FILED
                                                                    JUL 22 2013
 1
                                                              SUSAN M SPRAUL, CLERK
 2                                                                U.S. BKCY. APP. PANEL
                                                                  OF THE NINTH CIRCUIT

 3                   UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                             OF THE NINTH CIRCUIT
 5   In re:                        )       BAP No.     SC-12-1496-JuBaPa
                                   )
 6   800IDEAS.COM, INC.,           )       Bk. No.     07-00207
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     RICHARD M. KIPPERMAN, Chapter )
 9   7 Trustee,                    )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )       O P I N I O N
                                   )
12   INTERNAL REVENUE SERVICE,     )
     U.S.A.; UNITED STATES TRUSTEE;)
13   800IDEAS.COM, INC,            )
                                   )
14                  Appellees.     )
     ______________________________)
15
16                     Argued and Submitted on May 15, 2013
                             at Pasadena, California
17
                              Filed - July 22, 2013
18
                  Appeal from the United States Bankruptcy Court
19                    for the Southern District of California
20            Honorable James W. Meyers, Bankruptcy Judge, Presiding
21                           _______________________
22   Appearances:      Geraldine A. Valdez, Esq., Financial Law Group,
                       argued for Appellant Richard M. Kipperman,
23                     Chapter 7 Trustee; Anne E. Nelson, Esq.,
                       U.S. Department of Justice, argued for
24                     Appellee Internal Revenue Service.
                            _________________________
25
26   Before:     JURY, BASON* and PAPPAS, Bankruptcy Judges.
27   Opinion by Judge Jury
     Concurrence by Judge Bason
28


          *
             Hon. Neil W. Bason, United States Bankruptcy Judge for
     the Central District of California, sitting by designation.
 1   JURY, Bankruptcy Judge:
 2
 3            Richard M. Kipperman, chapter 71 trustee in the case of
 4   debtor 800Ideas.com, appeals the bankruptcy court’s order
 5   allowing the claim of the Internal Revenue Service (IRS) with
 6   priority as an actual and necessary cost and expense of
 7   preserving the estate under § 503(b)(1)(A).2
 8            IRS’s claim arose postpetition when it assessed penalties
 9   against debtor under 26 U.S.C. (IRC) § 6699 due to trustee’s
10   failure to timely file debtor’s corporate tax returns for the
11   years 2008 and 2010.      The bankruptcy court found that trustee
12   had not proved reasonable cause for the late-filed returns
13   within the meaning of IRC § 6699 and allowed IRS’s claim as an
14   administrative expense claim with first priority under
15   § 503(b)(1)(A).
16            We agree with the bankruptcy court’s decision that trustee
17   failed to demonstrate reasonable cause for his delay in filing
18   the tax returns and AFFIRM on this issue.      However, in this case
19   of first impression, we disagree with the court’s decision that
20   the penalties qualified as an administrative expense under
21   § 503(b)(1)(A).      The penalties did not “preserve the estate” as
22
          1
23           Unless otherwise indicated, all chapter, section and rule
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
24   “Rule” references are to the Federal Rules of Bankruptcy
     Procedure and “Civil Rule” references are to the Federal Rules of
25   Civil Procedure.
26        2
             The bankruptcy court referenced § 503(b) and not
27   (b)(1)(A) in its ruling. However, implicitly the court was
     referring to § 503(b)(1)(A) because it found that the penalties
28   were an administrative expense “as an actual and necessary cost
     of preserving the estate.” Therefore, we refer to § 503(b)(1)(A)
     throughout our discussion.

                                       -2-
 1   required under the plain language of § 503(b)(1)(A) nor do they
 2   fall within the fundamental fairness doctrine espoused in
 3   Reading Co. v. Brown, 

(1968) and its progeny.
 4   Although we REVERSE the bankruptcy court’s decision on the
 5   priority issue as it pertains to § 503(b)(1)(A), we REMAND this
 6   matter to the bankruptcy court to decide if the penalties
 7   qualify as an administrative expense for other reasons.
 8                   I.   FACTS AND PROCEDURAL BACKGROUND
 9           The facts are undisputed.    On January 19, 2007, debtor, a
10   California S corporation, filed its chapter 7 petition.
11   Kipperman was appointed the chapter 7 trustee.        Debtor’s
12   liabilities greatly exceeded its assets, with its main asset the
13   potential right to an excise tax refund in an unknown amount for
14   the 2006 tax year.
15           On March 12, 2007, trustee requested debtor’s prepetition
16   accountants, Schaim, Hyde & Company, Inc. (SHCI), to prepare the
17   tax return for the 2006 tax year.         SHCI began work on the return
18   and Ms. Hyde, an accountant with the firm, advised trustee that
19   the return would be completed by April 15, 2008.        Over a year
20   after the promised date for the return and two years after the
21   initial request, in June 2009, trustee contacted Ms. Hyde to
22   inquire about the status of the return.        Ms. Hyde explained that
23   there was a delay because debtor’s files were inadvertently sent
24   to storage.    In July 2009, trustee again contacted Ms. Hyde
25   regarding the return.     She explained that work on the return had
26   stopped due to the lack of payment; however she agreed to do the
27   work.    Thereafter, Ms. Hyde sent trustee an engagement letter.
28           On August 27, 2009, trustee requested the Financial Law


                                         -3-
 1   Group (FLG) to assist him in obtaining court approval for the
 2   employment of SHCI nunc pro tunc.
 3           On January 15, 2010, SHCI completed the return.   On January
 4   19, 2010, trustee signed the return.    On January 28, 2010, IRS
 5   received the return and thereafter notified trustee that it
 6   would disallow approximately $1,950.84 of the $38,197 claimed
 7   refund.
 8           On March 3, 2010, trustee an application to have SHCI
 9   employed nunc pro tunc as of March 12, 2007.    On the same date,
10   trustee submitted the first and final fee application for SHCI.
11           On April 2, 2010, trustee filed an application to employ R.
12   Dean Johnson as an accountant for the estate.    The application
13   stated that Johnson would, among other things, prepare the
14   fiduciary income tax returns.
15           In mid-June 2011, the bankruptcy estate received the tax
16   refund for the 2006 year from IRS in the amount of $36,150.33.
17           In mid-July 2011, Johnson completed debtor’s tax returns
18   for 2007, 2008, 2009 and 2010 and they were filed with IRS.     The
19   2008 and 2010 returns, which are at issue in this appeal, stated
20   that debtor had nine shareholders and reported a zero tax
21   liability.    After processing the returns, IRS assessed penalties
22   against debtor under IRC § 6699 in the amounts of $9,612 and
23   $8,775 for the 2008 and 2010 tax years, respectively.     IRC
24   § 6699 imposes penalties against an S corporation which fails to
25   timely file its returns.    Trustee sought to have the penalties
26   abated to no avail.3
27
         3
28            Trustee sought abatement for the returns for 2008, 2009
                                                         (continued...)

