FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: CHELCEY R. FOWLER; In re: 

LYNDA FOWLER,

Debtors,

No. 03-16112

UNITED STATES OF AMERICA, D.C. No.  Plaintiff-Appellee, CV-02-00507-CKJ

v. OPINION

CHELCEY R. FOWLER; LYNDA

FOWLER,

Defendants-Appellants. 

Appeal from the United States District Court

for the District of Arizona

Cindy K. Jorgenson, District Judge, Presiding

Argued and Submitted

November 16, 2004—Telephonic Argument

Filed January 12, 2005

Before: Pamela Ann Rymer, Richard C. Tallman, and

Carlos T. Bea, Circuit Judges.

Opinion by Judge Tallman

469
COUNSEL

Eric Slocum Sparks, Law Offices of Eric Slocum Sparks,

P.C., Tucson, Arizona, for the appellants. 

Thomas J. Clark and Ellen Page Delsole, United States

Department of Justice, Tax Division, Washington, D.C., for

the appellee. 

OPINION

TALLMAN, Circuit Judge: 

The issue in this case is the effect of a conversion from

Chapter 11 to Chapter 13 bankruptcy proceedings on the priority status of a postpetition, preconversion administrative

expense claim. The Fowlers appeal the district court’s order

reversing the bankruptcy court, and determining that 11

U.S.C. § 348(d) requires that federal employment taxes,

incurred as administrative expenses in operating their nursing

home business after the Fowlers filed for Chapter 11 bankruptcy protection, but before they converted to Chapter 13,

retain their priority status as administrative expenses under 11

U.S.C. § 503(b). We affirm the district court and hold that

such a claim retains its administrative expense priority upon

conversion.

I

In May 1998, Chelcey and Lynda Fowler filed for Chapter

472 IN RE: FOWLER
11 bankruptcy protection. While in Chapter 11, the Fowlers

continued the operation of their adult long-term care facility,

causing the bankruptcy estate to incur additional Federal

Insurance Contribution Act and Federal Unemployment Tax

Act employment tax liabilities and attendant penalties and

interest on those debts. In December 1998, the Internal Revenue Service (IRS) filed a “Request for Payment” of this new

debt as administrative expenses of the estate under §§ 503(a)-

(b) and 507(a)(1).1 The Chapter 11 estate continued to accrue

employment tax liabilities through the fourth quarter of 1999.

During this same period, the IRS amended the Request to

reflect increases to the accumulating debt. The Fowlers did

not file an objection to these Requests. 

In May 2001, the Fowlers moved to convert their bankruptcy estate from Chapter 11 to Chapter 13. They stated that

they no longer operated their long-term care facility and were

now employed by others, and thus met Chapter 13 eligibility

requirements. The bankruptcy court granted their conversion

to Chapter 13. In June 2001, after conversion but prior to confirmation of the Chapter 13 plan, the IRS filed an amendment

to the December 1998 “Request for Payment” (the “Amended

Request”), to reflect additional interest and penalties which

had accrued while the estate was still proceeding under Chapter 11. The amendment did not reflect any tax liability accruing after the conversion. 

The Fowlers argued that the debt evidenced by the

Amended Request should no longer be treated as an administrative claim, but as a prepetition unsecured priority claim

under § 1305, a special Chapter 13 provision. The bankruptcy

court agreed and held that a tax claim filed during the pendency of a Chapter 13 petition must be prioritized as if the

claim had arisen prepetition because § 1305(b) states that

claims for taxes filed under § 1305(a) are allowed or disal1Unless otherwise indicated, all code citations refer to the Bankruptcy

Code, 11 U.S.C. §§ 101-6323. 

IN RE: FOWLER 473
lowed “the same as if such claim had arisen before the date

of filing of the petition.” The bankruptcy court noted that filing a proof of claim under § 1305 is voluntary, and therefore

the IRS could have avoided application of § 1305 by not filing a claim after the conversion. 

The district court reversed and held that such a claim continued to be an administrative expense because § 348(d) specifically exempts administrative expenses from prepetition

treatment in a conversion. The district court found that

§ 348(d) is the only section that addresses the issue of administrative expenses in a conversion from one Chapter to

another and that § 1305 did not apply. The Fowlers subsequently filed a motion for rehearing under Fed. Bankr. R.

