SERVICE EXPANDS AREA OF CLAIMS FOR POST-PETITION INTEREST AND PENALTIES AGAINST THE ESTATE OF A BANKRUPT.

Rev. Rul. 87-99

ISSUE

May post-petition interest and pecuniary loss and nonpecuniary loss penalties be claimed against the estate of a bankruptcy proceedings commenced on or after October 1, 1979, in general receivership, or in cases involving assignment for the benefit of creditors?

LAW AND ANALYSIS

Rev. Rul. 68-574, 1968-1 C.B. 595, holds that post-petition interest, whether or not secured by a federal tax lien, generally will not be claimed by the Service against the estate of a bankrupt in proceedings under the Bankruptcy Act of 1898, Pub. L. No. 61, 30 Stat. 544, as amended, nor will it be claimed in general receivership, or in cases involving assignment for the benefit of creditors. Rev. Rul. 68-574 also holds that nonpecuniary loss penalties, whether or not secured by a federal tax lien, generally will not be claimed in proceedings under the Bankruptcy Act, but will be claimed in general receiverships and in cases involving assignment for the benefit of creditors.

Rev. Rul. 71-31, 1971-1 C.B. 408, holds that the Service will not set off nonpecuniary loss penalties and post-petition interest against funds due a bankrupt or insolvent taxpayer or estate by the Unites States under circumstances where such nonpecuniary loss penalties and post-petition interest would not be collectible as a claim against the bankrupt or insolvent estate.

These two revenue rulings were promulgated under the Bankruptcy Act of 1898, as amended. The Bankruptcy Act of 1898 was superseded by the Bankruptcy Reform Act of 1978, 11 U.S.C. 101 (1979) (Bankruptcy Code), as amended, applicable to proceedings initiated on or after October 1, 1979. Under section 506(b) of the Bankruptcy Code, post- petition interest has been held to be recoverable on an oversecured claim, Best Repair Company, Inc. v. Unites States, 789 F.2d 1080 (4th Cir. 1986), and there is no justification for a different rule in a receivership, assignment for the benefit of creditors case, or other insolvency. See In re Pavone Textile Corp., 302 N.Y.2d 206, 97 N.E.2d 755 (1951), aff'd sub. nom., Unites States v. Bloom, 342 U.S. 912 (1952) (the priority in assignment proceedings and the priority in bankruptcy proceedings should be treated the same).

HOLDING

Post-petition interest and pecuniary loss and nonpecuniary loss penalties may be claimed against the estate of a bankrupt in bankruptcy proceedings commenced on or after October 1, 1979, in general receiverships, or in cases involving assignment for the benefit of creditors.

EFFECT ON OTHER REVENUE RULINGS

Rev. Ruls. 68-574 and 71-31 are declared obsolete with respect to bankruptcy proceedings commenced on or after October 1, 1979.