UNITED STATES TAX COURT

121 T.C. No. 7

UNITED STATES TAX COURT

NEAL SWANSON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 6440-01L.

Filed August 28, 2003.

P did not file Federal income tax returns for the

years 1993, 1994, and 1995. R subsequently prepared

substitutes for return (SFRs) for P and issued a notice

of deficiency to P based on the SFRs covering these

years. P filed a petition to this Court, but P’s case

was later dismissed, and a decision was entered for R

because P failed to state a claim upon which relief

could be granted. R assessed the tax liabilities for

the years 1993, 1994, and 1995. P subsequently filed a

petition under ch. 7 of the U.S. Bankruptcy Code. The

bankruptcy court entered an order generally releasing P

from all dischargeable debts. The bankruptcy court did

not expressly determine whether P’s unpaid tax

liabilities were discharged. R issued a notice of

intent to levy, and P requested a hearing before an IRS

Appeals officer (A) pursuant to sec. 6330, I.R.C. At

the hearing, P claimed that his unpaid liabilities were

discharged in bankruptcy. A issued a notice of

determination sustaining the levy, and P timely

petitioned the Court for review.

- 2 Held: We have jurisdiction in this levy

proceeding to determine whether P’s unpaid liabilities

were discharged in bankruptcy. Washington v.

Commissioner, 120 T.C. 114 (2003), followed.

Held, further: P’s unpaid liabilities were not

discharged in the ch. 7 bankruptcy proceeding. Under

11 U.S.C. sec. 523(a)(1)(B) (2000), if a required

return is not filed, then the tax debt is generally

excepted from discharge. P did not file Federal income

tax returns, and the SFRs prepared by R in this case do

not constitute “returns” within the meaning of sec.

523(a)(1)(B) of the Bankruptcy Code. Additionally, R

is not enjoined from collecting the unpaid liabilities

because the liabilities were excepted from discharge

and the bankruptcy court did not make an express

determination that the liabilities were discharged.

Finally, a default judgment has not occurred because

the debt at issue is not of a kind that required R to

file a complaint in the bankruptcy court. Therefore,

the determination to proceed with collection by levy is

sustained.

Neal Swanson, pro se.

Ann S. O’Blenes, for respondent.

OPINION

GOEKE, Judge:

The petition in this case was filed in

response to a Notice of Determination Concerning Collection

Action(s) Under Section 6320 and/or 6330 (the notice of

determination).

The substantive issue presented is whether the

unpaid liabilities that are the subject of the collection action

were discharged in petitioner’s chapter 7 bankruptcy proceeding.

However, before we can reach this issue, we must first address

whether we have jurisdiction to decide the issue and whether

- 3 petitioner is precluded from arguing that his unpaid liabilities

were discharged in bankruptcy.

Background

The parties submitted this case fully stipulated.

The

stipulation of facts and the attached exhibits are incorporated

herein by this reference.

Petitioner resided in Lake Dallas,

Texas, at the time his petition was filed.

Petitioner did not file Forms 1040, U.S. Individual Income

Tax Return, for the taxable years 1993, 1994, and 1995.

Copies

of MFTRA-X transcripts of petitioner’s accounts for the tax years

at issue reflect that respondent filed “substitutes for return”1

(SFRs) for these years on February 24, 1997.

On May 28, 1997,

respondent issued a notice of deficiency to petitioner

determining deficiencies in and additions to his Federal income

taxes for 1993, 1994, and 1995.

Petitioner filed a petition and

an amended petition with this Court seeking a redetermination.

On February 3, 1998, the Court dismissed the case for failure to

state a claim upon which relief could be granted and decided that

1

The Commissioner has previously represented to this Court

that the term “substitute for return” (SFR) is a term used by the

Commissioner for returns or partial returns prepared by the

Commissioner where the taxpayer did not file a return. Spurlock

v. Commissioner, 118 T.C. 155, 156 n.2 (2002). The term SFR has

also been used to describe a return prepared by the Commissioner

under sec. 6020(b). We note that respondent does not allege and

the evidence in the record does not indicate whether the returns

prepared by respondent in this case meet the requirements of sec.

6020(b). For convenience, we refer to the returns prepared by

respondent as SFRs.

- 4 petitioner was liable for the following deficiencies and

additions to tax:

Year

Deficiency

1993

1994

1995

$8,307

8,460

10,657

Additions to Tax

Sec. 6651(a)(1)

Sec. 6654(a)

$896

2,115

2,524

--$436

548

In June 1998, respondent assessed the deficiencies and additions

to tax decided in the Court’s order of dismissal and decision.

Copies of MFTRA-X transcripts reflect that interest on the taxes

was also assessed in June 1998.2

On August 5, 1998, petitioner filed a bankruptcy petition

under chapter 7 of the U.S. Bankruptcy Code in the U.S.

Bankruptcy Court for the Northern District of Texas.

On Schedule

E, Supplemental Income and Loss, petitioner reported the Internal

Revenue Service (IRS) as the holder of unsecured priority claims

for the years 1993, 1994, and 1995.

On December 7, 1998, the

bankruptcy court entered an order of discharge (discharge order)

in petitioner’s bankruptcy case. The discharge order states:

DISCHARGE OF DEBTOR

It appearing that a petition commencing a case under

title 11, United States code, was filed by or against

the person named above on 08/05/98, and that an order

for relief was entered under chapter 7, and that no

complaint objecting to the discharge of the debtor was

2

We shall refer to the unpaid balance of assessment for

petitioner’s taxable years 1993, 1994, and 1995 as petitioner’s

unpaid liability for each of those years. See Washington v.