8015, which the district court denied. They now appeal both

the reversal of the bankruptcy court ruling on the appropriate

priority of the tax liability and the denial of the motion for

reconsideration. 

II

[1] As a threshold matter, we must establish that jurisdiction over the Fowlers’ appeal is proper. Under 28 U.S.C.

§ 158(a), we have jurisdiction to hear appeals “from final

judgments, order, and decrees” entered by a district court on

appeal from a bankruptcy court. Because of the unique nature

of bankruptcy proceedings, this court applies a pragmatic

approach to determining finality. Saxman v. Educational

Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1171 (9th

Cir. 2003); Dawson v. Wash. Mutual Bank (In re Dawson),

390 F.3d 1139, 1145 (9th Cir. 2004). 

Two tests have developed in the Ninth Circuit to address

the question of finality for bankruptcy proceedings. See In re

Olshan, 356 F.3d 1078, 1082-83 (9th Cir. 2004). Under Vylene Enters., Inc. v. Naugles, Inc. (In re Vylene Enters., Inc.),

968 F.2d 887, 895-96 (9th Cir. 1992), we apply a fourpronged test that considers: “(1) the need to avoid piecemeal

474 IN RE: FOWLER
litigation; (2) judicial efficiency; (3) the systemic interest in

preserving the bankruptcy court’s role as the finder of fact;

and (4) whether delaying review would cause either party

irreparable harm.” In re Olshan, 356 F.3d at 1082 (internal

citation omitted). Under Bonner Mall P’ship v. U.S. Bancorp

Mortgage Co. (In re Bonner Mall P’ship), 2 F.3d 899, 904

(9th Cir. 1993), we consider whether the central issue raised

on appeal “is legal in nature and its resolution either (1) could

dispose of the case or proceedings and obviate the need for

factfinding; or (2) would materially aid the bankruptcy court

in reaching its disposition on remand.” In re Olshan, 356 F.3d

at 1082-83 (quoting In re Bonner Mall P’ship, 2 F.3d at 904).

[2] Under either test, the district court order here is sufficiently final for our jurisdiction over this appeal to be proper.

There are no facts in dispute and the remand requires only

that the Chapter 13 plan conform to the legal determination on

priority. Deciding the legal question now would be judicially

efficient, would not interfere with the bankruptcy court’s fact

finding role, and would avoid additional harm to the Fowlers

and their creditors due to the delay in closing the bankruptcy

proceedings. See In re Vylene Enters., 968 F.2d at 895-96.

The bankruptcy proceedings will be controlled by the question of law before us regarding the priority of the IRS claim

and deciding the issue now would materially aid the bankruptcy court. See In re Bonner Mall P’ship, 2 F.3d at 904; see

also In re Olshan, 356 F.3d at 1083 (accepting jurisdiction

where the appeal concerned primarily a question of law and

resolution of the question would materially aid the bankruptcy

court’s determination of the extent to which a claim should be

allowed). We therefore hold that we have jurisdiction over the

Fowlers’ appeal. 

III

We review de novo the district court’s decision on appeal

from a bankruptcy court. In re Saxman, 325 F.3d at 1172. The

bankruptcy court’s conclusions of law, including interpretaIN RE: FOWLER 475
tions of the bankruptcy code, are reviewed de novo and its

factual findings are reviewed for clear error. See Einstein/

Noah Bagel Corp. v. Smith (In re BCE West, L.P.), 319 F.3d

1166, 1170 (9th Cir. 2003). There are no factual questions

before us. The Fowlers do not challenge classification of the

employment tax debt as an administrative expense incurred by

the estate prior to the filing for conversion to a Chapter 13

bankruptcy. The question before us is whether the debt lost its

administrative expense status upon conversion. 

The question of status is important because it affects the

priority of the debt in the bankruptcy proceeding. First priority is granted, inter alia, to administrative expenses of the

bankruptcy estate. See § 507(a)(1). Postpetition tax debt may

constitute an administrative expense if it relates to “any tax

incurred by the estate,” except certain defined taxes not applicable here. § 503(b)(1)(B)(i). The first priority accorded to

administrative expense taxes also extends to interest and penalties that accrue on that debt. See Towers v. United States (In

re Pacific-Atlantic Trading Co.), 64 F.3d 1292, 1298 (9th Cir.

