Petition for Writ of Certiorari — Waugh v. Internal Revenue Service, 118 S. Ct. 80 (1997) (No. 96-2036)

Suprems Court, U.8.

_ FIL#D

J) 962036 JUN 24 1997,

OFFICE OF THE CLERK

No.

IN THE

Supreme Court of the Hnited States

OctToser TERM, 1996

WILLIAM WINSTON WAUGH,

Petitioner,

Vs.

INTERNAL REVENUE SERVICE,

Respondent.

Petition for Writ of Certiorari to the

United States Court of Appeals for the Eighth Circuit

PETITION FOR WRIT OF CERTIORARI

J. JosepH RayYmonp III

11 South Meramec Avenue

Suite 1400

St. Louis, Missouri 63105

(314) 727-0777

Attorney for Petitioner

St. Louis Law Printing, Inc. 14239 Manchester Rd. Manchester, MO 63011 314-231-4477

QUESTIONS PRESENTED FOR REVIEW

1. Certiorari should be granted to resolve the conflict among

the circuits relative to whether 11 U.S.C. §108(c) acts to apply

the tolling provisions of 26 U.S.C. §6503(b) to 11 U.S.C.

§507(a)(8)(A)(i).

2. Certiorari should be granted to determine whether the lower

court has substantially departed from this Court’s rules of

Statutory construction by employing legislative history to over-

ride any possible construction of the actual words of an unam-

biguous statute.

PARTIES TO THE PROCEEDING

Petitioner, Dr. William Winston Waugh, is a resident of

Albert Lea, Minnesota. He was the Appellant in the proceeding

before the Court of Appeals for the Eighth Circuit, the Appellant

in the proceeding before the District Court for the District of

Minnesota, and the Plaintiff in the adversary proceeding before

the Bankruptcy Court for the District of Minnesota.

Respondent, Internal Revenue Service, is an administrative

agency of the United States of America. It was the Respondent

in the proceeding before the Court of Appeals for the Eighth

Circuit, the Respondent in the proceeding before the District

Court for the District of Minnesota, and the Defendant in the

adversary proceeding before the Bankruptcy Court for the Dis-

trict of Minnesota.

There are no other parties to this action.

— Wi

TABLE OF CONTENTS

Page

Questions Presented for Review .............cccccccsssscceeseseees i

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Reasons for Granting the Writ ..............c:ccccccssesesseeeeeees 4

I. Certiorari should be granted to resolve the

conflict among the circuits relative to whether

11 U.S.C. §108(c) acts to the tolling provi-

sions of 26 U.S.C. §6503(b) to 11 U.S.C.

I pital pnsles eosicapandeiecenkaivens 4

II. Certiorari should be granted to determine

whether the lower court has substantially de-

parted from this Court’s rules of statutory

construction by employing legislative history

to override any possible construction of the

actual words of an unambiguous statute. ...... 10

rs a ER ca 11

—

APPENDIX

Appendix A—Opinion of the United States Court of

Appeals for the Eighth Circuit filed on March 26,

NDOT vicscssinntpnipiauedshisnaaenbatinedanla agen A-|!

Appendix B—Opinion of the United States District

Court for the District of Minnesota filed on Septem-

OE Ee Se sarcastic tadinneindeeneieseninaiins A-11

Appendix C—Opinion of the United States Bankruptcy

Court for the District of Minnesota filed on April

Bis FARE tiniodsnnsinnaidadiadeaae A-28

TABLE OF CITATIONS

Cases Cited:

Caminetti v. United States, 242 US. 470, 485

CUED vnpinscnsidntissiblipiamaectabink Cuetec san oi eaaihees &

PIPE ia snindstccstactanacinenacadee ees ee

In re Davis, 899 F.2d 1136 (11th Cir. 1990) .......ccccc00.

In re Taylor, 81 F.3rd 20 (3rd. Cir. 1996) ...cccccccccocececee.

Montoya v. United States, 965 F.2d 554 (7th Cir.

SW Aachsibliieie sin ldaknetiasadolomiaas ee ee Tra tie

Northern Pipeline Construction Company v. Marathon

Pipe Line Company, 458 U.S. 50, 87 (1982) ........

Quenzer v. United States, 19 F.3d 163, 165 (Sth Cir.

TO Piivsinssithciitgctipiasiigisitiaia eels ladle eR ie AES,

Rake v. Wade, 508 U.S. 464, 471 (1993) cocccccccccccccccesee.

United States v. Richards, 994 F.2d 763 (10th Cir.

2: URS oP ETS OES eS RTA Ret A TET

United States v. Shreveport Grain & Elevator Co., 287

OF is 704 MO ERO casidiatiicisiteelinasinioes snaiissemisieises a:

West v. United States, 5 F.3d 423 (9th Cir. 1993), cert.

denied, 511 U.S. 1081 (1994) .oo.cccccccccccccccccccecesese.

Page(s)

10

ams Yj a

Statutes Cited: |

BS Fis BO ccrcintsssinissesnissinninraseceelarvienaicinialigtin 4

BE SE, GEG ccccscssccsssessecesssassicreneeseseizionsensniamalle 1 ,4.5,6,7,

8,9,10,11

ER OBC, GIG csscissennacecnsncnssacsssonsasensantsesesevaaseccsatecaneans 9

11 U.S.C. §$507(a)(S)(A)(i) ............ccerccsesscccsseccssersescrsens 2,3,4,5

LE UBC, GSZIRME MA) scccecessscessscsesscovenssecerscesestniongicds 3

EE TP ix BAe sx ccsrsessacrssqsessectemetneneasssespiseienosiresennioions )

Be Ua: GREE ttiettcariienstcnienmnrmnenanete 8

BO USE. GODS wsesnicsnccssenesssressoesseepsessscesesenssosconteaniaeap ey

BS UBC. GODISD) sveinrssicessscsonsevsasnsenecensvenesnasqneceimiruncaaeene

6,7,8.9

BO Bhs, GOI D scivessissonnscenvsensansetscrnntishonniiphatiuage 6,8

Other Autherity Cited:

S. Rep. No. 95-989 at 31 (1978), reprinted in 1978

U.S.Code Cong. and Admin. News 5787, 5816-

AT scssensssiessesvensseahesienisesssiesesetanselduesveneieenaeaeeeannaal 7

PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

On March 26, 1997, the United States Court of Appeals for the

Eighth Circuit issued its opinion [reported at 109 F.3d 489]

affirming the decision of the District Court for the District of

Minnesota issued on September 12, 1995 [reported at 95-2

U.S.T.C. ¥ 50,576] which, in turn, affirmed the decision of the

Bankruptcy Court for the District of Minnesota issued on April

27, 1995 [reported at 1995 WL 464140].

STATEMENT OF JURISDICTION

Petitioner seeks review of the opinion of the United States

Court of Appeals for the Eighth Circuit and its judgment of

March 26, 1997. That judgment affirmed the District Court’s

affirmance of the Bankruptcy Court’s grant of summary judg-

ment to Respondent. Petitioner invokes the certiorari jurisdic-

tion conferred on this Court by 28 U.S.C. §1254(1).

STATUTES INVOLVED

11 U.S.C. §108(c) provides:

§108 Extension of time.

(c) Except as provided in section 524 of this title, if

applicable nonbankruptcy law, an order entered in a

nonbankruptcy proceeding, or an agreement fixes a

period for commencing or continuing a civil action in

a court other than a bankruptcy court on a claim

against the debtor, or against an individual with re-

spect to which such individual is protected under

section 1201 or 1301 of this title, and such period has

not expired before the date of the filing of the petition,

then such period does not expire until the later of —

a

(1) the end of such period, including any suspension

of such period occurring on or after the commence-

ment of the case; or

(2) 30 days after notice of the termination or expi-

ration of the stay under section 362,922, 1201, or 1301

of this title, as the case may be, with respect to such

claim.

11 U.S.C. §507(a)(8)(A)(i) provides:

§507(a) The following expenses and claims have priority in

the following order:

* * *

(8) Eighth, allowed unsecured claims of governmental

units; only to the extent that such claims are for—

(A) atax 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.

26 U.S.C. §6503(b) provides:

§6503(b) Assets of Taxpayer In Control or Custody of

Court.

The period of limitations on collection after assess-

ment prescribed in section 6502 shall be suspended for

the period the assets of the taxpayer are in the control

or custody of the court in any proceeding before any

court of the United States or of any State or of the

District of Columbia, and for 6 months thereafter.

_—

STATEMENT OF THE CASE

Petitioner, Dr. William Waugh, filed a timely personal in-

come tax return for the 1987 year on or before April 15, 1988 .

On July 1, 1988, Petitioner filed a Chapter 13 bankruptcy action

in the Western District of Washington which was later converted

to a Chapter 11 proceeding and ultimately dismissed on Febru-

ary 6, 1991. Thereafter, on May 9, 1991, Petitioner filed a

Chapter 7 bankruptcy Petition in the District of Minnesota (his

then residence) and received a general discharge on August 27,

1991,

On or about April 2, 1994, Petitioner received a refund of

$11,019 for the 1993 tax year and, believing that his 1987 tax

liability had been discharged, directed the Internal Revenue

Service (“IRS”) to apply said refund to his 1989 tax liability

along with a cash payment of $847. However, the IRS disre-

garded Petitioner’s instructions and applied the refund as well as

the cash payment to Petitioner's 1987 liability. On June 8, 1994,

the IRS served Petitioner with Notices of Intent to Levy upon his

alleged outstanding 1987 and 19839 tax liabilities in the amounts

(according to the IRS) of $157,631.36 and $15,620.52 respec-

tively. Petitioner commenced an adversary proceeding in the

bankruptcy court on September 9, 1994 seeking a declaratory

judgment that his 1987 tax liability was discharged through his

1991 Chapter 7 action.

Pursuant to cross-motions for summary judgment, the bank-

ruptcy court ruled that the three year priority period contained in

Bankruptcy Code (11 U.S.C.) §507(a)(8)(A)(i) was suspended

during the pendancy of Petitioner’s 1988 bankruptcy action.

This decision was subsequently affirmed by the District Court

for the District of Minnesota as well as the Court of Appeals for

the Eighth Circuit in a published opinion on March 26, 1997. The

Bankruptcy Court for the District of Minnesota had jurisdiction

over this matter in the first instance pursuant to 28 U.S.C. § 1334.

