Bankruptcy’s Bar to Filing a Tax Court Petition

0 Flares 0 Flares ×

The case of Perry v. Commissioner reopens the curious link between the Tax Court and the bankruptcy courts regarding the timing of the filing of a Tax Court petition.  The Tax Court appropriately treats the decision as a memo opinion because the case does not break new ground but I had not noticed one of these cases recently.  The issue in the case arises from section 362(a)(8) of the Bankruptcy Code.  This section is the 8th and final provision of the items Congress listed as stopped – or automatically stayed – when a bankruptcy petition is filed.  The provision regarding the automatic stay and the Tax Court did not develop with the other automatic stay provisions during the legislative process and does not logically follow.  Congress made a minor change to this provision when it amended the Bankruptcy Code in 2005 but the provision still sticks out a bit as an anomaly among the stay provisions.

The IRS motion here completely surprises me. I did not think it would take the position asserted in this case and am not certain that the position taken here represents the official position of the Office of Chief Counsel or the misguided filing by an attorney in a field office.  The Court’s response correctly rebuffed the motion to dismiss filed by the IRS.  Because the issue has some interesting history and because knowing the rules governing the interplay of the Tax Court and bankruptcy court at the point of filing a Tax Court petition can provide some benefit, the case deserves attention.


Perry presents a simple, if unusual, fact pattern. Ms. Perry woke up on June 6, 2014, in a fighting mode.  That day was the 70th anniversary of D-day and perhaps an excellent day for someone in the U.S. to exhibit a fighting spirit.  What Ms. Perry did that day out of her ordinary pattern, and out of the ordinary pattern of almost everyone in the U.S., was to file both a Tax Court petition and a bankruptcy petition.  She filed these petitions within 3 hours and 25 minutes of each other and almost 3,000 miles apart in terms of the courts she chose.

The Tax Court, a Court located in Washington, D.C., does not explain in the opinion how it determined that her Tax Court petition was filed at 1:48 PM EDT that day. I am guessing that given the location of her bankruptcy case and the fact that she apparently resides in California that she did not personally deliver her petition to the Tax Court that afternoon.  I further guess that 1:48 PM EDT is the moment at which a person in the clerk’s office of the Tax Court happened to open the envelope containing her petition and stamp the petition “filed” with the Tax Court.  No explanation is found in the opinion which provides answers to the timing of opening of a Tax Court case.  Please do not rely upon my uneducated guess.

Since the Tax Court does not allow electronic filing of the petition, the only two options she had for filing that petition were hand delivery or mail. The fact that the person in the Tax Court clerk’s office happened to open that envelope at 1:48 PM EDT and stamp it turns out to be the crucial link in her victory with respect to the motion to dismiss her Tax Court petition.  So, it is possible that she did not wake up on June 6 knowing that she was going to file petitions in two courts that day.

At 2:11 PM PDT Ms. Perry filed her chapter 7 petition in the Bankruptcy Court for the Northern District of California. How she filed her petition in that court is also not explained in the opinion.  Bankruptcy court does permit electronic filing of petitions so it is possible she flew to DC to personally file the Tax Court petition and then went to Starbucks in DC to electronically file her bankruptcy petition a few hours later.  PACER suggests that the bankruptcy petition was electronically filed by her attorney which is consistent with the way most bankruptcy cases are filed.

In any event she clearly filed the Tax Court petition prior to the filing of the bankruptcy petition and that fact stands at the center of the Tax Court’s opinion denying the motion to dismiss filed by the IRS. As I mentioned above, I cannot understand why the IRS filed a motion to dismiss on these facts.  Perhaps the timing of the filing was not so clear to the attorney who filed the motion although I believe that the Tax Court clerk’s office would have orally provided information on the timing of the petition filed there.

The legal basis for the motion goes back to the automatic stay provisions. Congress decided that among all of the Courts in the United States, it did not want debtors filing a petition in the United States Tax Court when the automatic stay was in effect.  So, it created 362(a)(8) which says that “the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation 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.”  The automatic stay comes into effect at the moment that a bankruptcy petition is filed but not before that moment.  If the filing of the bankruptcy case had preceded the filing of the Tax Court case, then the filing of the Tax Court case would have violated the automatic stay.  If the Tax Court petition filing violated the automatic stay, then the Tax Court would have lacked jurisdiction and should have granted the IRS motion to dismiss the case.

Over the years the Tax Court has dismissed a number of cases when Tax Court petitions arrived during the time in which the automatic stay existed. Frequently, the IRS and the Tax Court have a difficult time knowing that a bankruptcy case (and the automatic stay) exists at the time of the Tax Court petition.  Motions to dismiss because of the filing of a Tax Court petition during the pendency of the automatic stay often occur some months or even years after the filing of the Tax Court petition.  Most Tax Court petitioners have no idea that the existence of the automatic stay bars the filing of a Tax Court petition.

