The opinion of the court was delivered by: CHIN
In this action, plaintiff Mark Rocanova seeks a declaration that the retroactive application of § 11317(c) of Public Law 101-508, which revised § 6502 of the Internal Revenue Code by extending the statute of limitations for collection actions from six years to ten years, is unconstitutional. Rocanova bases this argument on the Due Process Clause of the Fifth Amendment, the Equal Protection Clause, and the Ex Post Facto Clause. The parties have cross-moved for summary judgment. Because retroactive application of the ten-year statute of limitations is proper, the government's motion is granted and Rocanova's motion is denied.
From 1981 to 1985, Rocanova was a partner in a California partnership known as Electra Services ("Electra"). During that time, Electra incurred certain tax liabilities pursuant to the Federal Unemployment Tax Act, 26 U.S.C. § 3301, the Federal Insurance Contribution Act, 26 U.S.C. § 3102(a), and income tax withholding requirements of 26 U.S.C. § 3402(a)(1). The liabilities in question were assessed from December 26, 1983 until April 7, 1986.
On April 7, 1986, Electra filed for bankruptcy under Chapter 7 of the Bankruptcy Code. Under the Internal Revenue Code, this filing tolled the statute of limitations on collection of the outstanding tax liabilities for the duration of the bankruptcy proceeding, plus six months. See 26 U.S.C. § 6503(h). Since Electra's bankruptcy proceedings concluded on December 11, 1986, the collection period was tolled for fourteen months and four days. Thus, under the old six-year limitations period, the government would have been time-barred from collecting the December 26, 1983 tax assessment on March 2, 1991, that is, six years plus fourteen months and four days after December 26, 1983.
In October 1993, before its time to collect under the Amendment expired, the IRS served a Notice of Levy on Rocanova's bank account to collect the unpaid tax assessments. In response, in December 1993 Rocanova commenced an adversary proceeding in the United States Bankruptcy Court, claiming that the limitations period had expired and that retroactive application of the amended limitations period was unconstitutional.
On September 5, 1995, at the request of United States Bankruptcy Judge Cornelius Blackshear, Rocanova moved pursuant to 28 U.S.C. § 157(d) to withdraw the reference to the United States Bankruptcy Court. The government did not oppose the motion, so on January 2, 1996, I so ordered a stipulation granting the motion to withdraw the reference. These cross-motions for summary judgment followed.
Rocanova argues that retroactive application
of the ten-year statute of limitations is unconstitutional under the Due Process Clause, the Equal Protection Clause, and the Ex Post Facto clause. I will address each of these grounds in turn.
When faced with due process challenges to retroactive tax legislation, the Supreme Court "repeatedly has upheld" the legislation. United States v. Carlton, 512 U.S. 26, 129 L. Ed. 2d 22, 114 S. Ct. 2018, 2021 (1994) (citing United States v. Hemme, 476 U.S. 558, 90 L. Ed. 2d 538, 106 S. Ct. 2071 (1986); United States v. Darusmont, 449 U.S. 292, 66 L. Ed. 2d 513, 101 S. Ct. 549 (1981); Welch v. Henry, 305 U.S. 134, 83 L. Ed. 87, 59 S. Ct. 121 (1938); United States v. Hudson, 299 U.S. 498, 81 L. Ed. 370, 57 S. Ct. 309 (1937); Milliken v. United States, 283 U.S. 15, 75 L. Ed. 809, 51 S. Ct. 324 (1931); Cooper v. United States, 280 U.S. 409, 74 L. Ed. 516, 50 S. Ct. 164 (1930)). The standard applied in determining the validity of retroactive tax legislation under the Due Process Clause is whether "(retroactive application is so harsh and oppressive as to transgress the constitutional limitation.)" Carlton, 114 S. Ct. at 2022 (quoting Welch, 305 U.S. at 147). Under the "harsh and oppressive" standard, retroactive tax legislation will be upheld if the government can show that "the retroactive application of the legislation is itself justified by a rational legislative purpose." Id. (quoting Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 730, 81 L. Ed. 2d 601, 104 S. Ct. 2709 (1984)).
Here, the government's stated intent in enacting the Amendment was to raise revenues without raising taxes or imposing a new tax and to reduce the government's potential losses from assessed, but unpaid, tax liabilities. The comments of Senator Lieberman and Senator Glenn, the Amendment's sponsors, on the Senate floor evidence this intent. Senator Lieberman noted that the Amendment could "raise as much as $ 600 million in the next 5 years, and it asks nothing more of law-abiding, taxpaying citizens of America." 136 Cong. Rec. S1577-02, S15805 (Oct. 18, 1990). The Senator continued that, faced with the need to raise taxes, "few things could be more important than our ability to collect taxes that are admittedly owed to the Federal Government but are not being ...