Petitioner now seeks review by this Court.

REASONS FOR GRANTING THE WRIT

CERTIORARISHOULD BE GRANTED TO RESOLVE

THE CONFLICT AMONG THE CIRCUITS RELATIVE

TO WHETHER 11 U.S.C. §108(c) ACTS TO APPLY THE

TOLLING PROVISIONS OF 26 U.S.C. §6503(b) TO 11

U.S.C. §507(a)(8)(A)(i).

There exists a conflict among the circuit as to whether Bank-

ruptcy Code (Title 11 U.S.C.) §108(c) acts to apply the tolling

provisions of Internal Revenue Code (Title 26 U.S.C.) §6503(b)

to Bankruptcy Code §507(a)(8)(A)(i). The Courts of Appeal for

the Third, Seventh, Ninth, and Eighth Circuits' have ruled in

favor of Respondents’ view of the matter—i.e., that Bankruptcy

Code §108(c) does act to trigger the tolling provisions of Internal

Revenue Code §6503(b) relative to Bankruptcy Code

§507(a)(8)(A)(i). The Court of Appeals for the Fifth Circuit, in

the case of Quenzer v. United States, 19 F.3d 163, 165 (Sth Cir.

1993), has reached the opposite conclusion holding that the plain

unambiguous language of Bankruptcy 108(c) limits its applica-

tion to non-bankruptcy law and, therefore, it has no effect upon

the priority provisions of Bankruptcy Code §507(a)(8)(A)(i).

The Eighth Circuit, in the instant case, agreed with Quenzer that

under the plain language of §108(c) it applies only to

nonbankruptcy law’; but, inexplicably, reached acontrary result.

' In re Taylor, 81 F.3rd 20 (3rd. Cir. 1996): Montoya v. United States. 965

F.2d 554 (7th Cir. 1992); West v. United States, 5 F.3d 423 (9th Cir. 1993):

and the instant case of Waugh v. United States, 109 F.3d 489 (8th Cir. 1997).

The Eighth Circuit in Waugh at footnote 8 erroneously cites United States v.

Richards, 994 F.2d 763 (10th Cir. 1993) as supporting the position that

Bankruptcy Code §108(c) acts to toll priority limitation periods contained in

the Bankruptcy Code. The Tenth Circuit rested its finding solely upon the

general equitable powers granted to bankruptcy courts under Bankruptcy

Code Section 105(a).

> Waugh, 109 F.3d at 493.

a aimbot

Bankruptcy Code §507(a)(8) specifies the kinds of tax claims

that are entitled to priority and, through incorporation by refer-

ence into Bankruptcy Code §523(a)(1)(A), excepts said tax

claims from discharge. Bankruptcy Code §507(a)(8)(A)(i)

grants priority status to certain tax claims a return for which was

due (including extensions) less than three years prior to the

bankruptcy petition date. Petitioner did not seek an extension for

the filing of his 1987 federal income tax return; “[t]herefore,

under normal circumstances, [his] tax liability for 1987 would

become dischargeable on April 15, 1991.”? Petitioner’s under-

lying Chapter 7 bankruptcy petitioner herein was filed on May

9, 1991. Nonetheless, Respondent maintains, and the Eighth

Circuit has found, that Respondent’ s tax claim for the 1987 year

was not discharged in this bankruptcy.

Amazing as it may seem, four circuits have adopted the flawed

reasoning (used to reach the result below) that is summarized as

follows. Bankruptcy Code §108(c) extends any statute of

limitations under “applicable nonbankruptcy law” which has not

expired as of the bankruptcy petition date. Internal Revenue

Code §6503(b) suspends the ten-year statute of limitations upon

Internal Revenue Service (“IRS”) collections after assessment

found in IRC §6502 “for the period the assets of the taxpayer are

in the control or custody of the court in any proceeding before

any court of the United States * * * and for 6 months thereafter.”

No court has ever found, nor could it be plausibly argued, that the

plain meaning of either Bankruptcy Code §108(c) nor Internal

Revenue Code §6503(b) in any way effects the operation of

Bankruptcy Code §507(a)(8)(A)(i).

Behold the turning of water into wine, the alchemy transform-

ing lead into gold— “nonbankruptcy law” really means “bank-

ruptcy law”. The Eighth Circuit (as well as the Third, Seventh,

‘Waugh v. United States, 76 A.F.T.R.2d 995-7059 (D.Minn. 1995) at page

95-5535.

— =

and Ninth) has latched upon admittedly confusing language in

the legislative history (quoted below) and concluded “Although

the plain language of Section 108(c) states that it tolls priority

periods only in nonbankruptcy cases, we conclude that Congress

intended 11 U.S.C. §108(c) and 26 U.S.C. §6503(b) and (h) to

toll the three-year priority period of | 1 U.S.C. §507(a)(8)(A)(i).”

Waugh, 109 F.3d at 493. The contradiction and straining by the

Eighth Circuit and its companions in the majority apparently

goes much further for the words “nonbankruptcy law” in § 108(c)

have been held to mean “nonbankruptcy law” relative to all

parties except the IRS (for whom the same words mean “bank-

ruptcy law”). See Haxen First State Bank v. Speight, 888 F.2d

574 (8th Cir. 1989).

The starting point, and key to this enigma, is a proper under-

standing of Internal Revenue Code Section 6503(b) which

states—

The period of limitations on collection after assessment

prescribed in section 6502 shall be suspended for the period

the assets of the taxpayer are in the control or custody of the

court in any proceeding before any court of the United

States * * * and for 6 months thereafter.

Question—does Internal Revenue Code Section 6503(b) act to

toll the statute of limitations upon IRS collection found in

Section 6502 while a taxpayer is in bankruptcy? There was

considerable controversy regarding whether bankruptcy courts

with their greatly expanded jurisdiction as constituted pursuant

to the Bankruptcy Reform Act of 1978, P.L. 95-598 (prior to the

1984 amendments) were “courts of the United States.” See

Northern Pipeline Construction Company v. Marathon Pipe

Line Company, 458 U.S. 50, 87 (1982)(plurality of Court held

bankruptcy courts as constituted by Bankruptcy Reform Act of

“i,

1978 to be non-Article III adjuncts).* Interestingly, Bankruptcy

Code §108(c) is also a creation of the Bankruptcy Reform Act of

1978.

Once it is acknowledged that bankruptcy courts could be

construed not to be “courts of the United States”’ under the 1978

Act, the meaning of the magical legislative history to Bank-

ruptcy Code §108(c) takes on a different perspective.

In the case of Federal Tax liabilities, the Internal Rev-

enue Code suspends the statute of limitations on a tax

liability of a taxpayer from running while his assets are in

the control or custody of a court and for 6 months thereafter

(sec. 6503(b) of the Code). The amendment applies this

rule in a title 1] proceeding. Accordingly, the statute of

limitations on collection of anondischargeable Federal Tax

liability of a debtor will resume running after 6 months

following the end of the period during which the debtor’s

assets are in the control or custody of the bankruptcy court.

This rule will provide the Internal Revenue Service ad-

equate time to collectnondischargeable taxes followin g the

end of the title 11 proceedings.

S. Rep. No. 95-989, at 31 (1978), reprinted in 1978 U.S. Code

Cong. and Admin. News 5787, 5816-17° (emphasis added).

The heart of the confusion lies with the sentence—’’The

amendment applies this rule in a title 11 proceeding.” ibid.’ The

*It should also be noted that in a Chapter 13 bankruptcy action, the debtor

retains possession of his assets under Bankruptcy Code § 1 306(b); therefore,

at least in the case of a Chapter |3 bankruptcy, the debtor’s assets cannot be

said to be in the “custody or control” of a court of the United States.

* See In re Davis, 899 F.2d 1136 (1 Ith Cir. 1990).

* Bankruptcy Reform Act of 1978, P.L. 95-598.

” Whose author should be flogged round the fleet. See. Aubrey/Maturin

series of novels by Patrick O'Brian for further details.

_— va

legion of courts which have relied upon these words have taken

them to mean that Internal Revenue Code §6503(b)’s tolling

provision applies to statutes of Title 11 (of which § 507 is but

one). However, in light of the Marathon decision, one can see

that any forward thinking committee member (or more likely

their staff) would be concerned that the reforms contained in the

1978 Act could divest the Internal Revenue Service of the

protection of Internal Revenue Code §6503(b) due to the changed

nature of bankruptcy courts under 1978 Act. Therefore, a more

likely reading of the above-quoted history is the following—

regardless of whether bankruptcy courts are construed as “courts

of the United States”, Internal Revenue Code §6503(b) will be

triggered to toll the statute of limitations upon IRS collections

under Internal Revenue Code §6502 for the time period set forth

in Bankruptcy Code §108(c).

That there was concern for tolling statute of limitations

contained in the Internal Revenue Code during the pendancy of

a bankruptcy case under the vast changes brought forth by the

1978 Actis reinforced by the passage 2 years later of Section 6(a)

to the Bankruptcy Tax Act of 1980°. This provision added

subsection (h) to Internal Revenue Code §6503 which is entitled

“Cases under Title 11 of the United States Code”.’ Section

6503(h) extends the statute of limitations upon IRS assessments

of tax liability (IRC §6501) as well as the limitations period upon

IRS collections of assessments (IRC §6502) for the period

*P_L. 96-589.

* §6503(h) Cases Under Title 11 of the United States Code.

The running of the period of limitations provided in section 6501 or

6502 on the making of assessments or collection 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.

—_ yon

during which a taxpayer is protected by the automatic stay of

Bankruptcy Code §362.

Let us assume for a moment that the Eighth Circuit has

correctly interpreted the legislate history to the 1978 Act quoted

above. Where are the words directing the reader that the priority

periods contained in Bankruptcy Code §507 are to be extended?

How can the provisions of Internal Revenue Code §6503(b) be

“appl[ied}” to “Title 11”? By its plain wording, Internal Revenue

Code §6503(b) only extends the ten-year limitations period upon

IRS collections contained in Section 6502. Under the majority

interpretation, is every limitations period placed upon the IRS in

Title 11 to be extended by a prior bankruptcy through application

of Bankruptcy Code § 108(c) to Internal Revenue Code §6503(b)?

