund from the governmental unit from which such

refund is claimed or a determination by such governmental unit of

such request.”[emphasis added]. A proper request under the

Internal Revenue Code requires compliance with §§ 7422 and 6511.

See United States v. Ryan (In re Ryan), 64 F.3d 1516, 1520-21

(11th Cir. 1995).

Bankruptcy Code § 108 provides for a temporary extension of

statutes of limitation to allow the trustee or debtor additional

time to regroup after bankruptcy has been filed. It does not

anticipate a permanent suspension of all statutes of

limitations.5 See TLI, Inc. v. United States, 100 F.3d 424 (5th

Cir. 1997) (§ 108 does not toll statute for filing of

administrative claims); see e.g., Hussmann v. Trans World

Airlines, Inc., 169 F.3d 1151, 1153-54 (8th Cir. 1999); Beck v.

5

The trustee cites to Century Hotels v. United States, 952

F.2d 107, 112 (5th Cir. 1992), and its passing reference to the

“supremacy” of the Bankruptcy Code. That decision’s holding, that

the cause should be remanded for consideration of whether the

bankruptcy estate had a cognizable interest in seized funds, is

inapposite here. First, a taxpayer retains a continuing property

interest in seized items, including funds, as opposed to money paid

directly into the Treasury. The property interest in the latter is

bounded by I.R.C. § 6511. Second, Century Hotel’s reference to the

“supremacy” of the Bankruptcy Code relates to the district court’s

total failure to consider bankruptcy remedies in the proceedings

below and does not, as dicta, create a sweeping and absolute rule

in this Circuit.

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Deloitte & Touche, 144 F.3d 732, 736 (11th Cir. 1998).

Furthermore, § 6511 is the more specific provision and therefore

governs: § 542(a) is a provision of general application,

relating to all property in which the estate has a continuing

interest, while § 6511 creates and circumscribes a taxpayer’s

(and therefore the bankruptcy estate’s) interest in a refund.

See Mennor v. Fort Hood Nat’l Bank, 829 F.2d 553, 557 (5th Cir.

1987).

The two statutes can be harmonized by the simplest and most

direct reading of the facts. Generally, the trustee acquires the

same right to file a refund claim that the debtor had. See Hays

& Co. v. Merrill Lynch Pierce Fenner & Smith, 885 F.2d 1149, 1154

(3d Cir. 1989) (noting that the trustee can only assert those

causes of action possessed by the debtor); see also H.R. Rep. No.

595, 95th Cong. 1st Sess. (1978 U.S.C.C.A.N. 5787).6 Because

that right is created and circumscribed by § 6511 and nothing

6

There are instances in which the trustee may have greater powers

than the debtor, when such powers are specifically granted by the Code.

In some circumstances, the trustee’s powers under § 542(a) are greater

than those of the debtor in that the trustee may recover property in

which the debtor has a continuing interest as defined by § 541(a)(1).

See, e.g., United States v. Whiting Pools, 462 U.S. 198, 207 n.15

(1983) (trustee may use § 542(a) to obtain turnover of property

which is seized but not owned by the United States through the

IRS). Because the debtor does not have a continuing interest in

the tax overpayment under § 541(a)(1), other than that created by §

6511, the trustee cannot use § 542(a) to create interests not otherwise

in existence.

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explicitly changes its terms, § 542(a) cannot be read to expand

the right to file for a refund to give the trustee unlimited time

so long as the bankruptcy continues.

The “liquidation” of the overpayment through the

government’s stipulation as to amount but not liability did

nothing to alter the basic fact that the trustee filed for a

refund after both the limitations period in I.R.C. § 6511 had

lapsed and the IRS proof of claim had been denied. Bankruptcy

Code § 542(a) does not in itself, or with the coincidence of a

stipulation as to amount of overpayment, abrogate the overall

statutory scheme requiring compliance with non-bankruptcy

statutes of limitations.

C. Whether the IRS proof of claim relating to 1984 tax payments

obviated any need for the trustee to file a refund claim.

