P REGUNTAS DE R ESPUESTA O RAL EN C OMISIÓN

1. Suspension of 90-Day Period for Filing Tax Court Petition During Period in Which Automatic Stay Prohibits Filing of Tax Court Petition.

a. Bankruptcy Code Stays Commencement or Continuation of Tax Court Proceeding Upon Filing of Bankruptcy Petition. While the Service may issue a notice of deficiency during the pendency of a bankruptcy case, the Tax Court’s jurisdiction is limited by the automatic stay imposed under 11 U.S.C. § 362(a). 11 U.S.C. § 362(a)(8) (as amended as shown below in italics by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (sometimes referred to herein as the “2005 Bankruptcy Act” or the “Act”))483 generally provides that the filing of a bankruptcy petition operates as a stay of:

the commencement or continuation of a proceeding before the United States Tax Court concerning a corporate debtor’s tax liability for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title.

Unless relief from the automatic stay is granted by order of the bankruptcy court,484 the automatic stay generally remains in effect until the earliest of the closing of the case, dismissal of the case, or the grant or denial of a discharge.485 Thus, the filing of a Tax Court petition, as well as the continuation of a Tax Court proceeding, are precluded while the automatic stay is in

audit, a tax assessment or issuance of a notice of tax deficiency, among other things.”); cf. Field Serv. Adv. 200137010, 2001 FSA LEXIS 115, *3 (Sept. 14, 2001) (“While the case was pending, the Service sent her a statutory notice of deficiency for the Year 1 tax liability on July 3, 1996, an act permitted by the express language of 11 U.S.C. section 362(b)(9).”); 1998 FSA LEXIS 488 (March 6, 1998) (“Bankruptcy Code § 362(b)(9)(B) provides that the issuance of a notice of deficiency is not prohibited by the automatic stay.”).

483

The President signed into law the 2005 Bankruptcy Act on April 20, 2005. The tax amendments described in the outline are generally effective 180 days after the date of enactment (i.e., October 17, 2005). Act § 1501(a). The amendments do not apply, however, with respect to bankruptcy cases commenced before the effective date.

484 _See

11 U.S.C. § 362(d).

485

11 U.S.C. § 362(c)(2); see Allison v. Commissioner, 97 T.C. 544, 545 (1991) (“Once a petition in bankruptcy is filed, the automatic stay of 11 U.S.C. section 362(a) prevents the commencement or continuation of a proceeding against the debtor in any court, including the Tax Court. 11 U.S.C. sec. 362(a). The stay continues until the earliest of one of three occurrences: (1) The time the case is closed, (2) the time the case is dismissed, or (3) the time a discharge is granted or denied. 11 U.S.C. sec. 362(c)(2).”); Smith v. Commissioner, 96 T.C. 10, 14 (1991) (“[W]hile respondent may issue a notice of deficiency during the pendency of a bankruptcy case, the Tax Court’s jurisdiction is limited by the stay imposed by 11 U.S.C. section 362(a)(8). Unless relief from the stay is granted by order of the bankruptcy court, see 11 U.S.C section 362(d), the stay remains in effect until the earliest of the closing of the case, dismissal of the case, or the grant or denial of a discharge.”); Neilson v. Commissioner, 94 T.C. 1, 8 (1990) (“Section 362(a)(8) of the Bankruptcy Code provides for an automatic stay prohibiting ‘the commencement or continuation of a proceeding before the United States Tax Court concerning the debtor.’ Unless the stay is removed by an order of the bankruptcy court, it continues until the earliest of the case closing, case dismissal, or the time a discharge is granted. 11 U.S.C. sec. 362(c)(2) . . . Accordingly, where a bankruptcy proceeding is closed, dismissed, or a discharge is granted, the automatic stay is “lifted” and is no longer in effect. After the automatic stay has been removed there is no bar to this Court’s accepting jurisdiction or continuing a proceeding that had been petitioned prior to the automatic stay.”).

