Opinion ID: 666058
Heading Depth: 3
Heading Rank: 3

Heading: The Tax Cases

Text: 39 Varsity urges that the reasoning of this Court in In re Allied Mechanical Serv., Inc., 885 F.2d 837 (11th Cir.1989) controls. This Court in In re Allied Mechanical held that the government was entitled to administrative expense priority on its claim for interest on postpetition tax liability, relying primarily on the Supreme Court's decision in Nicholas v. United States, 384 U.S. 678, 86 S.Ct. 1674, 16 L.Ed.2d 853 (1966). Id. at 839. Key to the decision was that under prior law, as articulated in Nicholas, interest on postpetition tax liability was accorded administrative expense priority, although the Bankruptcy Act, like the Code, did not explicitly so provide. Id. Thus, In re Allied Mechanical rested upon the principle that guides our decision today: absent affirmative Congressional intent to the contrary, judicially created doctrines under prior law remain viable, with silent abrogation particularly disfavored. See Kelly v. Robinson, 479 U.S. 36, 47, 107 S.Ct. 353, 359, 93 L.Ed.2d 216 (1986); Midlantic National Bank v. New Jersey Dept. of Environmental Protection, 474 U.S. 494, 501, 106 S.Ct. 755, 759, 88 L.Ed.2d 859 (1986). 40 Other courts examining the issue have divided over the treatment of interest on tax liability. A majority of the cases accord administrative expense priority. See, e.g., In re Flo-Lizer, Inc., 916 F.2d 363, 366-67 (6th Cir.1990); In re Mark Anthony Construction, 886 F.2d 1101, 1108 (9th Cir.1989); In re Allied Mechanical Serv., Inc., 885 F.2d 837, 839 (11th Cir.1989); United States v. Friendship College, Inc., 737 F.2d 430, 432-33 (4th Cir.1984); In re Stainless Processing Co., 98 B.R. 913 (Bankr.N.D.Ill.1989); In re Swolsky, 97 B.R. 348 (Bankr.N.D.Ohio 1989); In re Injection Molding Corp., 95 B.R. 313 (Bankr.M.D.Pa.1989); In re Precise Tool & Die Co., Inc., 93 B.R. 586 (Bankr.N.D.Ohio 1988); In re Roy Amerson, Inc., 90 B.R. 526 (Bankr.M.D.Fla.1988); In re PATCO Photo Corp., 82 B.R. 192 (Bankr.E.D.N.Y.1988); In re Bergin Corp., 77 B.R. 210 (Bankr.E.D.Wis.1987); In re Associated Air Serv., Inc., 75 B.R. 47, 48-50 (Bankr.S.D.Fla.1987); In re Mall Food Serv. Corp., 75 B.R. 639 (Bankr.E.D.Mo.1987); In re Patch Press, Inc., 71 B.R. 345, 348-50 (Bankr.W.D.Wis.1987); In re Allen, 67 B.R. 46 (Bankr.W.D.N.Y.1986); In re General Polymerics Corp., 54 B.R. 523, 524-26 (Bankr.D.Conn.1985); In re Pharmadyne Laboratories, Inc., 53 B.R. 517, 519-20 (Bankr.D.N.J.1985); In re Sunset Enter., 49 B.R. 296 (Bankr.W.D.Va.1985); In re Thompson, 67 B.R. 1, 2-3 (Bankr.N.D.Ohio 1984); In re Venable, 48 B.R. 853 (Bankr.S.D.N.Y.1985); and In re Razorback Ready-Mix Concrete Co., 45 B.R. 917, 926 (Bankr.E.D.Ark.1984), rev'd in part, 80 B.R. 949, 950 (Bankr.W.D.Ark.1987). 41 In light of the ambiguity of the legislative history surrounding interest on tax liabilities, these cases rely upon the articulation of prior law in Nicholas. Fueling these cases is the belief that Congress, despite striking the Senate version of the Code which expressly would have authorized the collection of interest, meant to implicitly retain such an allowance, either as part of the tax itself or as a natural concomitant of a fine, penalty, or reduction in credit per Sec. 503(b)(1)(C). These cases have thus refused to interpret Congressional inaction, or silence as constituting a repudiation of prior law. 8 42 Some courts have reached a different result. Illustrating the controversy and uncertainty that the legislative history's ambiguity has generated, a number of cases have refused to accord administrative expense priority for interest on tax liabilities. 9 See, e.g., In re Luker, 148 B.R. 946 (Bankr.N.D.Ok.1992); In re Compass Marine Corp., 146 B.R. 138 (Bankr.E.D.Pa.1992); In re Mansfield Tire & Rubber Co., 73 B.R. 735, 740 (Bankr.N.D.Ohio 1987); In re Hirsch-Franklin Enterprises, Inc., 63 B.R. 864, 869-71 (Bankr.M.D.Ga.1986); In re Lumara Foods, Inc., 50 B.R. 809, 810 (Bankr.N.D.Ohio 1985); In re H & C Enterprises, 35 B.R. 352 (Bankr.D.Idaho 1983); and In re Stack Steel & Supply Co., 28 B.R. 151, 155-56 (Bankr.W.D.Wash.1983). Cf. In re Boston & Maine Corp., 719 F.2d 493, 498-502 (1st Cir.1983), cert. denied sub nom. City of Cambridge v. Meserve, 466 U.S. 938, 104 S.Ct. 1913, 80 L.Ed.2d 461 (1984) (interest disallowed where accumulation of interest was directly attributable to court order deferring payment of all postpetition taxes); In re Mansfield Tire & Rubber Co., 85 B.R. 437 (Bankr.N.D.Ohio 1987) (interest disallowed on postpetition taxes where state law would not permit interest had bankruptcy never been filed). 43 We continue to embrace the result and reasoning in In re Allied Mechanical as representing the better approach in light of prior law as articulated in Nicholas. We now examine Nicholas as well as other prior law to determine whether the rationale of Nicholas may be fairly read to favor administrative expense priority for interest attendant to trade debts.