TAX DISCHARGE ? BEWARE EQUITABLE TOLLING
Prevention and Consumer Protection Act of 2005 (“ BAPCA ”).
§§ 105 and 108 join the party
Subjective equitable tolling principles are not the only source of guiding principles in connection with tolling in this context . Many of the cases addressing the issue of tolling the 2-year period also invoke certain provisions of the Bankruptcy Code , in particular § 105 , Power of the Court , and § 108 , Extension of time . Those sections have been cited by some as the source of equitable tolling , but some have cited those sections as separate authority for tolling . And , an argument can be made that § 108 ( c ) applies only to non-bankruptcy issues ; “ Under the plain language of section 108 ( c ), . . . that suspension applies only to nonbankruptcy law and nonbankruptcy proceedings . Absent some other basis for tolling the section 507 time limit , the Quenzers ’ tax liability . . . must be discharged .” 14
“… courts of appeal in the Third , Seventh , Ninth and Tenth Circuits toll or enlarge the time periods for the nondischargeability of taxes in § 507 ( a )( 8 ) ( A ) based on a prior bankruptcy . Among these courts there are two theories — some rely on the extension of time provisions in § 108 ( c ) of the Bankruptcy Code ; others invoke the equitable powers of bankruptcy courts under § 105 ( a ).” 15
If the IRS sleeps
Some opinions employ “ equitable tolling ,” but rather ascribe their tolling rulings on what may or may not toll the time-periods , based on the concept of “ sleeping on its rights by not trying to collect during the time period in question ”: The court in Putnam v . Internal Revenue Serv . 16 explained :
The lookback period is a limitations period because it prescribes a period within which certain rights ( namely , priority and nondischargeability in bankruptcy ) may be enforced . . . . Old tax claims -- those pertaining to returns due more than three years before the debtor filed the bankruptcy petition -- become dischargeable , so that a bankruptcy decree will relieve the debtor of the obligation to pay . The period thus encourages the IRS to protect its rights -- by , say , collecting the debt . . . or perfecting a tax lien . . . before three years have elapsed . If the IRS sleeps on its rights , its claim loses priority and the
debt becomes dischargeable . Thus , as petitioners concede , the lookback period serves the same “ basic policies [ furthered by ] all limitations provisions : repose , elimination of stale claims , and certainty about a plaintiff ’ s opportunity for recovery and a defendant ’ s potential liabilities .”
Another case , 17 ruling on behalf of the debtor , explains :
“ … the principle which underlies all equity rulings is embodied in the maxim `vigilantibus non dormientibus aequitas subvenit ,’ that is , equity aids the vigilant , not those who slumber on their rights .” 18 (“ The arrogant conduct by the IRS in this case cannot be condoned by the Court )”. 19
Clean hands
Equitable tolling was applied by the Supreme Court in Young v . United States . 1 Young provided that the 3-year period is tolled by the debtor ’ s previous bankruptcy .
A governmental taxing entity may interject into the deliberation the concept of Clean Hands ( who would seek fairness should first do fairness ).
One court said “ a fundamental tenet for the use of equitable powers is that one who seeks equity must do equity ”). Equitable tolling is not a right but a potential remedy that can be granted after consideration of the facts …” 20
Add 90 days ? 6 Months ?
If the 2-yr period was tolled for some time by a prior tolling event , a court said ““ a fundamental tenet for the use of equitable powers is that one who seeks equity must do equity ”). Equitable tolling is not a right but a potential remedy that can be granted after consideration of the facts …” 21
The hypothetical add-on for a tolled 2-year period , whether 90 days , 6 months , or some other applicable add-on , has not been clarified . Hence , that side-issue remains to be addressed by the courts .
Pre-BAPCPA opinions
One thing that stands out as one examines the cases that have involved equitable tolling is that a great many of the opinions pre-date BAPCPA 2005 . The author would like to see some discussion in the cases that have come down since the Reform Act , to identify any reason those same cases , if published under the Reform Act , would lead to a different result .
National Association of Consumer Bankruptcy Attorneys Summer 2017 CONSUMER BANKRUPTCY JOURNAL 19