One unfortunate petitioner, Mr. Chamberlain filed his Tax Court petition while the automatic stay still existed. The IRS moved to dismiss his Tax Court case for lack of jurisdiction.  He asked the bankruptcy court to lift the stay which it obligingly did.  He took the stay lift order back to the Tax Court to show it in order that it would allow him to remain in Tax Court.  His bankruptcy case ended many months before the Tax Court got around to ruling on his response to the IRS motion to dismiss.  When the Tax Court finally did rule on the motion to dismiss, it ruled that the order lifting the automatic stay could not retroactively confer jurisdiction upon the Tax Court and since the automatic stay existed at the time of the filing of Mr. Chamberlain’s petition, the Tax Court lacked jurisdiction and must dismiss the case.  The opinion in this case came out as a Memorandum sur Order which I no longer have.  Based on memory, the order was issued in the early 1990s but I do not know how to retrieve it at this point.

Mr. Chamberlain’s problem was that even though the time to file a Tax Court petition is stayed because of B.C. 362(a)(8) and he had 90 days (plus an extra 60 stemming from the automatic stay) within which to file a Tax Court petition because of IRC 6213(f)(1) that 150 day time period had passed by the time he learned he was being kicked out of Tax Court. So, not only did he lose his chance to go to Tax Court, he also lost his chance to litigate the liability in bankruptcy court pursuant to bankruptcy code section 505 since he was no longer in bankruptcy court.

The stay created by 362(a)(8) creates a potential trap for the unwary and a trap that falls particularly hard on persons going into chapter 7. The vast majority of chapter 7 petitioners file no asset cases.  They have minimal representation in the bankruptcy case which usually results in a quick in and out proceeding.  If they happen to file a Tax Court petition while the automatic stay triggered by the chapter 7 petition still exists, they can lose their opportunity to go to Tax Court even though they generally have no opportunity to litigate the merits of their tax liability in bankruptcy and even though their tax issues have little or nothing to do with the bankruptcy proceeding since unsecured creditors will get nothing from the bankruptcy proceeding and any tax liabilities asserted in a notice of deficiency pending at the time of the bankruptcy petition will almost certainly be excepted from discharge.

These problems impact a small number of persons based on the cases reported, yet the reason for the Tax Court to be singled out in the automatic stay remains a solution in search of a good question. The better result might be to eliminate 362(a)(8) and let the Tax Court deal with any bankruptcy proceeding the same way that all other courts do.



  1. I believe a debtor should ditch the Tax Court in favor of the Bankruptcy Court. The Tax Court is too pro IRS; in contrast, a Bankruptcy Court is primarily concerned with rehabilitating the debtor.

    The bankruptcy courts have not hesitated to excoriate, if not sanction, the IRS for many misdeeds that the Tax Court would have labeled as “harmless error.” In the Tax Court, the IRS is a special litigant. In a bankruptcy court, the IRS is merely another creditor.

    A word to the wise (and to others): if you are in, or need, a bankruptcy court, get that court to determine your tax liability.

  2. Jason
    Can the bankruptcy court decide disputed tax issues as you suggest? Couldn’t you have recent income or other tax penalties not eligible for discharge? Would a Bk judge rule on those? It seems to me if a debtor is not careful they might lose their right to go to tax court in cases like this.

  3. Ed,

    In answer to your three questions: yes.

    1. Under 11 U.S.C. § 505(a), a bankruptcy court “may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.”

    An exception is if “the amount or legality of a tax, fine, penalty, or addition to tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction BEFORE the commencement of the case [under Title 11].” [Emphasis supplied].

    2. One indeed could have non-dischargeable taxes. At the outset, though, the taxing authority could file a claim against the bankruptcy estate for any pre-petition tax liability. It could also ask the bankruptcy judge to decide the debtor’s personal liability for non-dischargeable taxes. The debtor too can ask the bankruptcy court to determine the dischargeability of any tax. If either the taxing authority or the debtor takes affirmative action on the tax claim, then yes, the bankruptcy court’s judgment will exclude any other judicial remedy.

    Normally, however, that is in low to no asset cases, neither the taxing authority nor the debtor will seek a personal dischargeability determination. In those cases, the taxing authority must still follow normal tax procedures (e.g. IRS notice of deficiency) to collect any nondischargeable tax. Naturally, then, the debtor would have recourse to, for instance, the U.S. Tax Court.

    3. In sum, the bankruptcy court can determine any tax that another competent tribunal has not previously determined. You speak of a loss of a “right” to go to Tax Court. One may retain that so-called right. If he is otherwise unfortunately situated, however, his remedy lies in the bankruptcy court. Again, the bankruptcy courts don’t give a rat’s behind about the IRS. To them, the IRS is merely another creditor–and a poorly behaving one at that. Contrast that judicial attitude with the deference, if not sometimes the reverence, the Tax Court accords the IRS.

    To me, it is rarely a contest: forget a Tax Court right; claim a bankruptcy court remedy.

Comment Policy: While we all have years of experience as practitioners and attorneys, and while Keith and Les have taught for many years, we think our work is better when we generate input from others. That is one of the reasons we solicit guest posts (and also because of the time it takes to write what we think are high quality posts). Involvement from others makes our site better. That is why we have kept our site open to comments.

If you want to make a public comment, you must identify yourself (using your first and last name) and register by including your email. If you do not, we will remove your comment. In a comment, if you disagree with or intend to criticize someone (such as the poster, another commenter, a party or counsel in a case), you must do so in a respectful manner. We reserve the right to delete comments. If your comment is obnoxious, mean-spirited or violates our sense of decency we will remove the comment. While you have the right to say what you want, you do not have the right to say what you want on our blog.

Speak Your Mind