The lack of clear direction in the legislative history which is the

linchpin of the majority interpretation cannot be used to override

the plain wording of Bankruptcy Code §108(c).

There is one additional problem with Respondent's (and,

consequently, the Eighth Circuit’s) construction of Bankruptcy

Code §108(c) which begins “Except as provided in section 524

of this title”. Bankruptcy Code §524 is entitled “Effects of

Discharge”. Thus, the introductory phrase to Bankruptcy Code

§108(c) indicates that it does not apply to those debts that have

been discharged during the bankruptcy proceeding. However,

Respondent and the Eighth Circuit wish to use the provisions of

§ 108(c) in determining whether or not there has been a discharge

in the first place. This would result in circular logic which, again,

was not intended by the drafters. The clear purpose of §108(c)

was to toll nonbankruptcy statute of limitations. Quenzer, supra

at 165.

=

CERTIORARI SHOULD BE GRANTED AS THE

LOWER COURT HAS SUBSTANTIALLY DEPARTED

FROM THIS COURT’S RULES OF STATUTORY CON-

STRUCTION BY EMPLOYING LEGISLATIVE HIS-

TORY TO OVERRIDE ANY POSSIBLE CONSTRUC-

TION OF THE ACTUAL WORDS OF AN UNAMBIGLU-

OUS STATUTE.

The Court of Appeals for the Eighth Circuit below used the

legislative history to Bankruptcy Code §108(c) to interpret the

words “nonbankruptcy law” as meaning, for the IRS alone,

“bankruptcy law”. Waugh, 109 F.3d at 493.

“It is elementary that the meaning of a statute must, in the first

instance, be sought in the language in which the act is framed.

and if that is plain, * * * the sole function of the courts is to

enforce it according to its terms.” Caminetti v. United States,

242 U.S. 470, 485 (1917); Rake v. Wade, 508 U.S. 464, 471

(1993).

No one has ever argued, no could they, that Bankruptcy Code

§108(c) contains an ambiguity on its face. What the Eighth

Circuit has done is to resort to legislative history to create an

ambiguity in an otherwise clear statute. It is a well established

principle in this Court that committee reports “cannot be resorted

to for the purpose of construing a statute contrary to the natural

import of its terms. [citations omitted] Like other extrinsic aids

to construction, their use is ‘to solve’, but not to create an

ambiguity.” United States v. Shreveport Grain & Elevator Co..

287 U.S. 77, 82 (1932).

— |

CONCLUSION

The Court should grant certiorari herein to resolve a split in the

circuits regarding the proper interpretation of Bankruptcy Code

§108(c) and to reverse the Eighth Circuit’s use of legislative

history to create an ambiguity in an otherwise clear statute.

Respectfully submitted,

J. JOSEPH RAYMOND III

11 South Meramec Avenue

Suite 1400

St. Louis, Missouri 63105

(314) 727-0777

Attorney for Petitioner

APPENDIX

APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 95-3928

In re: William Winston Waugh,

Debtor.

William Winston Waugh,

Plaintiff - Appellant,

v.

Internal Revenue Service,

Defendant-Appellee

Appeal from the United States District Court

for the District of Minnesota

Submitted: October 24, 1996

Filed: March 26, 1997

Before WOLLMAN, FLOYD R. GIBSON, and BEAM, Circuit

Judges.

FLOYD R. GIBSON, Circuit Judge.

This appeal concerns the issue of whether the priority period

of 11 U.S.C. §507(a)(8)(A)(i) (1994)', is suspended or tolled

during the pendency of a Chapter 7 debtor’s prior bankruptcy

' Congress renumbered 11 U.S.C. §507(a)(7) to 11 U.S.C. §507(a)(8) in

1994. See The Bankruptcy Reform Act of 1994 §304, 11 U.S.C. §507(a)(8)

(1994). The Bankruptcy Reform Act of 1994 does not apply to this case,

which was commenced beforethe October 22, 1994 effective date. See The

Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 702, 108 Stat. 4106,

4150 (1994). However, because the change is not substantive, we refer to

section 507(a)(8) throughout the opinion.

eae, ye

proceedings. We hold that it is and therefore affirm the district

court judgment.

I. BACKGROUND

Appellant William Winston Waugh filed a tax return for the

1987 tax year by the April 15, 1988 deadline. However, Waugh

failed to remit the tax due to the Internal Revenue Service (IRS).

On July 1, 1988, Waugh filed a Chapter 13 bankruptcy petition

in the United States Bankruptcy Court for the Western District

of Washington. The court converted Waugh’s Chapter 13 case

to a Chapter 11 case on September 15, 1988. On July 27, 1990,

the bankruptcy court revoked Waugh’s Chapter | 1 plan. Waugh

appealed the revocation, but on February 6, 1991, the court

finally dismissed his Chapter 11 plan. From July 1, 1988, until

February 6, 1991, the automatic stay prevented the IRS from

collecting Waugh’s 1987 taxes. See 11 U.S.C. §362(a)(6)

(1994).

Waugh filed a Chapter 7 bankruptcy petition on May 9. 1991,

and received his discharge on August 27 of the same year.

Waugh received a refund of $11,019 for the 1993 tax year, which

he directed the IRS to apply to his 1989 tax liability along with

a cash payment of $847. However, the IRS applied the refund

and the cash payment to Waugh’s outstanding 1987 tax liability.

On June 8, 1994, the IRS served Waugh with Notices of Intent

to Levy upon his outstanding 1987 and 1989 tax liabilities.

Waugh commenced an adversary proceeding on September 9.

1994, seeking a declaratory judgment that his 1987 tax liability

was discharged in his Chapter 7 bankruptcy proceeding Waugh

filed a motion for summary judgment claiming that his 1987 tax

liability should have been discharged in his Chapter 7 bank-

ruptcy proceeding because the priority period of section

507(a)(8)(A)(i) was not suspended during his prior bankruptcy

? The IRS claimed Waugh owed $157,631.36 for the 1987 tax year and

$15,620.52 for the 1989 tax year.

er, ae

cases. The IRS likewise filed a motion for summary judgment

contending that because the automatic Stay prohibited the IRS

from collecting Waugh’s 1987 tax during the prior bankruptcy

proceedings, the priority period of section 507(a)(8)(A)(i) should

have been suspended. The bankruptcy court’ adopted the major-

ity position on this issue and held that because the priority period

of section 507(a)(8)(A)(i) was Suspended during Waugh’s prior

bankruptcy proceedings, his 1987 tax liability was

nondischargeable in his subsequent Chapter 7 proceeding. The

district court* affirmed the bankruptcy court’s decision, and

Waugh appeals. For the reasons set forth below, we affirm.

II. DISCUSSION

This Court sits as a court of second review in bankruptcy cases

and therefore applies the same standard of review as the district

court. See Southern Technical College, Inc. v. Hood. 89 F.3d

1381, 1383 (8th Cir. 1996). We review the bankruptcy court’s

grant cf summary judgment de novo. See id. Therefore, “[i]f the

record shows that there is no genuine issue of material fact and

that the prevailing party is entitled to judgment as a matter of law,

we will affirm the grant of summary judgment.” Id. (citations

omitted).

On appeal, Waugh contends that his 1987 tax liability was

discharged in his Chapter 7 bankruptcy proceeding because the

three-year priority period of 11 U.S.C. § 507(a)(8)(A)(i) (1994),

and the three-year dischargeability period of 11 U.S.C. §

523(a)(1)(A) (1994), were not suspended or tolled during his

prior bankruptcy proceedings. The IRS counters that Waugh’s

1987 tax liability was not discharged in his Chapter 7 proceedin g

because 11 U.S.C. §108(c) (1994) and 26 U.S.C. §6503(b) and

‘The HONORABLE DENNIS D. O’BRIEN, Chief United States Bank-

ruptcy Judge for the District of Minnesota.

*The HONORABLE RICHARD H. KYLE. United States District Judge

for the District of Minnesota.

eae

(h) (1994), operate to suspend the three-year priority period of

section 507(a)(8)(A)(i) during the pendency of bankruptcy pro-

ceedings.

Ordinarily, in a Chapter 7 proceeding, calculating which tax

debts are dischargeable is a relatively simple process. See 11

U.S.C. §§523(a)(1)(A), 507(a)(8)(A)(i) (1994). Section

523(a)(1)(A)° by reference to section 507(a)(8)(A)(i)®, provides

that taxes for which the return was due more than three years

prior to a bankruptcy filing are dischargeable. Because Waugh’s

1987 tax return was due April 15, 1988, Waugh’s 1987 tax

liability would have become dischargeable on April 15. 1991.

Therefore, when Waugh filed his Chapter 7 bankruptcy petition

on May 9, 1991, his 1987 tax liability could have been dis-

charged. However, Waugh’s previous bankruptcy filings com-

* Section 523 provides in pertinent part:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b)

of this title does not discharge an individual debtor from any debt —

(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)(8) of this title, whether or not a claim for such tax was filed or

11 U.S.C. § 523(a)(1 (A) (1994).

* Section 507 provides in pertinent part:

(a) The following expenses and claims have priority in the following

order:

* * x

(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 —

(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: ... .

11 U.S.C. §507(a)(8)(A)(i) (1994).

Ee

son

plicate this usually simple calculation. The IRS contends that

because the automatic stay prevented the IRS from collecting

Waugh’s 1987 taxes during his prior bankruptcy proceedings,

see 11 U.S.C. §362(a)(6) (1994): the priority period of section

507(a)(8)(A)(i) should have been tolled during those prior pro-

ceedings. We agree.

This case illustrates the competing interests Congress sought

to balance when drafting the Bankruptcy Code:

A three-way tension thus exists among (1) general credi-

tors, who should not have the funds available for payment

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.

S. Rep. No. 95-989, at 14( 1977), reprinted in 1978 U.S.C.C.A.N.

5787, 5800. To satisfy the interests of the “tax collector,”

Congress extended a three-year priority period to tax collecting

authorities. Id. Although a debtor is permitted to discharge tax

debts which have grown “stale,” Congress realized that “{[a]n

open-ended dischargeability policy would provide an opportu-

nity for tax evasion through bankruptcy, by permitting discharge

362(a)(9) applied in this case, it would not alter our analysis of the automatic

Stay’s effect on the priority period of section 507(a)(8).