effect.486 The Tax Court has held that if the automatic stay was in effect at the time of the filing of the Tax Court petition, then the petition is invalid and the case must be dismissed for lack of jurisdiction.487

In Reagoso v. Commissioner,488 the taxpayers filed a Chapter 7 bankruptcy petition on May 21, 1991. On July 29, 1991, the Revenue Service issued a statutory notice of deficiency. Petitioners filed their Tax Court petition on October 30, 1991. The bankruptcy court entered an order of discharge on August 6, 1992. On July 15, 1993, the Service filed in the Tax Court a motion to dismiss for lack of jurisdiction, claiming that the automatic stay under 11 U.S.C. § 362(a)(8) precluded commencement or continuation of the case. On August 16, 1993, the taxpayers filed an opposition to the Service’s motion, contending they were unaware that the automatic stay invalidated their Tax Court petition. The taxpayers requested the Tax Court to defer action on the Service’s motion until the bankruptcy court ruled on the taxpayers’ request for a determination of the amount of their taxes, or, in the alternative, granted a retroactive lifting of the automatic stay to validate their Tax Court petition.489 The Tax Court held that the automatic stay precluded the taxpayers from commencing a proceeding until August 6, 1992, the date the bankruptcy court granted a final discharge. Thus, the improper petition was filed in violation of the automatic stay at a time when the Tax Court could not acquire jurisdiction over the taxpayers and, accordingly, the Tax Court ordered the case dismissed. The Tax Court stated that regardless of the bankruptcy court’s decision to grant retroactive lifting of the automatic stay, the Tax Court ultimately has jurisdiction to decide its jurisdiction and since a valid petition is a prerequisite to its jurisdiction, the Tax Court was required to grant the Service’s motion.490

Section 709 of the 2005 Bankruptcy Act amended section 362(a)(8) of the Bankruptcy Code to specify that the automatic stay is limited to an individual debtor’s prepetition taxes (taxes incurred before entering bankruptcy). The amendment clarifies that the automatic stay does not apply to an individual debtor’s postpetition taxes. In addition, section 709 provides that the stay applies to both prepetition and postpetition tax liabilities of a corporation so long as it is

486

11 U.S.C. § 362(a)(8); Kieu v. Commissioner, 105 T.C. 387, 392 (1995) (“It is not disputed that petitioners were precluded by the automatic stay imposed under 11 U.S.C. section 362(a)(8) (1988), from filing a petition with this Court at that time.”).

487

Halpern v. Commissioner, 96 T.C. 895, 897 (1991) (“If the automatic stay imposed by 11 U.S.C. section 362(a)(8) applies to claims for Federal tax liabilities arising subsequent to the filing of a petition for relief under the Bankruptcy Code, then the petition in question is invalid and we are without jurisdiction.”); Wahlstrom v. Commissioner, 92 T.C. 703, 707 (1989) (“Since there was no termination of the automatic stay provisions of 11 U.S.C. section 362, this Court lacks jurisdiction over this case and respondent’s motion to dismiss will be granted.”); see Reagoso v. Commissioner, 66 T.C.M. (CCH) 850, 852 (1993) (“In the present case, the automatic stay provisions of the Bankruptcy Code precluded petitioners from commencing a proceeding before the Tax Court until after August 6, 1992, the date the bankruptcy court granted a final discharge in bankruptcy. The improper petition filed on October 31, 1991, therefore, was filed in violation of the automatic stay provision at a time when this Court could not acquire jurisdiction over petitioners. Accordingly, this case must be dismissed.”), aff’d, 39 F.3d 1171 (3d Cir. 1994). 488 66 T.C.M. (CCH) 850 (1993), aff’d, 39 F.3d 1171 (3d Cir. 1994). 489 66 T.C.M. (CCH) at 851-852. 490 66 T.C.M. (CCH) at 852.

