ROBERT H. CLELAND, District Judge.
The court in this appeal is presented with two questions of law. First, which section or sections of the Bankruptcy Code govern how to characterize a "straddling" tax claim, specifically whether it is a post-petition claim under the statutory scheme enacted by Congress for chapter 13 bankruptcies. Second, if 11 U.S.C. § 1305 governs, the court must decide at what time a
The essential facts of this matter are not in dispute. Debtor-Appellees Gary and Rose Senczyszyn filed a 2008 joint tax return with the State of Michigan on February 14, 2009, calculating a tax due in the amount of $1,900. They then filed a petition for relief pursuant to chapter 13 of the Bankruptcy Code on March 31, 2009, and a chapter 13 plan followed on April 15, 2009, the same day their already-filed tax return was due. The plan included Appellant Michigan Department of Treasury (listed as "State of Michigan") as a claimant with a $1,900 claim based on taxes due for income earned in 2008. Appellees also filed a Schedule E on April 15, 2009, which listed Appellant as a priority creditor to be paid $1,900 for 2008 state income taxes. The plan was confirmed by the bankruptcy court in a September 19, 2009, order.
Appellant did not object to the plan by the June 23, 2009, deadline. Nor did Appellant file a proof of claim by the September 27, 2009, deadline for governmental creditors. As a result, Appellees filed a proof of claim on Appellant's behalf on October 8, 2009, under 11 U.S.C. § 501(c) and Federal Rule of Bankruptcy Procedure 3004.
Instead of participating in the plan, on February 12, 2010, Appellant filed an objection to that proof of claim, arguing that its claim is a post-petition, rather than pre-petition, claim because Appellees' tax return was not due until April 15, 2009. The bankruptcy court denied the objection on April 7, 2010. Appellant appeals that order.
This appeal presents only a question of statutory interpretation: whether the statutory scheme for chapter 13 bankruptcies renders a straddling tax
In reviewing a bankruptcy appeal, the district court accepts as correct the bankruptcy court's findings of fact, unless they are clearly erroneous. Fed. R. Bankr.P. 8013; see In re Wingerter, 594 F.3d 931, 935-36 (6th Cir.2010). The bankruptcy court's conclusions of law are reviewed de novo. In re Wingerter, 594 F.3d at 935-36. Issues of statutory interpretation are conclusions of law and are reviewed de novo. United States v. Springer, 609 F.3d 885, 889 (6th Cir.2010); In re Westfall, 599 F.3d 498, 501 (6th Cir.2010).
The court will affirm the bankruptcy court's opinion and order overruling Appellant's objection, but will do so on different grounds.
Like many of the other courts that have considered the issue, the court finds that the meaning of "become payable" in § 1305 controls whether Appellant's straddling tax claim is a pre-petition or post-petition claim.
Navigating the Bankruptcy Code often presents a challenge and sometimes seems to require a topographical map. Chapter 5 of Title 11 of the United States
11 U.S.C. § 501(d). Relevant here is § 502(i), which states:
Appellant's state income tax claim is entitled to priority under § 507(a)(8) because it is an unsecured claim of a governmental unit for an income tax of a taxable year that ended before the petition was filed and which meets other certain specified criteria. 11 U.S.C. § 507(a)(8)(A). A claim is allowed if proof is filed and a party in interest does not object. 11 U.S.C. § 502(a).
Section 1305 of Title 11, entitled "Filing and allowance of postpetition claims," provides in relevant part:
Subsection (c) is inapplicable to tax claims. Chapter 5 applies to chapter 13 cases. 11 U.S.C. § 103(a). Chapter 13, and thus § 1305, applies only in a chapter 13 case. 11 U.S.C. § 103(i).