="

of tax debts before a taxing authority has an opportunity to

collect any taxes due.” H.R. Rep. No. 95-595, at 190 (1977),

reprinted in 1978 U.S.C.C.A.N. 5963, 6150.

The Bankruptcy Code does not contain any provisions which

explicitly suspend the priority period of section 507(a)(8)(A)(1)

while a debtor is engaged in bankruptcy proceedings. However,

section 108(c) provides as follows:

(c) Except as provided in section 524 of this title, if

applicable nonbankruptcy law, an order entered in a

nonbankruptcy proceeding, or an agreement fixes a period

for commencing or continuing a civil action in a court other

than a bankruptcy court on a claim against the debtor, or

against an individual with respect to which such individual

is protected under section 1201 or 1301 of this title, and

such period has not expired before the date of the filing of

the petition, then such period does not expire until the later

of —

(1) the end of such period, including any suspension of

such period occurring on or after the commencement

of the case; or

(2) 30 days after notice of the termination or expiration

of the stay under section 362, 922, 1201, or 1301 of

this title, as the case may be, with respect to such

claim.

11 U.S.C. §108(c) (1994). Subsections 6503(b) and (h) of the

Internal Revenue Code provide: rs

§ 6503. Suspension of running of period of limitation

* * *

(b) Assets of taxpayer in control or custody of court—

a

The period of limitations on collection after assessment

prescribed in section 6502 shall be suspended for the period

the assets of the taxpayer are in the control or custody of the

court in an» proceeding before any court of the United

States or of any State or of the District of Columbia, and for

6 months thereafter.

* * x

(h) Cases under title 11 of the United States Code—

The running of the period of limitations provided in

section 6501 or 6502 on the making of assessments or

collection shall, in a case under title 11 of the United States

Code, be suspended for the period during which the Secre-

tary 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(b),(h) (1994).

Waugh urges this Court to determine that because section

108(c) applies only to “nonbankruptcy law,” the statute does not

act to suspend the priority period of section 507(a)(8)(A)(i),

which is itself part of the Bankruptcy Code. We recognize that

“[t]he plain meaning of legislation should be conclusive, except

in the ‘rare cases [in which] the literal application of a statute will

produce a result demonstrably at odds with the intentions of its

drafters.’” United States v. Ron Pair Enters., Inc.. 489 U.S. 235,

242 (1989)(alteration in original)( quoting Griffin v. Oceanic

Contractors, Inc., 458 U.S. 564, 571 (1982)): accord Missouri v.

L.J. O'Neill Shoe Co. (In re L.J. O'Neill Shoe Co.), 64F.3d | 146,

1150 (8th Cir. 1995). However, we conclude that this is such a

“rare case.” If we applied the plain meaning of section 108(c)

and held that the priority period of section 507( a)(8)(A)(i) is not

a Se

suspended during bankruptcy proceedings, Congress’s intent to

afford the IRS a three-year priority period for the collection of

taxes certainly would be frustrated. Therefore, we conclude that

the three-year priority period of section 507(a)(8)(A)(i) is sus-

pended by 11 U.S.C. §108(c) and 26 U.S.C. §6503(b) and (h), for

the time that the automatic stay prevents the IRS from collecting

outstanding tax debts.

The legislative history of 11 U.S.C. 108(c) supports the !

conclusion that Congress intended for section 108(c) and 26

U.S.C. §6503(b) and (h) to suspend the priority period of section |

507(a)(8)(A)(i):

In the case of Federal tax liabilities, the Internal Revenue

Code suspends the statute of limitations on a tax liability of

a taxpayer from running while his assets are in the control

or custody of a court and for 6 months thereafter (sec.

6503(b) of the Code). The amendment applies this rule in

a title 11 proceeding. Accordingly, the statute of limita-

tions on collection of a nondischargeable Federal tax liabil-

ity of adebtor will resume running after 6 months following

the end of the period during which the debtor’s assets are in

the control or custody of the bankruptcy court. This rule

will provide the Internal Revenue Service adequate time to

collect nondischargeable taxes following the end of the title

11 proceedings.

S.Rep. No. 95-989, at 31 (1978), reprinted in 1978 U.S.C.C.A.N.

5787, 5816-17. Although the plain language of section 108(c)

States that it tolls priority periods only in nonbankruptcy cases,

we conclude that Congress intended 11 U.S.C. §108(c) and 26

U.S.C. § 6503(b) and (h) to toll the three-year priority period of

11 U.S.C. §507(a)(8)(A)(i). Therefore, because the automatic

Stay prevented the IRS from collecting Waugh’s tax debt from

July 1, 1988 until February 6, 1991, the three-year priority period

of section 507(a)(8)(A)(i) was suspended during that time.

_——

a

=

The majority of courts which have decided this issue have

similarly determined that 11 U.S.C. § 108(c) and 26 U.S.C. §

6503(b) and (h) operate to suspend the three-year priority period

of 11 U.S.C. §507(a)(8)(A)(i).8 Most recently, the Court of

Appeals for the Third Circuit recognized that “[t]o limit §507(a)

in this regard would lead to absurd results, as the government

would lose its priority claim to back taxes as a result of the

taxpayer’s abuse of the bankruptcy process.” Jn re Taylor, 81

F.3d 20, 23 (3d Cir. 1996). For example, in Waugh’s case, the

automatic stay prevented the IRS from collecting Waugh’s 1987

taxes from July 1, 1988, until February 6, 1991. See 11 U.S.C.

§ 362(a)(6) (1994). Consequently, not even three months had

passed from the time Waugh filed his tax return on April 15,

1988, until the IRS was stayed from collecting taxes on July 1,

1988. Were we to adopt Waugh’s limited interpretation of

507(a)(8)(A)(i)’s priority period, future tax debtors could abuse

the bankruptcy process by remaining tied up in bankruptcy

"See In re Taylor. 81 F.3d 20, 24 (3d Cir. 1996); Montoya vy. United States

(In re Montoya), 965 F.2d 554, 557 (7th Cir. 1992): Brickley v. United States

(In re Brickley), 70 B.R. 113, 115 (9th Cir. B.A.P. 1986); Shedd v. United

States (In re Shedd), 190 B.R. 692, 694 (Bankr. M.D. Fla. 1996): Jn re

Eysenbach, 183 B.R. 365, 369(W.D.N.Y. 1995); Teeslink v. United States (In

re Teeslink), 165 B.R. 708, 712-13 (Bankr. S.D. Ga. 1994): In re Ross. 130

B.R. 312, 313 (Bankr. D. Neb. 1991); /n re Wise, 127 B.R. 20, 22 (Bankr. E.D.

Ark. 1991); Florence v. IRS (In re Florence), 115 B.R. 109, 112-13 (Bankr.

S.D. Ohio 1990); cf. West v. United States (In re West), 5 F.3d 423, 426 (9th

Cir. 1993) (holding that 26 U.S.C. §6503, incorporated through 11 U.S.C.

§ 108(c), operates toextend the priority period of 1 1 U.S.C. §507(a)(8)(A\(ii)).

cert. denied, 511 U.S. 1081 (1994); United States v. Richards (In reRichards),

994 F.2d 763, 765 (10th Cir. 1993) (holding that 11 U.S.C. §105(a), in

addition to 26 U.S.C. § 6503 and 11 U.S.C. § 108(c), operates to extend the

priority period of 11 U.S.C. § 507(aX7)(A)ii)). But see Quenzer v. United

States (In re Quenzer), 19 F.3d 163. 165 (Sth Cir. 1993)(holding that under

the plain language of section 108(c) the statute does not suspend the priority

period of section 507(a)(8)); Clark v. IRS (In re Clark), 184 B.R. 728, 730-

31 (Bankr. N.D. Tex. 1995) (same); Gore v. United States (In re Gore), 182

B.R. 293, 300-01 (Bankr. N.D. Ala. 1995) (same).

— A-10—

proceedings until the three-year lookback period of section

507(a)(8)(A)(i) expired, then voluntarily dismissing the bank-

ruptcy petition and refiling once the tax liability became dis-

chargeable. We do not imply that Waugh had ill intentions when

he filed his successive bankruptcy petitions. We merely use his

case to illustrate how future bankruptcy petitioners could abuse

the bankruptcy process if section 108(c) does not operate to

suspend the priority period of section 507(a)(8)(A)(i). We

determine that Congress did not intend to allow such an abuse of

the bankruptcy process.

Waugh contends that the potential for abuse would be better

dealt with on a case-by-case basis through the bankruptcy

court’s broad equitable powers under | 1 U.S.C. § 105(a) (1994).

However, we conclude that such a case-by-case examination of

a debtor’s intent in filing successive bankruptcy petitions would

be extremely burdensome. Furthermore, such an approach is

unnecessary because 11 U.S.C. §108(c) and 26 U.S.C. §6503(b)

and (h) operate to suspend the three-year priority period of

section 507(a)(8)(A)(i).

III. CONCLUSION

For the reasons stated above, we affirm the decision of the

district court.

AFFIRMED.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS,

EIGHTH CIRCUIT.

— A-ll —

APPENDIX B

IN THE UNITED STATES DISTRICTCOURT

FOR DISTRICT OF MINNESOTA

Docket No. 3-95-507. ,

United States District Court, Dist. of Minnesota.

In re William W. WAUGH, Debtor.

WILLIAM W. WAUGH,

Appellant, -

v.

UNITED STATES OF AMERICA,

Appellee.

MEMORANDUM OPINION AND ORDER

Filed: September 12, 1995.

KYLE, District Judge.

INTRODUCTION

Before the Court is Appellant’s appeal from an Order of the

United States Bankruptcy Court.' The Order: 1) denied

Appellant’s motion for summary judgment and injunctive relief;

and 2) granted Appellee’s motion for summary judgment, find-

ing that Appellant’s 1987 tax liability was nondischargeable

pursuant to 11 U.S.C. §523(a)(1) by reference to 11 U.S.C.

§507(a)(8)(A)(i).

BACKGROUND

Appellant timely filed a personal income tax return for the tax

year 1987 on or before the due date, April 15, 1988. 11 U.S.C.

' The Honorable Dennis D. O’Brien, Chief United States Bankruptcy

Judge.