a liability that the bankruptcy court may determine. The House Judiciary Committee Report to the 2005 Bankruptcy Act provides that “[u]nder current law, the filing of a petition for relief under the Bankruptcy Code activates an automatic stay that enjoins the commencement or continuation of a case in the United States Tax Court. This rule was arguably extended in

Halpern v. Commissioner,491which held that the tax court did not have jurisdiction to hear a case involving a postpetition year.” Section 362(a)(8) was amended to address this issue.

b. Suspension of 90-Day Period for Filing Tax Court Petition. Although the Bankruptcy Code permits the Revenue Service to issue a notice of deficiency to a taxpayer who has filed a bankruptcy petition,492 the normal 90-day period for filing a timely Tax Court petition is suspended for the period during which the taxpayer is prohibited by reason of the automatic stay from filing a petition in the Tax Court and for 60 days thereafter.493 Thus, due 491 96 T.C. 895 (1991). 492 _See 11 U.S.C. § 362(b)(9)(B). 493

I.R.C. § 6213(f) (“In any case under title 11 of the United States Code, the running of the time prescribed by subsection (a) for filing a petition in the Tax Court with respect to any deficiency shall be suspended for the period during which the debtor is prohibited by reason of such case from filing a petition in the Tax Court with respect to such deficiency, and for 60 days thereafter.”); Guerra v. Commissioner, 110 T.C. 271, 274 (1998) (“Although respondent is free to issue a notice of deficiency to a taxpayer that has filed a bankruptcy petition, see 11 U.S.C. sec. 362(b)(9)(1994), the normal 90-day period for filing a timely petition with this Court is suspended for the period during which the taxpayer is prohibited by reason of the automatic stay from filing a petition in this Court and for 60 days thereafter.” [footnote omitted]); Olson v. Commissioner, 86 T.C. 1314, 1318-1319 (1986) (“Section 6213(f) . . . provides that the running of the time for filing a petition in the Tax Court shall be suspended for the period during which the debtor is prohibited from filing a petition in this Court and for 60 days thereafter.”); Thompson v. Commissioner, 84 T.C. 645, 648 (1985) (“We agree with respondent that petitioner has 150 days from February 12, 1985, to file his petition. Section 6213(f), . . . provides that the running of the time for filing a petition in this Court shall be suspended for a period during which the debtor is prohibited from filing a petition in this Court (90 days under section 6213(a), I.R.C. 1954, as amended) and for 60 days thereafter.” [citations and footnote omitted]); McClamma v. Commissioner, 76 T.C. 754, 758 (1981) (“Section 6213(f) provides that the running of time for filing a petition in this Court shall be suspended for a period during which the debtor is prohibited from filing a petition in this Court and for 60 days thereafter.”); Howard v. Commissioner, 76 T.C.M. (CCH) 294, 296 (1998) (“Although respondent is free to issue a notice of deficiency to a taxpayer who has filed a bankruptcy petition, see 11 U.S.C. sec. 362(b)(9) (1994), the normal 90-day period for filing a timely petition with this Court is suspended for the period during which the taxpayer is prohibited by reason of the automatic stay from filing a petition in this Court and for 60 days thereafter.” [footnote omitted]); Douglass v. Commissioner, 73 T.C.M. (CCH) 3046, 3047 (1997) (“[T]he running of the 90-day period prescribed by section 6213(a) for filing a petition in this Court with respect to the 1991 notice was suspended for the period during which the automatic stay was in effect (namely, from December 15, 1994, to May 3, 1996), and for 60 days thereafter. See sec. 6213(a), (f)(1). Accordingly, petitioner had a total of 150 days from May 3, 1996, or until September 30, 1996, within which to file timely a petition in this Court with respect to the 1991 notice.”); Ash v. Commissioner, 57 T.C.M. (CCH) 1056, 1057 (1989) (“[T]he unexpired portion of the 90-day period provided under section 6213(a) is added to the 60 days provided by section 6213(f). Since the 90-day period was stayed by the filing of a bankruptcy petition after having run 26 days, 64 days plus the 60 days yields 124 days . . . However, here, the bankruptcy proceeding is still pending. Therefore, the 124- day period for filing a petition with this Court will not commence to run until the earliest of the time the case is closed by the Bankruptcy Court, the time the case is dismissed by the Bankruptcy Court or, if the case is under chapter 13 of Title 11, the time a discharge is granted or denied by the Bankruptcy Court, or until the bankruptcy judge chooses to lift the stay.”[citations omitted]); cf. Field Serv. Adv. 200203007 (Jan. 18, 2002), 2001 FSA LEXIS 209, *20 (“With the automatic stay preventing the taxpayer from petitioning the Tax Court, the taxpayer’s period for filing a Tax Court petition is suspended pursuant to IRC § 6213(f)(1), and the Service is precluded from making an assessment pursuant to IRC § 6213(a) prior to the expiration of the period for filing a Tax Court petition.

