July 17, 2019

Tenth Circuit: 11 U.S.C. § 362(a)(1) Does Not Stay Appeal from Tax Court

The Tenth Circuit published its opinion in Schoppe v. Commissioner of Internal Revenue on Thursday, March 28, 2013.

John H. Schoppe petitioned for review of a Tax Court decision finding him liable for tax deficiencies. While the case was proceeding, Mr. Schoppe filed a bankruptcy petition. That filing prompted the Tenth Circuit to request supplemental briefing from the parties on whether the automatic bankruptcy stay in 11 U.S.C. § 362(a)(1) would apply to this appeal.

The Tenth Circuit held that § 362(a)(1) did not stay the appeal. It was an open question in the Tenth Circuit whether a proceeding is initiated by the debtor when he files a petition in Tax Court or whether the Tax Court proceeding is a continuation of the proceeding initiated against the debtor when the Commissioner begins the administrative process of determining that there is a tax deficiency. The Tenth Circuit agreed with the four circuits that have applied a bright-line rule that a petition filed in Tax Court is an independent judicial proceeding initiated by the debtor, not the continuation of an administrative proceeding. Because the underlying case originated with Mr. Schoppe commencing a judicial proceeding in Tax Court, The Tenth Circuit concluded the automatic stay did not apply.

On the merits, Mr. Schoppe did not file timely federal tax returns for the years 2002 through 2007. The IRS sent Mr. Schoppe a notice of deficiency, determining his income tax deficiencies, as well as additional amounts for failing to file returns, failing to pay tax when due, and failing to pay estimated tax. The Tax Court sustained the IRS’s determination of the deficiencies, concluding that Mr. Schoppe failed to adequately substantiate deductions he claimed for business expenses. Mr. Schoppe appealed.

Finding no clear error, the Tenth Circuit agreed with Tax Court’s determination that Mr. Schoppe failed to substantiate his claimed business expenses.

Tax Court’s decision AFFIRMED.

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