994 F.

2d 763
72 A.F.T.R.2d 93-5179, 61 USLW 2795,
93-1 USTC P 50,344,
28 Collier Bankr.Cas.2d 1654,
Bankr. L. Rep. P 75,316

In re William E. RICHARDS, Debtor,

UNITED STATES of America, Appellee,
v.
William E. RICHARDS, Appellant.
No. 92-6092.

United States Court of Appeals,

Tenth Circuit.
May 28, 1993.

James L. Bentley, Del City, OK, for appellant.

Sara S. Holderness (Gary D. Gray, Tax Div., Dept. of Justice,
Washington, DC, and James A. Bruton, Acting Asst. Atty. Gen., of
counsel; Timothy D. Leonard, U.S. Atty., with her on the brief), for
appellee.
Before BRORBY and EBEL, Circuit Judges, and McWILLIAMS, Senior
Circuit Judge.
McWILLIAMS, Senior Circuit Judge.

This is a bankruptcy case involving successive petitions in bankruptcy. The

narrow issue to be resolved is whether the 240-day assessment period provided
for in 11 U.S.C. 507(a)(7)(A)(ii) (Supp.1992) stopped running during the
pendency of the first petition for bankruptcy. The Bankruptcy Court for the
Western District of Oklahoma held that the 240-day period was "suspended"
during the pendency of the first bankruptcy proceeding. The debtor appealed
the order of the Bankruptcy Court to the United States District Court for the
Western District of Oklahoma. On review, the District Court held that the 240day period was "tolled" during the pendency of the first bankruptcy proceeding.

In re Richards, 141 B.R. 751, 752 (W.D.Okla.1992). The debtor appeals to this
court the order of the District Court. Our jurisdiction is based on 28 U.S.C.
158(d) (Supp.1993). We affirm.
2

The underlying facts are not in dispute and the question posed in this appeal is
purely a question of law. On April 11, 1990, the IRS effectuated an assessment
against William E. Richards for unpaid and overdue income taxes for the years
1982-1986 in the amount of $26,654.65. Ninety-six days later, on July 16,
1990, Richards filed his first petition for bankruptcy under Chapter 13 of the
Bankruptcy Code.1 In that proceeding, the IRS filed a proof of claim for the
debtor's unpaid taxes. As far as we can tell from the record before us, the
debtor filed no objections to this proof of claim. The debtor's plan was
confirmed by the Bankruptcy Court on September 26, 1990, which presumably
called for the payment of Richards' unpaid taxes in full. However, on February
20, 1991, after having been in bankruptcy for 219 days,2 Richards voluntarily
dismissed his petition. Apparently this was prompted by the fact that Richards
failed to make the payments called for by the plan, which was due, at least in
part, to the fact that the IRS was asserting that under 11 U.S.C. 507(a)(7)(A)
(ii) its claim for unpaid taxes was entitled to priority status and was required to
be fully satisfied.

On April 11, 1991, 51 days after he had his first bankruptcy petition dismissed
by the Bankruptcy Court, Richards filed a second Chapter 13 petition. The IRS
again filed a proof of claim for income taxes owed by Richards for the years
1982-1986. Pursuant to 11 U.S.C. 507(a)(7)(A)(ii), the IRS listed its claim as
an unsecured priority claim, that statute granting seventh priority to tax claims
which were assessed against the debtor within 240 days immediately preceding
the filing of the bankruptcy petition. Richards filed an objection to the IRS's
proof of claim on the grounds that the claim was not entitled to priority under
11 U.S.C. 507(a)(7)(A)(ii) since the assessment on April 11, 1990, occurred
more than 240 days prior to the filing of the debtor's second petition for
bankruptcy on April 11, 1991.

As indicated, the Bankruptcy Court overruled Richards' objection to the IRS's

proof of claim in the second proceeding, holding that the 240-day period did
not run during the days the first bankruptcy proceeding was pending, and that
holding was, in effect, upheld by the District Court on appeal.