Commissioner, 120 T.C. 114, 116 (2003).

- 5 filed within the time fixed by the court (or that a

complaint objecting to discharge of the debtor was

filed and, after due notice and hearing, was not

sustained);

IT IS ORDERED THAT:

1.

The above-name debtor is released from all

dischargeable debts.

2.

Any judgment heretofore or hereafter obtained

in any court other than this court is null and

void as a determination of the personal liability

of the debtor with respect to any of the following:

(a) debts dischargeable under 11 U.S.C. sec.

523;

(b) unless heretofore or hereafter

determined by order of this court to be

nondischargeable, debts alleged to be excepted

from discharge under clauses (2), (4), (6)

and (15) of 11 U.S.C. sec. 523(a);

(c) debts determined by this court to be

discharged.

3.

All creditors whose debts are discharged by

this order and all creditors whose judgments are

declared null and void by paragraph 2 above are

enjoined from instituting or continuing any action

or employing any process or engaging in any act to

collect such debts as personal liabilities of the

above-named debtor.

Copies of MFTRA-X transcripts reflect that on January 23,

2000, respondent sent to petitioner a notice of intent to levy

regarding petitioner’s unpaid income tax liabilities for 1993,

1994, and 1995.

The copies indicate that on February 10, 2000,

petitioner requested a section 6330 hearing.

On May 3, 2001, the

Appeals Office issued to petitioner a notice of determination

- 6 regarding petitioner’s unpaid liabilities for 1993, 1994, and

1995.

The notice states:

Summary of Determination:

It is determined that a levy is appropriate in your

case. Appeals has considered the information presented

at the Collection Due Process hearing. It is

determined that the collection of your unpaid accounts

by levy enforcement balances the government’s need to

efficiently collect your 1993, 1994 and 1995 tax

liabilities with your concerns of intrusiveness.

*

*

*

*

*

*

*

Legal and Procedural Requirements:

It has been concluded that all required laws and

procedures have been followed. The only legal

requirements before taking general enforcement action

are the notice and demand and the notice of intent to

levy with a notice of right to a Collection Due Process

Hearing.

Internal computer records indicate that notice and

demand of payment have been made within the required

time periods for the 1993, 1994 and 1995 years at

issue.

The notice of intent to levy, Letter 1058, was properly

mailed and included with this notice were all required

enclosures. These enclosures include the Form 12153,

which you used to make your Collection Due Process

hearing request.

Issues Raised by the Taxpayer:

In your hearing request you challenged the assessment

of the tax liabilities. You previously challenged the

assessment in the United States Tax Court. The Court

issued its “Order of Dismissal and Decision” dated

February 3, 1998. The Court’s decision is final.

Appeals will not consider challenges to the underlying

liability because you previously challenged the

liability and the Tax Court has issued its decision

that the taxes are due and owing.

- 7 The administrative file shows that you filed

bankruptcy. You stated that the unpaid taxes were

discharged in your bankruptcy. Section 523(a)(1)(B)(i)

of the Bankruptcy Code states that a tax liability is

not discharged if the return was not filed. SFR

assessed income tax returns are not considered

voluntarily filed and are not dischargeable per Section

523(a)(1)(B)(i).

Internal Revenue Service records disclose that you have

not filed Form 1040 U.S. Individual Income Tax returns

for the years 1996, 1997, 1998, 1999. Appeals will not

consider an alternative collection solution because you

are not in compliance by voluntarily filing these

income tax returns.

You did not agree with Appeals and the Internal Revenue

Service concerning the interpretation of the income tax

and bankruptcy statutues [sic]. However, you expressed

an interest in filing your 1996 through 1999 income tax

returns through regular Internal Revenue procedures and

then submitting an offer in compromise after any

additional liabilities were assessed.

Balancing of Need for Efficient Tax Collection With

Taxpayer’s Concern of Intrusiveness:

An acceptable alternative to the levy is not

appropriate due to the fact you are not currently in

compliance in filing all required income tax returns.

It appears that levy sources currently exist.

Accordingly, it is determined that the levy balances

the Government’s need to efficiently collect the 1993,

1994 and 1995 tax liabilities with your legitimate

concern of intrusiveness.

The notice of determination was signed by Leland J. Neubauer,

Appeals Team Manager (the Appeals officer).

On May 11, 2001, petitioner submitted to the Court a letter

that the Court filed as petitioner’s imperfect petition for lien

or levy action requesting a review of respondent’s determination

to proceed with collection.

Because the letter did not comply

- 8 fully with the requirements of Rule 331,3 by order dated May 15,

2001, the Court directed petitioner to file a proper amended

petition.

On June 12, 2001, petitioner filed a proper amended

petition.

In the petitions, petitioner alleges that collection

by levy is improper because his unpaid liabilities were

discharged in bankruptcy.

Discussion

The substantive issue for decision in this levy proceeding

is whether petitioner’s unpaid liabilities were discharged in

bankruptcy.

