Opinion ID: 771177
Heading Depth: 2
Heading Rank: 1

Heading: Applicability of 11 U.S.C. S 549(d)

Text: 9 Section 549(d) of the Bankruptcy Code states: 10 An action or proceeding under this section may not be commenced after the earlier of-- 11 (1) two years after the date of the transfer sought to be avoided; or 12 (2) the time the case is closed or dismissed. 13 11 U.S.C. S 549(d). The Trustee contends that her action is for the recovery of a tax refund pursuant to 26 U.S.C. S 7422 and therefore is governed by the statute of limitations for such suits, not by the two-year limitations period ofS 549(d). The IRC includes two limitations periods for refund actions, one for filing an administrative claim and one for filing a suit for refund. When a taxpayer claims a refund from the carryback of a NOL, the taxpayer must file an administrative claim within three years from the due date for filing the return for the taxable year of the NOL. See 26 U.S.C.S 6511(d)(2). The taxpayer must then file a suit for refund within two years from the date the IRS mails a notice of disallowance of the claim by certified or registered mail. See 26 U.S.C. S 6532(a). 14 In this case, the government concedes that the Trustee timely filed an administrative claim for recovery of a tax refund on May 24, 1991, and timely filed suit for a refund once the IRS mailed a notice of disallowance on September 24, 1992. The government points out, however, that, although the Trustee may have brought a timely tax refund suit, recovery of the refund is predicated upon exercise of her avoidance powers pursuant to 11 U.S.C. S 549. Unless the Trustee can avoid the Debtors' consent to the filing of a consolidated tax return and Maryland's election to relinquish the carryback period for the Debtors' NOLs, there is no basis for a tax refund based on those NOLs for the Debtors' estate. The statute of limitations applicable to refund actions, according to the government, is thus relevant only if the Trustee first can avoid, pursuant to S 549, an otherwise irrevocable election made under the provisions of 26 U.S.C. S 172. 15 The Trustee maintains that because this suit is an action for recovery of a tax refund under 26 U.S.C. S 7422 -not an action to recover a postpetition transfer pursuant to the bankruptcy laws -she cannot be barred by the statute of limitations under Bankruptcy Code S 549(d). Relying on Gibson v. United States (In re Russell), 927 F.2d 413 (8th Cir. 1991), the Trustee attempts to characterize her entire action as one for a tax refund and consequently to demonstrate the inapplicability of the S 549(d) time limitation. See id. at 417 (The theory underlying the refund suit may involve aS 549 unauthorized post-petition transfer, but that does not make it a S 549 suit, and therefore S 549's statute of limitations is inapplicable.). We do not find such reasoning persuasive. 16 The Trustee's action involves two distinct steps -first, avoidance of the Debtors' consent to the consolidated return and of Maryland's election to relinquish the NOLs via S 549; and second, recovery of a tax refund for the bankruptcy estate based on those NOLs under S 7422. In other words, the claim for a refund is futile unless the Trustee is successful in her affirmative claim to avoid the transfer under S 549. 7 See id. at 419 (Gibson, J., dissenting) (The critical failing of the court's argument is that a necessary predicate for the tax refund suit is the trustee's attempt to avoid the taxpayer's election to carry forward net operating losses. Without avoidance of this election, there is no tax refund claim.); cf. Smith v. Mark Twain Nat'l Bank, 805 F.2d 278, 292-94 (8th Cir. 1986) (holding that a certificate was not subject to turnover under 11 U.S.C. S 542 unless the trustee first exercised his avoidance powers under 11 U.S.C. S 549, and indicating that, absent estoppel, the S 549(d) statute of limitations would have been applicable). 17 Because this action cannot be characterized as one only for a tax refund when the refund claim itself is predicated upon the Trustee's affirmative exercise of her avoidance powers, the statute of limitations of S 549(d) is applicable here. Nor do considerations of public policy suggest otherwise once the avoidance claim and the refund claim are conceptually untangled. The two claims are separate and distinct, except that in this case the latter is predicated upon the validity of the former. Although the Debtors' estate's tax refund depends upon the Trustee's avoidance of the antecedent consent and election, we do not have license to conflate the two claims by applying the statute of limitations from the IRC to the Trustee's exercise of her authority under the bankruptcy laws. 18