                                      -4-
 1        On February 15, 2012, IRS filed a Request for Payment of
 2   Internal Revenue Taxes in the bankruptcy court.   The request for
 3   payment in the amount of $18,667.17 was based on the 2008 and
 4   2010 penalties assessed and was asserted as an administrative
 5   priority expense.
 6        On February 23, 2010, trustee objected to the claim,
 7   contending that the penalties were not based on any unpaid tax
 8   incurred by the bankruptcy estate as required by § 503(b)(1)(C)
 9   and, therefore, trustee intended to treat the claim as a
10   subordinated penalty claim under § 726(a)(4).
11        IRS responded, arguing that the penalties should be
12   afforded administrative expense status under § 503(b)(1)(C)
13   because they constituted a penalty relating to a tax of a kind
14   specified in § 503(b)(1)(B).   IRS also asserted that § 726(a)(4)
15   was inapplicable to its postpetition claim because that statute
16   applied to prepetition claims or those arising before the
17   appointment of a trustee.
18        On April 16, 2012, trustee filed a reply declaration,
19   stating that his failure to timely file the tax returns in
20   question did not result from willful neglect and was due to
21   reasonable cause.   The asserted reasonable cause was the
22   estate’s insolvency during the tax years in question and
23   trustee’s belief that the estate would never be solvent.
24   Trustee also argued again that the penalties and interest were
25
26        3
           (...continued)
     and 2010 on the same grounds. For some reason, IRS abated the
27
     penalties for the 2009 tax year, but not for 2008 and 2010.
28   There is no adequate explanation in the record as to why this
     occurred.

                                    -5-
 1   not based on any unpaid tax incurred by the estate as required
 2   by § 503(b)(1)(C).
 3        On June 8, 2012, the bankruptcy court heard the matter.
 4   At the hearing, IRS contended for the first time that the
 5   penalties were entitled to administrative expense priority under
 6   § 503(b)(1)(A) as an actual and necessary cost and expense of
 7   preserving the estate, citing to Reading, 

, the
 8   Ninth Circuit’s decision in Tex. Comptroller of Pub. Accounts v.
 9   Megafoods Stores, Inc. (In re Megafoods Stores, Inc.), 

  1063, 1067 (9th Cir. 1998), which adopted the Reading rationale,
11   and this Panel’s decision in Gonzalez v. Gottlieb (In re Metro
12   Fulfillment, Inc.), 

, 309 (9th Cir. BAP 2003).
13   According to IRS, the rationale of these cases applied under the
14   facts of this case because trustee had an obligation to comply
15   with the Tax Code by filing timely returns and he did not.    In
16   addition, IRS argued that even though an estate may be
17   insolvent, trustee still had an obligation to file a tax return
18   and thus the estate’s insolvency did not constitute reasonable
19   cause to excuse the penalty.   Due to IRS’s new arguments and
20   citations, the bankruptcy court continued the matter to July 20,
21   2012, and authorized the parties to file further pleadings.
22        On June 22, 2012, IRS submitted an amended response and
23   declaration with attached exhibits showing IRS account
24   transcripts for the 2008 and 2010 tax years.
25        On June 29, 2012, trustee submitted an amended response,
26   arguing that the fundamental fairness doctrine espoused in
27   Reading was inapplicable to a chapter 7 case when there was no
28   operating business.   Trustee further maintained that


                                    -6-
 1   administrative priority under § 503(b)(1)(A) was not appropriate
 2   when the tax penalties were purely punitive.     Finally, trustee
 3   again asserted that the estate’s insolvency gave him reasonable
 4   cause not to timely file the tax returns.
 5            The bankruptcy court issued a tentative ruling on July 19,
 6   2012, requesting (1) an explanation from IRS regarding the
 7   calculation of the penalties; and (2) a declaration by trustee,
 8   providing further information on the filing of the 2006 tax
 9   return for the refund.     The court continued the hearing on the
10   claim objection until August 24, 2012.
11            On August 2, 2012, IRS filed a supplemental declaration
12   addressing the calculation of the penalties.
13            On August 8, 2012, trustee filed his supplemental
14   declaration setting forth in detail his communications with SHCI
15   regarding its preparation of the 2006 tax returns.     The
16   declaration set forth the facts noted above regarding trustee’s
17   communications with Ms. Hyde, the eventual employment of her
18   firm, and the receipt of the refund.     On the same date, trustee
19   submitted the declaration of Johnson.     Johnson declared that he
20   and trustee “concurred” that tax compliance work, except for the
21   2006 prepetition return prepared by SHCI, should wait until it
22   became more certain that the tax refund would be received.
23   Johnson also provided his opinion as to why § 503(b)(1)(A) was
24   not applicable under the circumstances of the case.4
25
26        4
             In this regard, Johnson stated that it was difficult for
     him to believe that a “penalty for the late filing of a ‘zero’ S
27
     corporation income tax return is a ‘necessary cost’ of preserving
28   the estate.” The admissibility of this legal opinion made by an
                                                        (continued...)

                                       -7-
 1            On August 30, 2012, the bankruptcy court issued a tentative
 2   ruling5 allowing IRS’s claim as an administrative expense claim
 3   under § 503(b)(1)(A), as an actual and necessary cost of
 4   preserving the estate, and finding that trustee had no
 5   reasonable cause to delay the filing of the returns at issue
 6   while waiting for the excise tax refund.        The court noted that
 7   further argument would not be helpful and took the hearing off
 8   calendar.
 9            On September 18, 2012, the bankruptcy court entered the
10   order allowing IRS’s claim as an administrative claim under
11   § 503(b)(1)(A).
12            On September 25, 2012, trustee filed a timely notice of
13   appeal from the order.
14                              II.   JURISDICTION
15            The bankruptcy court had jurisdiction over this proceeding
16   under 28 U.S.C. §§ 1334 and 157(b)(2)(B).       We have jurisdiction
17   under 28 U.S.C. § 158.
18                                 III.    ISSUES
19            A.   Did the bankruptcy court err in finding that trustee
20   failed to prove reasonable cause for his failure to timely file
21   the S corporation tax returns?
22            B.   Did the bankruptcy court err in allowing IRS’s claim
23   as an administrative expense claim under § 503(b)(1)(A)?
24
25            4
           (...continued)
     accountant is questionable but there is no indication in the
26   record that the bankruptcy judge gave it any weight.
27        5
             Nothing in the record reflects an act to make this
28   tentative ruling a final one. However, because the entered order
     is consistent with it, we construe it to be a final ruling.