1995); see also United States v. Ledlin (In re Mark Anthony

Constr., Inc.), 896 F.2d 1101, 1104-08 (9th Cir. 1989). A

Chapter 13 confirmation plan must provide that administrative expenses, including penalties and interest, be paid in full

as priority claims. See § 1322(a)(2); see also In re Mark

Anthony Constr., Inc., 886 F.2d at 1106, 1108. 

[3] In contrast, a tax which is prepetition and unsecured is

generally given eighth priority. § 507(a)(8). These eighth priority tax claims are also paid in full over the term of the

Chapter 13 plan but without interest. See generally § 1322(a);

see also In re Dorf, 219 B.R. 498, 501 n.3 (Bankr. N.D. Ill.

1998) (finding that §1322(a)(1) does not require payment of

interest); In re Smith, 196 B.R. 565, 569 (Bankr. M.D. Fla.

1996) (finding that § 1322(a)(2) does not require the payment

of postpetition interest). Therefore, the most important distinction between administrative expense tax claims and unse476 IN RE: FOWLER
cured priority tax claims in Chapter 13 is that the IRS cannot

recover interest on prepetition unsecured priority tax claims.

The district court relied on § 348(d) to hold that postpetition, preconversion administrative expenses retain their status.

Section 348(d) provides that:

A claim against the estate or the debtor that arises

after the order for relief but before conversion in a

case that is converted under section 1112 . . . , other

than a claim specified in section 503(b) of this title,

shall be treated for all purposes as if such claim had

arisen immediately before the date of the filing of

the petition. 

§ 348(d) (emphasis added). A conversion under § 1112

includes conversions from Chapter 11 to Chapters 7, 12, or

13. § 1112(a) and (d). 

[4] Other circuits have acknowledged that § 348(d) requires

that § 503(b) administrative expense claims retain their preconversion priority status in conversion under § 1112 from

Chapter 11 to Chapter 7. See, e.g., In re Benjamin Coal Co.,

978 F.2d 823, 827 (3rd Cir. 1992) (“Section 348(d) unquestionably would have preserved an administrative claim [ ] if

[the debtor] had possessed an administrative claim at the time

of the conversion to Chapter 7.”); United States v. Ginley (In

re Johnson), 901 F.2d 513, 520 (6th Cir. 1990) (stating that

“we are satisfied that this exception in 348(d) indicates that

administrative expenses maintain their priority status”). 

[5] Bankruptcy courts addressing the issue have also determined that administrative expense status is retained in a conversion. See, e.g., In re Allen, 67 B.R. 46, 49 (Bankr.

W.D.N.Y. 1986) (determining that postpetition, preconversion

taxes, penalties, and interest that were § 503(b) administrative

expenses retained first priority status in a conversion from

Chapter 11 to Chapter 13); see also In re Blue Ribbon DelivIN RE: FOWLER 477
ery Serv., Inc., 31 B.R. 292, 293 (Bankr. W.D. Ky. 1983)

(holding that “an administrative expense claim for withholding taxes incurred during the pendency of a Chapter 11 proceeding retains its character as an administrative expense after

a subsequent conversion to a [Chapter 7] case”).2

[6] The Supreme Court has not spoken clearly on the matter

but has indirectly endorsed this approach. In United States v.

Noland, 517 U.S. 535 (1996), the parties had agreed that

claims for taxes and interest that accrued after a Chapter 11

filing and before conversion to Chapter 7 were entitled to priority as administrative expenses in the Chapter 7 estate. Id. at

537. The Supreme Court held that the penalties associated

with the tax debt were also postpetition administrative

expenses under §§ 348(d) and 503(b)(1). Id. at 541 n.3

(“Congress has already determined that [a § 503(b) penalty]

is not to be treated like prepetition penalties.”). 

[7] The general approach, therefore, has been to interpret

§ 348(d) as preserving administrative expense status upon

conversion from Chapter 11 to Chapter 7 under § 1112(a),

and we see no reason to treat differently administrative

expense priority in a conversion from Chapter 11 to Chapter

13 under § 1112(d). Section 348(d) expressly applies to conversions under § 1112 without distinguishing between the various bankruptcy chapters. While we acknowledge that

2The Fowlers cite several bankruptcy cases for the proposition that the

government may not pursue an administrative expense claim in a Chapter

13 proceeding. See In re Parffrey, 264 B.R. 409, 413-14 (Bankr. S.D. Tex.

