T.C. Summary Opinion 2008-83

UNITED STATES TAX COURT

KENNETH AND CAROL LEHMAN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 24324-06S. Filed July 15, 2008.

Kenneth and Carol Lehman, pro sese.

Mark S. Schwarz and Paul C. Feinberg, for respondent.

SWIFT, Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

when the petition was filed. Pursuant to section 7463(b), the

decision to be entered is not reviewable by any other court, and

this opinion shall not be treated as precedent for any other

case. 
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Under section 6330 petitioners challenge respondent’s notice

of determination as to respondent’s proposed levy action relating

to petitioners’ 1998, 2000, and 2001 Federal income taxes,

representing a cumulative total liability of approximately

$10,000. Respondent has filed a motion for summary judgment.

Unless otherwise indicated, all section references are to

the Internal Revenue Code.

Background

On October 1, 1999, petitioners filed a chapter 13

bankruptcy petition with the U.S. Bankruptcy Court, District of

Nevada.

On October 17, 1999, petitioners filed late their 1998 joint

individual Federal income tax return. On November 15, 1999,

respondent assessed the taxes petitioners reported on their 1998

tax return, an addition to tax for late filing, and interest.

On September 17, 2001, petitioners late filed their

2000 joint individual Federal income tax return. On October 29,

2001, respondent assessed the tax petitioners reported on their

2000 tax return, an addition to tax for late filing, and

interest.

On July 11, 2002, the bankruptcy court entered an order

confirming petitioners’ chapter 13 plan for reorganization, under

which petitioners were to pay their outstanding Federal income
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tax liabilities in installments over 33 months beginning February 

2002.

On July 22, 2002, petitioners moved the Court to dismiss

their chapter 13 bankruptcy petition. 

At a bankruptcy court hearing held on September 4, 2002, the

bankruptcy court indicated that petitioners’ motion for dismissal

of their petition was approved but that petitioners “need to

submit an order dismissing the case.”

On September 6, 2002, petitioners late filed their 2001

joint individual Federal income tax return. On October 7, 2002,

respondent assessed the tax petitioners reported on their

2001 tax return, an addition to tax for late filing, and

interest.

Thereafter, beginning on December 25, 2002, petitioners made

various payments to respondent on their outstanding Federal

income taxes, each of which was applied to petitioners’

outstanding 1998 Federal income taxes.

On February 5, 2004, because petitioners had not yet filed

the above-referenced order to dismiss their chapter 13 bankruptcy

case, the bankruptcy trustee notified petitioners that their

bankruptcy case was still open and that they were delinquent on

the payments due under the plan that petitioners had submitted in

their chapter 13 bankruptcy case. 
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On March 10, 2004, petitioners filed another motion for

dismissal of their chapter 13 bankruptcy case, and on March 11,

2004, the bankruptcy judge signed an order of dismissal and

entered the dismissal. As a result of petitioners’ motion for

dismissal of their bankruptcy, petitioners’ outstanding Federal

income taxes for 1998, 2000, and 2001 were not discharged in

bankruptcy.

On September 20, 2004, petitioners filed for bankruptcy

under chapter 7. See 11 U.S.C. sec. 707 (2000). Thereunder,

petitioners were awarded a discharge of their debts on

December 28, 2004. 

Because balances remained due on petitioners’ Federal income

taxes for 1998, 2000, and 2001, on April 25, 2006, respondent

mailed to petitioners a notice of intent to levy with regard

thereto and of petitioners’ rights to an Appeals Office 

collection hearing under section 6330.

On May 9, 2006, petitioners mailed to respondent a

Form 12153, Request for a Collection Due Process Hearing. 

Petitioners’ only objection to the levy was that petitioners’

Federal income taxes for 1998, 2000, and 2001 were discharged by

petitioners’ chapter 7 bankruptcy. Petitioners raised no issue

as to the correct amount of their Federal income taxes for these

years.
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Respondent’s Appeals Office concluded that petitioners’

Federal income taxes for 1998, 2000, and 2001 were not discharged

by petitioners’ chapter 7 bankruptcy because the running of the

collection period of limitations with regard thereto had been

tolled during the entire course of petitioners’ chapter 13

bankruptcy proceeding (i.e., from October 1, 1999, through

March 11, 2004), making those liabilities not dischargeable.

On November 2, 2006, respondent’s Appeals Office issued to

petitioners a notice of determination sustaining the notice of

intent to levy.

Discussion

We have jurisdiction to decide whether income taxes are

discharged in bankruptcy. Swanson v. Commissioner, 121 T.C. 111,

116-117 (2003); Washington v. Commissioner, 120 T.C. 114, 119-121

(2003).

Federal income taxes for a particular year may be discharged

by a chapter 7 bankruptcy discharge order if the due date of the

related tax return for the year, including extensions, was at

least 3 years before the chapter 7 bankruptcy petition was filed

(3-year lookback period). 11 U.S.C. sec. 507(a)(8)(A)(i) (2000);

Severo v. Commissioner, 129 T.C. 160, 165-166 (2007).

