COLLECTION DUE PROCESS HEARING; ABUSE OF DISCRETION

An IRS Appeals officer's refusal to enter into an installment agreement with an individual and her decision to uphold an IRS proposed collection action did not constitute an abuse of discretion. The taxpayer did not suffer undue hardship as a result of a lien and levy. The officer considered the taxpayer's arguments and properly balanced the interest of pursuing the least intrusive method of collection with the need to efficiently administer the tax laws in the collection of revenue and found that the tax lien against the taxpayer's accounts was the proper collection method. Further, the IRS's refusal to enter into an installment agreement with the taxpayer was not erroneous because the taxpayer had not made her estimated tax payments for two years. Finally, the court lacked jurisdiction to consider her allegations that the IRS lien unjustifiably slandered her credit and precluded her from operating her business because these issues had not been raised at her Collection Due Process hearing. Back references: ¶38,184.12 and ¶38,184.60.

Judicial Review of the IRS' Levy Determination

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.

Held: We have jurisdiction in this levy proceeding to determine whether P's unpaid liabilities were discharged in bankruptcy. Washington v. Commissioner [Dec. 55,072], 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 the respondent.

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 petitioner is precluded from arguing that his unpaid liabilities were discharged in bankruptcy.

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 petitioner was liable for the following deficiencies and additions to tax:

                                                                  
                                                                     
                                               Additions to Tax      
                                                                     
                                                                     
                                      ________________________________
                                             Sec.                    
  Year                   Deficiency      6651(a)(1)      Sec. 6654(a)
                                                                     
  1993 ..............    $8,307            $896             ---
                                                              
  1994 ..............     8,460           2,115            $436
                                                              
  1995 ..............    10,657           2,524             548
                                                              

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 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 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.

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 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.

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 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.

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 [Dec. 55,072], 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 [Dec. 46,301], 94 T.C. 1, 9 (1990); Graham v. Commissioner [Dec. 37,460], 75 T.C. 389, 399 (1980). In so holding, we relied on Swanson v. Commissioner [Dec. 33,742], 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. 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." Washington v. Commissioner, supra at 120. 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.

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 cannot be considered. See, e.g., Pierson v. Commissioner [Dec. 54,152], 115 T.C. 576, 580 (2000); Sego v. Commissioner [Dec. 53,938], 114 T.C. 604, 612 (2000); Goza v. Commissioner [Dec. 53,803], 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).

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).

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 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 [Dec. 55,072], 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

(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 whether the unpaid liabilities are excepted from discharge under 11 U.S.C. sec. 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.

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 section of the Internal Revenue Code provides a definition of the term "return".¹⁰ In Beard v. Commissioner [Dec. 41,237], 82 T.C. 766 (1984), affd. [86-2 USTC ¶9496] 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 [Dec. 55,124], 120 T.C. 163, 169 n.10 (2003). This test combines the principles of two Supreme Court cases: Germantown Trust Co. v. Commissioner [40-1 USTC ¶9263], 309 U.S. 304 (1940), and Zellerbach Paper Co. v. Helvering [35-1 USTC ¶9003], 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).

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 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

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 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.

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 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.

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, 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 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 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." In re Ellsworth, supra at 858. 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.

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.

After submitting an application to and receiving an adverse determination from respondent (R), petitioner (P) petitioned this Court to seek our determination whether she is entitled to relief from joint liability under sec. 6015(f), I.R.C.

R contends that: (1) In making our determination, we may not consider evidence introduced at trial which was not included in the administrative record; and (2) whether or not our review is limited to R's administrative record, P is not entitled to equitable relief under sec. 6015(f), I.R.C.

Held: Our determination whether P is entitled to relief under sec. 6015(f), I.R.C., is made in a trial de novo; thus, we may consider matter raised at trial which was not included in the administrative record.

Held, further, P is entitled to equitable relief under sec. 6015(f), I.R.C.

Karen L. Hawkins, for the petitioner. Thomas M. Rohall, for the respondent.

COLVIN, Judge: Respondent determined that petitioner is not entitled to relief from joint liability for tax under section 6015(f) for 1995. Petitioner filed a petition under section 6015(e)(1) seeking our determination whether she is entitled to relief under section 6015(f).

The issues for decision are:¹

1. Whether, in determining petitioner's eligibility for relief under section 6015(f), we may consider evidence introduced at trial which was not included in the administrative record. We hold that we may.

2. Whether petitioner is entitled to relief from joint liability for tax under section 6015(f). We hold that she is.

Section references are to the Internal Revenue Code in effect for the applicable years. Rule references are to the Tax Court Rules of Practice and Procedure.

Some of the facts have been stipulated and are so found.

Petitioner resided in Martinez, California, when she filed her petition. She married Richard Wiwi (Mr. Wiwi) on September 9, 1995. At the time of trial, they were still married and living together.

Petitioner is a licensed clinical laboratory scientist. In 1995, she worked full time for the Blood Bank of Alameda/Contra Costa Counties as a medical technologist and was eligible for various employee benefits (not described further in the record). Later in 1995, the blood bank changed her position to part time. From 1997 to 1999, petitioner was employed in two temporary medical technologist positions, and she received no employee benefits.

