Darrel R. Meadows v. Comm'r of IRS

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
________________________
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 04-11089 April 6, 2005
________________________ THOMAS K. KAHN
CLERK
Tax Court Docket No. 2874-03L

DARREL R. MEADOWS,

Petitioner-Appellant,

versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

________________________

Appeal from a Decision of the
United States Tax Court
_________________________

(April 6, 2005)

Before ANDERSON, DUBINA and BLACK, Circuit Judges.

PER CURIAM:

Darrell Meadows appeals the Tax Court’s grant of the Internal Revenue

Service’s (“IRS’s”) motion for summary judgment. Meadows argued before the

Tax Court that the IRS violated the bankruptcy court’s stay when it applied the
$10,000 it accepted from Meadows’s wife to his 1988 tax liability, which was later

discharged in bankruptcy, and not his 1992 and 1993 liabilities, which were not

discharged. The Tax Court declined to address the bankruptcy issues urged by

Meadows.

I. FACTUAL AND PROCEDURAL BACKGROUND

Meadows did not file income tax returns for the years 1988 to 1993 until

1993.1 When he belatedly filed in 1993, he did not pay any of the tax he owed for

the years 1988-1991 and paid only a small fraction of the amounts he owed for

1992 and 1993. In response, the IRS assessed the tax, interest, and penalties. After

Meadows failed to pay those amounts, a lien for the years 1988-1992 arose on the

Meadowses’ residence which the IRS secured with a notice filed in October 1993.

The IRS rejected Meadows’s submitted offer in compromise and collected about

six hundred dollars from his bank account in 1994. The IRS then filed another lien

notice, this time for the tax years 1988-1993.

The IRS determined that Meadows’s wife held their residence as his

nominee because she did not have enough income to pay the mortgage and the

house was in her name alone. On August 16, 1995, the IRS served a notice of levy

and seizure on her in order to collect the unpaid liabilities for 1988-1992. Mrs.

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He did not file joint returns with his wife; she had no income for those years.

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Meadows obtained a loan in the amount of $10,000, and offered that to the IRS in

satisfaction of the lien, representing that Meadows’s equity interest in the home

was only $10,000. The assigned IRS agent accepted Mrs. Meadows’s offer,

stating that when the IRS received the money, it would release the lien on the

house and apply the proceeds to Meadows’s liability, “starting with the oldest tax

period.” Mrs. Meadows remitted the check on the same day, September 25, 1995.

Meanwhile, Meadows filed for bankruptcy protection on September 1,

1995. His bankruptcy schedules represented that he did not own any real property

or any equitable interests in real property. He listed his 1992 and 1993 tax

liabilities as unsecured priority claims and his 1988-1991 tax liabilities as

unsecured nonpriority claims.2

On December 21, 1995, the bankruptcy court issued a discharge order,

releasing Meadows from all dischargeable debts. On October 24, 2001, the IRS

sent Meadows a final notice of intent to levy to collect $15,142.33 for the 1992 tax

liability and $16,213.45 for the 1993 tax liability. It also informed him of his right

to a collection due process (“CDP”) hearing; Meadows submitted a request for a

CDP hearing for the tax years 1992 and 1993, which raised two issues. First, he

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The IRS, in its brief, states that because it had already filed Notices of Federal Tax
Lien for all of the years, all of these debts were actually secured debts.

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asked whether the IRS had illegally placed a nominee lien on the residence held in

his wife’s name and second, whether the $10,000 was wrongfully applied to a tax

period that had been discharged. In this filing, he revealed that he thought that the

automatic stay only applied to the debts that would have been discharged later.

The Appeals Office determined that Mrs. Meadows’s failure to appeal the

nominee lien barred a contest of the lien in the CDP hearing. The Appeals Office

decision also declined to find a violation of the stay because the agreement to

release the lien was reached before Meadows filed for bankruptcy, and it found

controlling the agreement between Mrs. Meadows and the revenue officer, that the

$10,000 would apply to the oldest tax period. Finally, it noted that although

Meadows had expressed an interest in exploring collection alternatives, he had

failed to provide the necessary information. Therefore, the Appeals Office

concluded that collection of Meadows’s 1992 and 1993 tax liabilities could

proceed.