Petitioner argues:

(1) The taxes were discharged by

the discharge order because the order specifically states that

petitioner “is released from all dischargeable debts”; (2)

respondent is enjoined by the discharge order from collecting the

unpaid liabilities; and (3) a default judgment has occurred

because respondent did not object to the bankruptcy filing.

Petitioner also contends that the bankruptcy court is the only

court that can determine whether the unpaid liabilities were

discharged.

Respondent claims that petitioner’s unpaid liabilities are

excepted from discharge under the Bankruptcy Code.

Specifically,

respondent contends that the taxes are excepted from discharge

under 11 U.S.C. sec. 523(a)(1)(B) (2000) because petitioner never

3

Unless otherwise indicated, all section references are to

the Internal Revenue Code currently in effect, and all Rule

references are to the Tax Court Rules of Practice and Procedure.

- 9 filed Forms 1040 for the years in issue.

Respondent argues that

the bankruptcy court did not enjoin collection of petitioner’s

unpaid liabilities and that a default judgment has not occurred.

I.

Jurisdiction

Before deciding the substantive issues, we must decide a

jurisdictional issue because petitioner’s contention that the

bankruptcy court is the only court that can determine whether the

unpaid liabilities were discharged raises the question of whether

we have the authority to decide this issue.

We addressed this

question in the context of a lien proceeding in Washington v.

Commissioner, 120 T.C. 114 (2003).

The instant case involves a

levy proceeding under section 6330(d)(1).

In Washington v. Commissioner, supra at 120-121, we stated:

We have held in deficiency proceedings commenced

in the Court under section 6213 that we do not have

jurisdiction to determine whether a U.S. bankruptcy

court has discharged a taxpayer from an unpaid tax

liability in a bankruptcy proceeding instituted by such

taxpayer. Neilson v. Commissioner, 94 T.C. 1, 9

(1990); Graham v. Commissioner, 75 T.C. 389, 399

(1980). In so holding, we relied on Swanson v.

Commissioner, 65 T.C. 1180, 1184 (1976), in which we

observed that an action brought for redetermination of

a deficiency “has nothing to do with collection of the

tax nor any similarity to an action for collection of a

debt”.

In contrast to a deficiency proceeding, a lien

proceeding commenced in the Court under section

6330(d)(1), such as the instant lien proceeding, is

closely related to and has everything to do with

collection of a taxpayer’s unpaid liability for a

taxable year. * * * We hold that in the instant lien

proceeding commenced under section 6330(d)(1) the Court

has jurisdiction to determine whether the U.S.

- 10 Bankruptcy Court for the Southern District of New York

discharged petitioners from such unpaid liabilities.

Thus, we exercised jurisdiction in the lien proceeding to decide

the bankruptcy discharge issue.4

A levy proceeding, like a lien proceeding, is commenced

under section 6330(d)(1).5

A levy proceeding is also “closely

related to and has everything to do with collection of a

taxpayer’s unpaid liability for a taxable year.”

Commissioner, supra at 120.

Washington v.

There is no reason for

distinguishing levy proceedings from lien proceedings for

purposes of exercising jurisdiction in the context of this case.

Accordingly, we hold that in this levy proceeding we have

jurisdiction to determine whether the U.S. Bankruptcy Court for

the Northern District of Texas discharged petitioner from the

unpaid liabilities for the years 1993, 1994, and 1995.

II.

Nature of the Arguments Under Section 6330(c)(2)

Under section 6330, a taxpayer is entitled to notice and an

opportunity for a hearing before certain lien and levy actions

are taken by the Commissioner in the process of collecting unpaid

4

See also Thomas v. Commissioner, T.C. Memo. 2003-231 (Tax

Court has jurisdiction in lien proceeding to decide whether

unpaid tax liabilities have been discharged in bankruptcy);

Richardson v. Commissioner, T.C. Memo. 2003-154 (same).

5

Sec. 6330(d)(1) provides rules governing judicial review of

determinations relating to levies. Sec. 6320(c), which deals

with liens, provides that the rules in sec. 6330(d)(1) apply to

judicial review of determinations relating to liens.

- 11 Federal taxes.

Section 6330(c)(1) requires the Appeals officer

to obtain verification that the requirements of any applicable

law or administrative procedure have been met.

Section

6330(c)(2) designates the issues that the taxpayer may raise at

the Appeals hearing.6

The taxpayer is allowed to raise any

relevant issue relating to the unpaid tax or the proposed levy,

including spousal defenses, challenges to the appropriateness of

the collection action, and alternatives to collection.

Sec.

6330(c)(2)(A); sec. 301.6330-1(e)(1), Proced. & Admin. Regs.7

6

Sec. 6330(c)(2) provides:

(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 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.

7

The regulations under sec. 6330 apply to any levy which

occurs on or after Jan. 19, 1999. Sec. 301.6330-1(j), Proced. &

(continued...)

- 12 The taxpayer “may also raise at the hearing challenges to the

existence or amount of the underlying tax liability” if the

taxpayer did not receive a notice of deficiency or did not

otherwise have an opportunity to dispute the tax liability.

Sec.

6330(c)(2)(B); sec. 301.6330-1(e)(1), Proced. & Admin. Regs.

The

taxpayer is precluded from raising an issue if it was raised and

considered at a previous hearing under section 6320 or in any

other previous administrative or judicial proceeding and the

person seeking to raise the issue meaningfully participated in

the hearing or proceeding.

