IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________________
No. 98-10814
_________________________________
In the Matter of: BILLY G. ARMSTRONG,
Debtor
_________________________________
UNITED STATES OF AMERICA,
Appellant,
v.
WILLIAM T. NEARY,
Appellee.
---------------------------------
Appeal from the United States District Court
for the Northern District of Texas
---------------------------------
March 8, 2000
Before POLITZ, DeMOSS and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
The United States of America, on behalf of the Internal
Revenue Service [IRS], appeals from the district court’s
affirmation of a bankruptcy decision granting the trustee of
debtor’s estate a refund of taxes. At issue in this case is
which statute controls when the statute of limitations for filing
a tax refund claim, contained in the Internal Revenue Code, and
the turnover provision for Chapter 7 bankruptcy appear to be in
conflict. On the narrow and unusual set of facts before us, we
find that the Internal Revenue Code provisions control in this
case and therefore reverse the judgment of the court below.
I. Facts and Procedural History
Taxpayer Billy Armstrong filed his 1984 federal tax return
in September of 1985. That return resulted in an assessment
against him for the amount of $140,997.80. Armstrong signed IRS
form 872-A on March 10, 1988, which extended the time within
which the IRS could assess additional taxes against him for the
1984 tax year. The IRS executed the form on March 14. By the
terms of the form, the agreement would terminate with the
assessment of additional taxes. Form 872-A provides that the
taxpayer may file a claim for refund at any time up to six months
after the extended assessment period ends.
Armstrong filed for bankruptcy under Chapter 11 on September
1, 1989. The extended assessment period for the 1984 tax year
was still open at that time. The IRS filed a proof of claim for
unpaid taxes, including those thought owed for the 1984 tax year,
on October 5, 1989. The bankruptcy court converted Armstrong’s
action into a Chapter 7 proceeding on November 14, 1989. The
bankruptcy court discharged Armstrong from bankruptcy on March
26, 1990, although the Chapter 7 proceeding itself continued.
Taking the view that his discharge lifted a stay on
assessment against Armstrong, the IRS made an additional
assessment following notice of deficiency in the amount of
$532,726 for the 1984 tax year on January 2, 1991. The IRS
levied and collected $140,034.58 against that amount. According
--2–
to form 872-A, Armstrong would have had six months, or until July
2, 1991, to file a claim for a full refund of taxes paid for
1984. Neither Armstrong nor the bankruptcy trustee filed a
refund claim within that six-month period.
On November 14, 1991, the IRS filed an amended proof of
claim against the bankruptcy estate of which $ 338,510 pertained
to the 1984 tax year. The bankruptcy court denied the IRS proof
of claim relating to 1984 taxes in a judgment dated March 21,
1995.
In May of 1993, Armstrong filed an adversary proceeding
against the United States in which he substantiated losses which,
when carried back to the 1984 tax year, reduced his 1984 tax
liability to $14,758. Armstrong therefore argued that he was
entitled to a refund of the $140,034.58 which he had paid for
1984 taxes since his discharge from bankruptcy. The United
States argued that Armstrong had failed to satisfy the procedural
requirements contained in I.R.C. §§ 7422(a) and 6511, governing
the filing of refund claims.
In March of 1995, Armstrong filed an administrative claim
for refund with respect to the 1984 taxes. The IRS conceded that
Armstrong was entitled to any payments made for the 1984 tax year
in the two years prior to filing the administrative claim, under
I.R.C. § 6511(b)(2)(B). The government further stipulated that
with the carryback of operating losses, Armstrong’s adjusted tax
liability for 1984 was only $14,758. The bankruptcy court found
--3–
that Armstrong’s 1993 initiation of an adversary proceeding
constituted an informal refund claim and that he was therefore
entitled to refund of all money paid in the two years previous to
the commencement of that action. Armstrong therefore received a
refund of $140,034.58 – i.e. the amount collected post-discharge
for his 1984 taxes.
On December 20, 1996, the trustee in Armstrong’s Chapter 7
bankruptcy1 filed an administrative claim, seeking a refund of
the amounts in excess of the recently stipulated 1984 tax
liability that Armstrong had paid prior to filing for bankruptcy.