To summarize, a pre-petition tax claim is one filed under § 501, and is so named because it "arise[s] before the date of the filing of the petition." 11 U.S.C. § 501(d); see 11 U.S.C. § 101(10). Claims that arise after the petition is filed, so-called "post-petition claims," generally are not addressed in bankruptcy. United States v. Ripley (In re Ripley), 926 F.2d 440, 443 (5th Cir.1991) (citing 5 Collier on Bankruptcy ¶ 1305.01[1] (L. King ed., 15th ed. 1988)). As with any rule, there are exceptions. Tax claims that arise after the commencement of a case may be included in a bankruptcy pursuant to § 502(i). In addition, in chapter 13 cases, proofs of claim for those taxes that "become payable. . . while the case is pending" may be filed under § 1305(a)(1). While pre-petition claims arise in any type of bankruptcy, for numerous types of claims, and proof thereof may be filed by various parties in interest, post-petition claims under § 1305 are at issue only in chapter 13 bankruptcies, comprise only two narrow classes of
In passing § 1305, Congress carved out for chapter 13 bankruptcies a narrow exception to the claim allowance procedures generally applicable in all bankruptcies. See S.Rep. No. 95-989, at 140 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5926. Thus, the bankruptcy court erred in finding that § 1305 need not be considered in the case at hand. In coming to that conclusion, the bankruptcy court held that
In re Senczyszyn, 426 B.R. 250, 258 (Bankr.E.D.Mich.2010). However, Appellant was not required to file a proof of claim in order to argue that § 1305 applies; after all, Appellant reads that statute to say that only it, and not Appellees, was permitted to file a proof of claim, and it consciously declined to do so. Appellant can therefore logically base an objection on § 1305. If that statute is given the construction for which it argues, Appellant's objection would have to be sustained, as Appellees could not have filed a proof that was not permitted under the statute, and Appellant would not be required to file such a proof.
The case law contains two strands of thought that attempt to reconcile the general provisions of chapter 5 with the language contained in § 1305. The first view is that § 1305 bars debtors from filing proofs of claim for the types of post-petition claims contemplated by that statute. The second, illustrated by the bankruptcy court's holding, is that § 1305 does not determine which claims are preor post-petition, but instead allows creditors to file claims deemed to be post-petition by chapter 5. See id. (holding § 1305 does not affect determination of pre- and post-petition claims under §§ 501-502); see also In re Hight, 434 B.R. 505, 508-10 (W.D.Mich.2010) (relying on the bankruptcy code's definition of "creditor" and the "interplay of sections 501(c), 502(i), 507(a)(8), and 1322(a)(2)" to hold that there is no "strict dichotomy between prepetition and postpetition claims" and therefore § 1305(a)(1) does not control straddling tax claims). This latter view neglects the canon of lex specialis
The bankruptcy court's reasons for avoiding interpretation of § 1305 do not withstand scrutiny. First, the court said that since "Debtors in this case do not rely upon § 1305 of the Bankruptcy Code as the authority for the proof of claim that they filed on behalf of the State of Michigan," and instead rely on § 501(c) and its counterpart Rule 3004, the court need not look to § 1305. 426 B.R. at 255. But if Congress created in § 1305 a specific exception to the procedures utilized under chapter 5 for certain types of claims, including § 501(c), then the court must look to that specific exception in determining whether the Appellees were permitted to file a proof of claim at all. In other words, § 1305(a)(1) may bar a debtor's right to file a proof of claim notwithstanding §§ 501-502.
"Second," the court wrote, "there is nothing in § 1305 that provides a basis to disallow a proof of claim filed by a debtor on behalf of a creditor under § 501(c) of the Bankruptcy Code." Id. at 256 (footnote omitted). However, this statement is not entirely accurate, because § 1305(a) begins: "A proof of claim may be filed by any entity that holds a claim against the debtor. . . ." By stating "any entity that holds a claim against the debtor" may file a proof of claim, 11 U.S.C. § 1305(a) (emphasis added), Congress barred debtors from filing a proof of such claim as would be the normal practice under § 501(c). See, e.g., Terry v. Tyson Farms, Inc., 604 F.3d 272, 283 (6th Cir. 2010) (applying maxim of expressio unius est exclusio alterius). The effect of § 1305 would be severely mitigated if a debtor were permitted to circumvent the provision by filing a proof of claim under chapter 5. Recognizing this, courts have found that a debtor may not file a proof of claim for a post-petition claimant. See United States v. Ripley (In re Ripley), 926 F.2d 440, 443 n. 12 (5th Cir.1991) ("[T]he code does not authorize a debtor to file a claim for postpetition debts on behalf of the claimant."); In re Weisel, 400 B.R. 457, 472 (Bankr.W.D.Pa.2009) ("[P]ostpetition creditors cannot be forced to participate in a Chapter 13 plan, although they may elect to do so voluntarily."), aff'd, 428 B.R. 185 (W.D.Pa.2010); In re Jones, 381 B.R. 555, 558 (Bankr.M.D.Fla.2007) ("Courts that have considered § 1305(a) have consistently held that the section grants to postpetition claimants the choice of either filing a Proof of Claim and participating in the debtor's plan, or not filing a Proof of Claim and allowing their claim to pass the bankruptcy unaffected."); see also 2 Nancy C. Dreher & Joan N. Feeney, Bankruptcy Law Manual § 13:27 (5th ed. 2010) ("The debtor may not file a proof of claim on behalf of a postpetition claimant, and if the claimant does not file a claim, the claim passes through the debtor's bankruptcy unaffected."). An explicit instruction to the bankruptcy court requiring it to disallow
The bankruptcy court's final reason, that § 1305 "does not define what is and is not a post-petition tax claim," 426 B.R. at 256, is incorrect, because, as is explained above, § 1305 is directed to post-petition claims of a certain kind defined with the subsections of § 1305(a). To construe the statute otherwise would be both awkward and strained, as a court would be forced to look to a judicially-created test, such as the "fair contemplation" or conduct tests, to determine the types of claims to which § 1305 applies, rendering the language used by Congress in § 1305(a) virtually meaningless.
