Young v. United States

Cornelius and Suzanne Young (plaintiffs) filed for Chapter 13 bankruptcy in May 1996. At the time, the Youngs owed taxes to the Internal Revenue Service (IRS) for 1992. The Youngs’ 1992 return was due in October 2003. The Youngs’ tax debt was nondischargeable in their Chapter 13 case because the Bankruptcy Code contained a three-year lookback provision, pursuant to which a tax debt relating to a return that was due in the three years preceding a bankruptcy filing could not be discharged. In March 1997, at the Youngs’ request, the bankruptcy court dismissed the Chapter 13 petition. The next day, the Youngs filed for Chapter 7 bankruptcy, claiming that they had no assets to pay the IRS. On June 17, the bankruptcy court discharged the Youngs’ debts. When the IRS subsequently demanded payment of the Youngs’ 1992 taxes, the Youngs asked the bankruptcy court to declare that debt to have been discharged. Per the Youngs, although the debt was not dischargeable when they filed under Chapter 13, it was dischargeable when they filed their Chapter 7 case because their 1992 return was due more than three years before their Chapter 7 filing. The United States (defendant) responded that the lookback period was a statute of limitations that was equitably tolled while the Chapter 13 case was pending. The bankruptcy court, the district court, and the court of appeals agreed with the United States. The Youngs appealed, arguing that (1) the lookback period was not a statute of limitations but rather was a substantive provision that defined which taxes were dischargeable because the period could commence before the IRS learned of a tax debt; (2) Bankruptcy Code § 523(b) permitted a Chapter 7 discharge of debts that were “excepted from discharge” under Chapter 13; and (3) other Bankruptcy Code provisions permitted equitable tolling, indicating that Congress did not mean to allow tolling of the lookback period.