That amount totaled $126,240. On April 22, 1997, the trustee
filed an adversary proceeding against the United States in the
bankruptcy court, seeking the same refund as in his
administrative claim. The United States moved to dismiss or,
in the alternative, for summary judgment on the grounds that the
trustee’s refund claim was filed too late, i.e. after July 2,
1991 (six months after the final assessment of taxes against
Armstrong for the 1984 tax year). The trustee argued that he was
not bound by the statute of limitations for refund claims in the
Internal Revenue Code because of the automatic stay provisions
under the Bankruptcy Code, and that even if his refund claim was
not timely, the automatic turnover provision in the Bankruptcy
Code would require the government to refund the overpaid amount
1
The trustee at the time was Dale L. McCullough. He has since been
succeeded in that role by appellee here, William T. Neary.
--4--
once that amount was certain.
The bankruptcy court held that the trustee had not filed a
timely refund claim but that the estate was nonetheless entitled
to a refund under the automatic turnover provision in 11 U.S.C. §
542(a). The United States appealed to the district court, which
affirmed the judgment of the bankruptcy court. The United States
appeals.
II. Analysis
The facts in this case are not in dispute. The primary
issues on appeal are whether the trustee’s refund claim was in
fact timely given the automatic stay provision in the Bankruptcy
Code and whether the automatic turnover provision at 11 U.S.C. §
542(a) obviated the need for a refund claim once the amount of
the debtor’s tax overpayment had become certain. Appellee raises
the additional issues of whether the filing of a proof of claim
for 1984 taxes by the IRS exempted him from having to file a
refund claim and whether his refund claim was a compulsory
counterclaim and therefore not barred by any statute of
limitations.
We apply the same standards of review to the bankruptcy
court’s findings of fact and conclusions of law as those applied
by the district court. See Kennard v. MBank Waco, N.A. (In re
Kennard), 970 F.2d 1455, 1457 (5th Cir. 1992). Because the
issues on this appeal are questions of law, we review the
--5--
judgment of the bankruptcy court de novo. See Traina v. Whitney
Nat’l Bank, 109 F.3d 244, 246 (5th Cir. 1997).
A. Whether the trustee’s refund claim was timely.
The IRS argues and the bankruptcy court found that the
trustee’s refund claim, filed in 1996, was outside the statute of
limitations established by I.R.C. § 6511. The trustee argues
that the claim was timely because the automatic stay provision in
the Bankruptcy Code in combination with the agreement between
Armstrong and the IRS to extend the time for assessment of 1984
taxes acted to toll the statute of limitations. We agree with
the IRS and the bankruptcy court on this point and find that the
trustee’s claim was not timely under I.R.C. § 6511.
I.R.C. § 6511 dictates the time frame for filing of refund
claims. I.R.C. § 6511(a) provides that a refund claim must be
filed within three years of the time the return was filed or
within two years from the time the tax was paid. I.R.C. §
6511(b)(1) provides that no refund shall be allowed or made
unless a claim was filed within the limits set up by § 6511(a).
I.R.C. § 6511(c) supplies an addendum to the filing deadlines:
in the case of an agreement to extend the time for additional
assessments, the time for filing will not expire before six
months after the termination or expiration of the agreement.
Thus, according to § 6511, the time for filing a full refund
--6--
claim in the present case would expire six months after the
termination of the agreement contained in Form 872A, or July 2,
1991. Under § 6511, Armstrong could file a refund claim after
that date in order to recover any taxes paid within the two years
prior to filing the claim. The bankruptcy court construed
Armstrong’s 1993 filing of an adversary proceeding as a an
informal refund claim and therefore awarded him the taxes paid
within two years prior to that filing.
The trustee contends that while the statute of limitations
for filing a full refund claim may have run for Armstrong
individually on July 2, 1991, the automatic stay imposed at the
beginning of a bankruptcy proceeding allows a trustee to file for
a refund of pre-petition taxes at any time during the pendency of
the bankruptcy case. The automatic stay provision in the
Bankruptcy Code, 11 U.S.C. § 362, would thus create an implied
exception to the time limits set out in I.R.C. § 6511.