— A-12 —

§523(a)(1) does not allow the discharge of federal income tax

liability until the running of the period which is provided for in

11 U.S.C. §507(a)(8)(A)(i)(formerly 507(a)(7)(A)(i)).. Section

507(a) delineates priorities for the payment of certain expenses

in bankruptcy, and subsection (8)(A)(i) sets the priority period

for a tax on income or gross receipts at three years after payment

of the tax is due. After this priority period lapses, the debt

becomes “dischargeable,” meaning that discharge by a bank-

ruptcy court will relieve the debtor from meeting that obligation.

Therefore, under normal circumstances, Appellant’s tax liability

for 1987 would become dischargeable on April 15, 1991. Appel-

lant filed a bankruptcy petition under Chapter 7 on May 9, 1991,

and received a general discharge on August 27, 1991.

The Internai . 2venue Service, however, does not recognize

the 1987 tax liability as having been discharged in 1991 because

of an earlier bankruptcy filing by Appellant under Chapter 13 of

the Bankruptcy Code July 1, 1988. This filing was converted to

a Chapter 11 proceeding on September 15, 1988, and was

revoked by order of the United States District Court for the

Western District of Washington dated February 6, 1991. The

Internal Revenue Service views the three-year calculation pe-

riod in §507(a)(8)(A) as being suspended during the period of

time that Appellant was involved in the first bankruptcy pro-

ceeding.

Following this interpretation, Appellee applied payments

made to it by Appellant on April 2, 1994, to Appellant’s 1987 tax

liability, instead of toward his 1989 tax liability. as Appellant

had directed.

On or about June 8, 1994, the Internal Revenue Service served

upon Appellant a Notice of Intent to Levy concerning the

outstanding portion of Appellant’s 1987 tax liability. Also on or

about June 8, 1994, Appellant received a second Notice of Intent

to Levy concerning the outstanding portion of Appellant’s 1989

— A-13 —

tax liability. Appellant commenced an adversary proceeding in

United States Bankruptcy Court for the District of Minnesota on

September 9, 1994, seeking a declaratory judgment that his 1987

tax liability was discharged in the 1991 bankruptcy, as well as

injunctive relief regarding the application of past payments and

future collection efforts by the Internal Revenue Service. Both

parties moved for summary judgment, and, after a hearing before

the bankruptcy court on February 16, 1995, the court denied

Appellant’s motion and granted Appellee’s motion for summary

judgment. This appeal followed.

ANALYSIS

I. Standard of Decision

Conclusions of law made by a bankruptcy court are reviewed

de novo. In re Foust, 52 F.3d 766, 768 (8th Cir. 1995); In re

Wagner, 36 F.3d 766, 768 (8th Cir. 1994). In reviewing an order

for summary judgment, the appellate court applies the same

standard as the lower court. RSBI Aerospace, Inc. v. Affiliated

FM Ins. Co., 49 F.3d 399, 401 (8th Cir. 1995). Summary

judgment is to be granted under Rule 56 if it is shown that there

is “no genuine issue as to any material fact and that the moving

party is entitled to a judgment as a matter of law.” Fed. R. Civ.

Pro. 56(c); See Celotex Corp. v Catrett, 477 U.S. 317, 322

(1986). Summary judgment is to be granted only where the

evidence is such that no reasonable jury could return a verdict for

the non-moving party. Anderson v. Liberty Lobby, Inc., 477 US.

242, 250, 106 S.Ct. 2505, 2511.

No material facts are in dispute concerning this appeal.

II. Plain Language

Appellant’s primary argument rests upon a literal interpreta-

tion of the Bankruptcy Code. Appellant is clearly correct that the

1987 tax return was due more than three years before the filing

of the Chapter 7 bankruptcy petition in May of 1991. Were the

yen

Court to apply 11 U.S.C. §523(a)(1)(A)? and §507(a)(8)(A)*

without regard to any other section of the Bankruptcy Code and

in ignorance of the effect of this application, Appellant would

prevail. As stated earlier, Section 507(a)(8)(A)(i)’s three-year

priority period imposed on the pursuit of delinquent income

taxes makes no mention of the effect of prior bankruptcy filings;

Appellant argues that the three-year period continues to run

throughout pending bankruptcy proceedings.

Yet Appellee contends that a broader view of the Bankruptcy

Code is warranted. The three-year period, it is claimed, did not

run during the approximately 1,080 days that Appellant’s assets

were protected by operation of 11 U.S.C. §362(a)(6), the Bank-

ruptcy Court’s automatic stay provision, during his Chapter | 3/

Chapter 11 filing. This result is reached by reading 11 U.S.C.

? Section 523(a)(1)(A) states:

(a) A discharge under section 727, 1141, 1228(a), or 1328(b) of this title does

not discharge an individual debtor from any debt—

(1) for a tax or a custom duty—

(A) of the kind and for the periods specified in section 507(a)(8) of this

title, whether or not a claim for such tax was filed or allowed.

* Section 507(a)(8)(A) states, in setting banrkutpcy priorities:

(8) Eighth, allowed unsecured claims of governmental unites. 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 due 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 filing of the petition:

(ii) assessed with 240 days, plus any time plus 30 days during which an

offer in compromise with respect to such tax that was made within 240

days after such assessment was pending, before the date of the filing of

the petition; or

(iii) other than a tax of a kind specified in section 523(a)(1)(C) of this

title, not assessed before, but assessable, under applicable law or by

agreement, after, the commencement of the case.

—A-1S—

§108(c) together with 26 U.S.C. §§6502 and 6503. Section

108(c) suspends the statutes of limitation of certain nonbankruptcy

actions when a debtor is involved in a bankruptcy proceeding.”

26 U.S.C. §6502 provides a ten-year (formerly six-year) limita-

tion on the collection of taxes after an assessment by the

Secretary of Revenue, and 26 U.S.C. §§6503(b)° and (h)° extend

this ten-year collection period for the amount of time that the

debtor is involved in bankruptcy proceedings. Section 6503

standing alone is not necessarily dispositive of this case, since,

literally, it only extends to the 10-year period for collection in

§6502 and the three-year period for tax assessment found in

§6501. It does not, on its face, apply to the three-year limitations

4 The statute reads in pertinent part:

If applicable nonbankruptcy law, an order entered in a nonbankruptcy

proceeding, or an agreement fixes a period for commencing or continu-

ing a civil action in a court other than a bankruptcy court on a claim

against the debtor, ... and such period has not expired before the date of

the filing of the petition, then such period does not expire until ... the end

of such period, including any suspension of such period on or after the

commencement of the case.

11 U.S.C.§108(c)(1)( 1994)(emphasis added).

5 Section 6503(b) reads in pertinent part:

(b) . . . The period of limitations of collection after assessment

prescribed in section 6502 shall be suspended for the period the assets

of the taxpayer are in the control or custody of the court in any

proceeding before any court of the United States, . . . and for 6 months

thereafter.

® Section 6503(h) states:

The running of the period of limitations provided in section 6501 or

6502 on the making of assessments or collection 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 collection and -

(1) for assessment, 60 days thereafter, and

(2) for collection, 6 months thereafter.

— A-16—

period for the priority of income taxes in bankruptcy found in | |

U.S.C. §507(a)(8)(A)(i). Yet if § 108(c) (the provision suspend-

ing time limits during nonbankruptcy actions) is interpreted to

activate §6503, the period of “nondischargeability” concerning

the tax obligation is prevented from running during the course of

a debtor’s bankruptcy case and for six months thereafter.

Appellant would like the Court to focus exclusively on the fact

that, by its own terms, the suspension of time caused by §108(c)

operates in the context of applicable nonbankruptcy law. Then,

following the reasoning of the bankruptcy court in Jn re Dietz,

106 B.R. 236, 239 (Bankr. D. Colo. 1989), rev’d, 116 B.R. 792

(D. Colo. 1990), “[t]he measuring period specified by 11 U.S.C.

§507(a)(7)(A) [now §507(a)(8)(A)] is clearly specified by appli-

cable ‘bankruptcy law’ and is not affected by 11 U.S.C. §108(c).”

This reasoning would then lead to the conclusion that, although

the IRS would be barred from attempting to collect from the

debtor by the §362 stay, the three-year priority/collection period

would continue to run. Once the priority expires after three

years, the debtor will be absolved of any responsibility to pay the

tax if granted a general discharge.

Appellant would have done well to rely on Jn re Gore, 182

B.R. 293 (Bankr. N.D.Ala. 1995), an opinion that reaches

Appellant’s desired result and that has not been overruled.’ That

’ The Gore decision and the very similar decision in /n re Turner, 182 B.R.

317 (Bankr.N.D.Ala. 1995) by the same bankruptcy judge on the same date

are the only ones that solidly support Appellant’s position in the face of

Appellee’s argument. Since the opinions are almost identical, this opinion

cites to the Gore decision only. The court relies on /n re Quenzer, 19 F.3d 163

(Sth Cir. 1993). The Quenzer opinion, while also finding that §108(c)’s

suspension applies only to nonbankruptcy proceedings, neer once mentions

§6503 or consideration of the legislative intent. The Quenzer court. impor-

tantly, state that “[a]bsent some other basis for tolling the section 507 time

limit,” it would not apply §108(c) to suspend the running of the time limit

during the debtor’s bankruptcy proceedings. 19 F.3d at 165. In the opinion

(Footnote 7 continued on next page)

—<

bankruptcy court states: “The three year periods of sections

507(a)[(8)](A)(i) and 523(a)(7)(B) are bankruptcy law. Sections

108(c) and 6503(h) do not apply to bankruptcy laws.” id. at 299.

Thus, the debt is dischargeable because the three-year period is

not suspended, and so Appellant wins.

This result, as shown below, is manifestly contrary to legisla-

tive intent and should not be reached.

III. Legislative Intent

More than twenty previous cases have avoided the myopic

and out-of-context reading of the Bankruptcy Code that Appel-

lant wishes this Court to accept.* Of course, blind adherence to

(Footnote 7 continued)

of this Court, the proper basis is supplied by examining §108(c) in conjunc-

tion with §6503, and by considering the legislative intent behind the interac-

tion of the Bankruptcy Code and the Internal Revenue Code, as supported by

case law, proper interpretation, and clear indications of Congressional pur-

pose. The Quenzer court was presented only with the argument that a

bankruptcy court has the power to suspend the running of the time limit by

virtue of its equitable powers, as laid out in 11 U.S.C. §105(a). This basis,

while accepted by the Tenth Circuit in /n re Richards, 994 F.2d 763, 765-66

(10th Cir. 1993) in embracing Appellee’ ss position in this case, has not been

argued by the parties and is not central to the case at bar.

