The Debtor had since 1998 complied with the requirements of N.C.G.S. § 105-306 to list for taxes the personal property owned in Wake County. The Debtor was required to file such a disclosure between January 1st and 31st of 2009, but failed to do so, instead filing bankruptcy on February 18, 2009. On September 30, 2009, Wake County subsequently sent the Debtor a notice that it had assessed taxes at a “discovered value” of 125% of the value from the previous year and that the Debtor had, pursuant to N.C.G.S. § 105-312(d), thirty (30) days to contest this value. Neither the Debtor nor the Chapter 7 Trustee challenged this assessment. Eventually, Wake County filed a Proof of Claim asserting priority taxes of f $47,884.36, which represents the original amount plus interest.
The Trustee objected to this amount, asserting that Wake County could not just “make up” property valued at 125% of the previous year, instead characterizing this “as both a penalty and a failure to comply with the statutory directive to use the ‘best information available’ in the process of conducting a tentative appraisal.”
The bankruptcy court held that 11 U.S.C. § 505(a)(1) provides bankruptcy courts with the authority to “determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.” This power is, however, subject to the limitations in 11 U.S.C. § 505(a)(2), including the prohibiting the bankruptcy court from determining “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 applicable nonbankruptcy law has expired.” Accordingly, the determination by Wake County could not be reviewed.
The bankruptcy court also considered whether the extension of time allowed under 11 U.S.C. § 108 would apply, but found that the two year extension would only have allowed an objection until February 11, 2011, when the objection was not filed for nearly another two years in February 2013. Without ruling on the issues, the bankruptcy court, citing In re Read, 692 F.3d 1185, 1190 (11th Cir. 2012), questioned whether § 108 would apply.
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