We agree with the United States and the bankruptcy court
that the trustee’s claim was not timely under I.R.C. § 6511.
Section 6511 contains very specific terms dictating the
circumstances under which a refund claim may be filed. Other
terms tolling the statute should not be implied into it without
evidence of legislative intent. See United States v. Brockamp,
519 U.S. 347, 350-53 (1997) (holding that no implied equitable
tolling term may be read into § 6511 because the language of the
--7--
statute and Congressional intent are to the contrary); see also
Firsdon v. United States, 95 F.3d 444 (6th Cir. 1996)(holding
that the statute of limitations contained in § 6511 is not tolled
during the pendency of the bankruptcy suit). The trustee did not
file his refund claim within the parameters of § 6511 and it was
therefore not timely under that section.
Furthermore, the automatic stay imposed by the Bankruptcy
Code does not operate in the manner that the trustee suggests.
The automatic stay contained in Bankr. Code § 362 would prohibit
further action against property in the bankruptcy estate by the
IRS. The stay would not, however, extend indefinitely the time
for a trustee to take action against the IRS.
According to the trustee’s interpretation of § 362, the
statute of limitations contained in I.R.C. § 6511 would be tolled
until the conclusion of the bankruptcy. Yet the automatic stay
is not designed to suspend all statutes of limitations applicable
to the trustee, see Gordon v. Whitmore (In re Merrick), 175 B.R.
333, 337 n. 6 (B.A.P. 9th Cir. 1994) (listing cases); AMS Realty,
Inc. v. Tao (In re AMS Realty, Inc.), 114 B.R. 229 (Bankr. C.D.
Cal. 1990), and the trustee points to no controlling authority
showing that I.R.C. § 6511, in particular, should be overridden
by Bankr. Code § 362. In absence of such a demonstration, we
conclude that Bankr. Code § 362 does not toll the statute of
--8--
limitations for the filing of a refund claim by a bankruptcy
trustee under I.R.C. § 6511.2 See Bugge v. United States (In re
Bugge), 99 F.3d 740, 745 (5th Cir. 1996) (“We decline judicially
to engraft further exceptions to the statute of limitations
beyond those provided by Congress”).
B. Whether the IRS was compelled to surrender the debtor’s
tax overpayments to the bankruptcy estate by 11 U.S.C. §
542(a).
The trustee contends, and the bankruptcy court agreed, that
it was unnecessary for him to file a refund claim under I.R.C. §
6511 because the automatic turnover provision in the Bankruptcy
Code required the IRS to return Armstrong’s pre-filing
overpayment to the trustee as soon as the amount of overpayment
became certain. According to this theory, the IRS would have had
2
We note that the Bankruptcy Code provides a reprieve from the
statute of limitations clock for both debtor and trustee once bankruptcy
has been filed. 11 U.S.C. § 108 extends the time in which a trustee or
debtor may commence an action or file a pleading, etc. for the later of
the expiration of the statute of limitations or two years after filing
for bankruptcy for commencing an action under § 108(a) and for sixty
days after filing for the actions indicated by § 108(b). The trustee’s
adversary proceeding, commenced in 1997, occurred after both the
expiration of the statute of limitations contained in I.R.C. § 6511 and
any extension of time granted by Bankr. Code § 108. (Bankr. Code § 108
does not apply to the filing of administrative claims under the Internal
Revenue Code. See TLI, Inc. v. United States, 100 F.3d 424, 427
(5th Cir. 1996)).
--9--
to turn over the overpayment when it entered the stipulation with
Armstrong in 1995. This is so even though I.R.C. § 6511(b)(2)(A)
states in mandatory terms that “no credit or refund shall be
allowed” unless the limitations period contained in that section
is adhered to.
The argument on this issue appears to present a question of
first impression in this Circuit and on which there is no direct
instruction from the Supreme Court. We must base our decision
upon the statutory language in question therefore, looking to the
interaction of the statutory schemes apparently in conflict. One
basic principle of statutory construction is that where two
statutes appear to conflict, the statute addressing the relevant
matter in more specific terms governs. See Crawford Fitting Co.
v. J.T. Gibbons, Inc. 482 U.S. 437, 445 (1987) (superseded by
statute on other grounds); Mennor v. Fort Hood Nat’l Bank, 829
F.2d 553, 557 (5th Cir. 1987). A similar principle applies to
interpretation of various sections of the same enactment. A
provision must be considered in context, see United States v.