* All of the following caes, whether submitted to the Court or found as a

result of the Court’s own research, are on point. Every case rejects Appellant's

reading of the Bankruptcy Code, and embraces the position of Appellee. /n

re West, 5 F.2d 423, 426-27 (9th Cir. 1993), cert denied 114 S.Ct. 1830

(1994); In re Montoya, 965 F.2d 554, 555-58 (7th Cir. 1992); In re Eysenbach,

183 B.R. 365, 368-69 (W.D.N.Y. 1995); In re Linder, 139 B.R. 950, 952-53

(D.Colo. 1990); In re Dietz, 116 B.R. 792, 794 (D. Colo. 1990); In re Molina,

99 B.R. 792, 794 (S.D. Ohio 1988); Jn re Brickley, 70 B.R. 113, 115-16 (9th

Cir. BAP 1986); In re DiCamillo, 1995 WL 526378 (Bankr.E.D.Pa. 1995);

In re Sirman, 171 B.R. 403, 404 (Bankr.M.D. Fla. 1994); Jn re Harris, 167

B.R. 680, 682-83 (Bankr.M.D.Fla. 1994); Jn re Teeslink, 165 B.R. 708, 710-

13 (Bankr. S.D.Ga. 1994); In re Grogan, 158 B.R. 197, 200-202

(Footnote 8 continued on next page)

— A-18 —

precedent does not advance the cause of justice. Yet in this case.

the position taken by these courts is the most rational course to

follow.

Appellant is undoubtedly correct when he says that the start-

ing point for this exercise in statutory interpretation is the

language of the Code itself; only in the rare cases [in which] the

literal application of a statute will produce a result demonstrably

at odds with the intentions of its drafters” may this Court go

beyond the plain language of the Code. United States v. Ron Pair

Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1030

(1989)(quoting Griffin v. Oceanic Contractors, Inc., 458 U.S.

(Footnote 8 continued)

(Bankr.E.D.Cal. 1993); In re Smith. 165 B.R. 398, 400 & n.2 (Bankr. M.D.Pa.

1993): In re Bowling, 147 B.R. 383, 384-85 (Bankr.E.D.Va. 1992): In re

Ringdahl, (1990-91) Bankr.L.Rep. (CCH) ¥ 74.082, 1991 WL 284105

(Bankr.M.D.Fla. 1991); Matter of Ross, 130 B.R. 312, 313-14(Bankr.D.Neb.

1991); In re Wise, 127 B.R. 20, 21-23 (Bankr.E.D.Ark. 1991); Matter of Stoll.

132 B.R. 782, 784-85 (Bankr.N.D.Ga. 1990); /n re Brvant, 120 B.R. 983. 984-

85 (Bankr. E.D.Ark. 1990); Jn re Davidson, 120 B.R. 777, 781-87 (Bankr.N.J.

1990); Matter of Florence, 115 B.R. 109, 110-13 (Bankr. $.D.Ohio 1990): /n

re Quinlan, 107 B.R. 300, 301 (Bankr. D.Colo. 1989); /n re Rvan, Case No.

88-B-07735-13, 1989 WL 155684 (Bankr. D.Colo. 1989).

The West case and a number of others in this list actually dealt with the

priority period of what is now § 507(a)(8A)(ii), while the provision at issue

here is § 507(a)(8)(A)(i). Appellant has not put forth an argument. and indeed

no argument can be cogently made. tha the two subsections should be treated

differently. See Jn re West, 5 F.3d at 427 n. 9.

Additionally. a Tenth Circuit case reaches the same result as those listed

above, although it does not exactly uphold Appellee’s argument, and instead

relies on the equitable powers of the bankruptcy court under |! U.S.C. §

105(a), and the sound public policy of ensuring that the government has

enough thime to collect unpaid taxes. Jn re Richards. 994 F.2d 763. 765-66

(10th Cir. 1993). Richards in turn is relied upon by Solito v. United States. 172

B.R. 837, 840 (W.D.La. 1994) and In re Brown, 175 B.R. 766. 767-68

(Bankr.W.D.OKkI. 1994)(reluctantly following Richards) in affirming a deter-

mination of nondischargeability.

— A-19—

564, 571, 102 S.Ct. 3245, 3250 (1982)). As many previous

courts who have considered this question have recognized, this

situation is just such a “rare case”. E.g. In re West, 5 F.3d at 426

(“Because literal interpretation of §108(c) would frustrate the

Bankruptcy Code’s intricate scheme for the payment of tax

claims, we do not adopt the debtors’ ‘plain language’ admoni-

tions.”’).

If Appellant’s contentions were followed, a debtor could

avoid paying delinquent income taxes by the following method:

first, after the Internal Revenue Service notifies the debtor of the

delinquency and its intention to collect, the debtor declares

bankruptcy. Second, the debtor endeavors to lengthen the

bankruptcy proceeding as much as possible, diminishing the

still-running priority/collection period while being protected by

the automatic stay of § 362. Finally, after the first bankruptcy

filing was either revoked or withdrawn, the debtor could file for

bankruptcy a second time, before the IRS could go through the

proper procedures to collect the debt, but after the priority/

collection period has run completely. The debt would then be

dischargeable, and the debtor could wholly avoid payment.

A number of other courts have noted the possibility for such

abuse in this situation. See, e.g., Jn re Molina, 99 B.R. 792, 795

(S.D.Ohio 1988); Jn re Florence, 115 B.R. 109, 111

(Bankr.S.D.Ohio 1990)(Appellant’s interpretation would create

“impenetrable refuge for delinquent taxpayers”). Often quoted

by courts is the rationale found in In re Brickey, 70 B.R. 113, 115

(9th Cir. BAP 1986): “To follow the Debtors’ argument would

vender the extension of the statue of limitations in Section 108(c)

without meaning, since tax collectibility is obviously useless if

the tax debt has been discharged.”

Appellant continues to adhere to the “plain language” argu-

ment, and advances the proposition that the IRS could utilize

other methods of collection activity to collect the delinquent

— A-20 —

taxes: for example, by converting the filing to a Chapter 7 filing,

which would preserve the nondischargeable character of its

claim. See In re Eysenbach, 170 B.R. 57, 60 (Bankr. W.D.N.Y.

1994), rev’d, 183 B.R. 365 (W.D.N.Y. 1995). In addition,

Appellant points out that the bankruptcy court does possess

considerable equitable powers, under | 1 U.S.C. § 105, to curtail

abuse.

While the government’s ability to engage in legal maneuver-

ing is not questioned, it is the intent of Congress, not the powers

of the Internal Revenue Service in a bankruptcy proceeding, that

is at issue. Regardless of whether the Service is able to take

certain steps to enforce its right to collect in bankruptcy proceed-

ings, the primary question must remain whether Congress in-

tended that those steps be necessary. The question of intent

hinges, in essence, on whether Congress primarily desired to

give the Service a full three years to collect delinquent taxes, or

whether Congress primarily desired to set “an hour when a man

could finally divorce himself from his former holdings and

debts.” Jn re Gore, 182 B.R. at 313 (quoting United States v.

Verlinsky, 459 F.2d 1085, 1088 (Sth Cir. 1972)).

Appellant relies on Jn re Deitz, 106 B.R. 236, 239 (Bankr.

D.Colo. 1989), rev'd 116 B.R. 792 (D.Colo. 1990), to assert that

the three-year limitations period in § 507(a)(8)(A)(i) is merely a

measure of time for which a priority will be given, and nothing

more, thus favoring the debtor by discharging his income tax

debts in a maximum of three years, without looking at other

circumstances. The Gore court assets that the time provision.

found in a provision of the Internal Revenue Code, should serve

only to implement the “fresh start” policy of the Bankruptcy

Code, 182 B.R. at 313—this argument seems especially strange

when the same court has striven so forcefully to separate these

two Codes in declaring that §108(c) (Bankruptcy) could not

possibly implicate § 6503 (Internal Revenue).

— A-21 —

The Court is persuaded by the following argument: the prior-

ity initially given to the IRS in §507(a)(8)(A)(i) is justified by “a

Congressional desire to protect tax revenues and to prevent

taxpayers from evading their tax debts in bankruptcy proceed-

ings, but the time limit on this priority manifests Congress’ right

to a ‘fresh start’ even with respect to their tax debts.” Matter of

Stoll, 132 B.R. at 785. The Gore court focuses overmuch on one

policy consideration to the exclusion of the overriding policy of

allowing the Internal Revenue Service to collect taxes due. In the

words of the Brickey court,

[s]ince enforcement of the tax laws against delinquent tax

debtors takes time, Congress, through section 523, in-

tended to give the taxing authority at least three full years

to pursue such debtors .... Congress did not intend to allow

tax avoidance through bankruptcy by permitting the dis-

charge of the debtor before the taxing authority has had a

fair opportunity to collect taxes due.

70 B.R. at 115-15.

The Brickey court is not alone in its interpretation of the intent

of Congress. See,e.g., In re West, 5 F.3d at 426-27; In re Molina,

99 B.R. at 795; In re Wise, 127 B.R. at 22-23; In re Quinlan, 107

B.R. at 300-01.

The conclusion reached by Stoll, Brickey, and other cases is

amply supported by clearly worded segments of legislative

history. First, the legislative history of the Bankruptcy Act

specifically contemplates the necessity of preventing bank-

ruptcy proceedings from interfering with the collection of delin-

quent taxes:

It is believed that such a [3-year] period will not impose an

unrealistic or unfair burden upon the tax authorities in

auditing returns and assessing deficiencies .... The fact that

tax claims for the 3 years preceding bankruptcy will not be

—_ *

discharged should serve to discourage recourse to bank-

ruptcy as a facile device for evading tax obligations.

S. Rep. No. 1158, 89th Cong., 2d Sess. 3 (1966), reprinted in

1966 U.S.C.C.A.N. 2468, 2470 (emphasis added). See also /n re

Molina, 99 B.R. at 794.