For these reasons, the court finds that Congress used the phrase "become payable" to distinguish the post-petition from the pre-petition in this narrow class of tax claims.
The handful of courts that have decided the issue of whether a straddling tax claim is a pre- or post-petition claim appear to have split. Courts have followed at least three different rules, finding the relevant date on which taxes "become payable" to be either the end of the tax year, the date the tax return was actually filed, or the date the tax return was due.
The first approach is illustrated in Joye v. Franchise Tax Bd. (In re Joye), 578 F.3d 1070 (9th Cir.2009). The debtors there filed a petition under chapter 13 on March 7, 2001, and their plan was confirmed on May 18, 2001. 578 F.3d at 1072. The Franchise Tax Board, the taxing authority for the State of California, did not
The Ninth Circuit reversed in turn. The court there found that construction of the term "payable" controlled the types of claims to which § 1305 applies. Id. at 1075-77. It rejected the reasoning of the Fifth Circuit in United States v. Ripley (In re Ripley), 926 F.2d 440 (5th Cir.1991), discussed below, and adopted that of the Tenth Circuit Bankruptcy Appellate Panel in Dixon v. IRS (In re Dixon), 218 B.R. 150 (10th Cir. BAP 1998). It summarized the reasoning in Dixon thus:
Id. at 1075-76. The court then cited with approval Collier on Bankruptcy's comparison of § 502(i) with § 1305(a)(1) to support the conclusion that the time of incurring a tax obligation, rather than the time for payment, is determinative of the construction of "payable" and the applicability of § 1305. Id. at 1076 (quoting 8 Collier on Bankruptcy ¶ 1300.71[10] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.)). The court rejected the Board's arguments that the use of "payable" should be construed according to the use of that or similar terms in other statutes, such as the Internal Revenue Code or the California Revenue and Tax Code. Finally, it rejected the argument that the Board did not have adequate notice. Id. at 1077-81.
The second and third approaches—using the date the return is actually filed or the date the return is due—were discussed by the court in Ripley, though the court was not clear as to which of the two approaches
In its construction of § 1305, the Fifth Circuit looked first to a dictionary definition, noting that
Id. at 444 (quoting Black's Law Dictionary 1128 (6th ed. 1990)). Ripley cites several opinions that have adopted such a meaning of "payable," id. at 444 n. 13, and relies on the Uniform Commercial Code and the Internal Revenue Code for confirmation of that meaning, id. at 444. Thus, the Ripley court concluded, "Congress intended to refer to those taxes that come due during the pendency of the case; in other words, taxes that have `become payable' are those that must be paid now." Id. at 444 (emphasis in original); see Turner, 420 B.R. at 714.
But the Ripley court was less clear about when "now" is. The court wrote the taxes "became payable on April 15, 1988, when their tax return was due," 926 F.2d at 444, and concluded "that the taxes in question became payable when the final tax return for the year was required to be filed," id. at 449. Yet a different part of the opinion states the taxes "became payable" when the debtors actually filed their return. See id. at 445 & n. 19. In examining In re Pennetta, 19 B.R. 794 (Bankr. D.Colo.1982)—where the tax return was filed before the petition was filed, which in turn was before "the IRS assessed the tax and filed a proof of claim"—the court wrote, "Pennetta demonstrates that our conclusion that the taxes become payable when the return is filed is a two-edged sword. Although it happens to favor the government in the instant case, it will not do so in all cases." Id. Thus, while the Ripley court rejected the notion that the taxes became payable as soon as they had been incurred, it did not distinguish between the date when the return is due from the date when the return is filed, as that distinction would not have made a material difference in the case.
