Severo v. Cir

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MICHAEL V. SEVERO; GEORGINA C. 
SEVERO,
No. 08-70817
Petitioners-Appellants,
v.  Tax Ct.
No. 6346-06L
COMMISSIONER OF INTERNAL
OPINION
REVENUE,
Respondent-Appellee.

Appeal from a Decision of the United States Tax Court
Argued and Submitted
October 9, 2009—Pasadena, California
Filed November 20, 2009
Before: Cynthia Holcomb Hall and Richard C. Tallman,
Circuit Judges, and David M. Lawson,* District Judge.
Opinion by Judge Hall
*The Honorable David M. Lawson, United States District Judge for the
Eastern District of Michigan, sitting by designation.
15429
SEVERO v. CIR 15431
COUNSEL
Michael V. Severo, Law Offices of Michael V. Severo, Los
Angeles, California, for the appellants.
Curtis C. Pett, Department of Justice, Tax Division, Washing-
ton, D.C., for the appellee.
15432 SEVERO v. CIR
OPINION
HALL, Circuit Judge:
Taxpayers Michael and Georgina Severo (“the Severos”)
appeal from the decision of the United States Tax Court grant-
ing summary judgment in favor of the Internal Revenue Ser-
vice (“IRS”) and permitting the IRS to proceed with its
collection action relating to the Severos’ 1990 tax liability.
We have jurisdiction pursuant to 26 U.S.C. § 7482(a)(1) and
affirm the decision of the Tax Court.
I. Background
The Severos’ 1990 joint tax return, after extensions, was
due October 15, 1991. They filed their tax return three days
late without paying most of their taxes. On November 18,
1991, the IRS assessed income tax liability of $63,499.00,
plus $4,180 for failure to pay estimated taxes and $2,339 for
failure to pay tax.
On September 28, 1994, the Severos filed for relief under
Chapter 11 of the Bankruptcy Code, which was converted into
Chapter 7 liquidation on September 12, 1995. Their first post-
conversion meeting of creditors occurred on November 9,
1995, and the Severos received their Chapter 7 discharge on
March 17, 1998.
The IRS first attempted to collect the 1990 tax liability on
November 28, 2004, when it levied against a $196 tax refund
claimed by the Severos on their 2003 California state income
tax return. By that time, the petitioners owed income taxes for
each year between 1994 and 2002, in addition to the tax liabil-
ity for 1990. On August 18, 2005, the Severos paid
$142,479.82 toward their tax delinquency, but at least some
part of their 1990 tax liability remained outstanding. On Sep-
tember 7, 2005, the IRS mailed to the Severos a notice of
intent to make a second levy on their property relating to their
SEVERO v. CIR 15433
outstanding 1990 federal income taxes, and on September 8,
2005 the IRS filed a notice of federal tax lien on all of the
Severos’ property and property rights.
Upon receiving notice of the federal tax lien, the Severos
requested a collection due process hearing. See 26 U.S.C.
§ 6320(a)(3)(B). At the time they filed their petition, the
Severos resided in Arcadia, California. During the hearing
with a Settlement Officer, the taxpayers argued that (a) the
IRS was precluded from placing a lien against the Severos’
property because the ten-year statute of limitations had
expired; and (b) the Severos’ 1998 bankruptcy discharge dis-
charged the petitioners’ tax debt to the IRS.
The Appeals Office of the IRS rejected the Severos’ argu-
ments and issued a notice of adverse determination on March
3, 2006. The taxpayers appealed to the United States Tax
Court, which granted summary judgment in favor of the Com-
missioner on November 15, 2007. The taxpayers unsuccess-
fully moved for reconsideration and then timely appealed to
this court.
II. Standard of Review
[1] We review the Tax Court’s grant of summary judgment
de novo. Talley Indus. Inc. v. Comm’r, 116 F.3d 382, 385 (9th
Cir. 1997). We review the Tax Court’s determination regard-
ing the applicability of the statute of limitations de novo, but
must be “cognizant of the established policy that limitations
statutes barring the collection of taxes otherwise due and
unpaid are strictly construed in favor of the Government.”
Richmond v. United States, 172 F.3d 1099, 1101 (9th Cir.
1999) (quotation omitted). We also review de novo the deter-
mination whether a debt is dischargeable. Barboza v. New
Form, Inc. (In re Barboza), 545 F.3d 702, 706 (9th Cir. 2008).
15434 SEVERO v. CIR
III. Discussion
A. Statute of Limitations
[2] The IRS generally has ten years from the assessment of
a tax to collect the outstanding liability. 26 U.S.C.
§ 6502(a)(1). However, the Internal Revenue Code contains
several provisions tolling the ten-year statute of limitations.
Of greatest relevance to this case, Section 6503(h)(2) pro-
vides:
The running of the period of limitations provided in
section 6501 or 6502 on the making of assessments
or collection shall, in a case under title 11 of the
United States Code, be suspended for the period dur-
ing which the Secretary is prohibited by reason of
such case from making the assessment or from col-
lecting and—
(2) for collection, 6 months thereafter.
