TAX COURT OPINION

Case: Kenneth & Carol Lehman
Docket Number: 24324-06S
Judge: Swift
Opinion Type: summary
Filed: 07/15/2008
Pages: 9

T .C . Summary Opinio n .UNITED STATES TAX KENNETH AND CAROL LEHMAN, Petitioners' v .' COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 24324-06S . 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 effec t decision to be entered is not reviewable by any other court, an d this opinion shall not be treated as precedent for any othe r case . 'Under section 6330 petitioners challenge respondent's notic e " R' 'of(-determination as to respondent's proposed levy action relatin g ._-to~_petitioners' 1998, .'.2000, and 2001 Federal income taxes , representing a cumulat °ive total liability of approximatel y _$10 ..,,.000 . Respondent has filed a motion for summary judgment . ilk Unless otherwise'' indicated, all section references are to- the Internal Revenue ,Code . Backgroun d On October 1, 19,9,9, petitioners filed a chapter 113 u ii 'it , d EI bankruptcy petition w''ilI~th the U .S . Bankruptcy Court, District of Nevada . 'lil't jp 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 11~i I tax return, an addition to tax for late filing, and interest . On September 17112001, petitioners late filed thei r 2000 joint individual! Federal income tax return . On October 29, 2001, respondent assessed the tax petitioners reported on their additio n 2000 tax return, an to tax for late filing,"an d interest . On July 11, 2002!p, the bankruptcy court entered an orde r confirming petitioners' chapter 13 plan for reorganization, under which petitioners were to pay their outstanding Federal incom e tax liabilities-in'installments over 33 months beginning Februar y - 3 - 2002(cid:127) . On July 22, 2002, petitioners molted 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 dismissa l of their petition was approved but tha t petitioners "need t o submit an order' dismissing the case'. On-September 6, 2002, petitioners late filed their-200 1 1 joint individual Federal incbmeltax return . On October 7, 2002, respondent assessed the tax petitioners reported on their 2001 .tax return, an addition to,-tax for late filing ., an d 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 1998Federal 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'inotified'petitioners that their bankruptcy case was still open and that' they were delinquent on the payments due under'the plan that-pektitioners'had submitted i n their chapter 13 bankruptcy case . On March 10 , 2004,1 petitioners filed another motion fo r dismissal of their chaIIpter 13 bankruptcy case , and on11March 11, 2004, the bankruptcy jidge signed an order of dismissal and entered the dismissal! As a result of petitioners' motion fo r dismissalSof 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 !I under chapter 7 . See 11 1 U .S .C . sec . 707 (2000) . Thereunder, it petitioners were awarded a discharge of their debts on P ' December 28, 2004 . Because balances 11 Ir remained due on petitioners ' Federal incom e taxes for 1998, 2000,~ and 2001, on April 25 , 2006, relspondent mailed to petitioners; 1!1 a notice of intent to levy with regar d thereto and of petitioners' rights to an Appeals Offiic e collection hearing under section 6330 . On May 9, 2006 ,hpetitioners mailed to respondent a Form,12153 , Request for a Collection Due Process Hearing . it Petitioners' only ob ;i'ection to the levy was that petitioners' Federal income taxes, ,!for 1998 , 2000 , and 2001 were discharged by petitioners ' chapteri i7 bankruptcy . 11 11 Petitioners raised no issu e ,1 . as to the correct amount of their Federal income taxes for thes e years . ail JI 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 . bee n tolled during the entire course of petitioners' chapter-13 . bankruptcy proceeding (i .e .,-from October 1 ; 1999, through March 11, 2004) ,' making. those .liabi .li t ies not dischargeable . On,November 2, 2006, respondent's Appeals Office issued t o petitioners a,notice of determination sustaining the .notice-o f intent to levy . Discussion We have jurisdiction to decide whether income taxes ar e 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_discharge d 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 . s ec . 