to the stay imposed by 11 U.S.C. § 362(a)(8) on the filing of a Tax Court petition, I.R.C. § 6213(f) suspends the 90-day period for 60 days, plus the period the automatic stay is in effect.

McClamma v. Commissioner494 presents an interesting illustration of the operation of this rule (and the sometimes harsh consequences arising from its application). In McClamma, the Tax Court was presented with the question of the proper computation of the expanded period for filing a timely petition with the Tax Court pursuant to I.R.C. § 6213(f) where the taxpayers had filed a bankruptcy petition after receiving a notice of deficiency.495 The Revenue Service issued a notice of deficiency to John and Catherine McClamma on February 15, 1980.496 On March 3, 1980, John McClamma filed a bankruptcy petition under chapter 7 of the Bankruptcy Code.497 On April 18, 1980, while John McClamma’s bankruptcy case was pending, the taxpayers filed a joint petition for redetermination with the Tax Court.498 On September 19, 1980, the Bankruptcy Court issued a discharge order in John McClamma’s bankruptcy case.499 The Revenue Service subsequently filed with the Tax Court a motion to dismiss the Tax Court action for lack of jurisdiction as to John McClamma on the grounds that: (1) John McClamma was barred by the bankruptcy automatic stay from filing a petition for redetermination with the Tax Court on April 18, 1980; and (2) John McClamma did not file a timely petition following his discharge in bankruptcy.500

In granting the Revenue Service’s motion to dismiss, the Tax Court concluded that the automatic stay barred John McClamma from filing a petition with the Court on April 18, 1980.501 The Court further concluded that, following his discharge in bankruptcy, John McClamma failed to file a petition with the Court within the time prescribed in I.R.C. § 6213(f). That Court stated:

As to the time John had to file a new petition in this Court, respondent argues that the unexpired portion of the 90-day period provided under section 6213(a) is added to the 60 days provided by

This has the effect of suspending the IRC § 6501 period pursuant to IRC § 6503(a)(1).”); Field Serv. Adv. 200127008 (July 6, 2001), 2001 FSA LEXIS 61 (“With the automatic stay preventing the taxpayer from petitioning the Tax Court, the taxpayer’s period for filing a Tax Court petition is suspended pursuant to IRC § 6213(f)(1), and the Service is precluded from making an assessment pursuant to IRC § 6213(a) prior to the expiration of the period for filing a Tax Court petition. This has the effect of suspending the IRC § 6501 period pursuant to IRC § 6503(a)(1).”); 1995 FSA LEXIS 228 (March 15, 1995) (“On the other hand, the Service ordinarily prefers to rely upon specific suspensions of the tax assessment limitation period found within the Internal Revenue Code [I.R.C. §§ 6503(h) or 6213(f)], rather than look to B.C. § 108(c) and the Bankruptcy Code. The Service is also generally wary and uncomfortable with reading B.C. § 105(a) in a manner that would confer broad, unrestricted equitable powers on bankruptcy courts.”). 494 76 T.C. 754 (1981). 495 76 T.C. at 755. 496 76 T.C. at 755. 497 76 T.C. at 755-756. 498 76 T.C. at 756. 499 76 T.C. at 758. 500 76 T.C. at 754-758. 501 76 T.C. at 757.

