By Carolina Bolado
A Florida bankruptcy judge ruled Thursday that bankruptcy trustees can use the IRS’ 10-year post-assessment recovery period to pursue fraudulent transfers, extending the life of the estate’s claims past the typically shorter state law statutes of limitations.
U.S. Bankruptcy Judge Robert Mark said Barry Mukamal, the Chapter 7 trustee in charge of the estate of construction consultant Donald Kipnis, could sue the debtor’s wife Analia Kipnis to recover money and a condominium that were transferred to her in 2005 in a move the trustee says was done to avoid creditors.
The ruling is the first on this issue out of a Florida bankruptcy court, and is one that Judge Mark hinted could be used by trustees to aggressively go after funds for bankruptcy estates.
“The IRS is a creditor in a significant percentage of bankruptcy cases,” Judge Mark said.
“The paucity of decisions on the issue may simply be because bankruptcy trustees have not generally realized that this longer reach-back weapon is in their arsenal. If so, widespread use of [Bankruptcy Code Section] 544(b) to avoid state statutes of limitations may occur and this would be a major change in existing practice.”
The judge said Section 544(b), which gives bankruptcy trustees the right to “step into the shoes of” creditors and sue on their behalf to recover funds, allows trustees to enjoy the 10-year period granted the IRS when suing on the agency’s behalf and does not constrain them to shorter state statutes of limitations.
Although several courts have ruled the same way, only one, in New Mexico, came to the opposite conclusion in 2013, in In re: Vaughan Co. The court in that case said Congress never intended to vest the sovereign powers of the federal government — which cannot be constrained by state law statutes of limitations — in a bankruptcy trustee and that allowing it would result in a dramatic change in the law.
Judge Mark said these concerns may be justified and Congress may have intended to limit 544(b) to avoidance suits that only nongovernmental creditors could bring, but that’s not what the plain language of the law says.
“The statute does not say that and this court cannot simply read such a limitation into the text,” the judge said. “To do so would require the court to ignore basic and important rules of statutory construction.”
Corali Lopez-Castro of Kozyak Tropin Throckmorton LLP, who represents the trustee, said this opens up for trustees “another avenue to pursue in an effort to provide a greater distribution to the creditors of an estate.”
She added that already several trustees in Florida have contacted her about the decision. An attorney for Analia Kipnis could not immediately be reached for comment Friday. In the case of Donald Kipnis, the IRS holds a $1.9 million claim, almost all of which is secured, for back taxes and penalties from 2000 and 2001. The IRS investigated him in 2003 and told him in 2005 that he owed more than $1 million in taxes for the two years. A tax court upheld that decision in November 2012.
The trustee’s adversary suits target two transactions made after the IRS’ 2005 decision in which Donald Kipnis added his wife to a bank account of his and tried to transfer ownership of a Miami condominium to her.
Donald Kipnis is represented by Michael A. Frank of the Law Offices of Brooks Frank & De La Guardia. Analia Kipnis is represented by Peter D. Russin of Meland Russin Budwick.
The trustee is represented by Corali Lopez-Castro and Vincent F. Alexander of Kozyak Tropin Throckmorton LLP. Citibank is represented by Catherine E. Douglas and David B. Marks of Akerman LLP.
The adversary proceedings are Mukamal v. Citibank NA et al., case number 1:16-ap-01044, and Mukamal v. Kipnis, case number 1:16-ap-01045, in the U.S. Bankruptcy Court for the Southern District of Florida.
The bankruptcy is In re: Donald Jerome Kipnis, case number 1:14-bk-11370, in the same court.
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