Deal, 508 U.S. 129, 132 (1993); Reich v. Arcadian Corp., 110 F.3d
1192, 1195-96 (5th Cir. 1997), and the more specific provision
within a statute prevails. See Nobleman v. American Sav. Bank
(In re Nobleman), 968 F.2d 483, 487-88 (5th Cir. 1992). We can
only reason by analogy from decided cases touching on the refund
--10--
provisions of § 6511 and the automatic turnover provision of 11
U.S.C. § 542(a).3
The bankruptcy court held that normally, the trustee would
be bound by the statute of limitations for refund claims under
I.R.C. § 6511 but that where, as here, the amount of overpayment
has been agreed upon the refund becomes “liquidated” and, as a
sum certain paid in error by the debtor before filing for
bankruptcy, must be turned over to the trustee automatically as
property of the estate under 11 U.S.C. § 542(a). While this is
admittedly a close case and without directly controlling
precedent, we disagree with the bankruptcy court’s holding that a
stipulation by the government to the amount of overpayment
exempts the trustee from the filing requirements in I.R.C. §
3
The Eighth Circuit recently considered a case raising the
question of whether a bankruptcy trustee must comply in all
circumstances with I.R.C. §§ 6511 and 7422. See United States v.
Kearns, 177 F.3d 706 (8th Cir. 1999). The Eighth Circuit panel
held that §§ 6511 and 7422 did not deprive a bankruptcy court of
jurisdiction to determine tax liability for a particular year where
a live proof of claim by the IRS was before it and consideration of
an alleged later repayment of embezzled funds was necessary to
decide the validity of the proof of claim. While we express no
opinion on our sister court’s determination of the merits of that
case, we do note that its holding was limited to its narrow set of
facts. More importantly, there was a live claim by the IRS before
the bankruptcy court and according to the panel’s interpretation of
the facts, it would be “without purpose and irrational” to deprive
the bankruptcy court of jurisdiction to consider the deduction
claims. See id. at 711. The decision did not address the
relationship between I.R.C. § 6511 and Bankr. Code § 542(a). The
Eighth Circuit’s holding, thus limited to its unique facts, does
not inform our resolution of the case before us.
--11--
6511.
Bankruptcy Code § 542(a) requires those in possession of
property belonging to the bankruptcy estate to turn over that
property to the trustee.4 The United States argues that § 542(a)
is inapplicable to the refund amount in issue because it does not
constitute property of the estate. The government contends that
monies paid into the treasury become property of the United
States and are therefore different from the kinds of property
normally subject to turnover, in which the current possessor only
holds a lien or other such interest. See United States v. Nordic
Village, 503 U.S. 30, 39 (1992) (abrogated by statute on other
grounds); United States v. Whiting Pools, Inc., 462 U.S. 198, 211
(1983) (seizure and levy do not determine IRS rights to the
property but bring that property within the Service’s custody).
We need not base our decision on whether money in the
Treasury should be subject to turnover, because § 542(a) should
not be construed in isolation and other portions of the
bankruptcy code anticipate use of the refund mechanism under
I.R.C. § 6511. Bankruptcy Code § 505(a)(2)(B) provides, “The
4
11 U.S.C. § 542(a) provides: “Except as provided in
subsection (c) or (d) of this section, an entity, other than a
custodian, in possession, custody, or control, during the case, of
property that the trustee may use, sell, or lease under section 363
of this title, or that the debtor may exempt under section 522 of
this title, shall deliver to the trustee, and account for, such
property or the value of such property, unless such property is of
inconsequential value or benefit to the estate.”
--12--
court may not . . . determine any right of the estate to a tax
refund, before the earlier of 120 days after the trustee properly
requests such refund from the governmental unit from which such
refund is claimed or a determination by such governmental unit of
such request.”[emphasis added]. A proper request under the
Internal Revenue Code requires compliance with §§ 7422 and 6511.