Meadows then appealed to the Tax Court and both parties filed motions for

summary judgment. Meadows contended that the $10,000 represented his

equitable interest in the property, that the collection and application of those funds

to the 1988 liability violated the bankruptcy stay, and that the money should be

applied to the 1992 and 1993 tax liabilities, which he asserted were unaffected by

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the stay. The IRS argued that the Tax Court lacked jurisdiction to address the

issue raised by Meadows; that the release of the lien rendered any issues about it

moot; that Meadows did not have the right to designate how his wife’s payment

should be applied; that no designation of payment was made; that any violation of

the stay should be addressed in bankruptcy court; that the remedy for violation of

the stay would be to return the money to Mrs. Meadows; that the payment was

made by a nondebtor so it did not violate the stay; and that the Appeals Office did

not abuse its discretion regarding the feasibility of collection alternatives.

The Tax Court granted the IRS’s motion for summary judgment. First it

stated that its jurisdiction allowed it only to review the actions of the Appeals

Office for abuse of discretion. Then it stated that although it had the authority “to

determine whether a bankruptcy court has discharged the taxes otherwise due for a

particular year . . ., it has not been definitively established whether such authority

extends to questions whether respondent has violated the bankruptcy automatic

stay and, if so, the appropriate remedy for such violation.” Decision at 3. The

court continued that even if it had the authority, it might still defer to the

bankruptcy court based on comity and judicial efficiency as well as its recognition

that it does not deal with bankruptcy matters and does not have the expertise that

the bankruptcy court would. Id. at 3-4 (citing Washington v. Comm’r, 120 T.C.

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114, 125 (2003) (Wells, J., concurring)).

II. DISCUSSION

Did the Tax Court abuse its discretion by declining to exercise its jurisdiction?

Congress enacted 26 U.S.C. § 6330 in 1998. Subsection (b) created the

right to CDP hearings for collections and (c) governs the content of the hearing.3

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Subsections 6330(b) & (c) provide:

(b) Right to fair hearing.--

(1) In general.--If the person requests a hearing under subsection (a)(3)(B),
such hearing shall be held by the Internal Revenue Service Office of
Appeals.
(2) One hearing per period.--A person shall be entitled to only one hearing
under this section with respect to the taxable period to which the unpaid
tax specified in subsection (a)(3)(A) relates.
(3) Impartial officer.--The hearing under this subsection shall be
conducted by an officer or employee who has had no prior involvement
with respect to the unpaid tax specified in subsection (a)(3)(A) before the
first hearing under this section or section 6320. A taxpayer may waive the
requirement of this paragraph.

(1) Requirement of investigation.--The appeals officer shall at the hearing
obtain verification from the Secretary that the requirements of any
applicable law or administrative procedure have been met.
(2) Issues at hearing.--

(A) In general.--The person may raise at the hearing any relevant
issue relating to the unpaid tax or the proposed levy, including--

(i) appropriate spousal defenses;
(ii) challenges to the appropriateness of collection actions;
and
(iii) offers of collection alternatives, which may include the

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In these hearings, taxpayers are allowed to challenge “any relevant issue relating

to the unpaid tax.” 26 U.S.C. § 6330(c)(2)(A). In subsection (d), Congress

specified that judicial review is available by “the Tax Court (and the Tax Court

shall have jurisdiction with respect to such matter); or if the Tax Court does not

have jurisdiction of the underlying liability, [by] a district court of the United

States.” 26 U.S.C. § 6330(d). The statute is silent on what manner of review the

Tax Court has over these appeals.

posting of a bond, the substitution of other assets, an
installment agreement, or an offer-in-compromise.