Sec. 6330(c)(4); sec. 301.6330-

1(e)(1), Proced. & Admin. Regs.

The fact that the Appeals

officer may have considered and addressed a challenge not

properly at issue in the hearing does not constitute a waiver of

the statutory bar and does not operate to empower this Court to

review the challenge.

Behling v. Commissioner, 118 T.C. 572, 579

(2002); sec. 301.6330-1(e)(3), Q&A-E11, Proced. & Admin. Regs.

In the instant case, petitioner received a notice of

deficiency.

Therefore, the existence or amount of petitioner’s

underlying tax liability was not properly at issue at the

hearing.

Challenges to the existence or amount of the underlying

tax liability that are not properly at issue in this proceeding

7

(...continued)

Admin. Regs. Copies of MFTRA-X transcripts reveal that the

notice of intent to levy for the years 1993, 1994, and 1995 was

sent to petitioner on Jan. 23, 2000.

- 13 cannot be considered.

See, e.g., Pierson v. Commissioner, 115

T.C. 576, 580 (2000); Sego v. Commissioner, 114 T.C. 604, 612

(2000); Goza v. Commissioner, 114 T.C. 176, 183 (2000) (granting

motion to dismiss for failure to state a claim upon which relief

can be granted where taxpayer received notice of deficiency but

at hearing and in this Court did not raise a spousal defense,

challenge the appropriateness of the collection action, or offer

collection alternatives).

In Washington v. Commissioner, 120 T.C. at 120 n.9, the

Commissioner did not dispute that the argument that unpaid

liabilities were discharged in bankruptcy raised an issue

appropriate for hearing under section 6330(c)(2)(A).

Here,

unlike Washington, a notice of deficiency was issued.

However,

respondent does not contest that petitioner’s arguments in this

case are “challenges to the appropriateness of collection

actions” under section 6330(c)(2)(A).8

Therefore, we shall

review the determination that petitioner’s unpaid liabilities

were not discharged in bankruptcy.

8

Similar to this case, in Thomas v. Commissioner, T.C. Memo.

2003-231, the taxpayers received a notice of deficiency and we in

effect treated their bankruptcy discharge arguments as challenges

under sec. 6330(c)(2)(A). See also Richardson v. Commissioner,

T.C. Memo. 2003-154 n.9, where no notice was issued and we stated

that the taxpayer’s bankruptcy discharge argument raised an issue

relevant to the appropriateness of the collection action.

- 14 III. Standard of Review

Where the validity of the underlying tax liability is not

properly at issue, we review the Commissioner’s administrative

determinations for abuse of discretion.

Sego v. Commissioner,

supra at 610; Goza v. Commissioner, supra at 183.

Petitioner

received a notice of deficiency, and his arguments are challenges

to the appropriateness of the collection action.

Therefore, we

review the determination to proceed with collection for abuse of

discretion.

In this case, respondent’s determination regarding whether

petitioner’s unpaid liabilities were discharged in bankruptcy

required the interpretation and application of bankruptcy law.

If respondent’s determination was based on erroneous views of the

law and petitioner’s unpaid liabilities were discharged in

bankruptcy, then we must reject respondent’s views and find that

there was an abuse of discretion.

See, e.g., Cooter & Gell v.

Hartmarx Corp., 496 U.S. 384, 405 (1990) (abuse of discretion

occurs if ruling was based on erroneous view of the law); Abrams

v. Interco, Inc., 719 F.2d 23, 28 (2d Cir. 1983) (stating that it

is not inconsistent with the abuse of discretion standard to

decline to honor a purported exercise of discretion that is

infected by an error of law).

- 15 IV.

Dischargeability of Unpaid Liabilities

Petitioner’s general argument at the hearing and before this

Court has been that his unpaid liabilities were discharged by the

bankruptcy court.

The notice of determination addressed

petitioner’s argument as follows:

The administrative file shows that you filed

bankruptcy. You stated that the unpaid taxes were

discharged in your bankruptcy. Section 523(a)(1)(B)(i)

of the Bankruptcy Code states that a tax liability is

not discharged if the return was not filed. SFR

assessed income tax returns are not considered

voluntarily filed and are not dischargeable per Section

523(a)(1)(B)(i).

Thus, we must review respondent’s determination that, under 11

U.S.C. sec. 523(a)(1)(B)(i), petitioner’s unpaid liabilities were

not discharged in bankruptcy.

Additionally, we address

petitioner’s contentions that respondent is enjoined from

collecting the unpaid liabilities and that a default judgment has

occurred because respondent made no challenge to petitioner’s

bankruptcy filing.

Paragraph 1 of the discharge order specifically states that

petitioner “is released from all dischargeable debts.”

The

discharge order further provides that any judgment obtained in

any other court is null and void as a determination of

petitioner’s personal liability with respect to:

(1) Debts

dischargeable under 11 U.S.C. sec. 523; (2) unless determined by

the bankruptcy court to be nondischargeable, debts alleged to be

excepted from discharge under clauses (2), (4), (6), and (15) of

- 16 11 U.S.C. sec. 523(a); and (3) debts determined by the bankruptcy

court to be discharged.

Finally, the discharge order provides

that all creditors whose debts are discharged or declared null

and void under the order are enjoined from taking any action to

collect the debts as personal liabilities of petitioner.

Contrary to petitioner’s interpretation, the discharge order does

not relieve petitioner of liability for all debts.