See United States v. Ryan (In re Ryan), 64 F.3d 1516, 1520-21
(11th Cir. 1995).
Bankruptcy Code § 108 provides for a temporary extension of
statutes of limitation to allow the trustee or debtor additional
time to regroup after bankruptcy has been filed. It does not
anticipate a permanent suspension of all statutes of
limitations.5 See TLI, Inc. v. United States, 100 F.3d 424 (5th
Cir. 1997) (§ 108 does not toll statute for filing of
administrative claims); see e.g., Hussmann v. Trans World
Airlines, Inc., 169 F.3d 1151, 1153-54 (8th Cir. 1999); Beck v.
5
The trustee cites to Century Hotels v. United States, 952
F.2d 107, 112 (5th Cir. 1992), and its passing reference to the
“supremacy” of the Bankruptcy Code. That decision’s holding, that
the cause should be remanded for consideration of whether the
bankruptcy estate had a cognizable interest in seized funds, is
inapposite here. First, a taxpayer retains a continuing property
interest in seized items, including funds, as opposed to money paid
directly into the Treasury. The property interest in the latter is
bounded by I.R.C. § 6511. Second, Century Hotel’s reference to the
“supremacy” of the Bankruptcy Code relates to the district court’s
total failure to consider bankruptcy remedies in the proceedings
below and does not, as dicta, create a sweeping and absolute rule
in this Circuit.
--13--
Deloitte & Touche, 144 F.3d 732, 736 (11th Cir. 1998).
Furthermore, § 6511 is the more specific provision and therefore
governs: § 542(a) is a provision of general application,
relating to all property in which the estate has a continuing
interest, while § 6511 creates and circumscribes a taxpayer’s
(and therefore the bankruptcy estate’s) interest in a refund.
See Mennor v. Fort Hood Nat’l Bank, 829 F.2d 553, 557 (5th Cir.
1987).
The two statutes can be harmonized by the simplest and most
direct reading of the facts. Generally, the trustee acquires the
same right to file a refund claim that the debtor had. See Hays
& Co. v. Merrill Lynch Pierce Fenner & Smith, 885 F.2d 1149, 1154
(3d Cir. 1989) (noting that the trustee can only assert those
causes of action possessed by the debtor); see also H.R. Rep. No.
595, 95th Cong. 1st Sess. (1978 U.S.C.C.A.N. 5787).6 Because
that right is created and circumscribed by § 6511 and nothing
6
There are instances in which the trustee may have greater powers
than the debtor, when such powers are specifically granted by the Code.
In some circumstances, the trustee’s powers under § 542(a) are greater
than those of the debtor in that the trustee may recover property in
which the debtor has a continuing interest as defined by § 541(a)(1).
See, e.g., United States v. Whiting Pools, 462 U.S. 198, 207 n.15
(1983) (trustee may use § 542(a) to obtain turnover of property
which is seized but not owned by the United States through the
IRS). Because the debtor does not have a continuing interest in
the tax overpayment under § 541(a)(1), other than that created by §
6511, the trustee cannot use § 542(a) to create interests not otherwise
in existence.
--14--
explicitly changes its terms, § 542(a) cannot be read to expand
the right to file for a refund to give the trustee unlimited time
so long as the bankruptcy continues.
The “liquidation” of the overpayment through the
government’s stipulation as to amount but not liability did
nothing to alter the basic fact that the trustee filed for a
refund after both the limitations period in I.R.C. § 6511 had
lapsed and the IRS proof of claim had been denied. Bankruptcy
Code § 542(a) does not in itself, or with the coincidence of a
stipulation as to amount of overpayment, abrogate the overall
statutory scheme requiring compliance with non-bankruptcy
statutes of limitations.
C. Whether the IRS proof of claim relating to 1984 tax payments
obviated any need for the trustee to file a refund claim.
The trustee contends that by filing a proof of claim in the
bankruptcy that related in part to 1984 taxes, the IRS waived
both sovereign immunity and the statute of limitations as to any
dispute over that year’s taxes. The trustee argues that because
the IRS put 1984 taxes in issue by filing a proof of claim, he
had no need to file a separate refund claim in order to attain a
refund of overpaid taxes. He further argues that his refund
claim arose as a compulsory counterclaim and therefore was not
--15--
subject to the statute of limitations contained in I.R.C. § 6511.
