Memorandum of Decision Re: Late IRS Claim

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re PATRICIA GILTNER,                                       No. 1-85-00796      Debtor. ___________________________/
     The debtor's confirmed Chapter 13 plan provides that "the following claims and taxes shall be paid through the Trustee." It then specifically mentions the Internal Revenue Service, listing the amount to be paid as $35,000.00 together with 8% interest. This was later amended to $40,358.79 at 10% interest.      The IRS filed its proof of claim late. Nonetheless, there was no objection filed and the trustee proceeded to distribute $42,603.91 to the IRS. The debtor has now objected to the claim, and demands the return of the funds the IRS has been paid to date.      This case is very similar to In re Tomlan, 102 B.R. 790 (DC E.D.Wa.1989), which has just been affirmed by the Ninth Circuit. In that case, the debtor's original plan provided for full payment of what the debtor believed was the entire debt owed the IRS. When it became obvious that the IRS claim was untimely, the plan was amended to provide that only "allowed claims" would be paid. The court held that under the amended plan, the IRS was out of luck.      Like the original plan in Tomlan, the debtor's plan here does not restrict distributions to allowed claims. It speaks of "claims and taxes" and specifically provides that the IRS must be paid. Thus, the payments made so far to the IRS are fully proper and in harmony with the plan. Under the plan, the Trustee must pay the IRS even if it never filed a proof of claim at all.      The IRS claim clearly must be disallowed as untimely under Tomlan. If the debtor is allwed to amend her plan to restrict payment to allowed claims only, then the IRS would be entitled to no further distribution. This is of little concern to the IRS, as it has already received the entire amount of the tax owed, plus some interest, even though there is no need to pay interest to the IRS in Chapter 13 on an unsecured tax. Matter of Spencer, 45 B.R. 1 (Bkrtcy. W.D.Mo.1983). The real issue here is whether, if the IRS claim is disallowed, it must repay what it has already received.      At least one court has held that payments made pursuant to a confirmed plan are not recoverable, even if the payee's claim is subsequently disallowed. In re Chattanooga Wholesale Antiques, Inc., 67 B.R. 899 (Bkrtcy.E.D.Tenn.1986). However, even if the payments made to the IRS are recoverable, recovery is not automatic. The court may decide to order repayment or let the creditor keep the payments, depending on the equities of the case. In re Jules Meyers Pontiac, Inc., 779 F.2d 480 (9th Cir.1985); Matter of Kelderman, 75 B.R. 69, 70 (Bkrtcy.S.D.Ia.1987).      In this case, the equities clearly favor allowing the IRS to keep the payments. To rule otherwise would give the debtor a windfall by not having to pay justly owed taxes, even though full payment of taxes is mandated by section 1322(a)(2) of the Bankruptcy Code. Moreover, there is no equity in filing a plan which does not require a proof of claim for payment, waiting for the bar date to pass, and then amending the plan to provide for payment of only timely filed claims. Lastly, recovery would not benefit the other creditors or increase their dividend. IT IS THEREFORE ORDERED as follows:
     1. The claim of the Internal Revenue Service is disallowed as untimely. If the debtor's plan is amended to restrict payments to allowed claims only, the IRS will be entitled to no further payments. 2. Notwithstanding disallowance of its claim, the IRS will not be required to return any payments already received.
Dated: July 15, 1990                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy