SCOTUS Reports

Tag: IRC Section 6871

  • Pastore v. Commissioner, 78 T.C. 759 (1982): Tax Court Jurisdiction Post-Bankruptcy Discharge

    Pastore v. Commissioner, 78 T. C. 759 (1982)

    The U. S. Tax Court retains jurisdiction to redetermine tax deficiencies and additions to tax for prebankruptcy years even after a taxpayer’s bankruptcy discharge, if no immediate assessment was made under IRC § 6871(a).

    Summary

    In Pastore v. Commissioner, the Tax Court held it had jurisdiction to redetermine Roger Pastore’s 1974 tax deficiency and fraud addition to tax, despite his bankruptcy discharge. Pastore filed for bankruptcy in 1976, where the IRS filed a proof of claim but did not assess the tax immediately under IRC § 6871(a). After discharge, the IRS issued a deficiency notice in 1981. The court reasoned that without an immediate assessment during bankruptcy, its jurisdiction remained intact post-discharge, distinguishing this case from others where assessments were made.

    Facts

    Roger J. Pastore and his wife filed their 1974 tax return timely. In February 1976, Pastore filed for voluntary bankruptcy and was adjudicated bankrupt. The IRS filed a proof of claim in August 1976 for the 1974 tax year, asserting an estimated tax liability and fraud addition. No immediate assessment was made under IRC § 6871(a), and the merits of the claim were not litigated during bankruptcy. Pastore was discharged in August 1977, and the bankruptcy estate was closed in October 1977. In April 1981, the IRS issued a notice of deficiency for 1974, leading Pastore to petition the Tax Court for redetermination.

    Procedural History

    Pastore filed a petition for redetermination in the Tax Court following the IRS’s 1981 notice of deficiency. He then moved to dismiss for lack of jurisdiction, citing IRC § 6871(b). The IRS objected, arguing the court retained jurisdiction since no immediate assessment was made during the bankruptcy. The Tax Court denied Pastore’s motion, asserting jurisdiction based on prior cases where no immediate assessment occurred.

    Issue(s)

    1. Whether the Tax Court lacks jurisdiction to redetermine a prebankruptcy year’s tax deficiency and fraud addition to tax when the IRS filed a proof of claim in bankruptcy but made no immediate assessment under IRC § 6871(a).

    Holding

    1. No, because the Tax Court retains jurisdiction when no immediate assessment was made under IRC § 6871(a) during the bankruptcy proceeding, following the holdings in Orenduff v. Commissioner and Graham v. Commissioner.

    Court’s Reasoning

    The court reasoned that IRC § 6871(b) limits its jurisdiction only when an immediate assessment is made under IRC § 6871(a) during bankruptcy. In this case, no such assessment occurred. The court distinguished this from cases like Sharpe, Tatum, and Baron, where assessments were made or bankruptcy proceedings were ongoing. It relied on Orenduff and Graham, where no immediate assessments were made, and jurisdiction was upheld post-discharge. The court emphasized that the absence of an assessment under § 6871(a) meant that § 6871(b)’s jurisdictional bar did not apply, allowing the Tax Court to retain jurisdiction over the deficiency determination.

    Practical Implications

    This decision clarifies that the IRS’s failure to make an immediate assessment under IRC § 6871(a) during bankruptcy preserves the Tax Court’s jurisdiction to redetermine prebankruptcy tax deficiencies post-discharge. Practitioners should note that filing a proof of claim alone does not divest the Tax Court of jurisdiction if no assessment is made. This ruling impacts how tax liabilities are handled in bankruptcy, emphasizing the importance of timely assessments by the IRS to shift jurisdiction to bankruptcy courts. It also affects subsequent cases where the IRS may choose to issue deficiency notices after bankruptcy discharge, ensuring taxpayers can still challenge such deficiencies in the Tax Court.

