Kieu v. Comm'r of Internal Revenue

• Decision Date: 07 December 1995
• Docket Number: No. 22997-94.,22997-94.
• Citation: 105 T.C. 387,105 T.C. No. 26
• Parties: Chan Q. KIEU and Quynh Kieu, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Tax Court

105 T.C. 387

105 T.C. No. 26

Chan Q. KIEU and Quynh Kieu, Petitioners,

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 22997-94.

United States Tax Court.

Dec. 7, 1995.

Kevin O'Hara and Thomas A. Greco, for petitioners.

Linas N. Udrys and Peter Reilly, for respondent.

On Oct. 21, 1993, Ps filed a bankruptcy petition under chapter 7 of the Bankruptcy Code. On March 14, 1994, R issued a notice of deficiency to Ps for the taxable year 1989. On Nov. 1, 1994, the bankruptcy court entered an order granting summary judgment against Ps and determining that Ps' debts are nondischargeable under 11 U.S.C. sec. 727 (1988). On Dec. 12, 1994, Ps filed a petition for redetermination with this Court. On Jan. 23, 1995, the bankruptcy court entered an order granting Ps' motion for relief from judgment and vacating its order entered Nov. 1, 1994. On July 21, 1995, this Court issued an order directing the parties to show cause why this case should not be dismissed for lack of jurisdiction.

Held:The bankruptcy court's order entered Nov. 1, 1994, denied Ps a discharge of their debts under 11 U.S.C. sec. 727 (1988), and, thus, served to terminate the automatic stay imposed under 11 U.S.C. sec. 362(a)(8) (1988). See 11 U.S.C. sec. 362(c)(2)(C) (1988). Held, further, The bankruptcy court's order entered Jan. 23, 1995, while vacating the bankruptcy court's order entered Nov. 1, 1994, does not reinstate the automatic stay. See Allison v. Commissioner, 97 T.C. 544 (1991). Held, further, the petition filed herein was not filed in violation of the automatic stay and Ps properly invoked this Court's jurisdiction. Sec. 6213(f), I.R.C.

OPINION

GERBER, Judge:

This case was assigned to Special Trial Judge Carleton D. Powell pursuant to the provisions of section 7443A(b)(4) and Rules 180, 181, and 183.¹ The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

POWELL, Special Trial Judge: This case is before the Court on the Court's Order dated July 21, 1995, directing the parties to show cause why this case should not be dismissed for lack of jurisdiction. The issues are whether (1) the so-called automatic stay imposed pursuant to 11 U.S.C. section 362(a)(8) (1988), was lifted by an order of a bankruptcy court determining that all debts of the petitioners/debtors are nondischargeable, and (2) if so, whether a subsequent order, entered approximately 3 months later, vacating that order reinstates the automatic stay provisions.

Background

On October 21, 1993, Chan Q. Kieu and Quynh Kieu (petitioners) filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code with the U.S. Bankruptcy Court for the Central District of California. On January 24, 1994, Pacific Inland Bank (Pacific), a creditor, filed an adversary action against petitioners requesting that the bankruptcy court determine that petitioners' debts were nondischargeable pursuant to 11 U.S.C. section 523(a)(2)(A) and (B) (1988).² On the same date, the bankruptcy trustee filed a separate adversary action against petitioners requesting that the bankruptcy court determine that petitioners' debts were nondischargeable pursuant to 11 U.S.C. section 727(a) (1988).³ After filing the above-described complaints, Pacific and the bankruptcy trustee filed separate motions for summary judgment with the bankruptcy court. These matters were consolidated under the docket number for Pacific's action, and all pleadings were filed under that action.

On March 14, 1994, respondent mailed a notice of deficiency to petitioners determining a deficiency in their Federal income tax for 1989 in the amount of $78,978 along with an accuracy-related penalty pursuant to section 6662(a) in the amount of $15,796.

On November 1, 1994, the bankruptcy court entered an order granting Pacific's motion for summary judgment. The bankruptcy court's order states in pertinent part:

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Pacific's debt be determined non-dischargeable pursuant to 11 U.S.C. §523 of the Bankruptcy Code and such Judgment shall be res judicata on any further proceedings before this Court or any other.

IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Judgment be, and it is hereby, entered * * * that all debts pursuant to 11 U.S.C. §727 are determined non-dischargeable in this case and any other proceeding currently pending or to be filed by the Debtors. This Judgment should be considered res judicata to any future filing by either Chan Quang Kieu or Quynh Kieu, the Debtors herein. [Emphasis added.]