507(a) (8),(A)'(i) (2000) ; Severo v . Commissioner , 129 T '. C . 160-,t 1 65-166 (2007 ) In calculating the 3-year lookbackperiod, one must tak e into account any time during -which' the ~lrunning of the' lookback- period was tolled (e .g ., .during pendency of a prior bankruptcy If - 6 - proceeding) . Young v U United .States , 535 U .S . 43, 46- :147'(2002) ; Richardson v . Commissioner , T .C . Memo . 2003-154 . iE~1 I 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, woul d have ended .3Tyears prior thereto (o n September 20, 2001) . owever, the running of the 3-year lookbac k period applicable to pjetitioners' chapter 7 bankruptcy proceeding was tolled during the 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 ta x returns were due long lafter April 1, 1997, petitioners' 1998, 2000, and 2001 Federalll income taxes ( due in 1999 , 2061, and 2002, Ij, .. respectively) were due within the 3-year lookback period applicable to petitioners' chapter 7 bankruptcy proceeding and it were not discharged by the bankruptcy discharge order that wa s 1 The 3-year lookback period relating to petit'i'oners' ch . 7 bankruptcy proceeding~~began on Sept . 20, 2004, the date petitioners filed thedir ch . 7 bankruptcy petition, a n_d ran back for 194 days to the date that petitioners' prior ch . :13 bankruptcy proceedingijwas dismissed (Mar . 11, 2004) ., At that point, 901 days (or 'about 2-1/2 years) remained of the 3-year lookback period applllcable to petitioners' ch . 7 bankruptcy proceeding, and thes~,e .~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 Septet . 20, 2004, to Apr . 1, 1997 . II it entered .in :petitioners' chapter 7 bankruptcy case on December 28, 7 2004 .2 Petitioners claim that the September 4, 2002, oral statemen t of the . bankruptcy judge-in petitioner chapter 13 bankruptc y 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 dismisse d 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 ;ll 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 902 .1 of the Federal Rules of Bankruptcy Procedur e states ' that . judgments are "effective when entered as provided i n [Bankruptcy]=Rule 5003 ." Rule 5003(a) of the Federal Rules o 2- We note that petitioners' 2001 {Federal income tax return was due to be filed within the 3-year Cookback 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 1746 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 . ir!! dil Bankruptcy Procedure states that the "clerk-shall keep, a .docket i~I o in each case * * * and shall enter thereon each judgment" . "Orders do not becomelifinal until they . are docketed ." .,I Am . I~I Precision Vibrator Co1ly . Natl . Air Vibrator Co . , 863~F .2d 428 , 429 (5th Cir . 1989) ; see also Sewell v . MGF Funding, Inc . , Ili, I 345 Bankr . 174, 180 (BA .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 theiir argument that . the bankruptcy stay wa s IIII 'i lifted on September 4 J~;~~.2002, and that the tolling of the above lookback period was tl erminated as of that date, petitioners allege that the fact :,that they made a number of tax payments to i respondent in Decembeir of 2002 and in 2003 and the fact that I i respondent accepted those payments indicate or confirm that the l . II bankruptcy automatic 'jstay was not still in effect and that'the I ' P bankruptcy stay had been terminated on September .4, 2002 ., whe n the. bankruptcy judge in the chapter 13 proceeding stated tha t petitioners ' motion-for dismissal of their case was sustained . We disagree . Petitioners voluntary payments to responden t in 2002 and 2003 and,respondent's acceptance of those payments if had no effect on the effective date of the terminatipn of petitioners ' chapterl ~1 3 bankruptcy proceeding , and petitioners (cid:127) ~ if , . il; . ~I(cid:127) cite no authority to" ;the contrary . Because petitioners ' Federal income taxes for 1 ;998, 2000, and 2001 were not dischargeable in petitioners ' chapter 7 bank- 1I 9 - ruptcy, respondent's Appeals office did not abuse its discretion in sustaining respondent's proposed levy action . We sustain respondent's proposed levy action . .