                                          -8-
 1                           IV.   STANDARDS OF REVIEW
 2            We review de novo the question of what elements constitute
 3   reasonable cause for the late filing of tax returns under IRC
 4   § 6699.     See United States v. Boyle, 

, 249 n.8
 5   (1985) (considering reasonable cause under IRC § 6651).6
 6   Whether those elements are present in a given case is a question
 7   of fact reviewed for clear error.         Id.; see also Knappe v.
 8   United States, 

, 1169(9th Cir. 2013).
 9            The bankruptcy court’s order allowing an administrative
10   claim is generally reviewed under the abuse of discretion
11   standard.     In re Metro Fulfillment, 

.
12   However, where the facts are undisputed, the issue is purely one
13   of law subject to de novo review.         See Elliott v. Four Seasons
14   Props. (In re Frontier Props.), 

, 1362 (9th Cir.
15   1992).
16                                 V.   DISCUSSION
17            An S corporation is an entity which elects to be taxed as a
18   partnership with income passed through to the shareholders on a
19   pro rata basis.     Ding v. Comm’r, 

, 589 (9th Cir.
20   1999); IRC §§ 1363(a), 1366(a), 1371(a)(1).         Although S
21   corporations generally do not pay federal taxes at the corporate
22   level, they still must file an annual tax return.        See IRC
23   § 6037     (“Every S corporation shall make a return for each
24   taxable year . . . .”); see also Ensyc Techs. v. Comm’r, 

  2160435, at *3 (T.C. 2012).
26            A chapter 7 trustee’s duty to file a chapter 7 corporate
27
          6
28           IRC § 6651 imposes a penalty against an individual
     taxpayer for failure to file a tax return or pay taxes.

                                         -9-
 1   debtor’s tax return is subject to little debate.     IRC
 2   § 6012(b)(4) provides that “[r]eturns of an estate . . . under
 3   chapter 7 . . . of title 11 of the United States Code shall be
 4   made by the fiduciary thereof.”     (Emphasis added).   When a
 5   corporation files for bankruptcy relief and a trustee is
 6   appointed, the trustee’s duty to file tax returns is governed by
 7   IRC § 6012(b)(3), which states:
 8            In a case where a receiver, trustee in a case under
              Title 11 of the United States Code, or assignee, by
 9            order of a court of competent jurisdiction, by
              operation of law or otherwise, has possession of or
10            holds title to all or substantially all the property
              or business of a corporation, whether or not such
11            property or business is being operated, such
              . . . , trustee, . . . shall make the return of income
12            for such corporation in the same manner and form as
              corporations are required to make such returns.
13
14   The trustee of a corporate debtor is required to file returns,
15   regardless of whether the trustee is an “operating trustee” or a
16   “liquidating trustee.”     Holywell Corp. v. Smith, 

,
17   53-54 (1992).7
18            When a corporation has no assets or income, a trustee may
19   make a request to IRS to be relieved of the reporting obligation
20
21
22
          7
             In contrast, a trustee’s obligation to file a tax return
23   in an individual’s chapter 7 case is different. Under IRC
24   § 6012(d)(8), “. . . every estate of an individual under Chapter
     7 . . ., the gross income of which for the taxable year is not
25   less than the sum of the exemption amount plus the basic standard
     deduction under [26 U.S.C.] § 63(c)(2)(D),” must file a tax
26   return on behalf of the bankruptcy estate. Accordingly, a
     chapter 7 trustee has a general obligation to file tax returns on
27
     behalf of the bankruptcy estate if it “realizes the threshold
28   amount of gross income required to trigger the filing of a
     return.” In re Pflug, 

, 689 (Bankr. E.D. Va.1992).

                                       -10-
 1   by following a simple procedure.     See Rev. Rul. 84-123,8 1984-2
 2   C.B. 244; see also 13 Mertens Law of Fed. Income Taxation
 3   § 47.75 (the obligation of a trustee or receiver to file tax
 4   returns may not apply if the corporation, although not formally
 5   dissolved, has ceased operations and has no assets or income;
 6   however, a liquidating corporation is deemed to continue as long
 7   as its affairs are being settled and its assets are not actually
 8
          8
 9           Rev. Proc. 84-59 (1984) at § 3 sets forth the procedure
     for making such a request.
10
          .01 The trustee, receiver, or assignee must file a
11        request with the district director for the district in
          which the corporation has its principal place of
12        business.
13
          .02 The request should state:
14
          1 The name, address and employer identification number
15        of the corporation, and
16
          2 The date on which the trustee, receiver, or assignee
17        filed the notice of appointment to act, as required
          under section 301.6036-1(a) of the Regulations on
18        Procedure and Administration.
19        .03 As stated in Rev.Rul. 84-123, the request should
20        set forth the facts, with supporting documents if
          necessary, as to why the relief from the filing
21        requirements is needed.

22        .04 The request should contain the following statement
          signed by the trustee, receiver, or assignee:
23
24        I hereby request relief from filing federal income tax
          returns for tax year(s) ending -- for the above named
25        corporation and declare under penalties of perjury that
          to the best of my knowledge and belief the information
26        contained herein is correct.
27
          .05 The district director will inform the trustee,
28        receiver, or assignee within 90 days of receipt whether
          the request is granted or denied.

                                    -11-
 1   distributed).      Trustee did not make such a request here.9
 2   A.       Reasonable Cause Under IRC § 6699
 3            Nonetheless, trustee argues that his failure to timely file
 4   the S corporation returns should be excused because he had
 5   reasonable cause.10     IRC § 6699 was added to the Tax Code in 2007
 6   as part of the Mortgage Forgiveness Debt Relief Act of 2007,
 7   Pub.L. No. 110–142, sec. 9(a), 121 Stat. at 1807.      Ensyc Techs.,
 8   

, at *3.      The statute provides in relevant part:
 9            (a) General rule.--In addition to the penalty imposed
              by section 7203 (relating to willful failure to file
10            return, supply information, or pay tax), if any S
              corporation required to file a return under section
11            6037 for any taxable year--
12            (1) fails to file such return at the time prescribed
              therefor (determined with regard to any extension of
13            time for filing), or
14            (2) files a return which fails to show the information
              required under section 6037, such S corporation shall
15            be liable for a penalty determined under subsection
              (b) for each month (or fraction thereof) during which
16            such failure continues (but not to exceed 12 months),
              unless it is shown that such failure is due to
17            reasonable cause. (Emphasis added).
18            . . . .
19
          9
             During oral argument before us, we learned that trustee
20   could have also filed a form to request an extension of time to
21   file the informational returns. Such a request would have given
     trustee an additional six months to file the returns. The 2006
22   tax refund was received in mid-June 2011 and the returns for 2008
     and 2010 were filed in mid-July 2011. Therefore, the six month
23   extension would have been inadequate.
24        10
             On this point, trustee apparently does not seek
25   disallowance of the penalties but instead contests their
     priority: he seeks allowance either on a par with general
26   unsecured claims or subordinated to them. “Mr. Kipperman hasn’t
     asked for the claim to be disallowed. He’s just requesting that
27   it be subordinated on equitable grounds because there’s no
     pecuniary loss to the IRS.” Trustee’s claim objection however
28
     never requested equitable subordination nor do the pleadings
     address whether subordination is appropriate under § 510(c).


                                       -12-
 1        In Ensyc Techs., 

, at *3, the tax court
 2   considered the scope of “reasonable cause” under IRC § 6699.
 3   There, the president of the S corporation challenged the IRS’s
 4   assessment of a late-filing penalty, contending that he timely
 5   mailed a Form 1120S for the corporation.   After finding that the
 6   president had not timely filed Form 1120S, the tax court
 7   considered whether there was reasonable cause for not filing the
 8   form on time.   As a matter of first impression, the tax court
 9   held that the failure of an S corporation to timely file its
10   annual return is due to reasonable cause if the S corporation
11   exercised ordinary business care and prudence and was
12   nevertheless unable to timely file its return.     