Rather, the

order generally releases petitioner from all dischargeable debts,

debts alleged to be discharged under certain clauses of 11 U.S.C.

sec. 523(a), and other debts the bankruptcy court specifically

determined to be discharged.

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); In re 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. at

121.

The first category, contained in 11 U.S.C. sec. 523(a)(1),

is described in pertinent part as follows:

§ 523. Exceptions to discharge

(a) A discharge under section 727, 1141, 1228(a),

1228(b), or 1328(b) of this title [title 11] does not

discharge an individual debtor from any debt-–

(1) for a tax or a customs duty–

- 17 (A) of the kind and for the periods

specified in section 507(a)(2) or 507(a)(8)

of this title, whether or not a claim for

such tax was filed or allowed;

(B) with respect to which a return, if

required–

(i) was not filed; or

(ii) was filed after the date on

which such return was last due,

under applicable law or under any

extension, and after two years

before the date of the filing of

the petition; or

(C) with respect to which the debtor

made a fraudulent return or willfully

attempted in any manner to evade or

defeat such tax;

The use of the term “dischargeable” in the first paragraph of the

bankruptcy court’s discharge order requires application of this

category to determine whether the unpaid liabilities of

petitioner were dischargeable because there is no evidence in the

record that the bankruptcy court specifically determined that the

unpaid liabilities were to be discharged.

We reviewed a similar

bankruptcy court order in Washington v. Commissioner, supra, and

reached the same conclusion.9

Accordingly, we must decide

9

The bankruptcy court’s order in Washington v. Commissioner,

120 T.C. 114 at 116 (2003), provided:

IT IS ORDERED THAT:

1.

The Debtor is released from all dischargeable

debts.

(continued...)

- 18 whether the unpaid liabilities are excepted from discharge under

11 U.S.C. sec. 523(a)(1)(B).

A.

Filing of “Returns” Under 11 U.S.C. Section

523(a)(1)(B)

As relevant here, 11 U.S.C. sec. 523(a)(1)(B) excepts from

discharge a tax debt if “a return, if required, was not filed”.

The evidence in the record indicates, and petitioner has not

disputed, that he was required to file Federal income tax returns

for the years 1993, 1994, and 1995.

The parties stipulated that

petitioner did not file tax returns for these years.

Further,

the evidence in the record indicates that respondent prepared

SFRs for petitioner for each of these years.

The relevant issue

is whether the SFRs prepared by respondent in this case

constitute “returns” within the meaning of 11 U.S.C. sec.

523(a)(1)(B).

This is the first opportunity that this Court has

had to consider the issue.

9

(...continued)

2.

Any judgment not obtained in this court is null

and void as to the personal liability of the

Debtor(s) regarding the following:

(a)

debts dischargeable under 11 U.S.C. § 523(a);

(b)

debts alleged to be excepted from discharge

under 11 U.S.C. § 523(a)(2), (4), (6) or (15)

unless determined by this court to be

nondischargeable;

(c)

debts determined by this court to be

discharged.

- 19 A purpose of the return requirement in 11 U.S.C. sec.

523(a)(1)(B) is to prevent a debtor who has ignored the filing

requirements from escaping liability for unpaid taxes through the

debtor’s own misconduct.

In re Hindenlang, 164 F.3d 1029, 1032

(6th Cir. 1999); In re Bergstrom, 949 F.2d 341, 342 (10th Cir.

1991).

This corresponds with the principle that “‘good faith and

candor are necessary prerequisites to obtaining a fresh start.’”

In re Hindenlang, supra at 1032 (quoting In re Zick, 931 F.2d

1124, 1129 (6th Cir. 1991)).

The preparation of an SFR by the

Commissioner is a simple administrative step which allows the

assessment and collection process to begin.

If an SFR

constitutes a “return” within the meaning of 11 U.S.C. sec.

523(a)(1)(B), then the result of completing this administrative

procedure effectively would be to excuse a nonfiling taxpayer

from his own deliberate misconduct.

This interpretation would

render 11 U.S.C. sec. 523(a)(1)(B) a nullity.

In re Pruitt, 107

Bankr. 764, 766 (Bankr. D. Wyo. 1989).

The term “return” is not defined in the Bankruptcy Code.

In

defining the term under 11 U.S.C. sec. 523(a)(1), other courts

have looked to the Internal Revenue Code and cases decided by

this Court for assistance.

See, e.g., In re Hatton, supra at

1060; In re Hindenlang, supra at 1032; In re Bergstrom, supra at

343.

Section 6020 specifically discusses returns prepared for or

executed by the Secretary, but neither that section nor any other

- 20 section of the Internal Revenue Code provides a definition of the

term “return”.10

In Beard v. Commissioner, 82 T.C. 766 (1984),

affd. 793 F.2d 139 (6th Cir. 1986), this Court developed a widely

accepted interpretation of the term.

In that case, we stated

that in order to qualify as a return, a document must meet the

following requirements: (1) Purport to be a return; (2) be

executed under penalty of perjury; (3) contain sufficient data to

allow calculation of tax; and (4) represent an honest and

reasonable attempt to satisfy the requirements of the tax law.

Id. at 777; see also Cabirac v. Commissioner, 120 T.C. 163, 169

n.10 (2003).

