In Re Chelcey R. Fowler in Re Lynda Fowler, Debtors, United States of America v. Chelcey R. Fowler Lynda Fowler

The issue in this case is the effect of a conversion from Chapter 11 to Chapter 13 bankruptcy proceedings on the priority status of a postpetition, preconversion administrative expense claim. The Fowlers appeal the district court’s order reversing the bankruptcy court, and determining that 11 U.S.C. § 348 (d) requires that federal employment taxes, incurred as administrative expenses in operating their nursing home business after the Fowlers filed for Chapter 11 bankruptcy protection, but before they converted to Chapter 13, retain their priority status as administrative expenses under 11 U.S.C. § 503 (b). We affirm the district court and hold that such a claim retains its administrative expense priority upon conversion.

I

In May 1998, Chelcey and Lynda Fowler filed for Chapter 11 bankruptcy protection. While in Chapter 11, the Fowlers continued the operation of their adult long-term care facility, causing the bankruptcy estate to incur additional Federal Insurance Contribution Act and Federal Unemployment Tax Act employment tax liabilities and attendant penalties and interest on those debts. In December 1998, the Internal Revenue Service (IRS) filed a “Request for Payment” of…