       In reaching this conclusion, the court used the ordinary
14   business care and prudence test which applied to IRC § 6651.
15   Treas. Reg. § 301.6651–1(c)(1)11 states:   “If the taxpayer
16   exercised ordinary business care and prudence and was
17   nevertheless unable to file the return within the prescribed
18   time, then the delay is due to a reasonable cause.”    Ensyc
19   Techs., 

, at *3.   In the end, the tax court found
20
21       11
              This section provides in relevant part:
22
         (c) Showing of reasonable cause. (1) Except as provided
23       in subparagraphs (3) and (4) of this paragraph (b), a
         taxpayer who wishes to avoid the addition to the tax
24       for failure to file a tax return or pay tax must make
25       an affirmative showing of all facts alleged as a
         reasonable cause for his failure to file such return or
26       pay such tax on time in the form of a written statement
         containing a declaration that it is made under
27       penalties of perjury. . . . If the taxpayer exercised
         ordinary business care and prudence and was
28
         nevertheless unable to file the return within the
         prescribed time, then the delay is due to a reasonable
         cause. . . .

                                    -13-
 1   the president’s testimony credible and corroborated by the
 2   documentary evidence with respect to the late filing.
 3   Accordingly, the court concluded there was reasonable cause for
 4   the delay and thus the penalties were excused.    

Techs. is the only case to consider the
 6   scope of reasonable cause under IRC § 6699, case law which has
 7   construed the term in the context of IRC § 6651 is persuasive.
 8   The IRS has articulated eight reasons for a late filing that it
 9   considers to constitute reasonable cause under IRC § 6651.
10   “These reasons include unavoidable postal delays, the taxpayer’s
11   timely filing of a return with the wrong IRS office, the
12   taxpayer’s reliance on the erroneous advice of an IRS officer or
13   employee, the death or serious illness of the taxpayer or a
14   member of his immediate family, the taxpayer’s unavoidable
15   absence, destruction by casualty of the taxpayer’s records or
16   place of business, failure of IRS to furnish the taxpayer with
17   the necessary forms in a timely fashion, and the inability of an
18   IRS representative to meet with the taxpayer when the taxpayer
19   makes a timely visit to an IRS office in an attempt to secure
20   information or aid in the preparation of a return.”     United
21   States v. 

n.1.   These examples generally
22   illustrate factors beyond a taxpayer’s control.   

23        Furthermore, ordinary business care and prudence is only
24   one element of the “reasonable cause” necessary to excuse
25   penalty assessments for the untimely filing of tax returns.
26   Valen Mfg. Co. v. United States, 

, 1191 (6th Cir.
27   1996).   In order to qualify for such relief, trustee must also
28   have satisfied that portion of Treas. Reg. § 301.6651–1(c)(1)


                                    -14-
 1   which requires a taxpayer to show that it has been rendered
 2   unable to meet its responsibilities despite the exercise of such
 3   care and prudence.    

to establish
 4   reasonable cause, trustee had the burden of proving that he
 5   exercised ordinary business care and prudence and was
 6   nevertheless unable to file the return within the prescribed
 7   time.
 8           Here, although the bankruptcy court did not mention the
 9   ordinary business care and prudence test, the record supports
10   the court’s conclusion that trustee failed to prove reasonable
11   cause.    Trustee declared that the late filing was based on his
12   mistaken belief that the insolvency of the estate automatically
13   relieved him of filing returns.      However, as noted above, a
14   trustee is not automatically exempted from filing tax returns
15   when a corporation is insolvent.     Rather, IRS has adopted a
16   procedure which may relieve a trustee of the burden of filing
17   such returns when a corporate debtor is insolvent, but trustee
18   did not pursue this relief.12
19           Further, trustee points to no factors that were beyond his
20   control with respect to the late-filed 2008 and 2010 tax
21   returns.    Indeed, in its July 19, 2012 tentative ruling, the
22   bankruptcy court opined that had trustee timely filed the 2006
23   tax return for the refund, it followed that the refund would
24
25        12
             At oral argument, IRS’s attorney suggested that trustee
26   could complete and file the informational returns without the
     help of a professional when the estate is insolvent. IRS has not
27   established this is a viable option for a trustee. Rather, the
     better solution is for the trustee to seek relief from the burden
28
     of filing the returns or, if appropriate, seek an extension of
     time.

                                      -15-
 1   have been obtained in 2007, the estate distributed and the tax
 2   returns for 2008, 2009 and 2010 would have been unnecessary.
 3   Our review of trustee’s supplemental declaration shows that the
 4   bankruptcy court could reasonably infer from the undisputed
 5   facts that the delay surrounding the filing of 2006 tax return
 6   was not caused by events beyond trustee’s control.    Anderson v.
 7   City of Bessemer City, N.C., 

, 575 (1985) (Where
 8   there are two permissible views of the evidence, the
 9   factfinder’s choice between them cannot be clearly erroneous.).
10        In sum, trustee’s lack of diligence in supervising his
11   accountants, coupled with his deliberate decision to delay
12   filing the returns until he was convinced this would be an
13   “asset case,” provided an ample basis for the bankruptcy court
14   to reject trustee’s reasonable cause argument and to sustain
15   IRS’s decision to assess the penalties.
16   B.   Administrative Expense Priority Under § 503(b)(1)(A)
17        We now turn to the thornier priority question.     Section
18   507(a)(2) accords administrative expenses of a bankruptcy estate
19   second priority.   Section 503(b)(1)(A) states that
20   administrative expenses include “the actual, necessary costs and
21   expenses of preserving the estate including . . .” and then
22   lists specific categories.   Under § 102(3) “includes” and
23   “including” are not limiting.   Therefore, the use of “including”
24   in the preamble of § 503(b)(1)(A) means that actual and
25   necessary costs and expenses of preserving the estate may
26   include types of claims other than those listed under
27   § 503(b)(1)(A) which may be given administrative priority.
28        Traditionally, to be deemed an administrative expense under


                                     -16-
 1   the “actual and necessary” rubric in § 503(b)(1)(A), two
 2   requirements must be met under Ninth Circuit case law
 3   requirements:13 the claim must have arisen from a transaction
 4   with the debtor in possession and must directly and
 5   substantially benefit the estate.     Abercrombie v. Hayden Corp.
 6   (In re Abercrombie), 

, 757 (9th Cir. 1998) (quoting
 7   Microsoft Corp. v. DAK Indus. (In re DAK Indus.), 

,
 8   1094 (9th Cir. 1995).   Years ago, the Ninth Circuit addressed
 9   the parameters of § 503(b)(1)(A) in Burlington N. R.R. Co. v.
10   Dant & Russell, Inc. (In re Dant & Russell, Inc.), 

11   (9th Cir. 1988), which established the following guidelines:
12        First, the statute is to be narrowly construed.
          Second, [a]n actual [not potential] benefit must
13        accrue to an estate. In either a Chapter 11
          liquidation or a Chapter 7 the court should be more
14        concerned with maximizing the size of the estate for
          the creditors than with inducing third parties to
15        contribute towards the continued operations of the
          business. Third, the court should consider allowing a
16        claim under § 503(b)(1)(A) for costs incurred if the
          expense results in a preservation of estate assets for
17        the benefit of creditors. Finally, courts are not
          free to establish their own priorities of payment
18        within the Bankruptcy Code.
19   In re Allen Care Ctrs., Inc. 

