Tatum v. Comm'r of Internal Revenue
| Decision Date | 25 October 1977 |
| Docket Number | Docket No. 10555-76. |
| Citation | 69 T.C. 81 |
| Parties | JAMES E. TATUM and ELIZABETH TATUM, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held, under sec. 6871(b), I.R.C. 1954, this Court is without jurisdiction over deficiencies in income tax claimed in a proceeding under ch. XI, of the Bankruptcy Act, where the notice of deficiency was sent prior to the filing of a petition under ch. XI of the Bankruptcy Act but the petition in this Court was filed after filing of the petition under ch. XI, even though the arrangement proposed by the debtor has not been confirmed by the bankruptcy court. Held, further: This Court lacks jurisdiction over additions to tax determined under secs. 6651(a) and 6653(a), I.R.C. 1954, in view of the interpretation of the provisions of 11 U.S.C. sec. 11(a)(2a) and 11 U.S.C. sec. 35(c)(1) and (3) in recent cases. Insofar as Prather v. Commissioner, 50 T.C. 445 (1968); King v. Commissioner, 51 T.C. 851 (1969); Tanner v. Commissioner, 64 T.C. 415 (1975); and Izen v. Commissioner, 64 T.C. 919 (1975), are contrary to this conclusion, they will no longer be followed. Ted Hirtz, for the petitioners.
Charles N. Woodward and M. Alice Gresham, for the respondent.
On December 3, 1976, a petition entitled as above was filed in this case seeking a redetermination of deficiencies and additions to tax for the calendar years 1970 through 1973. Attached to the petition was a copy of a notice of deficiency mailed to petitioners on September 3, 1976, determining the following deficiencies and additions to tax:
On February 22, 1977, respondent filed a motion to dismiss the above-entitled case as to James E. Tatum for lack of jurisdiction and to change caption.
The issues here are (1) whether this Court under the provisions of section 6871(b), I.R.C. 1954,1 lacks jurisdiction of the deficiencies involved in this case as to Mr. Tatum since the petition herein was filed after the filing by Mr. Tatum of a petition for an arrangement under chapter XI of the Bankruptcy Act, and (2) whether this Court under section 6871(b) lacks jurisdiction over the additions to tax asserted by respondent.
On April 6, 1977, petitioners filed objections to respondent's motion on the ground that there had been no approval of the petition filed by James E. Tatum for an arrangement under chapter XI of the Bankruptcy Act. Petitioners contend that the provisions of chapter XI require approval of the arrangement proposed in the petition, and therefore since the petition in this case was filed prior to approval of the proposed arrangement under chapter XI of the Bankruptcy Act, section 6871(b) does not cause this Court to lack jurisdiction to determine the deficiencies and additions to tax asserted by respondent against Mr. Tatum.
At the hearing on this motion held in Houston, Tex., on May 9, 1977, the parties agreed to the facts relevant to respondent's motion. These agreed facts show that petitioners are husband and wife who filed joint Federal income tax returns for the calendar years 1970 through 1973. At the time their petition in this case was filed, they resided in Houston, Tex.
Respondent in the statutory notice of deficiency mailed to petitioners on September 3, 1976, determined deficiencies and additions to tax as above set forth. On October 4, 1976, petitioner James E. Tatum filed a petition under chapter XI of the Bankruptcy Act with the United States District Court for the Southern District of Texas, and on December 3, 1976, the petition with this Court seeking a redetermination of the deficiencies and additions to tax was filed. On January 13, 1977, respondent sent a letter (Form L-296) to James E. Tatum as debtor in possession notifying him that deficiencies in income tax and additions to tax were being assessed against him under the provisions of section 6871(a) for the calendar years 1970 through 1973. The amounts of the deficiencies and additions to tax set forth in this letter were identical to the amounts determined in the statutory notice of deficiency mailed September 3, 1976. The deficiencies in income tax as set forth in the letter of January 13, 1977 (Form L-296), sent to Mr. Tatum were assessed against him on January 17, 1977. On February 2, 1977, the Commissioner of Internal Revenue filed a proof of claim in the bankruptcy proceeding for assessed Federal income taxes due from James E. Tatum for the years 1970 through 1973. The proof of claim, Form 4491, claimed, among other things, the following amounts of income tax and interest:
+-------------------------------------+
¦Kind of tax and period ¦Amount due ¦
+------------------------+------------¦
¦ ¦ ¦
+------------------------+------------¦
¦Income tax 1970 ¦$33,484.83 ¦
+------------------------+------------¦
¦Interest to 10/4/76 ¦11,793.61 ¦
+------------------------+------------¦
¦Income tax 1971 ¦16,776.25 ¦
+------------------------+------------¦
¦Interest to 10/4/76 ¦4,902.15 ¦
+------------------------+------------¦
¦Income tax 1972 ¦12,656.18 ¦
+------------------------+------------¦
¦Interest to 10/4/76 ¦2,938.86 ¦
+------------------------+------------¦
¦Income tax 1973 ¦11,208.39 ¦
+------------------------+------------¦
¦Interest to 10/4/76 ¦1,930.17 ¦
+-------------------------------------+
No claim was made in the proof of claim filed February 2, 1977, for any additions to tax and no other claim for these taxes has been made by respondent in the proceedings under chapter XI of the Bankruptcy Act.
