446 B.R. 475
Bankr. D. Kan.2011Background
- Debtors Montgomery and Turner-Montgomery filed Chapter 13 petitions in 2000, 2002, and 2004 with multiple dismissals and a discharge in 2007 that exempted 2001 taxes from discharge.
- Debtors’ 2001 income tax return was due August 15, 2002; prior cases tolled or suspended lookback periods under § 507(a)(8) and its Suspension Paragraph.
- In the current case filed March 24, 2010, IRS filed proofs of claim: secured $1,750, unsecured priority about $37,262.48, and general unsecured $28,088.16, encompassing years including 2001.
- Debtors objected to the 2001 tax claim’s priority status and to IRS’s method of calculating interest on the secured portion.
- The court concluded the 2001 tax liability is not entitled to priority and that interest on the secured claim is governed by nonbankruptcy law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 2001 taxes are priority under § 507(a)(8)(A)(i). | Montgomery asserts lookback was tolled by Suspension Paragraph, reducing priority window. | IRS argues lookback must add 90-day increments for each bankruptcy stay. | Lookback expired; no priority for 2001 taxes. |
| How the Suspension Paragraph should be interpreted for tolling. | Plus 90 days applies once after total tolling; not per case. | Plus 90 days applies for each tolling event (per prior cases). | Plus 90 days applies only once; tolling period is subtracted before adding 90 days. |
| Calculation method for the number of days of enforcement and suspension. | Two calculation methods yield tolling that preserves priority for 2001 taxes. | Method yields longer lookback; IRS maintains priority. | Both methods show more than three years plus 90 days elapsed; no priority for 2001 taxes. |
| Whether § 511(a) controls the interest rate on the IRS secured claim. | Interest rate should follow bankruptcy discount rate under § 511(a). | Interest rate determined by applicable nonbankruptcy law. | Interest rate determined by applicable nonbankruptcy law. |
Key Cases Cited
- Young v. United States, 535 U.S. 43 (2002) (tolled lookback during pendency of Chapter 13; no discharge of taxes in later case)
- In re Ron Pair Enterprises, Inc., 489 U.S. 235 (1989) (natural reading and grammatical structure of statutory text)