The question presented by the instant case is whether the 240-day assessment
period provided for in 11 U.S.C. 507(a)(7)(A)(ii) stopped running during the
pendency of the first bankruptcy proceeding. If it did not, then the IRS's proof
of claim filed in the second bankruptcy proceeding was well beyond the 240-

day period, i.e., from April 11, 1990, the date of the IRS's assessment, to April
11, 1991, the date of the filing of the second petition for bankruptcy, is 365
days.
6

However, if the 240-day period stopped running during the pendency of the
first bankruptcy proceeding, then the IRS's proof of claim in the second
bankruptcy proceeding was filed within 240 days from the date of the
assessment on April 11, 1990, i.e. the 96 days between the assessment and the
filing of the first bankruptcy petition on July 16, 1990, and the 51 days between
the date of the dismissal of the first bankruptcy petition on February 20, 1991,
and the filing of the second bankruptcy proceeding on April 11, 1991, makes a
total of 147 days.

11 U.S.C. 507(a)(7)(A)(ii), a copy of which is Attachment A hereto, provides

that an income tax which is assessed within 240 days before the filing of a
petition for bankruptcy shall have seventh priority. In this court the IRS
concedes, as it must, that there are no sections of the Bankruptcy Code which
expressly provide that in the case of successive petitions in bankruptcy, the
240-day period will not run during the pendency of the first bankruptcy.
However, the IRS contends that the Bankruptcy Court's order can be upheld on
other grounds. The IRS asserts that 11 U.S.C. 105(a) (Supp.1992), a copy of
which is Attachment B, grants the Bankruptcy Court the power to "issue any
order, process, or judgment that is necessary to carry out the provisions" of the
Bankruptcy Code and take "any action or mak[e] any determination necessary
to enforce or implement court orders or rules, or to prevent an abuse of
process."

In United States v. Energy Resources Co., 495 U.S. 545, 549, 110 S.Ct. 2139,
2142, 109 L.Ed.2d 580 (1990), the United States Supreme Court referred to the
"traditional understanding" that bankruptcy courts are courts of equity and that
under 11 U.S.C. 105(a) they may "issue any order, process or judgment
necessary or appropriate to carry out the provisions" of the Bankruptcy Code.
(emphasis added) In In re Western Real Estate Fund, Inc., 922 F.2d 592, 601
(10th Cir.1990), modified on other grounds, Abel v. West, 932 F.2d 898 (10th
Cir.1991), we also recognized the "supplementary equitable powers" granted
bankruptcy courts under 11 U.S.C. 105(a), but went on to state that such
powers, however, "may not be exercised in a manner that is inconsistent with
the other, more specific provisions of the [Bankruptcy] Code."

We agree with the IRS that 11 U.S.C. 105(a) is broad enough to permit the
Bankruptcy Court's order to suspend the 240-day assessment period in 11
U.S.C. 507(a)(7)(A)(ii) for the time Richards was in his first bankruptcy.

10

Section 507(a)(7)(A)(i) grants the government seventh priority for unpaid

income taxes if the tax liability dates less than three years from the date of
filing of the petition in bankruptcy. Section 507(a)(7)(A)(ii) also grants the
government seventh priority for unpaid income taxes assessed within 240 days
of the commencement of the bankruptcy petition. Thus, 507(a)(7)(A) limits
the priority status to more recent, but unpaid taxes, and denies priority status to
so-called "stale" tax claims. In so doing, Congress intended to give the
government the benefit of certain time periods to pursue its collection efforts.
By suspending the 240-day period during Richards' first bankruptcy, the
Bankruptcy Court ensured that the government was not deprived of the full
benefit of the 240 days within which it could pursue its post-assessment
collection remedies. This use of the equitable authority in 11 U.S.C. 105(a) is
not inconsistent with any specific provision of the Bankruptcy Code, and, in our
view, is consistent with the underlying philosophy of the Bankruptcy Code.

11

Further, the policy of ensuring that the government have adequate time to
collect unpaid taxes unimpeded by an intervening bankruptcy is reflected in a
series of tolling provisions. For example, 11 U.S.C. 108 suspends the statute
of limitations for actions outside of bankruptcy for the pendency of the current
bankruptcy proceedings. And, 26 U.S.C. 6503(h) of the Internal Revenue
Code suspends the time within which the government can collect a debtor's
taxes for the pendency of the bankruptcy proceedings and six months
thereafter.