There was no stay, and the order contains no mention of the status of the automatic stay imposed under 11 U.S.C. section 362(a) (1988).

On December 12, 1994, petitioners filed a petition with this Court seeking a redetermination of their tax liability for the taxable year 1989. At the time the petition was filed, petitioners resided at Irvine, California.

On December 19, 1994, petitioners made a motion for relief in respect of the bankruptcy court's order entered November 1, 1994. On January 23, 1995, the bankruptcy court entered an order granting petitioners' motion for relief and vacating its prior order entered November 1, 1994. The bankruptcy court's order entered January 23, 1995, contains no mention of the automatic stay imposed under 11 U.S.C. section 362(a) (1988), and does not impose any stay of proceedings.

On July 21, 1995, this Court issued an order directing the parties to show cause why this case should not be dismissed for lack of jurisdiction on the ground that the petition was filed in violation of the automatic stay imposed under 11 U.S.C. section 362(a)(8) (1988). Both parties filed responses to the Court's order. A hearing was conducted in this case in Washington, D.C., on September 20, 1995. Counsel for respondent appeared at the hearing and presented oral argument. Although petitioners were not represented at the hearing, they did file a written statement with the Court pursuant to Rule 50(c).

Discussion

Title 11 of the United States Code provides uniform procedures designed to promote the effective rehabilitation of the bankrupt debtor and the equitable distribution of his assets among his creditors. See H. Rept. 95-595, at 340 (1977). One of the key elements to achieving these aims is the automatic stay that generally operates to temporarily bar actions against or concerning the debtor or property of the debtor or the bankruptcy estate. See Halpern v. Commissioner, 96 T.C. 895, 897-898 (1991). The automatic stay serves to preclude the commencement or continuation of proceedings in this Court. Specifically, 11 U.S.C. section 362(a)(8) (1988), provides in pertinent part:

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, * * * operates as a stay, applicable to all entities, of--

* * *

(8) the commencement or continuation of a proceeding before the United States Tax Court concerning the debtor.

In short, the filing of a bankruptcy petition invokes the automatic stay that precludes the commencement or continuation of proceedings in this Court. Allison v. Commissioner, 97 T.C. 544, 545 (1991).

Notwithstanding the foregoing, respondent is free to issue a notice of deficiency to a taxpayer involved in bankruptcy proceedings. See 11 U.S.C. sec. 362(b)(9) (1988).⁴ In the event that respondent issues a notice of deficiency to a taxpayer during the pendency of a bankruptcy case, the running of the time for filing a 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. Sec. 6213(f); Olson v. Commissioner, 86 T.C. 1314, 1318-1319 (1986), and cases cited therein; see also Zimmerman v. Commissioner, 105 T.C. 220 (1995).

The period that the automatic stay remains in effect is prescribed in 11 U.S.C. section 362(c) (1988), as follows:

(c) Except as provided in subsections (d), (e), and (f) of this section--

(1) the stay of an act against property of the estate under subsection (a) of this section continues until such property is no longer property of the estate; and

(2) the stay of any other act under subsection (a) of this section continues until the earliest of--

(A) the time the case is closed;

(B) the time the case is dismissed; or

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied. [Emphasis added.] Thus, unless relief from the automatic stay is granted by order of a bankruptcy court (see 11 U.S.C. sec. 362(d) (1988)), 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. 11 U.S.C. sec. 362(c)(2) (1988); see also Allison v. Commissioner, supra at 545; Smith v. Commissioner, 96 T.C. 10, 14 (1991); Neilson v. Commissioner, 94 T.C. 1, 8 (1990).

In the instant case, respondent issued a notice of deficiency to petitioners on March 14, 1994, during the pendency of petitioners' bankruptcy proceedings, as is permitted under 11 U.S.C. section 362(b)(9) (1988). 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. On November 1, 1994, however, the bankruptcy court entered its order granting Pacific's motion for summary judgment and determined that all of petitioners' debts were nondischargeable under 11 U.S.C. section 727 (1988). On January 23, 1995, the bankruptcy court entered an order granting petitioners' motion for relief and vacating its order entered November 1, 1994. It is under these circumstances that we decide whether the petition filed with this Court on December 12, 1994, was filed in violation of the automatic stay.

Petitioners argue that ...