26 U.S.C. § 6503(h)(2). Under this provision, the period of
limitations for IRS collection is tolled for the period of the
bankruptcy court’s automatic stay, during which the Bank-
ruptcy Code prevents the IRS from collecting a tax liability,
plus an additional six months.
[3] Section 362(a) of the Bankruptcy Code provides an
automatic stay on eight types of actions, including “any act to
collect, assess, or recover a claim against the debtor that arose
before the commencement of the case under this title.” 11
U.S.C. § 362(a)(6). Section 362(c) establishes the duration of
this automatic stay in bankruptcy cases:
(1) the stay of an act against property of the estate
under subsection (a) of this section continues until
such property is no longer property of the estate;
SEVERO v. CIR 15435
(2) the stay of any other act under subsection (a) of
this section continues until the earliest of—
(A) the time the case is closed;
(B) the time the case is dismissed; or
(C) if the case is a case under chapter 7 of
this title concerning an individual or a case
under chapter 9, 11, 12, or 13 of this title,
the time a discharge is granted or denied.
11 U.S.C. § 362(c). An act against the property of the bank-
ruptcy estate is stayed until it is no longer part of the estate,
but an act against the debtor—which is not an “act against
property of the estate”—dissolves immediately upon the
bankruptcy discharge order. Under Section 362(c)(2), the
automatic stay will generally not end until the Bankruptcy
Court issues its discharge order, and the period for collection
is tolled for another six months thereafter. See Richmond, 172
F.3d at 1102.
[4] In this case, the IRS assessed the Severos’ 1990 tax lia-
bility on November 18, 1991, and on September 8, 2005 (thir-
teen years, nine months and twenty-one days later) it filed a
federal tax lien. The Severos filed for bankruptcy on Septem-
ber 28, 1994, triggering Section 362(a)(6)’s automatic stay
against IRS collection of their 1990 tax liability. Because the
tax lien was not limited to property of the bankruptcy estate
but rather applied to any and all of the Severos’ property
interests, that stay remained in effect until the March 17, 1998
discharge order. The Severos’ bankruptcy proceedings lasted
three years, five months, and twenty days, and during this
period the IRS was unable to collect their 1990 tax liability.
See West v. United States (In re West), 5 F.3d 423, 425 n.3
(9th Cir. 1993) (“The IRS may not collect tax claims against
a debtor in bankruptcy unless it obtains relief from the auto-
matic stay.”). Because the statute of limitations was tolled
15436 SEVERO v. CIR
during this period plus an additional six months, see 26
U.S.C. § 6503(h)(2), the IRS had thirteen years, eleven
months, and twenty days—i.e. until November 7, 2005—in
which to collect the taxes assessed on November 18, 1991.
Because the collection actions challenged in this case all took
place prior to November 7, 2005, they were not barred by the
statute of limitations.
The Severos argue that the above calculation is incorrect
and that, under this court’s decision in McAuley v. United
States, 525 F.2d 1108 (9th Cir. 1975), the limitations period
was only tolled from the initiation of Chapter 11 proceedings
on September 28, 1994 until one year following the first
meeting of creditors on November 9, 1995. They claim that
using these benchmarks, the period of limitations expired on
August 4, 2003, prior to the IRS collection actions. We do not
accept the Severos’ calculations, but that is of no consequence
because our decision in McAuley is not controlling.
Prior to the enactment of Section 6503(h) as part of the
Bankruptcy Act of 1980, bankruptcy cases were governed by
the more general tolling provision contained in Section
6503(b), which stays IRS collection during “the period the
assets of the taxpayer are in the control or custody of the
court.” 26 U.S.C. § 6503(b). It was this provision that was at
issue in McAuley. Because the determination of whether tax-
payers’ assets are “in the control or custody of the court”
would hinge upon “complex factual questions,” the court
adopted a clear-cut approach that suspended collection until
six months after the date of the first creditors meeting (when
creditors’ claims generally must be filed) and for an addi-
tional six months thereafter. McAuley, 525 F.2d at 1112-14.
The McAuley court selected the creditors’ meeting as the
appropriate measuring point, because this would be when
creditors knew for sure which assets were included in the
bankruptcy estate, and collection efforts thereafter would not
be hindered due to the uncertainty of whether assets were and
were not part of the estate.
SEVERO v. CIR 15437
Section 6503(h)(2) was enacted after McAuley and, unlike
Section 6503(b), specifically addresses the bankruptcy con-
text. It is therefore the controlling statute. See Mangano v.
United States, 529 F.3d 1243, 1247 (9th Cir. 2009) (applying
the maxim that “conflicting statutes should be interpreted so
as to give effect to each but to allow a later enacted, more spe-
cific statute to amend an earlier, more general statute” (cita-
tion omitted)). Section 6503(h)(2), unlike 6503(b),
specifically ties the tolling of the statute of limitations for IRS
collection to the automatic stays contained in the Bankruptcy
Code. Because, as explained above, Section 362(a)(6) of the
Bankruptcy Code stays collection actions against a debtor
during the pendency of the debtor’s bankruptcy proceedings,1
the IRS’s collection actions in this case were timely.