, 185 (Bankr. D. Or.
20   1994) (citing In re Dant & Russel, Inc.), aff’d 

(D.

), aff’d 

(9th Cir. 1996).
22        When we apply these guidelines to the facts of this case,
23   IRS’s claim based on penalties does not qualify as an
24   administrative expense.   This case is a chapter 7 case where the
25   primary goal is to keep costs to a minimum to preserve the
26   limited assets.   The penalties were not incurred in the
27
28       13
             There is no dispute that IRS’s claim for the penalties
     arose postpetition.

                                    -17-
 1   operation of a business and, as a result, the penalties were
 2   incurred neither to benefit the estate nor preserve it.   Under
 3   these facts, affording administrative expense priority to IRS’s
 4   claim would be to the detriment of the unsecured creditors.
 5        The Supreme Court carved out an exception to the “actual
 6   and necessary” requirements in Reading by holding that “[i]n the
 7   interests of ‘fairness to all persons having claims against the
 8   insolvent’ . . . tort claims arising post-petition [are] ‘actual
 9   and necessary expenses’ of preserving the estate.”    Boeing N.
10   Am., Inc. v. Ybarra (In re Ybarra), 

, 1025 n. 10
11   (9th Cir. 2005) (quoting 

); In re
12   Megafoods Stores, 

(Reading survived the
13   enactment of the Bankruptcy Code); see also In re Metro
14   Fulfillment, 

.
15        In Reading, the debtor corporation filed a petition for
16   arrangement under chapter XI of the Bankruptcy Act.   The same
17   day, a receiver was appointed and authorized to conduct the
18   debtor’s business, which consisted principally of leasing the
19   debtor’s only asset, an eight story industrial structure.    Not
20   long after the receiver was appointed, the debtor’s building was
21   destroyed by a fire which spread to adjoining premises and
22   damaged real and personal property of Reading Company and
23   others.   Reading filed a claim for over $550,000 as an
24   administrative expense in the arrangement, based on the asserted
25   negligence of the receiver.   After the debtor was voluntarily
26   adjudicated a bankrupt and the receiver elected the trustee in
27   bankruptcy, the claims of Reading and others became claims for
28   administration expenses in bankruptcy with first priority under


                                    -18-
 1   § 64(a)(1)14 of the Bankruptcy Act.    The trustee disallowed the
 2   claim for administration expenses.    On appeal, the district
 3   court and appellate court held that administrative treatment was
 4   not warranted.   The Supreme Court disagreed, holding that
 5   damages resulting from negligence of a receiver acting within
 6   the scope of his authority as receiver give rise to “actual and
 7   necessary costs” of a Chapter XI arrangement.
 8        The Supreme Court essentially engaged in a two-step
 9   analysis to reach its conclusion.     The Court first addressed
10   whether the trustee breached some legal duty that gave rise to a
11   corresponding right to payment under state law.     Because Reading
12   suffered the financial injury from the negligence of the trustee
13   and a workman, the Court noted that Reading would have a right
14   to recover under the common law rule of respondeat superior.
15   Therefore, in principle, the Court found that Reading had a
16   “right to recover for that injury from their ‘employer,’ the
17   business under arrangement.”   

was thus
18   established.
19        In a footnote, the Court pointed out that 28 U.S.C.
20
21
22
         14
             Section 64(a)(1) and § 503(b)(1)(A) contain similar
23   language. Section 64(a)(1) of the Bankruptcy Act provides in
     part:
24
25       The debts to have priority, in advance of the payment
         of dividends to creditors, and to be paid in full out
26       of bankrupt estates, and the order of payment, shall be
         (1) the costs and expenses of administration, including
27       the actual and necessary costs and expenses of
         preserving the estate subsequent to filing the
28
         petition. . . . (emphasis added).


                                    -19-
 1   § 959(b)15 requires a trustee to manage and operate the business
 2   in accordance with local state law, in the same manner that the
 3   owner would be bound to do.      Implicitly, the trustee in Reading
 4   did not comply with state law when he failed to exercise the
 5   duty of reasonable care in operating the business.      The Court
 6   therefore considered the policy embedded in 28 U.S.C. § 959(b)
 7   of ensuring a trustee’s compliance with state law when the
 8   trustee is authorized under bankruptcy law to operate the
 9   debtor’s business.      However, the Court observed that “[t]his
10   provision of course establishes only the principle of liability
11   under state tort and agency law, and does not decide from whom
12   or with what priority tort claims may be collected.”     

  n.7.
14           Next, the Court addressed the priority issue.   The Court
15   first considered the statutory objective of “fairness to all
16   persons having claims against an insolvent.”     The Court then
17   balanced the objective of the debtor’s rehabilitation against
18   the desirability of allowing those injured by the operation of
19   the business during the bankruptcy process to recover ahead of
20   those for whose benefit the business was carried out.
21
            15
                 This section provides:
22
23          [A] trustee, receiver or manager appointed in any cause
            pending in any court of the United States, including a
24          debtor in possession, shall manage and operate the
            property in his possession as such trustee, receiver or
25          manager according to the requirements of the valid laws
26          of the State in which such property is situated, in the
            same manner that the owner or possessor thereof would
27          be bound to do if in possession thereof.

28                                        -20-
 1        At the moment when an arrangement is sought, the
          debtor is insolvent. Its existing creditors hope that
 2        by partial or complete postponement of their claims
          they will, through successful rehabilitation,
 3        eventually recover from the debtor either in full or
          in larger proportion than they would in immediate
 4        bankruptcy. Hence the present petitioner did not
          merely suffer injury at the hands of an insolvent
 5        business: it had an insolvent business thrust upon it
          by operation of law. That business will, in any
 6        event, be unable to pay its fire debts in full. But
          the question is whether the fire claimants should be
 7        subordinated to, should share equally with, or should
          collect ahead of those creditors for whose benefit the
 8        continued operation of the business (which
          unfortunately led to a fire instead of the hoped-for
 9        rehabilitation) was allowed.
10   

