In Re LARRY J. McNEELY LINDA L. McNEELY

Case No. 98-73511United States Bankruptcy Court, C.D. Illinois
March 24, 1999

John S. Narmont, 209 Bruns Lane, Springfield, IL 62702

John H. Germeraad, P.O. Box 257, Petersburg, IL 62675

James A. Lewis, 600 E. Monroe — #312, Springfield, IL 62701

U.S. Trustee, 401 Main St. #1100, Peoria, IL 61602

OPINION
BASIL H. COUTRAKON, United States Bankruptcy Judge

Before the Court is the Objection filed by Larry J. McNeely and Linda L. McNeely (“Debtors”) to the Proof of Claim filed by the Internal Revenue Service (“IRS”). The issue is whether the three-year period of limitations for determining priority status as set forth in 11 U.S.C. § 507 (a) (8) (A) (i) is tolled during Debtors’ prior bankruptcies.

The facts in this case are not in dispute. Debtors filed their petition pursuant to Chapter 13 of the Bankruptcy Code on September 30, 1998. On Schedule E, Debtors listed the IRS as having an unsecured priority claim in the amount of $36,473.92. Debtors’ Chapter 13 Plan proposed to pay the IRS in full at 0% interest during the course of the 60-month plan. On October 26, 1998, IRS filed its Proof of Claim in the amount of $53,004.61. The IRS claimed the sum of $50,541.55 as a priority claim; the remainder, or $2,463.06, was claimed merely as a general unsecured claim. Initially, Debtors objected to the IRS’ claim on the basis that penalties and interest should not be entitled to priority classification. After a hearing, and in view of the overwhelming weight of authority, Debtors reluctantly conceded that pre-petition interest is entitled to priority classification. IRS never disputed that pre-petition penalties should be treated as a unsecured non-priority claim.

Subsequently, Debtors filed an amended objection to the IRS’ claim on the basis that the claim for 1993 and 1994 income taxes, which IRS asserts is entitled to priority classification, should not be so classified because the taxes for those two years fall outside the three-year period of limitations set forth in 11 U.S.C. § 507 (a) (8) (A) (i) IRS stands by its claim, asserting that Debtors’ prior bankruptcies (on file from July 1995 to April 1998 and May 1998 to August 1998) suspended the period of limitations set forth in 11 U.S.C. § 507
(a) (8) (A) (i). If such period of limitations is tolled, IRS asserts, its Proof of Claim is correct because the 1993 and 1994 income taxes came due well within the period of limitations set forth in § 507 (a) (8) (A) (i). Debtors counter that there is no statutory basis for tolling of the statute and that precedent to the contrary should be rejected.

Debtor correctly points out that there is a split in authority on this point. Some courts have held that the three-year priority period for taxes is not tolled during a prior bankruptcy. See In re Gore, 182 B.R. 293, 300 (Bankr. N.D. Ala. 1995); Matter of Ouenzar, 19 F.3d 163, 165 (5th Cir. 1993); In re Evsenbach, 170 B.R. 57, 59 (Bankr. W.D.N.Y. 1994). However, a number of other Courts have taken the opposite position and have held that the three-year priority period for taxes is tolled. See Inre West, 5 F.3d 423, 426, cert den’d 511 U.S. 1081, 114 S.Ct. 1830
(1994); see also Gore, supra, 182 B.R. at 300, n. 5 (citing 23 such decisions)

There is no split of authority in this Circuit and in this District. InIn re Montoya, 954 F.2d (7th Cir. 1992) and In re Brent, 212 B.R. 311
(C.D. Ill. 1997), the Seventh Circuit and the U.S. District Court for the Central District of Illinois, respectively, held that the three-year priority period is tolled during a prior bankruptcy. Montoya is direct and controlling precedent, and this Court is bound to follow that decision. Contrary to Debtors’ contention, U.S. v. Noland, 517 U.S. 535, 116 S.Ct. 1524 (1996) does not undermine the holdings in Montoya and Brent. Noland
deals with equitable subordination and does not directly address the issue at hand. For these reasons, Debtors’ Objection to Claim #1 of the Internal Revenue Service is overruled.

This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.

ORDER
For the reasons set forth in an Opinion entered this day,

IT IS THEREFORE ORDERED Debtors’ Objection to Claim #1 of the Internal Revenue Service be and is hereby overruled.