B. Whether the 1990 Tax Liability Was Discharged
Section 523 of the Bankruptcy Code addresses the dischar-
geability of debt in bankruptcy proceedings. This section
excepts certain individual debts from discharge, including cer-
tain taxes:
(1) for a tax or a customs duty —
(A) of the kind and for the periods specified
in section 507(a)(3) or 507(a)(8) of this
title, whether or not a claim for such tax
was filed or allowed;
1
The Severos argue, citing to a footnote in McAuley, that because their
bankruptcy contained no assets, no stay should have been entered and,
therefore, the statute of limitations should not have been suspended at all.
525 F.2d at 1114 n.7. However, this dicta from McAuley since has been
limited to bankruptcies that have no assets at the outset of the bankruptcy
case. See United States v. Turner, 625 F.2d 328, 329 (9th Cir. 1980). The
record does not support a finding that the bankruptcy estate contained no
assets. At the very least, the Severos owned a house.
15438 SEVERO v. CIR
(B) with respect to which a return, or equiv-
alent report or notice, if required—
(i) was not filed or given; or
(ii) was filed or given after the date on
which such return, report, or notice was
last due, under applicable law or under
any extension, and after two years before
the date of the filing of the petition; or
(C) with respect to which the debtor made
a fraudulent return or willfully attempted in
any manner to evade or defeat such tax.
11 U.S.C. § 523(a)(1) (emphasis added).
Section 507 referenced in section 523(a)(1) in turn
describes the priority of certain claims in the distribution of
the debtor’s assets. Section 507(a) of the statute gives the
eighth priority to “allowed unsecured claims of governmental
units,” including:
(A) a tax on or measured by income or gross receipts
for a taxable year ending on or before the date of the
filing of the petition—
(i) for which a return, if required, is last
due, including extensions, after three years
before the date of the filing of the petition.
11 U.S.C. § 507(a)(8)(A)(i).
[5] As summarized by the Supreme Court, “[i]f the IRS has
a claim for taxes for which the return was due within three
years before the bankruptcy petition was filed, the claim
enjoys eighth priority under § 507(a)(8)(A)(i) and is nondis-
chargeable in bankruptcy under § 523(a)(1)(A).” Young v.
SEVERO v. CIR 15439
United States, 535 U.S. 43, 46 (2002). Because the Severos
filed their bankruptcy petition on September 28, 1994, less
than three years after their 1990 taxes were due on October
15, 1991, their 1990 tax liability was not discharged.
The Severos argue that their 1990 tax liability indeed was
discharged because it does not fall within a separate exception
for bankruptcy discharges under section 523(a)(1)(B)(ii).
Under that provision, late-filed taxes are not exempt from dis-
charge orders if the return was filed within two years of the
bankruptcy petition filing. Because they filed their 1990 tax
returns on October 18, 1991 (three days late), and more than
two years before filing for bankruptcy, they do not fall within
that exception to discharge. However, just because they do
not fall within the section 523(a)(1)(B)(ii) exception does not
preclude falling within the section 523(a)(1)(A) exception.2
Section 523(a)(1)’s exceptions are phrased in the disjunctive,
and the Tax Court therefore correctly held that the Severos’
1990 tax liability was not discharged. See Young, 535 U.S. at
49 (describing Sections 523(a)(1)(A) and (a)(1)(B)(ii) as
“complementary”).
2
The Severos cite to one case in which a court held that a late-filed tax
return filed more than two years before the bankruptcy petition is not
excepted from discharge, despite falling within the terms of Section
507(a)(8). See In re Doss, 42 B.R. 749 (Bankr. E.D. Ark. 1984). However,
Doss has been widely criticized, see Vitaliano v. California (In re Vitali-
ano), 178 B.R. 205, 208 (B.A.P. 9th Cir. 1995) (collecting cases), and
other courts addressing the interplay between Sections 523(a)(1)(B)(ii)
and 507(a)(8)(A) have held that late-filed tax returns, filed more than two
years but less than three years pre-petition, are not excepted from dis-
charge under 11 U.S.C. § 523(a). See Etheridge v. Illinois, 127 B.R. 421(Bankr. C.D. Ill. 1989); cf McElfresh v. United States (In re McElfresh),
No. 96-5736, 1996 WL 628086 (Bankr. S.D. Ohio 1996) (“[I]if a tax lia-
bility is dischargeable under one subsection [of section 523(a)(1)] but not
dischargeable under another subsection, the tax liability is not discharge-
able.”).
15440 SEVERO v. CIR
IV. Conclusion
[6] For the foregoing reasons, we affirm the Tax Court’s
grant of summary judgment to Respondent. The IRS’s collec-
tion efforts were not barred by the statute of limitations, and
the Severos’ 1990 tax liability was not discharged by their
bankruptcy proceedings.
Affirmed.