(B) Underlying liability.--The person may also raise at the hearing
challenges to the existence or amount of the underlying tax liability for any
tax period if the person did not receive any statutory notice of deficiency
for such tax liability or did not otherwise have an opportunity to dispute
such tax liability.

(3) Basis for the determination.--The determination by an appeals officer under
this subsection shall take into consideration--

(A) the verification presented under paragraph (1);
(B) the issues raised under paragraph (2); and
(C) whether any proposed collection action balances the need for the
efficient collection of taxes with the legitimate concern of the person that
any collection action be no more intrusive than necessary.

(4) Certain issues precluded.--An issue may not be raised at the hearing if--

(A) the issue was raised and considered at a previous hearing under section
6320 or in any other previous administrative or judicial proceeding; and
(B) the person seeking to raise the issue participated meaningfully in such
hearing or proceeding.

This paragraph shall not apply to any issue with respect to which
subsection (d)(2)(B) applies.

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The Tax Court has consistently held that it does not have jurisdiction under

26 U.S.C. § 6213 (redetermination of deficiencies) to determine whether or not a

bankruptcy court “had discharged a taxpayer from an unpaid tax liability in a

bankruptcy proceeding instituted by such taxpayer.” Washington v. Comm’r, 120

T.C. 114, 120 (2003). The court reached that determination because it reasoned

that an action brought for redetermination of a deficiency under § 6213 “‘has

nothing to do with collection of the tax nor any similarity to an action for

collection of a debt.’” Id. (quoting Swanson v. Comm’r, 65 T.C. 1180, 1184

(1976)). However, in Washington, the court determined that it did have

jurisdiction under the new § 6330 to determine whether the bankruptcy court had

discharged the taxpayers’ “respective unpaid liabilities for those years” because it

was an issue that had direct bearing on whether the Commissioner could proceed

with the lien at issue. Id. However, several of the concurring judges cautioned

that although the court had accepted jurisdiction, it was because the bankruptcy

question was “relatively straight-forward.” Id. at 124-25 (Wells, J., concurring).

Judge Wells further cautioned that

it is possible that taxpayers will present this Court with
more difficult questions that may be better suited for
consideration by the Bankruptcy Court. Under such
circumstances, this Court may defer to a Bankruptcy
Court to decide the matter. Such deference would not be

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premised upon any concerns that we lack jurisdictional
capacity to consider the issue. Rather it would be based
upon considerations of comity and judicial efficiency,
combined with our recognition that this Court does not
deal with bankruptcy matters with the expertise that a
Bankruptcy Court possesses.

Id. at 125; accord id. at 134-35 (Beghe, J., and Gerber, J., concurring) (“The

bankruptcy discharge issue in the case at hand is a slam dunk . . .. Nothing the

court does today will prevent us from revisiting, in subsequent collection cases in

which bankruptcy discharge issues are raised, whether . . . we should defer to the

Bankruptcy Court’s expertise and authority to construe and apply its own order of

discharge.”).

This case presents the type of complex bankruptcy questions that Judge

Wells predicted would be best left to the bankruptcy court. Unlike the taxpayers

in Washington, Meadows does not seek a simple determination of whether or not

his unpaid tax liability for the year 1988 has been discharged. Rather, he seeks a

determination that the IRS violated the automatic stay when it accepted $10,000

from Meadows’s wife to satisfy a nominee lien on property owned by his wife and

applied it to an unpaid tax liability that, as it turns out, was later discharged by the

bankruptcy court.

First of all, the requested relief that Meadows seeks–ordering the IRS to

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apply the $10,000 to the 1992 unpaid tax liability–arguably would require the Tax

Court to exercise equitable power to expand its statutorily prescribed jurisdiction.

However, it is unclear whether or not the Tax Court has such equitable power.

