Appeal from the United States Bankruptcy Court for the Eastern District of California. Honorable J.W. Hedrick, Jr., Presiding. BK. No. 988-03452
Before: Jones, Russell, and Perris, Bankruptcy Judges.
Debtors Thomas and Lynne Mantz ("the Mantzes") filed their Chapter 7 petition on December 28, 1988 without listing the Internal Revenue Service ("IRS") on their schedules or providing other notice to the IRS.*fn1 The Mantzes had failed to file tax returns for the years 1986 and 1987. The § 341*fn2 meeting of creditors was scheduled for January 26, 1989. The IRS had 90 days from that date to file a claim pursuant to Federal Rule of Bankruptcy Procedure 3002(c).
On June 18, 1990, more than a year after the bar date, the IRS filed a proof of claim for $186,579.05 for the years 1986 through 1988. The IRS argued that its untimely claim should be allowed as a matter of equity because the Mantzes had failed to give the IRS any notice of their bankruptcy filing. On December 10, 1991, the Trustee filed an objection to the IRS's claim as untimely, and the bankruptcy court disallowed the claim in its entirety. The IRS appeals. We REVERSE and REMAND.
ISSUE AND STANDARD OF REVIEW
Whether the bankruptcy court erred in disallowing the IRS claim is a question of bankruptcy law. We review questions of law de novo. In re Wade, 115 Bankr. 222, 225 (9th Cir. BAP 1990), aff'd, 948 F.2d 1122 (9th Cir. 1991).
The IRS's proof of claim was filed pursuant to § 501(a). Bankruptcy Rule 3002(c) requires that such claims be filed within 90 days after the first date set for the meeting of creditors, with certain exceptions not applicable here. See Federal Rule of Bankruptcy Procedure 9006(b)(3). The IRS's claim was not timely filed under Rule 3002(c). The bankruptcy court, using a strict interpretation, denied the IRS's claim in its entirety. See, e.g., In re Coastal Alaska Lines, Inc., 920 F.2d 1428, 1433 (9th Cir. 1990) (cases allowing late filed claims when creditor received no notice not reconcilable with Rule 3002(c)).
But the IRS argues that Rule 3002(c) conflicts with § 726(a)(2)(C) of the Code, and that where the two conflict, the latter must prevail.*fn3 Section 726 prioritizes distribution of property of the estate into several categories. Had the IRS filed a timely claim, it would have received payment under § 726(a)(1),*fn4 the first category. The IRS argues that it should not lose its priority position simply because of the debtors' failure to provide adequate notice, and that § 726 provides for the late filing of claims under these circumstances.
1. Exclusion from § 726*fn5 Purview
The late-filing provision referred to by the IRS is found in category two, § 726(a)(2)(C), which provides for payment of any allowed unsecured claim, other than a ...