Computer Programs Lambda, Ltd. v. Comm'r of Internal Revenue, Tax Ct. Dkt. No. 20653-86
| Decision Date | 27 July 1987 |
| Docket Number | 33223-86.,32952-86, Tax Ct. Dkt. No. 20653-86 |
| Citation | 89 T.C. No. 17,89 T.C. 198 |
| Parties | COMPUTER PROGRAMS LAMBDA, LTD., WILLIAM A. PYKE, TAX MATTERS PARTNER, ET AL., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
R filed motions to dismiss partnership actions brought on behalf of CPL.
1. PII was tax matters partner of CPL. Pyke, president of PII, filed a petition as an individual tax matters partner on June 13, 1986, although Pyke was not a partner of CPL. On June 17, 1986, PII filed for bankruptcy protection. On August 7, 1986, Pyke filed an amended petition purporting to substitute PII as petitioner. HELD, Pyke's petition at docket No. 20653-86 did not commence a partnership action. HELD FURTHER, the so- called amended petition purporting to substitute PII as petitioner was ineffective to commence a partnership action because the automatic stay provision of the Bankruptcy Code, 11 U.S.C. section 362(a)(8) (1982) bars commencement of an action in this Court after a bankruptcy petition has been filed until the bankruptcy proceeding is completed or the stay lifted.
2. W. P. Builders, a notice partner of CPL, is an alter ego of PII and a named debtor in the bankruptcy proceeding commenced by PII. William C. Mitchell and James C. Bearden are notice partners of CPL. W. P. Builders and Mitchell filed a timely notice partner petition on August 11, 1986. Bearden filed a timely notice partner petition on August 12, 1986. HELD, W. P. Builders, as a named debtor in a bankruptcy proceeding, could not commence an action in this Court. 11 U.S.C. section 362(a)(8) (1982). The petition at docket No. 32952-86 remains before the Court, however, as a timely notice partner petition filed by William C. Mitchell. HELD FURTHER, once PII filed its bankruptcy petition, PII's and W. P. Builders' partnership items became nonpartnership items, and PII and W. P. Builders ceased to have an interest in the outcome of the proceeding. Section 6231(c); section 6226(d); section 301.6231(c)-7T(a), Temp. Proced. and Admin. Regs., 52 Fed. Reg. 6793 (March 5, 1987). HELD FURTHER, PII ceased to be tax matters partner when it filed its petition in bankruptcy. Section 301.6231(a)(7)-1T(1)(4), Temp. Proced. and Admin. Regs., 52 Fed. Reg. 6792 (March 5, 1987). HELD FURTHER, because PII and W. P. Builders ceased to have an interest in the outcome of the proceeding and PII ceased to be tax matters partner as of the date the bankruptcy petition was filed, the proceeding will no longer ‘concern the debtor»s†‘ within the meaning of 11 U.S.C. section 362(a)(8) (1982) and the automatic stay provision does not prevent the partnership proceeding from going forward. HELD FURTHER, James C. Bearden's notice partner petition at docket No. 33223-86 dismissed, but Bearden may file an election to participate in the action that goes forward. Section 6226(b)(4); section 6226(b)(2); Rule 244(c), Tax Court Rules of Practice and Procedure. William A. Pyke, pro se in docket No. 20653-86.
William C. Mitchell and William A. Pyke, President, W. P. Builders, Inc. fka American Applications, Inc., pro se in docket No. 32952-86.
Gilbert Aranza, for the petitioner in docket No. 33223-86.Alvin A. Ohm, R. Alan Lockyear, and Henry S. Schneiderman, for the respondent.
These cases are before us on respondent's motions to dismiss. The Commissioner determined adjustments to Computer Programs Lambda, Ltd.'s (‘CPL‘) partnership return for its 1982 taxable year as set forth in his notice of final partnership administrative adjustment issued on March 11, 1986.
Respondent moved to dismiss the case at docket No. 20653-86 on the ground that it was commenced by an improper party and that an amended petition filed by Pyke International, Inc. (‘PII‘) as a substituted petitioner was void because PII was then a debtor in a bankruptcy proceeding.
Respondent moved to dismiss as to petitioner W. P. Builders, Inc. (‘W. P. Builders‘) in docket No. 32952-86 because W. P. Builders was a debtor in a bankruptcy proceeding at the time it filed a petition. Respondent does not object to the case going forward as to petitioner William C. Mitchell.
Respondent moved to dismiss the case at docket No. 33223-86 pursuant to section 6226(b)(4)2 or section 6226(b)(1) on the ground that a valid petition (by William C. Mitchell at docket No. 32952-86) had previously been filed.
Petitioners have not objected to respondent's proposed findings of fact which are supported by the record.