This test combines the principles of two Supreme

Court cases:

Germantown Trust Co. v. Commissioner, 309 U.S. 304

(1940), and Zellerbach Paper Co. v. Helvering, 293 U.S. 172

(1934).

In addition to the inconsistency between the purpose of the

filing requirement under the bankruptcy statute and the

proposition that an SFR can constitute a return under that

statute, section 6020 and the requirements set forth in Beard v.

Commissioner, supra, support the determination that SFRs do not

constitute returns within the meaning of 11 U.S.C. sec.

523(a)(1)(B).

10

This Court has previously recognized that a return

prepared under sec. 6020(b) might not be considered a return

within the meaning of other sections of the Internal Revenue

Code. Spurlock v. Commissioner, 118 T.C. 155, 161 (2002).

- 21 1.

Section 6020 Returns

Section 6020 authorizes the Secretary to prepare a “return”

in certain situations.

Under section 6020(b)(1), if any person

fails to make a return as required by law, the Secretary is

authorized to prepare a return based on his own knowledge and

such other information as he can obtain.

Any return prepared and

subscribed by the Secretary “shall be prima facie good and

sufficient for all legal purposes.”

Sec. 6020(b)(2).11

However,

the return prepared by the Secretary must be signed by the

delinquent taxpayer before it can be accepted as the filed return

of the taxpayer.

Sec. 6020(a); In re Bergstrom, supra at 343.12

11

For further discussions of what constitutes a return

prepared by the Commissioner under sec. 6020(b), see Cabirac v.

Commissioner, 120 T.C. 163, 170-173 (2003); Spurlock v.

Commissioner, supra at 157-161; Spurlock v. Commissioner, T.C.

Memo. 2003-124.

12

In In re Hofmann, 76 Bankr. 853, 854 (Bankr. S.D. Fla.

1987), the bankruptcy court explained the requirement that the

debtor file the required return:

It is undisputed that the debtor never personally

filed a tax return for 1968. However, the debtor

argues that literally a return was filed (by the

government) and that the statutory language of §

523(a)(1)(B) which eliminated the specific reference in

§ 17(a) of the former Bankruptcy Act which specified

nondischargeability:

“in any case in which the bankrupt failed to make

a return required by law” (emphasis supplied)

calls for a different interpretation than under the

former law. * * *

(continued...)

- 22 An SFR prepared under section 6020(b) does not constitute a

return of the taxpayer for purposes of 11 U.S.C. sec.

523(a)(1)(B) in the absence of the signature of the taxpayer.

In

re Bergstrom, supra at 343.

In the instant case, petitioner failed to file required

returns for the years 1993, 1994, and 1995, and respondent

prepared SFRs for these years.

Regardless of whether the SFRs

were prepared in accordance with section 6020(b), there is no

evidence that petitioner signed the SFRs, which is required

before an SFR can constitute a return for purposes of 11 U.S.C.

sec. 523(a)(1)(B).13

12

(...continued)

The government’s position that § 523(a)(1)(B)(i)

renders nondischargeable a tax for which the debtor did

not file a tax return is supported by the legislative

history. See Notes of Committee on the Judiciary, S.

Rep. No. 95-989, 95th Cong., 2nd Sess. 78 (1978), U.S.

Code Cong. & Admin. News 1978, p. 5787 * * *.

[Emphasis supplied.]

13

We are aware that under sec. 6651(g), a return the

Secretary prepared under sec. 6020(b) is treated as “the return

filed by the taxpayer for purposes of determining the amount of

the addition” under sec. 6651(a)(2). Cabirac v. Commissioner,

supra at 170; Spurlock v. Commissioner, T.C. Memo. 2003-124.

However, this is a specific statutory provision limited to

situations involving the determination of whether a taxpayer is

liable for a certain addition to tax. There is no analogous

provision in the Bankruptcy Code providing that a return prepared

under sec. 6020(b) is treated as the return filed by the debtor

for purposes of determining the dischargeability of tax debts

under 11 U.S.C. sec. 523(a)(1) (2000).

- 23 2.

The Requirements Set Forth in the Beard Case

As previously mentioned, this Court applies a four-part

test, derived by combining the principles of two Supreme Court

cases, to determine whether a filing constitutes a “return”.

Beard v. Commissioner, supra at 777.14

Petitioner fails two

prongs of the test because he did not sign the SFRs and he failed

to make an honest and reasonable attempt to satisfy the tax laws.

Petitioner was required to file Federal income tax returns

for the years 1993, 1994, and 1995.

Petitioner failed to file

tax returns for these years either before or after the

assessment.

Respondent prepared SFRs for the tax years in issue.

There is no evidence in the record that petitioner signed the

SFRs.

Additionally, there is no evidence that he attempted to

file any returns on his own initiative or that he cooperated with

the Commissioner in a manner that might represent an honest and

reasonable attempt to satisfy the requirements of the tax law.

On the basis of the facts of this case, no “returns” were filed

14

Courts that have addressed the issue of whether particular

documents constitute a “return” within the meaning of 11 U.S.C.

sec. 523(a)(1)(B) have applied the four-part test set forth in

Beard v. Commissioner, 82 T.C. 766 (1984), affd. 793 F.2d 139

(6th Cir. 1986). See, e.g., In re Hatton, 220 F.3d 1057, 10601061 (9th Cir. 2000); In re Hindenlang, 164 F.3d 1029, 1033 (6th

Cir. 1999); In re Moroney, 90 AFTR 2d 2002-7353, 2003-1 USTC par.