Section 6871(a) provides that upon the adjudication of bankruptcy of any taxpayer or the filing or where approval is required by the Bankruptcy Act, the approval of a petition of any taxpayer in any other bankruptcy proceeding, any deficiency determined with respect to an income tax shall, despite the restrictions imposed by section 6213(a) upon assessments, be immediately assessed if such deficiency has not previously been assessed in accordance with law. Section 6871(b)2 provides that in the case of an income tax deficiency, a claim for such deficiency and such interest, additional amounts and additions to the tax may be presented for adjudication in accordance with law to the court before which the bankruptcy or receivership proceeding is pending despite the pendency of proceedings for the redetermination of the deficiency before the Tax Court; but that no petition for any such redetermination shall be filed with the Tax Court after the adjudication of bankruptcy, the filing or (where approval is required by the Bankruptcy Act) the approval of a petition of, or the approval of a petition against, any taxpayer in any other bankruptcy proceeding.
It is respondent's position that this Court lacks jurisdiction of a case where after the mailing of the notice of deficiency, but prior to the date of the filing of the petition in this Court, a taxpayer to whom the notice is issued files a petition under chapter XI of the Bankruptcy Act. In Izen v. Commissioner, 64 T.C. 919, 923-924 (1975), we so held with respect to the deficiency as determined by respondent in the notice of deficiency. Petitioners, however, point out that the facts in the Izen case do not show whether the arrangement proposed in the petition filed under chapter XI of the Bankruptcy Act had been approved by creditors and confirmed by the court prior to the filing of the petition by the taxpayers there involved with this Court. They stated that in any event no issue as to whether it was necessary that such approval and confirmation have occurred to deprive this Court of jurisdiction over the deficiency was raised. Petitioners argue that since under the provisions of chapter XI of the Bankruptcy Act the arrangement proposed in the petition must be approved by all or a majority of the unsecured creditors and confirmed by the court to become effective, the provisions of section 6871(b) should be interpreted as inapplicable to a petition filed under chapter XI of the Bankruptcy Act until the arrangement proposed in the petition under chapter XI or thereafter is accepted by the creditors and confirmed by the court. Petitioners state, and respondent admits, that at the date this motion was argued the arrangement proposed by James E. Tatum had not been confirmed by the court.
Chapter XI of the Bankruptcy Act (11 U.S.C. secs. 701-799) provides that a debtor may file a petition under chapter XI in a pending bankruptcy proceeding either before or after his adjudication (11 U.S.C. sec. 721) or if no bankruptcy proceeding is pending, a debtor may file an original petition under chapter XI with the court which would have jurisdiction of a petition for his adjudication in bankruptcy (11 U.S.C. sec. 722). In the instant case, the parties agree that the petition filed by Mr. Tatum on October 4, 1976, with the United States District Court for the Southern District of Texas, was an original petition under chapter XI (11 U.S.C. sec. 722), since at the time it was filed no bankruptcy proceeding was pending involving Mr. Tatum. Chapter XI further provides (11 U.S.C. sec. 723) that a petition filed under that chapter shall state that the debtor is insolvent or unable to pay his debts as they mature and shall set forth the provisions of the arrangement proposed by him or state that he intends to propose an arrangement pursuant to the provisions of the chapter.3
Chapter XI further provides for notice to creditors of a creditors'...
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