In 1995, Mr. Wiwi was the sole proprietor of a financial services business. He was licensed to trade securities and sell insurance. Petitioner knew about his business, but she did not know how much he earned. He concealed from her the fact that he had prior financial obligations, including unpaid income tax for 1993 and 1994.

Taxes in the amount of $10,862 were withheld from petitioner's wages in 1995. Mr. Wiwi made no estimated tax payments to the United States and was not subject to withholding in 1995. Petitioner and Mr. Wiwi filed a joint Federal income tax return for 1995. On that return, they reported Federal income tax withheld on petitioner's wages of $10,862 and additional tax due of $6,220. However, they paid only $1,620 with their return; petitioner paid $1,069, and Mr. Wiwi paid $551. As a result of withholding and the payment with the return, petitioner paid an amount equal to the tax on her income, but Mr. Wiwi paid less than the tax due on his income.

Mr. Wiwi told petitioner (and she reasonably believed) that he would pay the unpaid 1995 tax as provided in a proposed installment agreement that he submitted with their 1995 income tax return. Mr. Wiwi failed to pay the remaining 1995 tax, but he concealed that fact from petitioner until 1998. Early in 1999, he filed an offer in compromise in which he said he could not pay the unpaid tax for 1995.

Petitioner and Mr. Wiwi have always kept their finances separate. Petitioner paid her own expenses (including Federal income tax on her income) beginning before they were married and continuing until the time of trial. Petitioner paid at least half of their household expenses from the date they were married until 1997. Mr. Wiwi began having medical problems in 1996. He lost his license to sell securities in 1997, and his income decreased dramatically. Since 1997, petitioner has worked at several temporary jobs and paid all of her and about 80 percent of Mr. Wiwi's expenses. Petitioner's total monthly household expenses on behalf of herself and Mr. Wiwi in 1997 and 1998 (including rent, utilities, transportation, food, clothing, and medical insurance) were about $2,800.

Petitioner had about $5,000 in her savings account in 1996 and $13,500 at the time of trial. She received wages of $65,792 in 1997, $65,338 in 1998, $66,315 in 2000, and $79,000 in 2002.²

Mr. Wiwi's medical condition worsened, which prevented him from working in 2000. He had hip replacement surgery in 2000 and 2001.

In 2000, petitioner liquidated an individual retirement account (IRA) and used the proceeds (about $20,000) as part of a $33,000 downpayment to buy a $333,000 residence for Mr. Wiwi and herself. The monthly mortgage payment was about the same as their previous rent payments. At the time of trial, petitioner had a section 401(k) retirement account with the American Red Cross. The record does not indicate the value of that account.

On February 2, 1999, petitioner filed Form 8857, Request for Innocent Spouse Relief (And Separation of Liability and Equitable Relief), in which she sought relief from joint liability for a portion of the amount of the unpaid tax liability shown on the 1995 joint return. On June 6, 1999, respondent sent petitioner a letter which said that respondent had preliminarily determined that petitioner was not entitled to relief under section 6015(f).

An Appeals officer met with petitioner's representative for 3 hours on November 18, 1999, and for 2 hours on September 21, 2000. Respondent determined on October 31, 2000, that petitioner was not entitled to equitable relief under section 6015(f) for 1995. Respondent's only stated reasons were: "You had knowledge of the liability, and you are still married and living with the nonrequesting spouse." Exhibit 10-R, which includes the materials assembled by the examining agent and the Appeals officer in response to petitioner's claim for equitable relief, is respondent's administrative file (the administrative file) for this case. Petitioner timely filed a petition in this Court.

Respondent contends that, in making our determination under section 6015(f), we may not consider evidence introduced at trial which was not included in the administrative record. More specifically, respondent contends that, pursuant to the Administrative Procedure Act (APA), 5 U.S.C. secs. 551-559, 701-706 (2000), and cases decided thereunder, this Court may consider only the administrative record (the record rule) in making our determination in this case.³ See Camp v. Pitts, 411 U.S. 138, 142 (1973); United States v. Carlo Bianchi & Co., 373 U.S. 709, 715 (1963). We disagree. As discussed next, our holding herein is based on more than 75 years of well-established interpretative history and practice before this Court.

Section 6015(f)⁴

Section 6015(e)(1)(A), which authorizes this Court to determine the appropriate relief available under section 6015, is similar to our deficiency jurisdiction in section 6213, which provides that taxpayers who receive a notice of deficiency may petition this Court for a redetermination of the deficiency. Sec. 6213(a).

It is well established that the APA does not apply to deficiency cases in this Court; that is, cases arising under sections 6213 or 6214 in which we may redetermine the taxpayer's tax liability. O'Dwyer v. Commissioner [59-1 USTC ¶9441], 266 F.2d 575, 580 (4th Cir. 1959), affg. [Dec. 22,434] 28 T.C. 698 (1957); Nappi v. Commissioner [Dec. 31,384], 58 T.C. 282, 284 (1972).⁶ In contrast, respondent contends that the APA applies to our proceedings under section 6015(f). As discussed next, we find no convincing reason to treat our determinations under section 6015(f) and section 6213(a) differently for purposes of applicability of the APA.

We make redeter