subject to the commoner=s statute of limitations. Understanding that the federal government should
not be restricted by a state statute of limitations, this doctrine provides that the government may have
expanded limitations. But, one court determined that a trustee is not the federal government; and,
concluded that the trustee would not be similarly immune to the state=s statute of limitations.23 After
reviewing the doctrine, and cases recited on the same, the court concluded that, ASection 544(b) is
meant to incorporate state law not subordinate it.@24 And, under a policy standpoint, the court further
concluded that if a trustee or debtor in possession could recover transfers 10 years prior to the petition,
the four-year look back period of the UFTA would be eviscerated.25
Courts, understanding all of the above recited reasons denying the expansion of clawback provisions,
nevertheless have allowed 11 U.S.C. ‘ 544(b)=s Aavoidable under applicable law@ clause to be
incorporated by panel trustees for unsecured United States creditors, even the IRS.
The courts initially require the trustee to find the Agolden creditor@, which is the United States.
Interestingly, finding the United States creditor often is not difficult. In most cases, the IRS makes
this discovery relatively easy. The United States Treasury is extremely resourceful in filing proofs of
claim for tax debt in a bankruptcy estate.26 Upon that proof of claim being filed, the trustee will have
received the Agolden creditor@ and proof that a debt is owed to the United States.
Once proof is provided to show that there is a debt to the United States, the trustee is permitted to file
actions seeking recovery of fraudulent transfers dating back six years. The trustee is commencing a
Aderivative@ action by stepping into the shoes of a creditor B the United States. In short, as long as
the United States is a creditor, actions avoiding fraudulent transfers may be permitted under 11 U.S.C.
544(b)(1) by incorporating 28 U.S.C. ‘ 3306.27
The IRS isn=t the only federal creditor which may trigger the FDCPA. Alternative unsecured
United States creditors may include the Small Business Administration28 or debts associated with
environmental violations.29 Because of such, review of federal liabilities become important for
expanding a panel trustee=s avoidance powers. The difference between the Bankruptcy Code=s
clawback of two years30 or the state limitations clawback of (usually) four years31 as opposed the
FDCPA six-year limitations is significant.
How About Ten Years?
The IRS, unlike the rest of the United States, has a 10-year statute of limitations B for assessment
collection.32 In fact, that 10-year period can actually be extended if various arrangements have been
made prior in time by the taxpayer with the IRS which included installments or other releases or
concessions by the Internal Revenue Service.33
Trustees have found success in incorporating the IRS=s ten-year period under ‘ 544(b).34 Presently,
the majority of trustees are prevailing on the issue of statute of limitations.35 And, one court advises
trustees to look into this issue. AThe IRS is a creditor in a significant percentage of bankruptcy cases.
The paucity of decisions on the issue may simply be because bankruptcy trustees have not generally
realized that this longer reach‑back weapon is in their arsenal. If so, widespread use of ‘544(b) to avoid
state statutes of limitations may occur and this would be a major change in existing practice.@36
CONSUMER BANKRUPTCY JOURNAL
National Association of Consumer Bankruptcy Attorneys