Court concluded on balance that tort claims
11   arising during a Chapter XI proceeding were “costs ordinarily
12   incident to operation of a business,” and therefore qualified as
13   administrative expenses entitled to priority under § 503(b).
14   

sum, the Court’s priority decision was
15   largely based on equitable principles and a fairness rationale.
16        On appeal, trustee argues that Reading is not applicable
17   under the facts of this case because (1) the penalties were
18   punitive and (2) the penalties could not be considered “costs
19   ordinarily incident to the operation of a business” as required
20   by the language in Reading because the trustee was not operating
21   the business.    While IRS acknowledges that most cases have
22   applied Reading in the context of a chapter 11 where the debtor-
23   in-possession or trustee was operating the debtor’s business,
24   IRS argues that policy considerations favor an extension of
25   Reading under the facts of this case.     Those policies include
26   the United States’ interest in maintaining a workable tax
27   system, which the IRS contends should outweigh any cost to
28   debtor’s other creditors, and discouraging trustees from


                                      -21-
 1   shirking their duty to timely file bankruptcy estate tax
 2   returns.
 3          We initially note that the holding in Reading is a narrow
 4   one.   In re 

(“Reading created a
 5   venerable but limited exception” to the traditional requirements
 6   for administrative priority).   The Ninth Circuit first suggested
 7   that the rule of Reading applies only in cases involving
 8   “‘postpetition tort-like conduct,’. . . .”   Or. v. Witcosky (In
 9   re Allen Care Ctrs., Inc.), 

, 1331 (9th Cir. 1996)
10   (citing Nat’l Labor Relations Bd. v. Walsh (In re Palau Corp.),
11   

, 751 (9th Cir. 1994)); see also In re Lazar, 207

, 683–84 (Bankr. C.D. Cal. 1997).
13          However, in another line of cases, the Ninth Circuit and
14   this Panel expanded the Reading doctrine beyond tort-like
15   conduct when the “costs” at issue arose out of the debtor-in-
16   possession’s (or trustee’s) violation of 28 U.S.C. § 959(b)
17   while operating a business.   See In Megafoods Stores, Inc., 

(holding postpetition interest on unremitted state
19   and local sales taxes collected prepetition were entitled to
20   administrative priority when interest charges resulted from
21   debtors’ mismanagement of their estates, i.e., failure to comply
22   with their duties under 28 U.S.C. §§ 959(b) and 960 (mandating
23   compliance with state tax laws), and that the Reading exception
24   applied); In re Metro Fulfillment, 

25   (holding claims filed by employees who were employed in the
26   debtor’s packing and shipping department at minimum wage and
27   were never paid in violation of California Labor Code §§ 203 and
28   203.1 were administrative claims within Reading’s rationale when


                                     -22-
 1   the debtor was operating the business and failed to comply with
 2   state law under 28 U.S.C. § 959(b))16; see also Ala. Surface
 3   Mining Comm’n v. N.P. Mining Co., Inc. (In re N.P. Mining Co.,
 4   Inc.), 

(11th Cir. 1992) (punitive civil penalties
 5   assessed for postpetition mining activities qualified for
 6   administrative priority).
 7         While none of these cases addressed the category of
 8   expenses involved here,17 we are persuaded that IRS’s penalty
 9   claim is not the type of claim covered by Reading under either
10   line of reasoning.   IRS’s penalty claim did not arise from
11   trustee’s postpetition tortious or active wrongdoing.   These
12   terms imply some wrongful conduct and, here, the bankruptcy
13   court did not find that trustee had engaged in any wrongful
14   conduct.18   Indeed, the record shows that trustee was under the
15   mistaken belief that he did not need to file the informational
16
17        16
             Furthermore, the Panel in Metro Fulfillment, Inc. made
18   clear that whether the penalty wages at issue were punitive or
     compensatory was not dispositive because the debtor failed to
19   comply with its postpetition obligations under state 

. For this reason, trustee’s arguments regarding the
20
     punitive nature of the penalties are not persuasive.
21        17
             We have not found any case that has extended the
22   fundamental fairness doctrine to penalties assessed for failure
     to timely file tax returns nor have the parties cited a case that
23   tangentially touches upon this issue. Therefore, we do not find
     the out-of-jurisdiction cases that are cited by the parties
24
     helpful to our analysis.
25        18
             This type of conduct is similar to the “willful neglect”
26   standard under IRC § 6651. The term “willful neglect” means “a
     conscious, intentional failure or reckless indifference.” Boyle,

.
28                                  -23-
 1   returns while the estate remained insolvent.
 2          Any focus on 28 U.S.C. § 959(b) in this context is
 3   misplaced because the statute “establishes only the principle of
 4   liability under state tort and agency law, and does not decide
 5   from whom or with what priority tort claims may be collected.”
 6   

.     It is doubtful 28 U.S.C. § 959(b)
 7   applied to trustee when he was not operating the business.      See
 8   In re N.P. Mining 

(citing cases that hold
 9   that 28 U.S.C. § 959(b) is inapplicable to liquidation cases).
10   Moreover, 28 U.S.C. § 959(b) requires an operating trustee to
11   comply with state law versus trustee’s noncompliance with the
12   federal tax code in this case.     Accordingly, for purposes of
13   establishing “only the principle of liability,” we conclude that
14   the Tax Code is up to the task by requiring trustee to file
15   corporate tax returns during the case, whether or not the
16   business is being operated.     See IRC § 6012(b)(3) and (4).
17          The bankruptcy estate’s “liability” is only one part of the
18   analysis under Reading.      Another requirement for administrative
19   expense status is that the cost must be one “ordinarily incident
20   to operation of a business.”     The Reading Court concluded that
21   “the words ‘preserving the estate’ [in § 64(a) of the Bankruptcy
22   Act] include the larger objective, common to arrangements, of
23   operating the debtor’s business with a view to rehabilitating
24   

.    Applying Reading in the context of an
25   operating business is not only consistent with the words
26   “preserving the estate” under § 503(b)(1)(A), but it is also
27   consistent with the underlying rationale for the fundamental
28   fairness doctrine espoused in the case.     Priority for the fire


                                       -24-
 1   claimants over the unsecured creditors was based upon the quid
 2   pro quo for the continued operation of the business.
 3        We thus conclude that Reading does not apply for the same
 4   reasons that the plain language of § 503(b)(1)(A) is
 5   inapplicable.    Trustee was not operating the business of debtor
 6   under the common meaning of the term.   Treating IRS’s claim as
 7   an administrative expense in this case will allow that claim to
 8   be paid to the exclusion of, and out of the resources otherwise
 9   available for, claims of other creditors.   The practical result
10   would be that the penalties would be paid by innocent third
11   persons, the creditors, who did not derive any benefit from the
12   continued operation of any business.    Under the reasoning in
13   Reading, that result does not seem fair especially in light of
14   the fact that as a general matter, § 503(b)(1)(A) is construed
15   narrowly in order to maximize and protect the limited assets of
16   the bankruptcy estate for the benefit of unsecured creditors.
17   See In re Palau 

, 944 (9th Cir. BAP 1992),
18   aff’d, 

(9th Cir. 1994); In re Dant & Russell, Inc.,
19   

(9th Cir. 1988).   Because an unsecured creditor in
20   a chapter 7 liquidation case cannot expect to improve its
21   position through the operation of a business, a narrow
22   construction of § 503(b)(1)(A) weighs heavily under these
23   circumstances.
24        Although we do not condone trustee’s apparent lack of
25   diligence in completing the 2006 tax returns so that the refund
26   for that year would have been received by the estate in a more
27   timely manner, we also do not believe that Ninth Circuit case
28   law allows us to expand the Reading exception to all