12

The Bankruptcy Court's order suspending the 240-day period while Richards
was in his first bankruptcy fulfills and preserves Congress's intent to afford the
government certain time periods to pursue collection efforts, and at the same
time prevents the debtor from avoiding priority by prolonging the initial
bankruptcy proceeding.3 During Richards' first bankruptcy, the government
was prevented by the automatic stay provided for in 11 U.S.C. 362(a)
(Supp.1992) from attempting to collect, and it would seem to follow that the
240-day period should not run while Richards was in his first bankruptcy and
the government was under the automatic stay.

13

Although the reasoning of the courts which have addressed the precise present
problem varies, the results have consistently been the same, i.e. neither the
three-year period provided for in 11 U.S.C. 507(a)(7)(A)(i) nor the 240-day
period provided for in 11 U.S.C. 507(a)(7)(A)(ii) runs during the pendency of
the first of two successive bankruptcies. See, e.g., In re Linder, 139 B.R. 950,
952-53 (D.Colo.1992) (holding that 26 U.S.C. 6503(b) and (h) apply to the
Bankruptcy Code through 11 U.S.C. 108(c), thereby tolling the 240-day
assessment period in 11 U.S.C. 507(a)(7)(A)(ii)); In re West, 137 B.R. 1012,

1016 (D.Ore.1992) (holding that although the 240-day assessment period had
expired, In re Brickley, 70 B.R. 113 (Bankr.9th Cir.1986) required that the IRS
be given an additional six months in which to collect the tax debt); In re
Worthen, 137 B.R. 1016, 1020 (D.Ore.1992) (same); In re Deitz, 116 B.R. 792
(D.Colo.1990) (holding that 11 U.S.C. 108 and 26 U.S.C. 6503, in
combination, suspended the 240-day assessment period); In re Molina, 99 B.R.
792 (S.D. Ohio 1988) (holding that the three-year period in 11 U.S.C. 507(a)
(7)(A)(i) was suspended by the filing of the first bankruptcy petition); In re
Brickley, 70 B.R. 113 (Bankr.9th Cir.1986) (holding that 11 U.S.C. 108(c) in
conjunction with 26 U.S.C. 6503 suspended the three-year tax collection
period in 11 U.S.C. 507(a)(7)(A)(i) while the debtor's assets were protected
by the bankruptcy court).
14

Judgment affirmed.

ATTACHMENT A
507. Priorities
15
16

(a) The following expenses and claims have priority in the following order:

17

....

18

(7) Seventh, allowed unsecured claims of governmental units, only to the extent
that such claims are for--

19

(A) a tax on or measured by income or gross receipts--

20

(i) for a taxable year ending on or before the date of the filing of the petition
for which a return, if required, is last due, including extensions, after three
years before the date of the filing of the petition;

21

(ii) assessed within 240 days, plus any time plus 30 days during which an offer
in compromise with respect to such tax that was made within 240 days after
such assessment was pending, before the date of the filing of the petition; or

22

(iii) other than a tax of a kind specified in section 523(a)(1)(B) or 523(a)(1)(C)

of this title, not assessed before, but assessable, under applicable law or by
agreement, after, the commencement of the case;

23

11 U.S.C. 507(a)(7)(A) (Supp.1992).

23
ATTACHMENT B
105. Power of court
24
25

(a) The Court may issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title. No provision of this title
providing for the raising of an issue by a party in interest shall be construed to
preclude the court from, sua sponte, taking any action or making any
determination necessary or appropriate to enforce or implement court orders or
rules, or to prevent an abuse of process.

26

11 U.S.C. 105(a) (Supp.1992).

Chapter 13 sets forth a procedure whereby individual debtors with regular

income repay their creditors through an installment plan. For a Chapter 13 plan
to be confirmed, it must propose to pay in full any claim classified as a "priority
claim" under 11 U.S.C. 507, unless the creditor consents to different
treatment. 11 U.S.C. 1322(a)(2) (Supp.1993)

The Bankruptcy Court and the District Court note that 281 days passed while
Richards was before the Bankruptcy Court. This, however, appears to be either
a typographical error or a miscalculation

Under Richards' interpretation of the statute a debtor could, for example, file
for bankruptcy the day after the assessment, prolong the proceeding for 240
days, then voluntarily dismiss the procedure and file the next day a second
bankruptcy proceeding, in which event, according to Richards, though the
government's claim for unpaid taxes in the first bankruptcy had unsecured
priority status, in the second proceeding the government's claim for unpaid
taxes would be only an unsecured general creditor's claim with no priority
status. We doubt that such was Congress's intent