The circuit split starts! Following up on my post below, this 10 year reach-back period for trustees is starting to garner some traction! Judge Pappas, one of the nicest and astute judges I have met, recently issued an extremely thorough 76-page opinion siding with the Florida bankruptcy judge that allowed the trustee to step in the shoes of the IRS and reach back much farther than the 4-year limitation to avoid a fraudulent transfer.
I love it when courts cite nullum tempus occurrit regi meaning “no time runs against the king” (gives me goosebumps) which implies that the United States (i.e. IRS) is not bound by state statutes of limitation in enforcing its rights.
The circuit splits exists now between the bankruptcy courts in Florida (11th Circuit) and Idaho (9th Circuit) allowing the trustee to step in the shoes of the IRS to reach back 10 years versus New Mexico judge Robert Jacobvitz and the Fifth Circuit in MC Asset Recovery LLC v. Commerzbank A.G. (In re Mirant Corp.), 675 F.3d 530 (5th Cir. 2012) holding otherwise.
Judge Pappas’s lengthy and well-written opinion can be found here.
As I mentioned in my article — it would be wise to counsel your client to pay off the IRS, if feasible, so that they are not an unsecured creditor at the time of filing and thereby preventing the trustee from stepping in its shoes to reach back 10 years.
I agree with Judge Pappas that the statute section 544(b)(1) is clear — and so, if this goes all the way to the Supreme Court, I have a good hunch — with strict textualist Justice Gorsuch — that it will be affirmed.