The Tax Court in Brief – October 10th – October 14th, 2022
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Tax Litigation: The Week of October 10th, 2022, through October 14th, 2022
- Scheider v. Comm’r, T.C. Memo. 2022-104 | October 11, 2022 | Urda, J. | Dkt. No. 4048-20
- Clark Raymond & Company, PLLC v. Comm’r, T.C. Memo. 2022-105 | October 13, 2022 | Gustafson, J. | Dkt. No. 2265-19 (partnership intangible assets, substantial economic effect, capital accounts, distributions, tests for economic effect and Treas. Reg. § 1.704-1)
Cochran v. Comm’r, 159 T.C. No. 4 | October 12, 2022 | Greaves, J. | Dkt. No. 21002-16
Summary: Petitioners (husband and wife) filed a petition challenging a notice of deficiency. Thereafter, Petitioners filed a bankruptcy petition, which triggered an automatic stay of proceedings in the Tax Court. Following the bankruptcy court’s confirmation of Petitioners’ bankruptcy plan, Petitioners filed a Motion to Lift the Stay of Proceeding in the Tax Court. Petitioners contended that the confirmation of the bankruptcy plan lifted the automatic stay notwithstanding that Petitioners have not completed all payments pursuant to that plan and that Petitioners’ bankruptcy case has not been closed or dismissed.
Key Issues: Does the automatic stay continue to apply in the Tax Court following confirmation of a chapter 11 bankruptcy plan?
Primary Holdings: Yes. 11 U.S.C. § 1141(d)(5) provides in relevant part for individual debtors that confirmation of a bankruptcy plan does not discharge any debt provided for in the plan until (i) the bankruptcy court grants a discharge on completion of all payments under the plan or (ii) a bankruptcy court grants a discharge before that time after notice and a hearing. Thus, under 11 U.S.C. § 1141(d)(5), and based on these facts, the automatic stay continues pending satisfaction of 11 U.S.C. § 362, including through 11 U.S.C. § 1141(d)(5).
Key Points of Law:
Bankruptcy and the Tax Court. A bankruptcy filing generally triggers an automatic stay of Tax Court proceedings concerning the debtor-taxpayer. Kovitch v. Commissioner, 128 T.C. 108, 111 (2007); see 11 U.S.C. § 362(a)(8) specifically stays Tax Court proceedings “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 title 11 of the United States Code. This automatic stay is generally lifted at “the earliest of” the closing of the bankruptcy case, the dismissal of the bankruptcy case, or the granting or denial of a discharge to the debtor. 11 U.S.C. § 362(c)(2); Guerra v. Commissioner, 110 T.C. 271, 275 (1998).
Exception to General Rule. 11 U.S.C. § 362(d) mandates that, upon the request of “a party in interest” and after notice and a hearing, a bankruptcy court “shall” grant relief from an automatic stay if certain conditions are present.
Limitation. 11 U.S.C. § 1141(d): “In a case in which the debtor is an individual— (A) unless after notice and a hearing the court orders otherwise for cause, confirmation of the plan does not discharge any debt provided for in the plan until the court grants a discharge on completion of all payments under the plan; (B) at any time after the confirmation of the plan, and after notice and a hearing, the court may grant a discharge to the debtor who has not completed payments under the plan if— (i) the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 on such date; (ii) modification of the plan under section 1127 is not practicable; and (iii) subparagraph (C) permits the court to grant a discharge . . . .”
Insight: Title 11 U.S.C. §§ 362(c) and 1141(d) squarely supply the conditions in which the automatic stay in bankruptcy is lifted, and those conditions were not been shown to be met in this case.