Time Limit for Filing Tax Court Petitions in Bankruptcy Cases
Under ordinary circumstances, a taxpayer must file a petition for relief with the tax court within 90 days after receiving a deficiency notice from the IRS. There's another provision however, which says that if a business files for bankruptcy, there is an automatic "stay", which means a debtor, who files for bankruptcy, cannot file a tax court petition seeking relief for a deficiency notice received from the IRS. Sounds like Catch-22, doesn't it? Fortunately, IRS Code Section 6213(f)(1) provides an exception to this rule, which says that in a Title XI bankruptcy case the time limit for filing a tax court petition for a deficiency is suspended during the period of time the debtor is prohibited from filing under the automatic stay, and the taxpayer has 60 days after that automatic stay expires to file a petition with the tax court.
A case in point involved a taxpayer who filed a bankruptcy petition on September 3, 1991. The IRS sent the taxpayer a deficiency notice on May 20, 1992. The taxpayer who filed for bankruptcy received papers from the bankruptcy court on June 5, 1992, indicating that his filing had been approved, and copies of the bankruptcy court's discharge order were mailed to the debtor's creditors on October 20, 1992.
On December 11, 1992, the taxpayer filed a tax court petition concerning the deficiency notice received from the IRS on May 30, 1992. IRS argued that the petition wasn't filed timely, because the taxpayer's automatic stay ended 60 days after the discharge notice was received from the bankruptcy court on June 5, 1992, and he then had 90 days to file his petition . In other words, the IRS argument was that the taxpayer had 150 days after June 5, 1992 within which to file a petition, and the taxpayer filed 189 days after June 5, 1992.
The taxpayer in turn, argued that the 60-day period began running on the date that creditors were notified by the bankruptcy court of the debtor's bankruptcy discharge, which was on October 20, 1992. Under that theory, the taxpayer would have 150 days from October 20, 1992 to file a tax court petition.
In deciding this case, the tax court said that in accordance with the provisions of 11 U.S.C. 362 (C) (2), unless relief is granted by order of the bankruptcy court, the automatic stay that precludes a debtor from filing a petition with the tax court remains in effect until the earliest of:
- the closing of the case;
- dismissal of the case; or
- the grant or denial of a discharge.
In this case, the tax court ruled that the automatic stay was terminated on June 5, 1992, the date the discharge was granted. The tax court said that although it was troubled by the amount of time that elapsed between the discharge date and when the notice went out to creditors, it was unaware of any provision in the Internal Revenue Code or the Bankruptcy Code that would allow it to treat October 20, 1992 as the discharge date.
Further, the tax court said the taxpayer's argument was contrary to established case law, was in conflict with the language of 11 U.S.C. 362(c)(2) and would interfere with the effectiveness of an otherwise unambiguous rule.
Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.
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