50,117 (E.D. Va. 2002); In re Pierchoski, 243 Bankr. 639, 642

(Bankr. S.D. Pa. 1999); In re Billman, 221 Bankr. 281, 282

(Bankr. S.D. Fla. 1998); In re McGrath, 217 Bankr. 389, 392

(Bankr. N.D.N.Y. 1997).

- 24 within the meaning of 11 U.S.C. sec. 523(a)(1)(B).15

Accordingly, we hold that pursuant to 11 U.S.C. sec.

523(a)(1)(B), the U.S. Bankruptcy Court for the Northern District

of Texas did not discharge petitioner from his unpaid liabilities

for the taxable years 1993, 1994, and 1995.

B.

Petitioner’s Additional Arguments

In his petition, petitioner raises additional arguments

relating to his bankruptcy filing.

Petitioner alleges that

respondent is enjoined from collecting the unpaid liabilities and

that a default judgment occurred because respondent made no

challenge to the bankruptcy filing.

The record in this case is

unclear regarding whether these issues were raised at the Appeals

hearing.

Respondent has not argued that petitioner did not raise

these issues at the Appeals hearing.

In the answer to the

amended petition, respondent claims that it was unnecessary to

object to the bankruptcy filing because the unpaid liabilities

are excepted from discharge.

Because it appears that

petitioner’s additional arguments were raised at the Appeals

15

Although not argued by respondent or addressed by the

parties, we note that if the SFRs were deemed returns for

purposes of 11 U.S.C. sec. 523(a)(1)(B) then it appears that

petitioner’s unpaid liabilities would still be excepted from

discharge because copies of MFTRA-X transcripts indicate that the

SFRs were filed less than 2 years before the start of the

bankruptcy proceeding. See 11 U.S.C. sec. 523(a)(1)(B)(ii);

Young v. United States, 535 U.S. 43, 48-49 (2002); Washington v.

Commissioner, 120 T.C. at 121-122; Thomas v. Commissioner, T.C.

Memo. 2003-231.

- 25 hearing and because respondent has not objected to the arguments,

we shall address the additional arguments.

1.

Whether Respondent Is Enjoined by the Order of

Discharge From Collecting the Unpaid Liabilities

Petitioner argues that respondent is enjoined by the

discharge order from collecting the unpaid liabilities.

However,

the discharge order specifically states that only creditors whose

debts are discharged by the order or declared null and void under

paragraph 2 of the order are enjoined from collecting debts.

Paragraphs 2 and 3 of the discharge order stated:

2.

Any judgment heretofore or hereafter obtained

in any court other than this court is null and

void as a determination of the personal liability

of the debtor with respect to any of the following:

(a) debts dischargeable under 11 U.S.C. sec.

523;

(b) unless heretofore or hereafter

determined by order of this court to be

nondischargeable, debts alleged to be excepted

from discharge under clauses (2), (4), (6)

and (15) of 11 U.S.C. sec. 523(a);

(c) debts determined by this court to be

discharged.

3.

All creditors whose debts are discharged by

this order and all creditors whose judgments are

declared null and void by paragraph 2 above are

enjoined from instituting or continuing any action

or employing any process or engaging in any act to

collect such debts as personal liabilities of the

above-named debtor.

As previously explained, the unpaid liabilities were not

dischargeable under 11 U.S.C. sec. 523(a)(1)(B) because required

- 26 returns were not filed.

Petitioner has not alleged that the

unpaid liabilities are excepted from discharge under 11 U.S.C.

sec. 523(a)(2), (4), (6), or (15).

Finally, the unpaid

liabilities were not determined by the bankruptcy court to be

discharged.

Therefore, pursuant to the discharge order,

respondent is not enjoined from collecting the unpaid

liabilities.

2.

Respondent’s Failure To Object or File Claim

Petitioner argues that respondent’s failure to object to or

file a claim in petitioner’s bankruptcy filing resulted in a

default judgment in this case.

We disagree because the debt at

issue is not of a kind that requires an objection or the filing

of a complaint during a chapter 7 bankruptcy proceeding in order

to later obtain a determination of the dischargeability of the

debt.

Bankruptcy courts have exclusive jurisdiction with respect

to debts enumerated in 11 U.S.C. sec. 523(a)(2), (4), (6) and

(15).

11 U.S.C. sec. 523(c)(1); In re McKendry, 40 F.3d 331, 335

(10th Cir. 1994); In re Galbreath, 83 Bankr. 549, 550 (Bankr.

S.D. Ill. 1988); Fed. R. Bankr. P. 4007 Advisory Committee’s Note

(1983); 4 Collier on Bankruptcy, par. 523.03, at 523-17 (15th ed.

rev. 1996).

With respect to determining whether other debts,

- 27 including tax debts,16 are dischargeable, bankruptcy courts have

concurrent jurisdiction with other courts.

Whitehouse v.

LaRoche, 277 F.3d 568, 576 (1st Cir. 2002); In re McKendry, supra

at 335 n.3; In re Galbreath, supra at 551; Fed. R. Bankr. P. 4007

Advisory Committee’s Note (1983) (“Jurisdiction over this issue

on these debts [debts listed under 11 U.S.C. sec. 523(a)(1), (3),

(5), (7), (8), and (9)] is held concurrently by the Bankruptcy

Court and any appropriate nonbankruptcy forum.”); 4 Collier on

Bankruptcy, par. 523.03, at 523-17.