In calculating the 3-year lookback period, one must take

into account any time during which the running of the lookback

period was tolled (e.g., during pendency of a prior bankruptcy
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1 The 3-year lookback period relating to petitioners’ ch. 7

bankruptcy proceeding began on Sept. 20, 2004, the date

petitioners filed their ch. 7 bankruptcy petition, and ran back

for 194 days to the date that petitioners’ prior ch. 13

bankruptcy proceeding was dismissed (Mar. 11, 2004). At that

point, 901 days (or about 2-1/2 years) remained of the 3-year

lookback period applicable to petitioners’ ch. 7 bankruptcy

proceeding, and these remaining 901 days were tolled during the

entire 4-1/2 years during which petitioners’ prior ch. 13

bankruptcy proceeding was pending. The 3-year lookback period

applicable to petitioners’ ch. 7 bankruptcy proceeding thus

looked back from Sept. 20, 2004, to Apr. 1, 1997.

proceeding). Young v. United States, 535 U.S. 43, 46-47 (2002);

Richardson v. Commissioner, T.C. Memo. 2003-154.

The 3-year lookback period applicable to petitioners’

chapter 7 bankruptcy proceeding began when petitioners filed

their chapter 7 bankruptcy petition (September 20, 2004) and,

without tolling, would have ended 3 years prior thereto (on

September 20, 2001). However, the running of the 3-year lookback

period applicable to petitioners’ chapter 7 bankruptcy proceeding

was tolled during the 4-1/2-year pendency of petitioners’ chapter

13 bankruptcy proceeding, and thus the 3-year lookback period

actually ended on approximately April 1, 1997.1

Because petitioners’ 1998, 2000, and 2001 Federal income tax

returns were due long after April 1, 1997, petitioners’ 1998,

2000, and 2001 Federal income taxes (due in 1999, 2001, and 2002,

respectively) were due within the 3-year lookback period

applicable to petitioners’ chapter 7 bankruptcy proceeding and

were not discharged by the bankruptcy discharge order that was
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2 We note that petitioners’ 2001 Federal income tax return

was due to be filed within the 3-year lookback period even

without taking into account any tolling thereof. 

3 We note that the shorter tolling period petitioners would

apply would also except from discharge (i.e., would not

discharge) petitioners’ 1998, 2000, and 2001 Federal income

taxes. The period from the date petitioners filed their ch. 7

petition (Sept. 20, 2004) back to Sept. 4, 2002 (the date of the

bankruptcy judge’s oral statement regarding dismissal of the ch.

13 bankruptcy proceeding), consists of 746 days and leaves 348

days (almost 1 year) remaining on the 3-year lookback period

applicable to petitioners’ Oct. 1, 1999, ch. 7 bankruptcy

petition. Approximately 348 days before the date on which

petitioners filed their ch. 13 bankruptcy proceeding is Oct. 20,

1998. Petitioners’ 1998, 2000, and 2001 Federal income tax

returns, of course, were due long thereafter.

entered in petitioners’ chapter 7 bankruptcy case on December 28,

2004.2

Petitioners claim that the September 4, 2002, oral statement

of the bankruptcy judge in petitioners’ chapter 13 bankruptcy

proceeding (to the effect that petitioners’ chapter 13 bankruptcy 

proceeding would be dismissed) should be treated as the effective

date on which petitioners’ chapter 13 bankruptcy was dismissed

and therefore that the tolling of the 3-year lookback period of

11 U.S.C. section 507(a)(8) should end on that date, September 4,

2002, instead of on March 11, 2004, the date on which the

bankruptcy court entered the discharge order, resulting in a

shorter tolling period of approximately 3 years. We disagree.3

Rule 9021 of the Federal Rules of Bankruptcy Procedure

states that judgments are “effective when entered as provided in

[Bankruptcy] Rule 5003.” Rule 5003(a) of the Federal Rules of
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Bankruptcy Procedure states that the “clerk shall keep a docket

in each case * * * and shall enter thereon each judgment”.

“Orders do not become final until they are docketed.” Am.

Precision Vibrator Co. v. Natl. Air Vibrator Co., 863 F.2d 428,

429 (5th Cir. 1989); see also Sewell v. MGF Funding, Inc.,

345 Bankr. 174, 180 (B.A.P. 9th Cir. 2006); NBD Highland Park

Bank, N.A. v. Wien, 622 N.E.2d 123, 127 (Ill. App. Ct. 1993).

In support of their argument that the bankruptcy stay was

lifted on September 4, 2002, and that the tolling of the above

lookback period was terminated as of that date, petitioners

allege that the fact that they made a number of tax payments to

respondent in December of 2002 and in 2003 and the fact that

respondent accepted those payments indicate or confirm that the

bankruptcy automatic stay was not still in effect and that the

bankruptcy stay had been terminated on September 4, 2002, when

the bankruptcy judge in the chapter 13 proceeding stated that

petitioners’ motion for dismissal of their case was sustained. 

We disagree. Petitioners’ voluntary payments to respondent

in 2002 and 2003 and respondent’s acceptance of those payments

had no effect on the effective date of the termination of

petitioners’ chapter 13 bankruptcy proceeding, and petitioners

cite no authority to the contrary.

Because petitioners’ Federal income taxes for 1998, 2000,

and 2001 were not dischargeable in petitioners’ chapter 7 bank-
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ruptcy, respondent’s Appeals Office did not abuse its discretion

in sustaining respondent’s proposed levy action. We sustain

respondent’s proposed levy action.

 An appropriate order and

decision will be entered.