2001); In re King, 217 B.R. 623, 625 (Bankr. S.D. Cal. 1998); In re Dixon,

210 B.R. 610, 615 (Bankr. W.D. Okla. 1997); In re Gyulafia, 65 B.R. 913,

915-16 (Bankr. D. Kan. 1986); In re Wright, 66 B.R. 125, 126-27 (Bankr.

D. Kan. 1984). However, these cases all refer to bankruptcy proceedings

which were filed originally as Chapter 13 proceedings, where no conversion occurred, and so are inapplicable in the Fowlers’ case. The Fowlers

rely on one case, In re Hudson, 158 B.R. 670 (Bankr. N.D. Ohio 1993),

that involves a conversion from Chapter 7 to Chapter 13. However, In re

Hudson concerned debtors’ income tax liability, not employment tax

administrative expenses, and so is also inapplicable. 

478 IN RE: FOWLER
Chapter 13 bankruptcy may be more generous to debtors than

Chapter 7, this is an insufficient basis for treating debtors differently under § 348(d) where no such distinction is made in

the statute. We think that it would be anomalous to treat an

administrative expense in one preconversion Chapter differently than in another Chapter without clear congressional

intent to do so. 

The Fowlers argue that § 1305 supports their position that

conversion to Chapter 13 requires different treatment under

§ 348(d) than conversion to Chapter 7 because there is no

equivalent statute in Chapter 7. Section 1305(a) states that

“[a] proof of claim may be filed by any entity that holds a

claim against the debtor [ ] for taxes that become payable to

a governmental unit while the case is pending[.]” Such a

claim “shall be allowed or disallowed under section 502 of

this title, but shall be determined as of the date such claim

arises, and shall be allowed . . . or disallowed . . . the same

as if such claim had arisen before the date of the filing of the

petition.” § 1305(b). The Fowlers argue that this language

requires any claim for postpetition tax be treated as a prepetition tax for all purposes. They construe § 1305 as conflicting

with § 348(d) and argue that § 1305 should control because it

is the more specific statute. 

We are not persuaded by this argument because we see no

conflict between the two statutes. The language of § 1305

does not govern priority status. Instead, it creates the right

permitting an eligible postpetition creditor to enter into the

Chapter 13 bankruptcy proceeding, in contrast to most postpetition creditors who have no right to enter into an ongoing

bankruptcy plan. The limited effect of § 1305 is evidenced by

the distinction between the statutory language in §§ 348(d)

and 1305(b). Section 348(d) states that a non-section 503(b)

claim arising after the order for relief but before conversion

“shall be treated for all purposes as if such claim had arisen

immediately before the date of the filing of the petition.”

§ 348(d) (emphasis added). Section 1305(b) states only that a

IN RE: FOWLER 479
claim filed under § 1305(a) “shall be determined as of the

date such claim arises, and shall be allowed under section

502(a), 502(b), or 502(c) of this title, or disallowed under

section 502(d) or 502(e) of this title, the same as if such claim

had arisen before the date of the filing of the petition.” Id.

(emphasis added). 

By listing the specific subsections to which § 1305(b)

applies, Congress has sufficiently demonstrated its intent that

this provision not have general effect. Section 1305 requires

only what it says — that for purposes of allowing or disallowing a creditor’s claim, the claim is treated as if it arose prepetition. It does not address the statutory treatment of the claim

itself once it has been allowed into the bankruptcy proceeding. A § 1305 claim is not automatically determined as if it

were a prepetition claim for all purposes, and so there is no

conflict with § 348(d). Therefore, the Fowlers’ employment

tax debt retains its administrative expense status. 

Finally, the Fowlers argue that the tax debt must be

recharacterized as prepetition because a Chapter 13 estate

cannot be charged with an administrative claim for taxes,

relying on § 346(d) and 26 U.S.C. § 1398. We find this argument to be without merit. Both of these statutes relate to

income taxes. Section 346(d) provides that in Chapter 13

bankruptcy state or local taxes “imposing a tax on or measured by income” of the bankruptcy estate or debtor may only

be taxed to the debtor, not to the estate. 26 U.S.C. § 1398 is

a tax provision that controls the treatment of taxpayers in

Chapter 7 and Chapter 11 bankruptcy proceedings for federal

income tax purposes. However, the Fowlers’ tax debt involves

only employment taxes, not income taxes, so neither § 346(d)

nor 26 U.S.C. § 1398 applies here. 