Moreover, and more importantly, the legislative history be-

hind Section 108(c) militates directly against the improperly

narrow reading suggested by Appellant. The section is “de-

signed to minimize the administrative problems governmental

tax authorities face. or may face, in collecting taxes in bank-

ruptcy proceedings,” S. Rep. No. 989, 95th Cong., 2d Sess. 14-

15 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5800-01. This

report on the Bankruptcy Reform Act of 1978 additionally

implies in its summary that Congress believed Appellant’s

desired result would be fundamentally unfair, and would strike

at the very legitimacy of the federal tax system:

[T]he systems work[] to the extent that the majority of

taxpayers think they are fair. This presumption of fairness

is an asset which should be protected and not jeopardized by

permitting taxpayers to use bankruptcy as a means of

improperly avoiding their debts. To the extent that debtors

in a bankruptcy are freed from paying their tax liabilities,

the burden of making up the revenue thus lost must be

shifted to other taxpayers.

Id. at 14, reprinted in 1978 U.S.C.C.A.N 5787 at 5800.

Finally, in most convincing language, the report goes on to

state clearly the intended resolution of the question before this

Court, espousing Appellee’s view that §108(c) was meant to

activate 26 U.S.C. §6503:

In the case of Federal tax liabilities, the Internal Revenue

Code suspends the statute of limitations on a tax liability of

a taxpayer from running while his assets are in the control

— A-23 —

or custody of a court and for 6 months thereafter (sec.

6503(b) of the Code). The Amendment applies this rule in

a title 11 proceeding. Accordingly, the statute of limita-

tions on collection of anondischargeable federal tax liabil-

ity of a debtor will resume running after 6 months following

the end of the period which the debtor's assets are in the

control or custody of the bankruptcy court. This rule will

provide the Internal Revenue Service adequate time to

collect nondischargeable taxes following the end of the title

1] proceedings.

Id. at 30-31, reprinted in 1978 U.S.C.C.A.N. 5787, 5816-17

(emphasis added). See also In re West, 5 F.3d at 427; Matter of

Stoll, 132 B.R. at 785.

This Court agrees with the Gore court that §507(a)(8)(A) is

properly seen as a “balancing act” between the rights of the IRS

and the rights of adebtor. 182 B.R. at3 12. The Ninth Circuit also

recognizes the interplay between the Internal Revenue and

Bankruptcy Codes in preserving the “Bankruptcy Code’s intri-

cate scheme for the payment of tax claims.” Jn re West, 5 F.3d

at 426. The recognition of the interaction undercuts any asser-

tion that Sections 507 and 523 of the Bankruptcy Code cannot

possibly be affected by Section 6503 of the Internal Revenue

Code. The West court realized that Appellee’s desired result is

not consistent with a “holistic interpretation” of the Bankruptcy

Code, especially given “the clearly expressed statutory purpose

of providing the IRS with a specific period of time within which

to collect taxes.” 5 F.3d at 426 (citing Jn re Florence, 115 B.R.

109, 11 (Bankr. S.D. Ohio 1990)). Moreover, the West court

notes, there is an established policy that ‘limitations statutes

barring the collection of taxes otherwise due and unpaid are

~ strictly construed in favor of the Government.” Id.: Badaracco

v. Commissioner, 464 U.S. 386, 392 (1983)(quoting Lucia v.

United States, 474 F.2d 565, 570 (Sth Cir. 1973)).

—_

The Gore court perceptively notes that the issue of suspending

time provisions does appear in §507(a)(8)(A) itself, but only in

the context of the pendancy of a decision by the Internal Revenue

Service on adebtor’s “offer in compromise.” 182 B.R. The Gore

court reasons from Again, the question turns in part on the

inclusion of this detailed suspension whether Congress intended

to favor the debtor by giving the taxpayer an absolute provision

in § 507 that Congress had in mind the nonbankruptcy tolling

provision safe haven after three years, no matter of § 108(c) when

drafting 507, yet willfully “elected to provide the IRS with only

a very narrow opportunity for the collection of taxes” by not

making this suspension provision more extensive. Id. This

Court is not at all persuaded to draw such a conclusion. The

legislative history quoted by the Gore court demonstrates that

Congress was clearly concentrating on an extremely particular- -

ized concern concern in drafting §507(a)(8)(A)(ii): the treatment

of an offer by a financially troubled taxpayer to compromise on

delinquent taxes. 182 B.R. at 302-03 (quoting H.R. Rep. No, 95-

595, 95th Cong., 1St Sess. 1188-90 (1977), reprinted in 1978

U.S.C.C.A.N. 5963, 6495-96; S, Rep. No. 95-989, 95th Cong..

2d Sess. 158-59 (1978), reprinted in 1978 U.S.C.C.A.N. 5787.

5856-57). There is no evidence in the Gore opinion of a

conscious effort by Congress to deny the operation of any

suspension provisions to the other periods of 507(a)(8)(A). This

provision’s influence on the interpretation of the Internal Rev-

enue and Bankruptcy Codes must be minimal, when compared

to the clearly worded intent of Congress and the schemes of the

Bankruptcy and Internal Revenue Code as discussed above.

Finally, the Gore court advances an interesting argument that

concerns the relationship between subsections (i), (ii), and (iii)

of 507(a)(8)(A), and the interplay between procedural and

substantive statutory language. The Gore court argues that

subsection (iii) establishes a period of time for the assessment of

taxes, subsection (ii) preserves a minimum time period of 240

days for the collection of taxes following assessment. and

— A-25 —

subsection (I) establishes a maximum period for the collection of

taxes before they become dischargeable. 182 B.R. 311. If §6503

rolled the time period in (i), it is asserted, this would circumvent

the three-year limitation and render subsection (ii) and (iii)

without effect.

Again, the question turns in part on whether Congress in-

tended to favor the debtor by giving the taxpayer an absolute safe

haven after three years, no matter what the circumstances, or

whether Congress intended the I.R.S. to have an unhindered

opportunity tocollect taxes due. The purposes of the Bankruptcy

and Internal Revenue Codes, the great weight of authority, and

clearly worded indications of legislative intent demonstrate that

the latter interpretation is the only reasonable position. To allow

what may be unartful drafting to defeat the intent of Congress

would be to reach a wrong result.

Also, subsections (ii) and (iii) retain their functions even if

§6503 tolls the three-year limitation of priority period in (i)—the

priority in subsection (ii) is determined from the date when the

government unit assesses the tax, and the priority in subsection

(i) is determined by the due date of the return. Subsection (iii),

as the Gore court recognizes, provides a minimum amount of

time for the assessment of taxes, but excludes some taxes (those

with respect to which the debtor made a fraudulent return; for

example) and provides that this period can be modified “by

agreement.” There is no language in (i) or (ii) that maintains that

the limitation periods can be extended by agreement; similarly

there is no language in (i) or (ii) that refers to other “applicable

law’. There exists no reason why the periods in (i) and (11) cannot

be tolled by §6503, since tolling odes not affect the scheme of

Congress that means to allow the I.R.S. a number of different

time measurements to establish this priority for delinquent taxes:

one based on time of assessment (ii), one based on the amount of

time that has passed since the time the tax was due (i), and one

based on “assessability” under applicable law or by agreement

— A-26 —

for certain taxes (iii). A tax, forexample, may still be assessable

under (iii), even if section 6503 tolls the three-year period and

this extended period expires, if there exists a special assessment

law for a certain type of tax measured by income or receipts, or

if the taxpayer agrees to “assessability”. All three subsections

can have meaning if §6503 tolls the periods in §507—it shows

that Congress meant to give the Internal Revenue Service more

than one extremely restrictive time frame while pursuing the

important goal of collecting delinquent taxes.”

Appellant’s “plain language” argument cannot scale this

mountain of well-considered precedent, legislative history, and

simple common sense. It would operate to defeat the purpose of

Congress. The proper result is that the filing of a bankruptcy

petition suspends the running of the three-year collection period

in determining tax claim priority status, pursuant to 11 U.S.C. §

507(a)(8)(A)(i). Therefore, Appellant’s 1987 taxes are

nondischargeable in the proceeding before this bankruptcy court.

* The Gore court also argues that §§ 507 and 523 are substantive. and

should not have their definitions affected by §§ 108 and 6503. which are

procedural. 182 B.R. at 303. The separation of Code sections into “substan-

tive” and “procedural” is not likely to meet with success, especially in this

context. We are dealing with tax priorities and time limitations on those

priorities—if the time period (whether tolled or not tolled) runs out. the

priorities cease to exist. Thses time periods can be seen as statutes of

limitations; and it is not so long ago that debate raged over whether regular

statutes of limitations were procedural or substantive, since under the Erie

doctrine, the choice of whether to apply a state or a federal limitation by a

federal court sitting in diversity often made the difference between enforce-

able claims into unenforceable claims. This Court feels that any attempt to

make a determination of legislative itnent turns on the facile divison of law

into procedural and substantive into dual, mutually exclusive spheres misses

the mark, and encourages an improper solution.

— A-27 —

Conclusion

Accordingly, for the foregoing reasons, it is Ordered that the

judgment of the bankruptcy court be Affirmed.

Let judgment Be Entered Accordingly.

Dated: September 12, 1995

~~ on

APPENDIX C

IN THE UNITED STATES BANKRUPTCY COURT

FOR DISTRICT OF MINNESOTA

Bankruptcy No. 3-91-2628

Adv. No. 3-94-176

United States Bankruptcy Court,

D. Minnesota, Third Division

In re William W. WAUGH, Debtor.

WILLIAM W. WAUGH,

Plaintiff,

V.

INTERNAL REVENUE SERVICE,

Defendant.

ORDER FOR JUDGMENT

Filed: April 27, 1995

DENNIS D. O’BRIEN, Chief Judge.

This adversary proceeding to determine dischargeability of a

tax debt, came on for hearing before the Court on cross-motions

for summary judgment on February 16, 1995. Appearances

were noted on the record. The Court, having considered the

briefs, heard arguments of counsel, and otherwise being fully

advised in the matter, now makes this Order pursuant to the

Federal and Local Rules of Bankruptcy Procedure.

I.

STATEMENT OF THE CASE.

Income tax liability of a debtor, who has filed a return that was

last due within three years prior to the filing of abankruptcy case.

