In a case of first impression, Bankruptcy Judge Robert A. Mark sitting in the Southern District of Florida extended the fraudulent transfer “claw back” to 10 years in a case where the IRS was one of the creditors. Citing 11 U.S.C. §544(b), the Court found that the Trustee had the rights “of a creditor” of the estate. In Mukamal v. Citibank, NA, Debtor Donald Kipnis owed a large unsecured debt to the IRS. The “look back/claw back” period for the IRS, under applicable IRS regulations, is 10 years from the date of assessment. The Court, in a fraudulent transfer matter, ruled against the transferee, the Debtor having (probably cleverly but not quite cleverly enough) timed the bankruptcy beyond what would be the applicable Florida fraudulent transfer law “claw back” but did not wait for the 10 years to lapse.
Kipnis holds strong significance because, in many cases, the IRS is a creditor and the applicable statute of limitations "claw back" is 10 years from the date of assessment. Practitioners should know that the date of assessment is often times an arbitrary date that is usually way beyond when the tax became due. Moreover, although there may be some debate on the issue, the statute of limitations for the State of Michigan Department of Treasury is seven years from the date of last payment (and the offset of a State tax refund can constitute such a payment). Michigan practitioners need to be especially mindful of this because, in all likelihood, although the taxes, themselves, might be subject to a Discharge, if there are “claw back” issues, they can go back quite some time, probably further than previously thought.