[8] We therefore affirm the district court and hold that

§ 348(d) requires that in a conversion under § 1112 from

Chapter 11 to Chapter 7, 12, or 13, section 503(b) expenses

retain their status as postpetition administrative expenses. 

480 IN RE: FOWLER
IV

We review for an abuse of discretion the denial of a district

court’s motion for rehearing. See Navajo Nation v. Norris,

331 F.3d 1041, 1046 (9th Cir. 2003) (“Whether or not to grant

reconsideration is committed to the sound discretion of the

court.”). 

The Fowlers timely filed a motion for reconsideration of

the district court’s judgment under Fed. R. Bankr. P. 8015,

which grants a party the right to file a motion for rehearing

but does not explicitly provide a standard for granting such a

motion. The district court denied the motion, applying the

review standard applicable to Fed. R. App. P. 40(a)(2), which

requires that a motion for rehearing state with particularity

each point of law or fact that the movant believes the court

has overlooked or misapprehended. The district court concluded that, while Rule 8015 does not explicitly provide a

standard, it was reasonable to apply the federal rule standard

to the bankruptcy rule because the Advisory Committee Notes

to Rule 8015 state that it was an adaptation of Fed. R. App.

P. 40(a). 

[9] We affirm the denial of the Rule 8015 motion. The district court did not abuse its discretion by looking to a parallel

federal appellate rule for guidance in applying a reasonable

standard to a motion for rehearing. The Fowlers’ argument

that the district court failed to apply “the strict language of

Bankruptcy Rule 8015” to their motion is misplaced, as the

“strict language” of the rule simply does not speak to the

issue. Further, the bankruptcy court itself has applied the Rule

40 standard as the district court did here. See Olson v. United

States, 162 B.R. 831, 834 (Bankr. D. Neb. 1993) (stating that

it is appropriate to look to the appellate rule for guidance

because Rule 8015 was derived from Rule 40); see also, e.g.,

Kosmala v. Imhof (In re Hessco Indus., Inc.), 295 B.R. 372,

375 (B.A.P. 9th Cir. 2003) (citing Olson, 162 B.R. at 834);

Young v. Paramount Comm., Inc. (In re Wingspread Corp.),

IN RE: FOWLER 481
186 B.R. 803, 807 (S.D.N.Y. 1995) (citing Olson, 162 B.R.

at 834). Other bankruptcy courts have applied different standards,3

 but the inquiry here is whether the district court

abused its discretion. The Fowlers fail to demonstrate that the

standard is inapplicable in the bankruptcy context or that an

abuse of discretion occurred. 

V

[10] The district court’s remand to the bankruptcy court

was sufficiently final for appellate jurisdiction to attach. We

hold that § 348(d) requires that postpetition employment tax

debt, incurred as an administrative expense of a Chapter 11

bankruptcy estate, retains its first priority administrative

expense status upon conversion to a Chapter 13 bankruptcy

plan. Section 1305 is not in conflict with this holding because

it does not govern the priority of the postpetition claims it

allows into the bankruptcy proceeding. Finally, the district

court did not abuse its discretion by applying the standard of

Fed. R. App. P. 40 to the Fowlers’ Fed. R. Bankr. P. 8015

motion for reconsideration. 

AFFIRMED. 

3

See, e.g., The Shawnee State Bank v. First Nat’l Bank of Olathe (In re

Winders), 202 B.R. 512, 517 (D. Kan. 1996) (“Motions to reconsider

should be granted where: (1) the Court has patently misunderstood a party,

(2) the court has made a decision outside the adversarial issues . . . presented by the parties, (3) the court has made an error not of reasoning but

of apprehension, or (4) there is a controlling or significant change in the

law or facts since the submission of the issue to the Court.”) (quoting

Above the Belt, Inc. v. Mel Bohannan Roofing, Inc., 99 F.R.D. 99, 101

(E.D. Va. 1983) (ellipses in original). 

482 IN RE: FOWLER