The court finds that taxes "become payable" in the meaning of § 1305 at the end of a taxable period, typically a year, consistent with Joye, for four reasons.
First, where the plain meaning of a statute is clear, that meaning controls. While a difference in judicial thinking on the same (or very similar) statutory point might indicate the statute on its face is ambiguous, the court cannot find much space for ambiguity. The court does not agree with the Ripley court's reading of
Black's Law Dictionary 1243 (9th ed. 2009).
There is no ambiguity regarding this definition, and it comports with the court's understanding of the common usage of the word "payable." Two other factors weigh in favor of this meaning. Congress chose the phrase "become payable" rather than "become due and owing" or "must be paid." The court is confident Congress understood the difference in meaning between these phrases. In addition, the court takes judicial notice of the procedures used by the Michigan Treasury in collecting income taxes. Even though a tax return is not due until the April 15 following the taxable year, when a taxpayer files a return before that date and encloses payment, the Treasury will not wait until April 15 to negotiate the taxpayer's check. Instead, the Treasury deposits the check immediately. If the amount is later determined to be incorrect, a refund or a bill will be issued. In common parlance, if payment is proffered and accepted, and the check cashed, one could accurately say only that the tax had been "paid." And that which was "paid" must have been payable, that is, "capable of being paid."
If it were not for Appellant's assertions to the contrary and case law in support of that position, the court would be satisfied that the analysis need go no further. But, as noted above, numerous courts have rejected the plain meaning analysis and looked to other factors beyond the text of the statute itself.
To the extent that the statute is ambiguous, the court may look to persuasive extrinsic authority, including "other statutes, interpretations by other courts, legislative history, policy rationales, and the context in which the statute was passed" to discern congressional intent.
While the "suffering" implied in paying one's taxes may not occur until near the ides of April, the tax liability was brought on by earning income during the preceding year. Tax liability is not incurred only after the tax year is over but before the tax has been paid. Similarly, Joye's and Dixon's reliance on § 101(5)(A) and § 502(i) bolsters this view. The congressional record supports the Joye reading of § 1305—which, in this court's opinion, is much less a reading than it is "the only reasonable meaning to be affixed to the word as it is used in section 1305." See Ripley, 926 F.2d at 444.
Moreover, in construing a statutory phrase, similar terms in unrelated statutes do not necessarily have the same meaning. United States ex rel. Chicago, New York & Boston Refrigerator Co. v. Interstate Commerce Comm'n, 265 U.S. 292, 295, 44 S.Ct. 558, 68 L.Ed. 1024 (1924). Thus, where the meaning of § 1305 is clear on its face and supported by its own statutory context and relevant legislative history, the court declines the invitation to look to the Internal Revenue Code or state provisions to interpret the statutory meaning. See Joye, 578 F.3d at 1078 (quoting Dixon, 218 B.R. at 152) ("As aptly stated in Dixon, `words used in the Bankruptcy Code do not necessarily mean the same thing they might mean in the Internal Revenue Code.'").
Finally, the ambiguity of the Ripley court in its own holding evinces the practical problem with departing from the natural reading of the statute and adopting the view that taxes "become payable" when the return is due. Are taxes "due" on April 15, the deadline for filing a return in most jurisdictions? Or are they "due" when the return is filed, whether that filing comes early or late? In the case of estimated taxes, they will be due long before a return must be filed. In that case, should the due date for the return control over the due date for payment of the tax? While such interpretive problems are not insurmountable, brightline rules are more workable and are therefore generally favored. The court's holding here therefore not only comports with the plain meaning of the statute and the available evidence of Congress's intent, but also provides the most pragmatic solution.
Based on its plain meaning, the court holds that taxes "become payable" under § 1305(a)(1) at the conclusion of the tax period for which they are due, or in other words, when they are theoretically determinable. This will often, but not always, mean that taxes "become payable" when a return may be filed and when payment may be made. In cases where the taxable period is the calendar year, for example, taxes "become payable" at 12:00 a.m. on January 1, after that year has concluded.
Applying this holding to the facts of this case does not require much ink. Appellees' tax year ended at the very beginning of January and they filed their chapter 13 petition in March. Their income taxes "bec[a]me payable" before the petition was filed, and so the claim based on that tax obligation is a pre-petition claim. Section 1305 does not apply. As Appellant failed to timely file a proof of claim, Appellees were permitted, under Rule 3004 and § 501(c), to file the proof of claim on their behalf. Appellant's objection was properly denied.
Accordingly, IT IS ORDERED that bankruptcy court's opinion and order is AFFIRMED.
