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Judge Carey Dismisses One and Declines to Hear a Second Request by the Debtors to Determine Tax Liability

By Charlene D. Davis

On April 10, 2017, Judge Kevin J. Carey issued an Opinion and entered an Order (i) denying the Debtors’ Motion Requesting Determination of Tax Liability (the “Motion”) with respect to a 2015 tax assessment and (ii) abstaining from determining  liability with respect to a 2016 tax assessment.  In re: Ryckman Creek Resources, LLC, et al.  Case No. 16-10292 (KJC).   Applying Section 505(a)(2)(C) of the Bankruptcy Code, the Court determined that because Debtors had not timely appealed the 2015 assessment under state law, the request for a reevaluation of that claim was untimely.   Applying the factors applicable to discretionary abstention for matters subject to Section 505(A)(1), the Court found they weighed in favor of refraining from hearing the dispute over the 2016 assessment.

The Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code on February 2, 2016.  They operate an industrial facility for underground storage of natural gas in Wyoming.   They continue to operate their business as debtors-in-possession.   In the Motion, the Debtors contended that Uinta County, Wyoming (the “County”) improperly valued the Debtor’s real property resulting in an unjust tax burden in 2015 and 2016.  The Debtors did not appeal the 2015 assessment to the County Board of Equalization but did appeal the 2016 assessment.

In deciding whether to hear the dispute about the 2015 assessment, the Court  applied Section 505(a)(2)(C) to easily determined it should not.   Section 505(a)(2)(C) reads, in pertinent part, “[t]he court may not so determine–…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.”  Although the Debtors and County relied on different  Wyoming statutes for the applicable period to contest the assessment, the Court found that the deadlines under either of them had expired and dismissed the Motion as it related to the 2015 assessment

In deciding whether to hear the dispute about the 2016 assessment, the Court found that it had jurisdiction but applying the factors considered for discretionary abstention declined to exercise it.    The Court noted that courts that abstain in section 505 matters generally do so if deciding the claim would require “a fact intensive review of the value of the property and the amount of taxes in question” or if the decision “could affect uniformity of assessment of…taxes imposed on other taxpayers.” The Court also applied 6 factors utilized to determine whether to abstain under 505 and concluded that they weighed in favor of abstention, particularly where the Court would be called upon to undertake a factually intensive review of the value of the property.

A copy of the Court’s opinion is available here.

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