The United States counters that under the Bankruptcy Code, a
proper refund claim is a jurisdictional prerequisite to
consideration of any refund due, that sovereign immunity and
limitations were not expressly waived and therefore still
applied, and that the trustee’s refund claim does not constitute
a counterclaim in any event and therefore could not possibly
provide a route around the limitations period contained in §
6511. On the procedural facts before us, we find that the
trustee’s claim was filed too late to constitute a counterclaim
and, because it was filed after the IRS proof of claim had been
denied, any arguable waiver of sovereign immunity or the statute
of limitations would be unavailable.
The trustee argues that because his refund claim relates to
the same transaction as that addressed in the IRS proof of claim
for 1984 taxes, the refund claim is a compulsory counterclaim and
is therefore exempt from the refund procedures outlined in I.R.C.
§ 6511.7 We need not address whether the trustee’s claim
constitutes a counterclaim or whether a refund claim that arises
7
The government contends that the trustee’s refund claim does
not constitute a counterclaim because it does not arise as a
pleading in an adversary proceeding. See TLI, Inc. v. United
States, 100 F.3d 424, 427 (5th Cir. 1996) (administrative refund
claim precedes a tax action but does not commence one). We need
not reach this issue because, even assuming arguendo that the
trustee’s refund claim could be construed as a counterclaim, it
would not have been timely filed.
--16--
as a compulsory counterclaim escapes the statute of limitations
in the Internal Revenue Code, since the trustee brought his claim
too late.
A compulsory counterclaim cannot be raised at any time,
but rather only while the claim to which it relates is still in
issue. See Crutcher v. Aetna Life Ins. Co., 746 F.2d 1076, 1080
(5th Cir. 1984). In the present case, the trustee did not file
his refund claim in the bankruptcy court until after the IRS
proof of claim that related to 1984 taxes had been denied. The
bankruptcy itself is still ongoing, but the portion of it
relating to 1984 taxes was closed on March 21, 1995 when the IRS
claim was denied. The trustee filed too late for his refund
claim to qualify as a compulsory counterclaim, and his argument
regarding the statute of limitations’ inapplicability to
compulsory counterclaims is therefore moot.
In addition, the law is clear that a compulsory counterclaim
shall not be used to expand claims against the United States
beyond their limits as already established by law. See
Fed.R.Civ.P. 13(d);8 Bankr. R. 7013. The trustee would be
entitled to raise the issue of any refund due as a defense to the
8
Fed.R.Civ.P. 13(d) provides: “These rules [relating to
counter- and cross-claims] shall not be construed to enlarge beyond
the limits now fixed by law the right to assert counterclaims or to
claim credits against the United States or an officer or agency
thereof.”
--17--
IRS proof of claim relating to the 1984 tax year. See Frederick
v. United States, 386 F.2d 481, 488 (5th Cir. 1967) (finding
waiver of sovereign immunity as to counterclaims where the
government has instituted an action, but not extending to relief
exceeding in amount or different in kind to that claimed by the
government). Failure to adhere to the administrative filing
requirements and the statute of limitations could still be a
jurisdictional bar to acquiring affirmative relief, however. See
F.D.I.C. v. Cheng, 787 F.Supp. 625 (N.D. Tex. 1991) (failure to
file administrative claim as required under Federal Tort Claims
Act precluded bringing counterclaim in district court). Since
the trustee did not file his refund claim while the IRS proof of
claim was still before the bankruptcy court, no possible waiver
of sovereign immunity or route around the jurisdictional
requirements of §§ 7422 and 6511 was available.
III. Conclusion
The trustee failed to file a refund claim within the statute
of limitations contained in I.R.C. § 6511 and failed to raise the
refund issue in the bankruptcy court while a live proof of claim
by the IRS was still before it. Under the circumstances, we find
that the trustee is now barred from recovering on his refund
claim. We reverse the judgment of the court below and remand for
proceedings consistent with this opinion.
--18--
--19--