  • Tatum v. Commissioner, 69 T.C. 81 (1977): Tax Court Jurisdiction and Bankruptcy Proceedings

    Tatum v. Commissioner, 69 T. C. 81 (1977)

    The Tax Court lacks jurisdiction over tax deficiencies and additions to tax when a taxpayer files for bankruptcy under Chapter XI after receiving a notice of deficiency but before filing a petition with the Tax Court.

    Summary

    In Tatum v. Commissioner, the Tax Court held that it lacked jurisdiction over income tax deficiencies and additions to tax for James E. Tatum, who filed for bankruptcy under Chapter XI after receiving a notice of deficiency but before filing his Tax Court petition. The court reasoned that under IRC section 6871(b), no petition for redetermination of such taxes can be filed with the Tax Court after a bankruptcy petition is filed. This decision overruled prior cases that allowed Tax Court jurisdiction in similar situations, emphasizing the bankruptcy court’s broad jurisdiction to determine tax liabilities even when no proof of claim is filed by the IRS.

    Facts

    James E. Tatum and Elizabeth Tatum, a married couple, received a notice of deficiency from the IRS on September 3, 1976, for tax years 1970-1973. On October 4, 1976, James filed a Chapter XI bankruptcy petition. Subsequently, on December 3, 1976, the Tatums filed a petition with the Tax Court seeking redetermination of the deficiencies and additions to tax. The IRS moved to dismiss the case against James for lack of jurisdiction due to his bankruptcy filing.

    Procedural History

    The IRS issued a notice of deficiency on September 3, 1976. James filed for bankruptcy under Chapter XI on October 4, 1976. The Tatums filed their Tax Court petition on December 3, 1976. The IRS moved to dismiss the case against James on February 22, 1977, arguing lack of jurisdiction due to the bankruptcy filing. The Tax Court heard arguments on May 9, 1977, and issued its opinion on October 25, 1977.

    Issue(s)

    1. Whether the Tax Court lacks jurisdiction over deficiencies when a taxpayer files for bankruptcy under Chapter XI after receiving a notice of deficiency but before filing a petition with the Tax Court.
    2. Whether the Tax Court lacks jurisdiction over additions to tax under the same circumstances.

    Holding

    1. Yes, because under IRC section 6871(b), no petition for redetermination of deficiencies can be filed with the Tax Court after a Chapter XI bankruptcy petition is filed, even if the arrangement has not been confirmed.
    2. Yes, because the Tax Court lacks jurisdiction over additions to tax under IRC section 6871(b) for the same reason, and the bankruptcy court has jurisdiction to determine these liabilities.

    Court’s Reasoning

    The court reasoned that IRC section 6871(b) clearly prohibits the filing of a Tax Court petition for redetermination of tax deficiencies and additions to tax after a bankruptcy petition is filed. The court rejected the argument that the arrangement under Chapter XI must be confirmed before the Tax Court loses jurisdiction, stating that the filing of the bankruptcy petition itself triggers the jurisdictional bar. The court also noted that the bankruptcy court has broad jurisdiction to determine tax liabilities, even without a filed proof of claim, under sections 11(a)(2A) and 35(c) of the Bankruptcy Act. The court overruled prior cases that allowed Tax Court jurisdiction in similar situations, citing changes in bankruptcy law that expanded the bankruptcy court’s jurisdiction over tax matters.

    Practical Implications

    This decision significantly impacts how tax disputes are handled in bankruptcy cases. Taxpayers who receive a notice of deficiency and subsequently file for bankruptcy under Chapter XI cannot seek redetermination of their tax liabilities in the Tax Court. Instead, they must resolve these issues in the bankruptcy court, which has jurisdiction to determine the amount and legality of tax liabilities, even if no proof of claim is filed by the IRS. This ruling simplifies the process for the IRS by centralizing tax disputes in bankruptcy proceedings but may limit taxpayers’ options for challenging tax assessments. Subsequent cases have followed this precedent, reinforcing the primacy of bankruptcy courts in handling tax disputes during bankruptcy proceedings.