                                     -25-
 1   postpetition costs and find they are entitled to administrative
 2   expense priority simply because the chapter 7 trustee had a
 3   “duty” to comply with the Tax Code despite an insolvent estate.
 4   We are reluctant to read the “preservation of the estate”
 5   language out of § 503(b)(1)(A) and establish a per se rule for
 6   postpetition penalties such as this.   Such an interpretation of
 7   Reading would swallow the guidelines set forth in Dant & Russell
 8   making all postpetition claims eligible for administrative
 9   priority as a “cost of administration.”
10        We do acknowledge, however, that priority status for the
11   tax penalties under § 503(b)(1)(A) is a close call.    IRS makes a
12   very nearly persuasive case that, in the interest of fairness to
13   taxpayers everywhere, and to promote the pubic policy embodied
14   in the Tax Code that requires bankruptcy trustees to timely file
15   all tax returns due during the course of administration of a
16   bankruptcy estate, the penalties here constitute “actual,
17   necessary costs of preserving the estate” under § 503(b)(1)(A)
18   as that phrase has been interpreted in the case law.   As noted,
19   it is not dispositive that the tax penalties in this case
20   conferred no direct benefit on the bankruptcy estate; a legion
21   of courts, from the Supreme Court in Reading on down, have
22   carved out judicial exceptions to that strict requirement over
23   the years to apply § 503(b)(1)(A) fairly, consistent with public
24   policy.19   Unfortunately for IRS, though, none of the decisions
25   recognizing Reading fairness exceptions deal with a non-
26
         19
             Indeed, if a direct benefit to the estate were required
27
     for § 503(b)(1)(A) status, it would be difficult for trustee to
28   justify payment of the fees for the accountants he retained to
     prepare and file the tardy tax returns.

                                    -26-
 1   operating chapter 7 estate.    Instead, the fairness exception has
 2   nearly always applied when debtors and trustees were operating a
 3   business, in many cases to abide by 28 U.S.C. § 959(b)’s command
 4   that they follow the same state rules as others.    The absence of
 5   any authority applying the Reading exception in a liquidation
 6   scenario is sufficient to tip the scales in trustee’s favor.
 7   C.      Administrative Expense Priority For Other Reasons
 8           Nevertheless, the tax penalties may be entitled to
 9   administrative expense status for other reasons.    First,
10   § 503(b) states that “[a]fter notice and a hearing, there shall
11   be allowed administrative expenses, other than claims allowed
12   under section 502(f) of this title, including —. . . .”
13   (Emphasis added).    By using the word “including” in the
14   introduction to § 503(b), Congress makes clear that, to be
15   allowed, the tax penalties need only constitute “administrative
16   expenses”; it is not necessary that the tax penalties precisely
17   match one of the illustrative categories listed in subsections
18   (1) through (9).
19           Because there is no definition of “administrative expense”
20   in the Bankruptcy Code, presumably, Congress intended that the
21   bankruptcy courts fashion a definition for this term based upon
22   the facts of the case guided by the general policies of the
23   Code.    As a result, if the bankruptcy court here were to find
24   that, even though they did not constitute a cost of preserving
25   the bankruptcy estate, the tax penalties were nonetheless
26   expenses incurred in the administration of this bankruptcy
27   estate (i.e., “administrative expenses”), IRS’s claim may still
28   be entitled to administrative priority under § 503(b).       The


                                      -27-
 1   bankruptcy court should have the opportunity on remand to make
 2   that decision.
 3        Secondly, IRS initially argued to the bankruptcy court that
 4   the penalties should be deemed administrative expenses under
 5   § 503(b)(1)(C) as a “penalty . . . relating to a tax of a kind
 6   specified in subparagraph (B) of [§ 503(b)].”   Trustee argued in
 7   response that the penalty did not relate to “a tax of a kind
 8   specified in subparagraph (B)” because no tax was actually
 9   imposed under subparagraph (B).   The bankruptcy court did not
10   address this issue because it made its decision under
11   subparagraph “(A).”   For this reason, remand is appropriate so
12   that the bankruptcy court can evaluate the issues under
13   § 503(b)(1)(B) and (C).
14        Finally, a remand is mandated to address the question that
15   begs to be answered: if these tax penalties, incurred in the
16   ordinary course of the trustee’s administration of the
17   bankruptcy estate are not allowed administrative expenses, then
18   what are they?   Presumably, the penalties may not be allowed as
19   unsecured claims because they did not arise prior to the
20   petition date.   See §§ 501(a)and 502(a) (in tandem, providing
21   that a creditor may file a claim, and in general, such claims
22   are allowed based upon “the amount [due] . . . as of the date of
23   the filing of the petition”); § 101(5),(10) (in tandem,
24   providing that a “claim” is a right to payment, and a creditor
25   is an entity that “has a claim against the debtor that arose at
26   the time of or before” the commencement of a voluntary chapter 7
27   case).   While the Code expressly treats some post-bankruptcy
28   claims as though they arose before the filing of the petition,


                                    -28-
 1   tax penalties of the sort IRS claims here are not.   See e.g.,
 2   § 502(f) (certain claims in involuntary cases); § 502(g) (claims
 3   for post-petition lease rejection damages); § 502(h) (claims for
 4   avoided transfers); § 502(i) (claims for certain priority
 5   taxes).
 6        In sum, although we hold that the tax penalties are not
 7   entitled to administrative expense status under § 503(b)(1)(A)
 8   as “costs of preserving the estate”, we remand this matter to
 9   the bankruptcy court to decide if the penalties qualify as
10   administrative expenses for other reasons.
11                           VI.   CONCLUSION
12        We conclude that the bankruptcy court properly found
13   trustee failed to prove reasonable cause for his failure to
14   timely file the 2008 and 2010 tax returns at issue in this
15   appeal and AFFIRM on this issue.   However, we REVERSE on the
16   priority issue under § 503(b)(1)(A) for the reasons discussed
17   above and REMAND this matter to the bankruptcy court to decide
18   if the penalties qualify as administrative expenses for other
19   reasons.
20
21
22
23                   Concurrence begins on next page.
24
25
26
27
28


                                   -29-
 1   BASON, Bankruptcy Judge, concurring:
 2
 3           As a matter of nonbankruptcy law I agree with the
 4   majority’s interpretation of “reasonable cause” for not timely
 5   filing a tax return.    The trustee had the burden to prove that
 6   the estate exercised ordinary business care and prudence and was
 7   nevertheless unable to file the return within the prescribed
 8   time.
 9           As a matter of bankruptcy law I agree with the majority
10   that tax penalties are not “costs of preserving the estate”
11   under § 503(b)(1)(A).    I also agree that this matter should be
12   remanded to the bankruptcy court for two reasons:      first, to
13   decide if the penalties qualify as administrative expenses for
14   any other reasons and, second, to decide how to deal with the
15   penalties if they are not administrative expenses.
16           I write separately to emphasize the narrowness of the
17   panel’s ruling.    Many of the justifications presented by the
18   trustee are, in concept, reasonable cause for not timely filing
19   tax returns, regardless of whether the evidence in this
20   particular case is compelling.       In addition, there are numerous
21   issues that we are not deciding today.
22           (1) The trustee’s justifications
23           Taxes can be complicated.    In a business bankruptcy case it
24   is often prudent to have the assistance of an accountant.
25           What if there are no funds to pay an accountant?    That
26   might not be a sufficient excuse for a taxpayer outside of
27   bankruptcy, but in my view the situation is different for
28   chapter 7 bankruptcy trustees.       They have a strong argument that


