Dreyfuss v. Cory, No. 13-15432 (9th Cir. 2015)
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The chapter 7 trustee paid the 2005 federal income taxes of a bankruptcy estate without first providing notice to a creditor of the estate, requesting a hearing to determine the appropriate amount of those taxes, or obtaining an order of the bankruptcy court authorizing the payment of those taxes. At issue was whether section 503 of the Bankruptcy Code, 11 U.S.C. 503(b), requires a chapter 7 trustee to provide notice to creditors, and obtain a hearing, before paying taxes incurred by the estate. The court held that the plain language of section 503 requires that notice and a hearing be provided before the payment of taxes as administrative expenses, and that this requirement does not impose inconsistent obligations on trustees under other provisions of the Bankruptcy Code or the Internal
Revenue Code. Accordingly, the court remanded with directions for the bankruptcy court to determine the amount of 2005 federal income taxes due from the estate and to conduct other appropriate proceedings.
Court Description: Bankruptcy. The panel reversed the district court’s affirmance of the bankruptcy court’s order approving the chapter 7 trustee’s final report following the trustee’s payment of the federal income taxes of the bankruptcy estate. The panel held that the bankruptcy estate’s federal income tax liability is an administrative expense, and so 11 U.S.C. § 503(b) requires a chapter 7 trustee to provide notice to creditors, and obtain a hearing, before paying taxes incurred by the estate. The panel remanded the case to the district court for remand to the bankruptcy court with directions that the bankruptcy court determine the amount of federal income taxes due from the estate, and conduct such other proceedings as may be appropriate. Concurring, Judge Wallace agreed that the trustee did not follow section 503(b)’s requirement that the income tax payment be made only “after notice and a hearing.” He wrote separately to highlight for the court on remand his concerns about the timeliness of a creditor’s objection to the tax payment. IN THE MATTER OF CLOOBECK 3
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