Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) amendment adding new section 505(a)(2)(C), there was nothing in section 505(a) that expressly prohibited debtors from contesting ad valorem tax claims that arose many years prior to the bankruptcy filing but were not contested or decided in court prepetition. This was true even when the time for filing an action pursuant to state law contesting the assessment of such taxes had passed. In these cases, the local taxing authorities would argue that the court should impose time limitations on debtors contesting property tax claims, but the bankruptcy courts generally were unreceptive to these arguments. Up until now there has been little case law or secondary source guidance on the proper interpretation of 505(a)(2)(C).

Section 505(a)(2)(c) simply stated that the courts could not redetermine:

“the amount or legality of any amount arising in connection with an ad valorem tax on real or personal property of the estate, if the applicable period for contesting or redetermining that amount under any law (other than bankruptcy law) has expired.”

In this most recent case in Florida, the Debtor filed her voluntary petition under chapter 11 of the Bankruptcy Code on November 10, 2009. Thus, this case was filed within the time period to challenge the assessment values for the Debtor’s 2009 ad valorem taxes. However, the Debtor first objected to the Tax Claims on April 21, 2010, more than four months past the time to challenge the assessment values under state law. The Objection was filed pursuant to Bankruptcy Code section 502.

The Debtor subsequently amended the Objection on July 2, 2010, to invoke Bankruptcy Code section 505 as a basis for this Court to make a determination of the tax liability as set forth in the Tax Claims. The Amended Objection also joined the Property Appraiser as a necessary party for proper determination of the Tax Claims. In addition, the Amended Objection also references Bankruptcy Code section 108(a) for the proposition that the applicable period for contesting the amount of the Tax Claims was extended upon the filing of the bankruptcy case for up to two years after the order for relief.

The courts final determination here was ruling for the debtor. The time to properly file and appeal in Florida is 60 days after the tax rolls have been certified. The bankruptcy petition was filed during this timeframe. Section 108(a) allows a two year window from the date of petition to file tax claims, thus the petition filing date qualified as evidence of being timely filed.

For companies that filed bankruptcy in the State of Florida during 2009, review your individual taxing jurisdiction(s) 2009 appeal timeframe. If you believe your 2009 property tax assessment was in excess of fair market value AND you did not contest them, you may be entitled to file tax claims under Section 108(a) and 505(a) for the 2009 tax year.

As Silver Oak Advisor, LLC does not give legal advice, you should seek legal counsel regarding the issues discussed above.