section 6213(f). Since the 90-day period was stayed by the filing of a bankruptcy petition after having run 17 days, 73 days plus the 60 days allowed after the automatic stay was lifted yields 133 days. We agree with respondent that John had until January 30, 1981 (133 days from the date of discharge in bankruptcy, Sept. 19, 1980), to file a new petition in this Court to contest his Federal income tax liability for 1977.502

In Prevo v. Commissioner,503 a case of first impression, the Tax Court addressed the application of the automatic stay in a collection review proceeding brought in the Tax Court under I.R.C. § 6320. Congress enacted I.R.C. § 6320 (pertaining to the filing of tax liens) and I.R.C. § 6330 (pertaining to tax levies) as part of the Internal Revenue Service Restructuring Act of 1998,504 to provide specified protections for taxpayers in tax collection matters. When the Commissioner issues a determination letter to a taxpayer following an administrative hearing requested pursuant to Section 6320 or 6330, a taxpayer has 30 days to file a petition for review with the Tax Court or a Federal District Court, as appropriate.505 There is no provision analogous to section 6213(f) in section 6320 or 6330 that tolls the statutory period for filing a timely petition for lien or levy action for the period during which the person is prohibited by reason of the automatic stay from filing such a petition.506

In Prevo, the Revenue Service issued to the taxpayer a Notice of Determination on February 23, 2004, concluding that the filing of a federal tax lien was appropriate. On March 1, 2004, the taxpayer filed a voluntary Chapter 13 bankruptcy petition. On March 29, 2004, the taxpayer filed a petition with the Tax Court challenging the Revenue Service’s notice of determination. On March 31, 2004, the bankruptcy court dismissed the taxpayer’s bankruptcy case. On August 4, 2004, the Revenue Service filed a motion to dismiss the taxpayer’s petition in the Tax Court for lack of jurisdiction. The Tax Court granted the motion and noting that the taxpayer had “fallen victim to a trap for the unwary.”507 The Court explained the trap as follows: As the notice of determination was issued to the taxpayer on February 23, 2004, the taxpayer normally would have had 30 days – until March 24, 2004 – to file a timely petition for lien or levy action with the Tax Court. However, upon the filing of the bankruptcy petition on March 1, 2004, the automatic stay was invoked, and the taxpayer was barred from commencing a proceeding in the Tax Court. Further, the automatic stay remained in effect until March 31, 2004 – 7 days after the 30-day statutory filing period under I.R.C. §§ 6320(c) and 6330(d)(1) expired. Thus, but for the provisions of Bankruptcy Code § 6213(f) and the lack of a tolling provision analogous to I.R.C. § 6213(f), the Tax Court would have had jurisdiction over the case.508

The Prevo court recognized the harsh result but emphasized that “Congress did not include in sections 6320 and 6330 a tolling provision comparable to section 6213(f) that would 502 76 T.C. at 757-758 [fn. refs. omitted]. 503 123 T.C. 326 (2004). 504 Pub. L. 105-206, § 3401, 112 Stat. 746. 505 I.R.C. §§ 6320(c), 6330(d)(1). 506 Prevo, 123 T.C. at 193A. 507 123 T.C. at 193C. 508 123 T.C. at 193C.

extend the period for petitioner to file a petition for lien or levy action with the Court. Although the outcome in this case appears harsh, the gap in the collection review procedures that this case highlights is not one that can be closed by judicial fiat. A remedy, if any, must originate with Congress.”509