Source: https://law.justia.com/cases/federal/appellate-courts/F2/525/1108/169725/
Timestamp: 2020-08-07 01:51:09
Document Index: 453455072

Matched Legal Cases: ['§ 6503', '§ 301', '§ 6503', '§ 6503', '§ 6503', '§ 6873', '§ 6873', '§ 6503', '§ 6873', '§ 6873', '§ 6873', '§ 6873', '§ 6503', '§ 6873', '§ 6502']

Frank C. Mcauley, Plaintiff-appellant, v. United States of America, Defendant-appellee.john A. Metzger and H. A. Waggoner, Plaintiffs-appellants, v. United States of America, Defendant-appellee.lew Schuek Thuen, A/k/a Saxon Lew, Plaintiff-appellant, v. United States of America, Defendant-appellee.clifford E. Warling, Plaintiff-appellant, v. United States of America, Defendant-appellee, 525 F.2d 1108 (9th Cir. 1975) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1975 › Frank C. Mcauley, Plaintiff-appellant, v. United States of America, Defendant-appellee.john A. Metzg...
Frank C. Mcauley, Plaintiff-appellant, v. United States of America, Defendant-appellee.john A. Metzger and H. A. Waggoner, Plaintiffs-appellants, v. United States of America, Defendant-appellee.lew Schuek Thuen, A/k/a Saxon Lew, Plaintiff-appellant, v. United States of America, Defendant-appellee.clifford E. Warling, Plaintiff-appellant, v. United States of America, Defendant-appellee, 525 F.2d 1108 (9th Cir. 1975)
US Court of Appeals for the Ninth Circuit - 525 F.2d 1108 (9th Cir. 1975) Nov. 5, 1975
The basis for the government's argument that the statute of limitations was stayed during the entire period that the bankruptcy estate was open is § 6503(b)3 of the Code. It provides that the period of limitations on collection after assessment 'shall be suspended for the period the assets of the taxpayer are in the control or custody of the court in any proceeding before any court of the United States . . ., and for 6 months thereafter.' Literally the statute seems to call for a factual determination of whether the assets of the taxpayer are in the control or custody of the bankruptcy court. The Internal Revenue Service seems to have adopted this interpretation in Reg. § 301.6503(b)--14 which provides that the statute of limitations is suspended '(w)here all or substantially all of the assets of a taxpayer are in the control or custody of the court . . .' Certainly a factual determination is required to determine if 'all or substantially all' of the assets of the taxpayer are under the control of the bankruptcy court. Thus, the government's regulations appear to be inconsistent with its position in this case that the statute of limitations is stayed as a matter of law until the bankruptcy estate is closed. Nevertheless, one court has upheld the position taken by the government in this litigation. United States v. Malkin, 317 F. Supp. 612 (E.D.N.Y. 1970). A contrary result was reached in United States v. Verlinsky, 459 F.2d 1085 (5th Cir. 1972). Because of these conflicting interpretations we feel that a review of the other sections of the Code controlling the treatment of bankrupt taxpayers is required before construing § 6503(b).
The problems in construing Section 6503(b) arise in part because it was designed to have general application. See 3 USCCAN 4017, 4562 (1954). As such, general language was used. 'Control or custody' is nowhere defined. Nor is 'assets of the taxpayer.' It has been left to the courts to construe these words. Another difficulty is that the statutes are at least partially circular. Thus, § 6503(i), formerly § 6503(h), cross references one to § 6873 for the suspension of the statute of limitations during bankruptcy, but § 6873(b) sends one back to § 6503(b). These considerations have prompted courts to note that '(t)he section leaves much to be desired in definiteness and clarity.' Verlinsky, supra, 459 F.2d at 1087, quoting from United States v. McCann, 259 F. Supp. 632, 633 (S.D. Cal. 1966). With this in mind, we consider the different possible interpretations of the Statute.
The right of the government to collect from the taxpayer during bankruptcy requires reconsideration of one of the assumptions in the case that supports the government. United States v. Malkin, 317 F. Supp. 612 (E.D.N.Y. 1970). There the district court concluded that since § 6873 authorized collection 'after the termination of the proceeding,' the statute of limitations should be suspended until this point. Implicit in this is the assumption Section 6873 controls the timing of government collection remedies, and that prior to the termination of the proceeding the government cannot collect its claim from the taxpayer. As we have seen though, that assumption is incorrect. The United States can proceed against the bankrupt during the proceeding. Since the premise upon which the conclusion rests fails, so must the conclusion. A different interpretation of § 6873 is that it is designed to give collateral estoppel consequences to the allowance of the claim in bankruptcy. United States v. Coast Wineries, Inc., 131 F.2d 643, 648 (9th Cir. 1942); Walley v. United States, 259 F.2d 579 (9th Cir. 1958). But as made clear in Walley, the fact that collateral estoppel applies does not mean that the statute of limitations is inapplicable. We think that the construction of § 6873(a) that it only incorporates collateral estoppel consequences into the allowance of a claim is more reasonable than the one adopted in Malkin. This is especially true because § 6873(b) directs one to § 6503(b) for the statute of limitations problem, not to § 6873(a) which was relied on in Malkin.
In this case the government has argued that it has unhindered collection rights during bankruptcy but that the statute of limitations is stayed until the estate is closed. There is no reason for the tax collector to have it both ways. Either the statute should be stayed during the bankruptcy, and tax collections from the taxpayer be precluded, or the statute should not be stayed and collection be permitted. The virtue of the first alternative is that it requires that the tax claims first be satisfied out of the bankrupt's estate, leaving only the remainder of the claim to be collected from the after-acquired property. It has a disadvantage, though, in that it delays the running of the statute of limitations for long periods in some cases. The virtue of the second interpretation is that it keeps the statute of limitations running. It has the disadvantage of forcing the government to attempt to collect its tax claims from the exempt property of the bankrupt prior to the closure of the estate, but it allows the bankrupt to avoid this result by agreeing to suspend the statute of limitations under § 6502(a) (2). We think Congress would and did prefer the latter solution. It protects the government's interest in tax collection, carries out the purposes of the Bankruptcy Act, and allows the taxpayer some flexibility.
No issue has been made of the question of whether the Amended Answer and Counterclaim relate back. Stoner v. Terranella, 372 F.2d 89 (6th Cir. 1967), holds that the amendment is controlled by Fed. R. Civ. P. 13(f) and does not relate back. Compare: A. J. Industries, Inc. v. United States Dist. Ct., 503 F.2d 384, 388 (9th Cir. 1974)