As explained below, this

concurrent jurisdiction generally allows dischargeability issues

relating to certain debts to be decided by a nonbankruptcy court

if the issues have not been addressed by the bankruptcy court in

a prior chapter 7 proceeding.

Rule 4007(a) of the Federal Rules of Bankruptcy Procedure

provides that a debtor or any creditor may file a complaint to

obtain a determination of the dischargeability of any debt.

Generally, 11 U.S.C. sec. 523(c) provides that a debtor is

16

A bankruptcy court may determine the amount or legality of

any tax, any fine or penalty relating to a tax, or any addition

to tax as long as the matter has not been contested before and

adjudicated by a judicial or administrative tribunal of competent

jurisdiction before the commencement of the case under title 11.

11 U.S.C. sec. 505(a). This authority to fix a debtor’s tax

liability is discretionary. In re Shapiro, 188 Bankr. 140, 143

(Bankr. E.D. Pa. 1995); In re Queen, 148 Bankr. 256, 259 (S.D.

W.Va. 1992), affd. without published opinion 16 F.3d 411 (4th

Cir. 1994). If a bankruptcy court specifically considers and

decides a tax issue, then this Court will generally adhere to the

bankruptcy court’s decision on the matter. See Katz v.

Commissioner, 115 T.C. 329, 339-340 (2000).

- 28 discharged from a debt of a kind specified in paragraphs (2),

(4), (6), or (15) of 11 U.S.C. sec. 523(a) unless, on request of

the creditor to whom the debt is owed, and after notice and a

hearing, the court determines the debt is excepted from discharge

under one of those paragraphs.17

The instant dispute involves a

tax debt, which is not a debt of a kind specified in paragraphs

(2), (4), (6), or (15) of 11 U.S.C. sec. 523(a).

Thus,

respondent was not required in this case to request a

determination in the chapter 7 proceeding that petitioner’s

unpaid liabilities were excepted from discharge.

See Whitehouse

v. LaRoche, supra at 576; United States v. Comer, 222 Bankr. 555,

561 (Bankr. E.D. Mich. 1998); In re Thompson, 207 Bankr. 7, 9

(Bankr. M.D. Fla. 1996).

A debt of the kind specified in 11 U.S.C. sec. 523(a)(1) is

not discharged in a chapter 7 proceeding, and it continues to be

an enforceable obligation after the entry of a debtor’s

discharge, unless there is an express determination that the tax

is dischargeable.

In re Thompson, supra at 10; In re Ellsworth,

158 Bankr. 856, 858 (M.D. Fla. 1993).

A complaint seeking a

determination that a tax debt is not excepted from discharge

17

In a ch. 7 proceeding, if a complaint is filed pursuant to

11 U.S.C. sec. 523(c), then it must be filed no later than 60

days after the first date set for the meeting of creditors. Fed.

R. Bankr. P. 4007(c). Complaints other than under 11 U.S.C. sec.

523(c) may be filed at any time. In re Stone, 10 F.3d 285, 289

n.9 (5th Cir. 1994); Fed. R. Bankr. P. 4007(b).

- 29 under 11 U.S.C. sec. 523(a)(1) usually comes from the debtor

because tax liabilities covered by this section constitute a

claim or debt of a kind which would not otherwise be discharged

pursuant to 11 U.S.C. sec. 523(c) in the event that the creditor

failed to take timely action.

In re Ellsworth, supra at 858; 4

Collier on Bankruptcy, par. 4007.02, at 4007-4.

“The law is

clear that failure to file a complaint for debts protected from

discharge under Section 523(a)(1) does not affect the

dischargeability or nondischargeability of the debt.”

Ellsworth, supra at 858.

In re

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 the debtor in his

prior bankruptcy case.

In re Thompson, supra at 10.

In the instant case, petitioner has not alleged, and the

evidence in the record does not reflect, that he filed a

complaint to obtain a determination of the dischargeability of

the unpaid liabilities for the years 1993, 1994, and 1995.

Furthermore, the bankruptcy court did not determine the

dischargeability of the unpaid liabilities in its discharge

order.

Because the tax debt in issue is of a kind specified in

11 U.S.C. sec. 523(a)(1), respondent was not required to object

or file a claim to protect against the discharge of the unpaid

liabilities because the liabilities were automatically excepted

- 30 from discharge.

Accordingly, there is no default judgment

applicable.

V.

Conclusion

After the bankruptcy proceeding was complete, the Appeals

officer determined that petitioner’s unpaid liabilities were

excepted from discharge because required returns were not filed

and sought to proceed with collection by levy.

Petitioner

contested the Appeals officer’s determination and petitioned this

Court to review the determination.

We have exercised our

jurisdiction and decided the dischargeability issue that was not

addressed by the bankruptcy court in petitioner’s chapter 7

proceeding.

As explained earlier, petitioner’s unpaid

liabilities were excepted from discharge under 11 U.S.C. sec.

523(a)(1).

Accordingly, we hold that respondent may proceed with

collection action as determined in the notice of determination

with respect to petitioner’s taxable years 1993, 1994, and 1995.

Decision will be entered

for respondent.