See Comm’r v. McCoy, 484 U.S. 3, 7, 108 S.Ct. 217, 219 (1987) (“The Tax Court

is a court of limited jurisdiction and lacks general equitable powers.”); see also

United States v. Dalm, 494 U.S. 596, 611 n.8, 110 S.Ct. 1361, 1370 n.8 (1990)

(“We have no occasion to pass upon the question whether Dalm could have raised

a recoupment claim in the Tax Court.”); Bokum v. Comm’r, 992 F.2d 1136, 1140

(11th Cir. 1993) (“The Tax Court has no equitable power to expand its statutorily

prescribed jurisdiction.”). This raises a constitutional question: if a party’s

position urges the Tax Court to award relief that would exceed its statutorily

prescribed jurisdiction, would that run afoul of Article III? See generally Diane

Fahey, The Tax Court's Jurisdiction over Due Process Appeals: Is it

Constitutional? 55 Baylor L. Rev. 453, 454 (2003). We need not decide in this

case whether or not the Tax Court actually had jurisdiction to address the

bankruptcy issues urged by Meadows. We decide only that the Tax Court did not

abuse its discretion in deferring such issues to the expertise and authority of the

bankruptcy court, in light of the several reasons discussed herein.

We note that actions against creditors for violations of the automatic stay

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are to be brought in the bankruptcy court. See 11 U.S.C. § 362(h) (“An individual

injured by any willful violation of a stay provided by this section shall recover

actual damages, including costs and attorneys' fees, and, in appropriate

circumstances, may recover punitive damages.”); see also Langlois v. United

States, 155 B.R. 818 (N.D. N.Y. 1993) (sitting in bankruptcy jurisdiction and

holding that the IRS's application of a collected amount to penalties that were to

be discharged in bankruptcy was a violation of the automatic stay). Thus, it is

clear that the bankruptcy court is more knowledgeable than the Tax Court about

the scope and effect of the automatic stay and about appropriate remedies.

Additionally, there are a number of other wrinkles that make Meadows’s

questions less straightforward than those raised in Washington and support the

Tax Court’s decision in this case not to address the bankruptcy issues. For

instance, the lien was brought against Mrs. Meadows, as the owner of the house,

on account of Meadows’s equitable interest in the property. However, Meadows

did not list his equitable interest in the house in his bankruptcy petition, raising the

issue of whether the bankruptcy stay was violated at all because it did not affect

any property in the bankruptcy estate. Moreover, because the $10,000 was

remitted by Meadows’s wife, if acceptance of the $10,000 was a violation of the

automatic stay, an issue is raised as to whether the appropriate remedy would be to

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return the $10,000 to the wife. Indeed, Meadows has not explained why he should

be the beneficiary of any such remedy, rather his wife. Finally, there is the

question of laches and how that should play into an action to enforce a violation of

the bankruptcy stay. See In re Calder, 907 F.2d 953 (10th Cir. 1990) (discussing

how equitable principles could preclude a challenge to a violation of the automatic

stay); Matthews v. Rosene, 739 F.2d 249, 251 (7th Cir. 1984) (holding that laches

would bar a challenge to a violation of the stay). The alleged violation here took

place in 1995 but Meadows did not raise that issue until 2001; a bankruptcy court

might determine that this was untimely.

In sum, the instant issues are not slam dunk issues, but rather raise complex

issues of bankruptcy law involving the interpretation of the automatic stay and

appropriate remedies for the violation thereof. The court below had reasonable

concerns as to whether addressing such issues would constitute the exercise of

equitable powers exceeding the Tax Court’s statutorily prescribed jurisdiction to

handle its particularized area of law by intruding into the particularized area of law

delegated by Congress to a different Article I court, the bankruptcy court. In the

particular circumstances of this case, which raises reasonable constitutional

concerns and which involves complex bankruptcy issues better suited for the

expertise and authority of the bankruptcy court, we cannot conclude that the Tax

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Court abused its discretion in deferring to the expertise and authority of the

bankruptcy court. Accordingly, the judgment of the Tax Court is

AFFIRMED.