T.C. Summary Opinion 2009-13
UNITED STATES TAX COURT
KATHRYN FRANCES OKULA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 17768-07S. Filed January 28, 2009.
Kathryn Frances Okula, pro se.
Chong S. Hong, for respondent.
GERBER, Judge: This case was heard pursuant to the
provisions of section 74631 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
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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case. Respondent moved for summary judgment, and petitioner was
given an opportunity to respond. This case arose under the
provisions of section 6330, and the sole question is whether
petitioner’s 1998 Federal income tax liability was discharged
during her bankruptcy proceeding.
Background
Petitioner had a self-assessed outstanding and unpaid 1998
income tax liability which respondent proposed to collect by
means of a levy. Respondent notified petitioner of her right to
a hearing, and petitioner submitted a timely request for a
hearing. In her request petitioner sought a hearing to assert
that her 1998 income tax liability had been discharged in
bankruptcy and was no longer collectible by respondent.
Petitioner did not challenge the underlying tax liability.
Petitioner’s 1998 Federal income tax return was due April
15, 1999, and was filed with a balance due. Thereafter, she
filed a chapter 7 bankruptcy petition on September 21, 2001. In
accord with bankruptcy procedure petitioner notified every
creditor, including respondent, in writing that she was seeking a
discharge of her obligations to them. In accord with bankruptcy
procedure each creditor was to notify the bankruptcy court if
they had any objection to the discharge of petitioner’s
obligations. Respondent did not notify the bankruptcy court of
any objection.
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On January 2, 2002, the bankruptcy court issued an order
discharging all of petitioner’s dischargeable debts and closing
the bankruptcy proceeding. Respondent did not appeal the
bankruptcy court’s order, and petitioner believed that her debt
to respondent for her 1998 income tax had been discharged.
On October 2, 2006, respondent notified petitioner of his
intent to pursue collection of the 1998 tax liability and accrued
interest. Petitioner timely requested a hearing and asserted
that respondent should not pursue collection because the 1998 tax
liability had been discharged in bankruptcy. A hearing was held
on June 13, 2007, at which time respondent’s settlement officer
explained to petitioner that her 1998 tax liability had not been
discharged in the bankruptcy because it had priority status under
the Bankruptcy Code. Petitioner did not otherwise challenge the
merits of the 1998 tax liability or seek alternatives to
collection, such as an offer-in-compromise. The settlement
officer verified and provided petitioner with all information
required under the provisions of section 6330.
Discussion
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. See Fla. Peach Corp. v.
Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be
granted with respect to all or any part of the legal issues in
controversy if there is no genuine issue as to any material fact
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and a decision may be rendered as a matter of law. Rule 121(b);
Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd.
17 F.3d 965 (7th Cir. 1994). There is no dispute about the facts
in this case, and the question we consider is a legal one--
whether, as a matter of law, petitioner’s 1998 income tax
obligation was discharged in bankruptcy.
There are no procedural questions about whether the
settlement officer met the requirements of section 6330(c). The
question of discharge is determinative of whether there was an
abuse of discretion in deciding to proceed with collection.
Because a discharge order was issued in petitioner’s bankruptcy
proceeding, we have jurisdiction to decide whether petitioner’s
1998 tax liability was discharged under the bankruptcy court’s
order. See Swanson v. Commissioner, 121 T.C. 111, 117-118
(2003).
We review respondent’s determination that, under 11 U.S.C.
sec. 523(a)(1)(B)(i) (2006), petitioner’s unpaid income tax
liability was not discharged in bankruptcy. Additionally, we
address petitioner’s contentions that respondent made no
challenge to petitioner’s discharge order issued by the
bankruptcy court.
Petitioner’s discharge order does not specifically state
which of her debts have been discharged. Instead, it outlines
which debts are not discharged. One of the debts that is listed
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as generally not dischargeable is “Debts for most taxes”. The
general rule is that a debtor who files a chapter 7 bankruptcy
petition is discharged from personal liability for all debts
incurred before the filing of the petition. 11 U.S.C. sec.
727(b) (2006); United States v. Hatton, 220 F.3d 1057, 1059-1060
(9th Cir. 2000). However, an individual debtor is not to be
discharged in a bankruptcy proceeding from certain specified
categories of debts. 11 U.S.C. sec. 523(a); Washington v.
Commissioner, 120 T.C. 114, 121 (2003).
The first such category that is specifically excepted from
the discharge provisions includes taxes described as priority
claims in 11 U.S.C. sec. 507(a)(8) (2006). 11 U.S.C. sec.
523(a)(1)(A); Severo v. Commissioner, 129 T.C. 160 (2007). With
respect to claims for income tax due for a tax year in which the
due date for the return is within 3 years of the filing of the
petition in bankruptcy, they are defined as priority claims. See
11 U.S.C. sec. 507(a)(8)(A)(i).
Petitioner’s 1998 income tax return was due, without
considering any extensions, on April 15, 1999. Petitioner’s
bankruptcy case was commenced September 21, 2001, a date that is
less than 3 years from the due date of petitioner’s 1998 income
tax return. Accordingly, petitioner’s 1998 income tax liability
falls within the statutory exception so as ordinarily not to be
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discharged by a general order of discharge by a bankruptcy court.
Severo v. Commissioner, supra at 166.
Petitioner, however, also contends that she notified
respondent that she was seeking discharge of the 1998 tax
liability and respondent did not object or otherwise take any
action with respect to petitioner’s notice. Petitioner contends
that any priority that respondent may have had would be obviated
by the failure to notify petitioner of respondent’s priority
status or to object.
This issue has been considered by this Court, and we have
held that the Commissioner’s failure to take action in the
bankruptcy proceeding does not, per se, affect the statutory
priority afforded to tax debts. Therefore, if a tax liability
satisfies the conditions set forth in 11 U.S.C. sec. 523(a)(1),
it is not protected by the general discharge received by a
taxpayer in his prior bankruptcy case. Swanson v. Commissioner,
supra at 126.
Petitioner was under the impression that her discharge in
bankruptcy had eliminated all of her debt. She was surprised
4 years later when respondent advised that collection of the 1998
liability was being pursued. Although we can sympathize with
petitioner, she remains obligated for the 1998 tax liability.
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Accordingly, there was no abuse of discretion when respondent
determined to proceed with collection over petitioner’s
objection.
In view of the foregoing, respondent’s motion for summary
judgment will be granted.
An appropriate order and
decision will be entered.