The trustee contends that by filing a proof of claim in the

bankruptcy that related in part to 1984 taxes, the IRS waived

both sovereign immunity and the statute of limitations as to any

dispute over that year’s taxes. The trustee argues that because

the IRS put 1984 taxes in issue by filing a proof of claim, he

had no need to file a separate refund claim in order to attain a

refund of overpaid taxes. He further argues that his refund

claim arose as a compulsory counterclaim and therefore was not

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subject to the statute of limitations contained in I.R.C. § 6511.

The United States counters that under the Bankruptcy Code, a

proper refund claim is a jurisdictional prerequisite to

consideration of any refund due, that sovereign immunity and

limitations were not expressly waived and therefore still

applied, and that the trustee’s refund claim does not constitute

a counterclaim in any event and therefore could not possibly

provide a route around the limitations period contained in §

6511. On the procedural facts before us, we find that the

trustee’s claim was filed too late to constitute a counterclaim

and, because it was filed after the IRS proof of claim had been

denied, any arguable waiver of sovereign immunity or the statute

of limitations would be unavailable.

The trustee argues that because his refund claim relates to

the same transaction as that addressed in the IRS proof of claim

for 1984 taxes, the refund claim is a compulsory counterclaim and

is therefore exempt from the refund procedures outlined in I.R.C.

§ 6511.7 We need not address whether the trustee’s claim

constitutes a counterclaim or whether a refund claim that arises

7

The government contends that the trustee’s refund claim does

not constitute a counterclaim because it does not arise as a

pleading in an adversary proceeding. See TLI, Inc. v. United

States, 100 F.3d 424, 427 (5th Cir. 1996) (administrative refund

claim precedes a tax action but does not commence one). We need

not reach this issue because, even assuming arguendo that the

trustee’s refund claim could be construed as a counterclaim, it

would not have been timely filed.

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as a compulsory counterclaim escapes the statute of limitations

in the Internal Revenue Code, since the trustee brought his claim

too late.

A compulsory counterclaim cannot be raised at any time,

but rather only while the claim to which it relates is still in

issue. See Crutcher v. Aetna Life Ins. Co., 746 F.2d 1076, 1080

(5th Cir. 1984). In the present case, the trustee did not file

his refund claim in the bankruptcy court until after the IRS

proof of claim that related to 1984 taxes had been denied. The

bankruptcy itself is still ongoing, but the portion of it

relating to 1984 taxes was closed on March 21, 1995 when the IRS

claim was denied. The trustee filed too late for his refund

claim to qualify as a compulsory counterclaim, and his argument

regarding the statute of limitations’ inapplicability to

compulsory counterclaims is therefore moot.

In addition, the law is clear that a compulsory counterclaim

shall not be used to expand claims against the United States

beyond their limits as already established by law. See

Fed.R.Civ.P. 13(d);8 Bankr. R. 7013. The trustee would be

entitled to raise the issue of any refund due as a defense to the

8

Fed.R.Civ.P. 13(d) provides: “These rules [relating to

counter- and cross-claims] shall not be construed to enlarge beyond

the limits now fixed by law the right to assert counterclaims or to

claim credits against the United States or an officer or agency

thereof.”

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IRS proof of claim relating to the 1984 tax year. See Frederick

v. United States, 386 F.2d 481, 488 (5th Cir. 1967) (finding

waiver of sovereign immunity as to counterclaims where the

government has instituted an action, but not extending to relief

exceeding in amount or different in kind to that claimed by the

government). Failure to adhere to the administrative filing

requirements and the statute of limitations could still be a

jurisdictional bar to acquiring affirmative relief, however. See

F.D.I.C. v. Cheng, 787 F.Supp. 625 (N.D. Tex. 1991) (failure to

file administrative claim as required under Federal Tort Claims

Act precluded bringing counterclaim in district court). Since

the trustee did not file his refund claim while the IRS proof of

claim was still before the bankruptcy court, no possible waiver

of sovereign immunity or route around the jurisdictional

requirements of §§ 7422 and 6511 was available.

III. Conclusion

The trustee failed to file a refund claim within the statute

of limitations contained in I.R.C. § 6511 and failed to raise the

refund issue in the bankruptcy court while a live proof of claim

by the IRS was still before it. Under the circumstances, we find

that the trustee is now barred from recovering on his refund

claim. We reverse the judgment of the court below and remand for

proceedings consistent with this opinion.

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