                                         -1-
 1   they act with “ordinary business care and prudence” in deferring
 2   the filing of tax returns until there are funds with which to
 3   prepare those returns.   What other course of action would be
 4   prudent for chapter 7 trustees?
 5        In this case, the only source of such funds was a
 6   contingent claim for a 2006 tax refund in an unknown dollar
 7   amount.    Attempting to recover that refund was not easy for
 8   several reasons.
 9        Apparently it was difficult to retrieve the debtor’s
10   records.   It was also difficult to persuade the debtor’s
11   accountants to prepare the 2006 return.      Those accountants had
12   not been paid for past work.   They had uncertain prospects of
13   ever being paid for future work.       The estate essentially had no
14   funds to pay them, and the trustee’s uncontradicted assertion is
15   that IRS might have denied the hoped-for 2006 refund “for a
16   myriad of reasons . . . .”   The trustee also describes numerous
17   communications with the accountants in which he attempted to
18   assist or expedite the process.
19        The trustee could have applied to the IRS for an extension
20   to file the 2006 tax return, but at oral argument we were told
21   that the maximum aggregate extension would be six months.      The
22   IRS has not argued that six months would be anywhere near
23   sufficient, and as the trustee points out it took the IRS itself
24   approximately seventeen months to process the 2006 return once
25   it was filed.
26        The trustee was charged with liquidating a moribund
27   business with missing records.    That situation is analogous to
28   some well accepted grounds for not timely filing a return, such


                                      -2-
 1   as the taxpayer’s death or serious illness, or the destruction
 2   by casualty of the taxpayer’s records.   United States v. Boyle,
 3   

, 243 n.1 (1985).   Therefore, for a time at least,
 4   the trustee had good reasons for not filing the 2006 return.
 5        But it is one thing to miss a deadline by a few months and
 6   another thing to miss it by approximately thirty-three months,
 7   which is what happened in this case.   The 2006 return was due in
 8   April of 2007 and was not filed until January of 2010.
 9        Even that degree of delay might have satisfied the
10   “ordinary business care and prudence” standard if there were
11   sufficient evidence of the reasons for the delay.    But the
12   trustee’s evidence was not necessarily compelling.    On this
13   appeal he has not established that the bankruptcy court
14   committed clear error in finding a lack of reasonable cause for
15   a delay of thirty three months.
16        (2)   Some undecided issues
17        First, we are not asked to allocate blame, nor is it clear
18   that there is any blame.   The accountants understandably were
19   reluctant to invest more time on a project for which they might
20   never be paid.   The trustee understandably may have been unable
21   to retain alternative accountants or to accelerate the
22   preparation of returns by the existing accountants.
23        Second, because there were essentially no funds in the
24   estate we are not asked to review the trustee’s choices among
25   competing demands for use of such funds.   For example, this case
26   does not involve a choice between preparing tax returns or
27   addressing health and safety issues.   We generally defer to the
28   trustee’s business judgment in managing a bankruptcy estate’s

                                     -3-
 1   limited resources.    See Agarwal v. Pomona Valley Med. Grp., Inc.
 2   (In re Pomona Valley Med. Grp., Inc.), 

, 669-71 (9th
 3   Cir. 2007) (defining contours of business judgment rule in
 4   bankruptcy context).    That issue is not before us, nor do we
 5   need to decide how the business judgment test might interact
 6   with the “ordinary business care and prudence” standard.
 7        Third, the majority questions (in part V.C. of the opinion)
 8   whether the tax penalties may be entitled to administrative
 9   expense status for reasons other than what was argued on appeal.
10   I agree with the majority that we should remand rather than
11   simply reverse, and that in explaining why we are remanding it
12   is helpful to offer examples of issues that might need to be
13   considered on remand.
14        The majority offers two such examples:    whether the tax
15   penalties are entitled to an administrative priority under the
16   introductory clause of § 503(b), or alternatively under
17   § 503(b)(1)(C).   I agree that those issues may be appropriate
18   for consideration on remand.
19        Fourth, the majority asks (at the end of part V.C. of the
20   opinion):   if the tax penalties are not administrative claims
21   then what are they?    The majority then questions whether the tax
22   penalties could be considered prepetition claims.
23        I do not disagree with providing this example (to clarify
24   why we are remanding).   But I part company with the majority
25   when it states that presumably the penalties cannot be general
26   unsecured claims because they did not arise prior to the
27   petition date.
28        The law is not fully developed on when a claim is treated

                                     -4-
 1   as postpetition and when it is treated as a contingent,
 2   unliquidated prepetition claim (of any priority).    Compare,
 3   e.g., Centre Ins. Co. v. SNTL Corp. (In re SNTL Corp.), 

  204, 220-22 (9th Cir. BAP 2007), aff’d, 

(9th Cir.
 5   2009) (attorneys’ fees incurred postpetition can be treated as
 6   contingent, unliquidated portion of prepetition general
 7   unsecured claim), with Gordon v. Hines (In re Hines), 

  1185, 1191-92 & n.9 (9th Cir. 1998) (an attorney’s right to
 9   payment that arises only on performance of postpetition services
10   is beyond the type of “contingent” prepetition claim
11   contemplated by statute) (alternative holding on which majority
12   and concurrence agree).
13        It is possible that the tax penalties in this case could be
14   treated as contingent, unliquidated claims as of the petition
15   date (and could be included in an amendment to the IRS claim if
16   its asserted administrative priority were to be rejected).      The
17   penalties do have prepetition aspects:    they arise from
18   liquidating the prepetition business and the untimely filing of
19   the prepetition 2006 tax return which led to the untimely filing
20   of the 2008 and 2010 informational returns.   On the other hand,
21   perhaps the tax penalties are more properly viewed as
22   postpetition claims that are beyond what the statute means by
23   “contingent” and “unliquidated” prepetition claims.    In either
24   event, the claims’ priority is unclear.
25        I express no views on the correct outcome.     My point is
26   that although we are explaining our decision to remand by
27   providing examples of potential issues, I do not interpret our
28   discussion of these particular issues as limitations on the

                                   -5-
 1   bankruptcy court: on remand it can apply its own analysis to
 2   whatever issues are properly presented.
 3        (3) Conclusion
 4        With the limited caveats expressed above, I join in the
 5   majority’s well reasoned opinion.
 6
 7
 8
 9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                   -6-