— A-29 —

is nondischargeable under 11 U.S.C. § 523(a)(1), by reference to

11 U.S.C. § 507(a)(8)(i). In this case, the Debtor timely filed a

return, due April 15, 1988, for the tax year 1987, but did not pay

the tax. Ordinarily, the 1987 tax liability would have become

dischargeable on April 15, 1991. The Debtor filed his Chapter

7 petition in May, 1991, and received his general Chapter 7

discharge in the ordinary course.

The Internal Revenue Service does not recognize the 1987 tax

liability as having been discharged in the 1991 bankruptcy, and

has applied tax payments that the Debtor submitted in full

payment of a 1989 tax year liability, against the 1987 tax debt.

The Debtor then commenced this adversary proceeding for

declaratory judgment that his 1987 tax liability was discharged

by his 1991 Chapter 7 discharge. He also seeks equitable relief

regarding his 1989 tax liability; and, he seeks an injunction

prohibiting the IRS from collecting either the 1987 or 1989 tax

debt.

The IRS argues that a 1988 Chapter 13 bankruptcy case filed

by the Debtor, later converted to Chapter 11, and finally dis-

missed in 1991 for failure to make plan payments, interrupted or

tolled the three year calculation period that would otherwise

have been applicable to dischargeability of the 1987 tax liability.

The IRS claims that the three year nondischargeability period,

rather than ending on April 15, 1991, actually extends far beyond

May 9, 1991, when the Chapter 7 petition was filed. Finally, the

IRS argues that it cannot be enjoined from levy on Debtor’s

property to satisfy the debts.

Il.

FACTS.

The Debtor filed a Chapter 13 Bankruptcy case on July 1,

1988, which was later converted to a Chapter 11 case on

September 15, 1988. His Chapter 11 plan was confirmed on

a”

— A-30 —

April 12, 1989. On July 27, 1990, the plan was revoked, due to

his failure to make payments in accordance with the plan. He

appealed the decision, but it was affirmed on February 6, 1991,

and the case was finally dismissed.

On May 9, 1991, the Debtor filed for relief under Chapter 7 of

the Bankruptcy Code, and received his discharge on August 27,

1991. From July 1, 1988 through August 27, 1991, he was under

the protection of the automatic stay for a total of 1080 days.

On April 2, 1994, the Debtor directed that his refund for the

1993 tax year, $11,019, plus $847 cash, be applied to pay off his

1989 tax liability of $11,858.22. Instead, the IRS applied both

the 1993 tax refund and the cash payment offered by Debtor, to

his 1987 outstanding tax liability.

On June 8, 1994, the IRS served upon the Debtor, its Notice

of Intent to Levy, concerning his outstanding 1987 tax liability,

in the amount of $157,631.36. On June 8, 1994, the Debtor

received a second Notice of Intent to Levy for his outstanding

1989 tax year liability of $15,620.52.

The Debtor commenced this adversary proceeding on Sep-

tember 9, 1994, for declaratory judgment that the 1987 tax

liability was discharged in the 1991 bankruptcy; and, for

injunctive relief regarding the application of past payments and

future collection efforts by the IRS. Both parties have now

moved for Summary Judgment.

II.

DECISION.

Under 11 U.S.C. § 523(a)(1), by reference to 11 U.S.C. §

507(a)(8)(A)(i), an income tax obligation of a debtor who has

filed a return is not dischargeable if the last date on which the

return could have been timely filed falls within three years of the

date of the filing of the bankruptcy petition. Jn re: Brickley, 70

— A-31 —

B.R. 113, 114 (Bkr. 9th Cir.1986). Additionally, the tax obliga-

tion is a priority debt for distribution purposes, and, if the case be

a case under Chapters 11, 12, or 13, the tax must be paid in full

during a plan as a condition of confirmation. No one disagrees

with this.

The problem arises out of serial filings. Typically, in serial

filings, the earlier cases are filed under Chapters 11, 12, or 13;

they involve the nondischargeable priority taxes; and, they fail.

The failed cases are then followed by cases involving the same

tax liability; but, the later cases are brought under Chapter 7, and

they are filed outside the stated three year nondischargeability

period. The issue in the later cases, as here, is whether the tax,

now outside the stated three year nondischargeability period, is

nonetheless nondischargeable, due to the earlier filings.

The issue is not associated with any specific inconsistency,

conflict, or statutory ambiguity found in the Bankruptcy Code.

Although unartfully drafted, the relevant Bankruptcy Code

nondischargeability provisions, 11 U.S.C. §§ 523(a)(1) and

507(a)(8)(A)(i), are not apparently susceptible of different inter-

pretations regarding their scope or coverage. They appear to

simply identify, as nondischargeable, income tax liability of a

debtor who has filed a return that is last due within three years

prior to the filing of a bankruptcy case, without regard to earlier

cases.

A literal reading and “plain meaning” approach to the Bank-

ruptcy Code, seems to indicate that income tax liability of a

debtor who has filed a return, which is last due more than three

years before the filing of a bankruptcy case, is not covered by the

nondischargeability provision of 11 U.S.C. § 523(a)(1); even

where the same tax debt was involved in an earlier bankruptcy

case as a nondischargeable tax liability falling within the three

year period. Yet, every reported decision of final authority holds

or indicates otherwise. See: West v. United States (In re West),

— A-32 —

5 F.3d 423 (9th Cir.1993); Richards v. United States, 994 F.2d

763 (10th Cir.1993); Montoya v. United States (In re Montoya),

965 F.2d 554, 555-58 (7th Cir. 1992); Linder v. United States (In

re Linder), 139 B.R. 950, 952-53 (D.Colo.1992); United States

v. Deitz (In re Deitz), 116 B.R. 792, 794 (D.Colo.1990); Molina,

99 B.R. at 794-95; Stoll v. IRS (In re Stoll), 132 B.R. 782, 784-

85 (N.D.Ga.1990); In re Ross, 130 B.R. 312, 313-14

(D.Neb.1991); In re Wise, 127 B.R. 20, 21-23 (E.D.Ark.1991);

In re Ringdahl, [1990-91] Bankr.L.Rep. (CCH) P 74,082, 1991

WL 284105 (Bkr.M.D.Fla.1991); Jn re Bryant, 120 B.R. 983,

984-85 (E.D.Ark.1990); In re Davidson, 120 B.R. 777, 781-87

(D.N.J.1990); Florence, 115 B.R. at 110-13; In re Quinlan, 107

B.R. 300, 301 (D.Colo.1989); In re Ryan, No. 88-B-07735-A,

1989 WL 155684 (Bankr.D.Colo. 1989); In re: Brickley, 70B.R.

113, 114 (Bkr. 9th Cir. 1986).

These cases all hold that the running of the tax priority periods

fixed in 11 U.S.C. § 507(a)(8)(A) are tolled during pendency of

bankruptcy proceedings in which the IRS is stayed from collec-

tion efforts to secure payment of the tax. Since the

nondischargeable tax identified in 1 1 U.S.C. § 523(a)(1) isthe 11

U.S.C. § 507(a)(8) priority tax applicable to the proceeding, the

running of the nondischargeability periods would necessarily be

tolled as well, under the reasoning of the cases. Accordingly,

under the cases, the “reach back” period for both 11 U.S.C. §§

507(a)(8)(A) and 523(a)(1) priority and nondischargeable taxes

in a bankruptcy proceeding is expanded in time equal to the

lesser of: the pendency of an earlier bankruptcy proceeding in

which the tax was priority and IRS collection efforts were

stayed; or, the time of the priority period remaining when the

earlier proceeding was commenced.

While many of the cases cited purport to base their holdings

on statutory construction and plain meaning, the decisions are

clearly driven by perceptions of Congressional intent, Bank-

ruptcy Code purpose, and underlying public policy. Thus,

— A-33 —

particularly in the earlier cases, the legal reasoning and analysis

are strained. Nonetheless, this Court is persuaded that the

decisions are correct. They also reflect a near universal agree-

ment on the state of the law.

— It would serve no purpose here to discuss in detail the prin-

ciples of statutory construction; the intricacies and interplay

among Bankruptcy Code and Internal Revenue Code provisions;

or, the Congressional intent and underlying public policy that

shape this result. These matters are thoroughly covered in the

cases cited. This Court is especially persuaded by the discussion

and reasoning of the court in West v. United States, 5 F.3d 423

(9th Cir. 1993).

The Debtor’s income tax liability for the 1987 taxes was not

dischargeable in his May 9, 1991, Chapter 7 bankruptcy case.

When he filed the Chapter 13 bankruptcy on July 1, 1988, the

three year priority period that had begun on April 15, 1988, for

the 1987 tax liability, was tolled. Running of the period did not

resume until dismissal of the case on February 6, 1991. The

liability was well within the 11 U.S.C. § 507(a)(8)(A) priority

period, expanded as a result of the earlier bankruptcy proceed-

ing, when the May 9, 1991, Chapter 7 case was filed. Therefore,

the tax liability was nondischargeable under 1 1 U.S.C. §523(a)(1),

by reference to 11 U.S.C. § 507(a)(8).

Since the debt is nondischargeable, enforcement of the 11

U.S.C. § 524 injunction is not involved. There is no basis for this

Court’s entry of any injunctive relief in favor of the Debtor.'

' The Debtor seeks other injunctive relief on various grounds having

nothing to do with the Bankruptcy Code or the bankruptcy proceedings. This

Court has no jurisdiction over those matters. The Court lacks authority to

consider, determine, or remedy any nonbankruptcy claims. See: Williams

Packing & Navigation Co., 370 U.S. 1 (1962); and 26 U.S.C. § 7421(a).

<i ies

IV.

DISPOSITION.

Based on the foregoing, it is hereby ORDERED:

1) Plaintiff's motions for summary judgment and injunctive

relief are denied.

2) Defendant’s motion for summary judgment that William

W. Waugh’s federal income tax liability for the taxable year

1987, was excepted from discharge in his Bankruptcy Case No.

3-91-2628, is granted. William W. Waugh’s federal income tax

liability for the year 1987 is nondischargeable in Bankruptcy

Case No. 3-91-2628, pursuant to 11 U.S.C. § 523(a)(1): and the

debt was excepted from his general 11 U.S.C. § 727 discharge

entered on August 27, 1991, in the case.

LET JUDGMENT BE ENTERED ON PARAGRAPH 2, AC-

CORDINGLY.