Definition of "pending"
 
Rev. Rul. 2005-9, Internal Revenue Bulletin:
2005-6,
February 7, 2005
Table of Contents
Bankruptcy cases; definition of “pending”.
This ruling discusses the definition of
“pending” regarding bankruptcy cases for
purposes of the relief from the imposition of
certain penalties provided under section 6658 of the
Code.
ISSUE
When is a bankruptcy case no longer “pending” for purposes of the relief
from the imposition of certain penalties provided
under section 6658 of the Internal Revenue Code for
the period during which a bankruptcy case is
pending?
FACTS
In Situations A, B,
and C
described below: (1) an individual taxpayer files a
bankruptcy petition under Chapter 7 or Chapter 11 of
title 11 of the U.S. Code (“the Bankruptcy
Code”) and has an income tax liability for a
taxable year that ended prior to the filing of the
bankruptcy petition; (2) the prepetition tax
liability is excepted from discharge under section
523(a)(1)(A) of the Bankruptcy Code; (3) the tax
liability is reported on a timely filed tax return,
but is not paid in full; and (4) the failure to pay
penalty under section 6651(a)(2) may be imposed
except to the extent of the relief provided by
section 6658 of the Internal Revenue Code for the
period during which the bankruptcy case is pending.
Situation A. The taxpayer files a Chapter 7 bankruptcy petition
on Date 1. The court enters an order granting the
debtor a discharge on Date 2, which is six weeks
after Date 1. Distributions from the bankruptcy
estate are made and the Service receives partial
payment of income taxes on Date 3, one year after
Date 1. The court discharges the trustee and closes
the case on Date 4, which is 30 days after receiving
the trustee’s final report.
Situation B. The taxpayer files a Chapter 11 bankruptcy
petition on Date 1. The plan is confirmed and the
taxpayer receives a discharge on Date 2. Payments to
the Service commence on Date 3. The court closes the
case on Date 4, which is 30 days after Date 3.
Payments under the plan are required to be made for
several years after Date 4.
Situation C. The facts are the same as in Situation
B, except that the court does not close
the case on Date 4. Beginning approximately one year
after Date 3, the taxpayer fails to make payments as
required under the plan. Shortly after the default,
the Service files a motion to dismiss the case and
the court enters a dismissal order on Date 5.
LAW
AND
ANALYSIS
Section 6658(a) provides, in part, that “[n]o addition to the tax shall be
made under section 6651, 6654, or 6655 for failure
to make timely payment of tax with respect to a
period during which a case is pending under title 11
of the United States Code . . . .” Section 6658
applies to tax arising before the taxpayer files a
bankruptcy petition if (1) the petition was filed
before the due date of the return or (2) the date
for making the addition to the tax occurs on or
after the day on which the petition was filed.
Section 6651 imposes penalties for failure to file a
return or pay a tax, and sections 6654 and 6655
impose penalties for failure to pay estimated taxes.
The term “pending” is not defined in section
6658.
A bankruptcy case is commenced by filing a petition with the bankruptcy
court pursuant to sections 301 through 304 of the
Bankruptcy Code. A case is “pending” for
purposes of section 6658 after the debtor files a
petition with the bankruptcy court. A bankruptcy
case is no longer pending for purposes of section
6658 when it is closed or dismissed. See
Carey v. Saffold, 536 U.S. 214, 219-220
(2002) (consulting Webster’s Third International
Dictionary for the ordinary meaning of the word
“pending,” the Court determined that a state
court application for collateral review remains
pending “until the application has achieved final
resolution”).
Section 350 of the Bankruptcy Code requires the court to close a case once
the estate is fully administered and the court has
discharged the trustee. Bankruptcy Rule 5009
provides that in Chapter 7 cases, there is a
presumption that the estate has been fully
administered and the case may be closed if (1) the
trustee has filed a final report and final account
and has certified that the estate has been fully
administered, and (2) within 30 days after the
trustee’s filing and certification, no objection
has been filed by the United States trustee or a
party in interest.
Bankruptcy Rule 3022 provides that the court shall enter a final decree
closing a Chapter 11 case after an estate is fully
administered. The Advisory Committee Notes to the
1991 amendments to Bankruptcy Rule 3022 provide that
the final decree closing the case should not be
delayed solely because payments required by the plan
have not been completed. Fed. R. Bankr. P. 3022
advisory committee notes.
Whether a case has been fully administered and should be closed presents a
different question under Chapter 7 than under
Chapter 11. Although a Chapter 7 case is not fully
administered and generally is not closed until after
final distribution of the property of the estate, a
Chapter 11 case may be considered fully administered
and may be closed shortly after payments commence
under the plan even though the debtor will continue
to make payments. However, in both Chapters 7 and
11, the closing of the case marks the end of the
bankruptcy court’s administration of the estate
and is, therefore, the proper date on which a case
is no longer pending for purposes of section 6658.
Similarly, the dismissal of a bankruptcy case terminates the case and the
bankruptcy court’s administration of the
bankruptcy estate. The legislative history to
section 349 of the Bankruptcy Code, which sets forth
the effect of a dismissal of a bankruptcy case,
provides that the purpose of section 349 is “to
undo the bankruptcy case, as far as practicable, and
to restore all property rights to the position in
which they were found at the commencement of the
case.” S. Rep. No. 989, 95th Cong., 2d
Sess. 48 (1978).
In Situation A, the case is
pending under section 6658 until the court closes
the case on Date 4. The entry of the discharge order
on Date 2 does not terminate the relief provided by
section 6658 because the estate has not been fully
administered.
In Situation B, the
confirmation of the plan on Date 2 discharges the
debtor from all pre-confirmation dischargeable
debts. The confirmation of the plan does not
terminate the administration of the estate. Under
section 350 and Bankruptcy Rule 3022, the estate is
not fully administered until it is closed on Date 4.
As of Date 4, the administration of the estate is
complete and the case is no longer pending even
though the debtor is required to make payments under
the plan for several years. Thus, the penalty relief
provided by section 6658 ceases as of Date 4.
In Situation C, the
bankruptcy court does not close the case 30 days
after confirmation of the plan as in Situation
B, but keeps the case open while the
debtor complies with the terms of the plan. However,
one year after confirmation, the debtor fails to
make the payments required by the terms of the plan.
The default does not terminate the case or end the
court’s involvement in the administration of the
estate. The order dismissing the case terminates the
administration of the estate. The prohibition
against imposition of the penalty ends on Date 5,
the date on which the dismissal order is entered.
Although Situations A, B,
and C
describe bankruptcy cases filed under Chapters 7 and
11 of the Bankruptcy Code, the treatment of a case
as no longer pending when the case is closed or
dismissed as set forth in this ruling also applies
to bankruptcy cases filed under Chapters 12 and 13
of the Bankruptcy Code.
HOLDING
A bankruptcy case is no longer pending for purposes of relief under section
6658 when the bankruptcy case is closed or
dismissed.
DRAFTING INFORMATION
The principal author of this revenue ruling is the Collection, Bankruptcy
& Summonses Division, Office of Associate Chief
Counsel (Procedure and Administration). For further
information regarding this revenue ruling, contact
Delores Dillmann at
(202)
622-3620
(not a toll-free call).
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