RESPONDENT: United States
LOCATION: Los Angeles City Hall
DOCKET NO.: 00-1567
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the First Circuit
CITATION: 535 US 43 (2002)
ARGUED: Jan 09, 2002
DECIDED: Mar 04, 2002
Grenville Clark, III - on behalf of the Petitioners
Patricia A. Millett - Argued the cause for the United States
Facts of the case
Cornelius and Suzanne Young failed to include payment with their 1992 income tax return, which was due and filed on October 15, 1993. Subsequently, the Internal Revenue Service (IRS) assessed a tax liability against them. After filing a Chapter 13 petition, the Youngs ultimately filed a Chapter 7 petition and were granted a discharge, meaning that Youngs had no assets available to satisfy unsecured creditors, including the IRS. If the Internal Revenue Service (IRS) has a claim for certain taxes for which the return was due within three years before the individual taxpayer files a bankruptcy petition, its claim enjoys eighth priority under 11 USC section 507(a)(8)(A)(i), and is nondischargeable in bankruptcy under section 523(a)(1)(A). When the IRS subsequently demanded that they pay the tax debt, the Youngs asked the Bankruptcy Court to reopen the Chapter 7 case and declare the debt discharged under section 523(a)(1)(A), claiming that it fell outside section 507(a)(8)(A)(i)'s "three-year lookback period" because it pertained to a tax return due more than three years before their Chapter 7 filing. The District Court held that the "lookback period" is tolled during the pendency of a prior bankruptcy petition and concluded that the 1992 debt had not been discharged when the Youngs were granted a discharge under Chapter 7. The Court of Appeals affirmed.
Is the Bankruptcy Code's "three-year lookback period," under which a discharge does not extinguish certain tax liabilities for which a return was due within three years before the filing of an individual debtor's petition, tolled during the pendency of a prior bankruptcy petition?
Media for Young v. United StatesAudio Transcription for Oral Argument - January 09, 2002 in Young v. United States
Audio Transcription for Opinion Announcement - March 04, 2002 in Young v. United States
William H. Rehnquist:
The opinion of the Court in No. 00-1567, Young against the United States will be announced by Justice Scalia.
This case comes to us on writ of certiorari to the United States Court of Appeals for the First Circuit.
The Bankruptcy Code provides that income tax indebtedness has eighth priority in bankruptcy and is non-dischargeable.
This provision applies however only to tax indebtedness pertaining to returns due within three years before filing of the bankruptcy petition.
This is commonly known as a three-year lookback period.
The Internal Revenue Service assessed the tax liability against petitioner's Cornelius and Suzanne Young for their failure to include payment with their 1992 income tax return filed on October 15, 1993.
They have gotten an extension from the normal filing date.
On May 1, 1996, slightly less than three years later, the Young’s filed a Chapter 13 Bankruptcy Petition which looks to reorganization of indebtedness.
They move to dismiss this petition however before a reorganization plan was approved.
On March 12, 1997, the day before the Bankruptcy Court dismissed the Chapter 13 petition; the Young’s filed another Bankruptcy petition, this time under Chapter 7.
A discharge was ultimately granted and the case was closed.
When the IRS subsequently demanded that they pay the tax debt, petitioners asked the Bankruptcy Court to reopen the Chapter 7 case and declare the tax debt discharge.
Since the debt pertain to a tax return due more than three years before their Chapter 7 filing, petitioners argue that it fell outside the Bankruptcy Code three-year lookback period and therefore had been discharged.
The Court reopened the case but sided with the IRS.
Petitioner’s tax return was indeed due more than three years before their Chapter 7 filing but it was also due less than three years before their earlier Chapter 13 filing.
Holding that lookback period is tolled suspended during the pendency of a prior bankruptcy petition, the court concluded that 1992 debt had not been discharged.
The District Court and the First Circuit agreed.
The lookback period we conclude is a limitations period subject to traditional equitable tolling principles.
Petitioners contend it is a substantive component of the Bankruptcy Code not a procedural limitations period for two reasons: first, because it defines a subset of claims that received special priority in bankruptcy; and second because the IRS may discover an unpaid tax after the three-year lookback period has commenced.
We find these arguments unpersuasive.
All limitations periods define a subset of claims that are eligible for certain remedies and it is not uncommon for limitations period to commence before claimant is aware that he has a complete and present cause of action.
Congress is presumed to draft limitations periods in light of the principle that such periods are subject to equitable tolling unless tolling would be inconsistent with statutory text.
We believe tolling is appropriate here.
Petitioner’s Chapter 13 petition are acted on automatic stay under Section 362(a) of the Bankruptcy Code which prevented the Internal Revenue Service from taking any steps to collect the unpaid taxes.
When petitioners later filed a Chapter 7 petition, the three-year lookback period therefore excluded time during which their Chapter 13 was pending.
Because their 1992 tax return was due within the three-year lookback period after accounting for tolling the lower courts properly held that petitioner’s tax debt was not discharged when they were granted a Chapter 7 discharge.
The Court’s decision is unanimous.