CPL is a limited partnership organized under the laws of the state of Texas with its principal place of business at Dallas, Texas. PII is a general partner of CPL, and W. P. Builders, William C. Mitchell and James C. Bearden are limited partners of CPL.
PII was the tax matters partner of CPL at the time William A. Pyke filed his petition at docket No. 20653-86. Pyke, president of PII, has never been a partner of CPL. W. P. Builders, a notice partner of CPL, is an alter ego of PII.3 Mitchell and Bearden are notice partners of CPL. At the time the petitions in thee cases were filed, CPL, PII and W. P. Builders had their principal places of business, and Pyke, Mitchell and Bearden resided, in Texas.
On March 11, 1986, respondent issued a notice of final partnership administrative adjustment to PII as tax matters partner of CPL for CPL's 1982 taxable year. On April 11, 1986, respondent mailed copies of the notice of final partnership administrative adjustment to the notice partners of CPL. On June 13, 1986, Pyke filed a petition with this Court putting at issue the partnership items of CPL and styling himself tax matters partner.4 On June 17, 1986, PII filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of Texas, case number 386- 32037. W. P. Builders was also named as a debtor in the bankruptcy proceeding as a division of PII.
On August 7, 1986, Pyke, as president of PII, filed a document entitled ‘First Amended Petition,‘ purporting to change the caption of the petition to
On August 11, 1986, petitioners W. P. Builders and William C. Mitchell timely filed a petition as notice partners of CPL. On August 12, 1986, James C. Bearden timely filed a notice partner petition.5
Respondent filed his motions to dismiss on January 15, 1987. A hearing was held on respondent's motions on March 16, 1987 at Washington, D.C. There were no appearances on behalf of petitioners.
The primary issue we must decide is one of first impression concerning the effect of the automatic stay provision of the Bankruptcy Code, 11 U.S.C. section 362(a)(8) (1982)6 on a case brought or pending pursuant to the partnership audit and litigation procedures, section 6221 et seq. In general, this section of the Bankruptcy Code, by operation of law, stays the commencement or continuation of a proceeding in this Court brought by the debtor upon the filing of a bankruptcy petition. Unless the stay is lifted, a debtor in bankruptcy, therefore, may not commence or continue an action in this Court while the bankruptcy proceeding is pending. Thompson v. Commissioner, 84 T.C. 645 (1985); McClamma v. Commissioner, 76 T.C. 754 (1981).
Pyke filed a petition with this Court as the tax matters partner of CPL on June 13, 1986. Pyke, however, was not the tax matters partner nor even a partner of CPL. His petition, therefore, did not commence a partnership action.
On August 7, 1986, an amended petition purporting to substitute PII for Pyke as petitioner was filed. PII was the tax matters partner of CPL when Pyke filed his petition. On June 17, 1986, however, PII had filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. Once PII filed a petition in bankruptcy, it was barred from commencing an action in this Court until the bankruptcy proceeding was completed or the stay was lifted. 11 U.S.C. section 362(a)(8) (1982); Thompson v. Commissioner, supra; McClamma v. Commissioner, supra. The amended petition, therefore, was a legal nullity and, like the original petition, did not commence a partnership action.7
W. P. Builders, together with William C. Mitchell, filed a timely notice partner petition with this Court on August 11, 1986. W. P. Builders, however, is a named debtor on the bankruptcy petition that PII filed on June 17, 1986. As of that date, W. P. Builders could not commence an action in this Court until the stay was lifted or the bankruptcy proceeding was completed. A partnership proceeding involving the adjustments to CPL's 1982 taxable year nevertheless remains before the Court because William C. Mitchell filed a timely notice partner petition at docket No. 32952-86. We, therefore, must decide what rights PII and W. P. Builders will have in that proceeding and what effect the automatic stay provision may have on our ability to go forward with that proceeding.
Section 6231(c)8 provides that in certain special enforcement areas the Secretary may provide by regulations for the conversion of a partner's partnership items into nonpartnership items. The effect of this conversion is to remove the partner from the partnership proceeding and subject the converted items to the deficiency procedures applicable to the partner's individual tax case. Compare Maxwell v. Commissioner, 87 T.C. 783, 787 (1986). The Secretary has promulgated regulations pursuant to section 6231(c) applicable to the circumstances of this case. Section 301.6231(c)-7T(a), Temp. Proced. and Admin. Regs., 52 Fed. Reg. 6793 (March 5, 1987), provides:
(a) BANKRUPTCY. The treatment of items as partnership items with respect to a partner named as a debtor in a bankruptcy proceeding will interfere with the effective and efficient enforcement of the internal revenue laws. Accordingly, partnership items of such a partner arising in any partnership taxable year ending on or before the last day of the...
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