Two Tax Court dismissals today, both of interest, although one is another Section 7463 “not-for-nuthin’”.

First up is a case of first impression for Tax Court, and thus warrants a full-dress T.C., Thomas Edward Settles, 138 T.C. 19, filed 5/8/12. Tom had petitioned for a Section 6330(d) levy review, but before Tax Court ruled Tom filed Chapter 11 bankruptcy, and 11 USC §365(a)(8) automatically stayed  “the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor.”

While Tax Court stood frozen, Tom started an adversary proceeding in Bankruptcy Court to contest his tax liability and the computation thereof. He lost, as Bankruptcy Court said he was estopped from challenging IRS’ proof of claim. Now Tom, still in bankruptcy, moves to dismiss his Tax Court proceeding. IRS, of course, has no objection.

A petitioner cannot get dismissal of a proceeding to redetermine a deficiency. Judge Wells: “When the Tax Court dismisses a deficiency case for a reason other than lack of jurisdiction, we generally are required by section 7459(d) to enter a decision for the Commissioner for the amount of tax determined against the taxpayer in the notice of deficiency. Rule 123(d) requires that a decision entered pursuant to a dismissal on a ground other than lack of jurisdiction operate as an adjudication on the merits of the taxpayer’s case.” 138 T.C. 19, at p. 4 (citations and footnote omitted).

So be careful what you ask for, deficient taxpayer, because if you change your mind you might get both a lot less, and a lot more, than you bargained for.

But in this case Tom isn’t seeking a deficiency redetermination. Judge Wells again: “However, in the instant cases, petitioner petitioned the Court to review a collection action under section 6330(d), not to redetermine a deficiency under section 6213(a). In contrast to the deficiency context, a taxpayer who files a petition asking the Tax Court to review a collection action does have the option to withdraw that petition.” 138 T.C. 19, at pp. 4-5.

Since Rule 123(d) doesn’t answer the question in a collection case, Judge Wells turns to FRCP 41(a)(2), which lets judges dismiss on terms they consider proper. Although such a dismissal is normally without prejudice (meaning that the petitioner could refile, as nothing was decided), in this case time has run out and Tom can’t refile, so IRS doesn’t care, and the only remaining hurdle is 11 USC §365(a)(8).

The major concerns that the automatic bankruptcy stay addresses are giving breathing room to the beleagured debtor to try to make an offer to creditors, and to prevent the swift creditor from grabbing assets while leaving the slower creditor of the same class high and dry. Neither is a problem here. If the Tax Court case goes away, Tom has one less lawsuit to deal with, and the creditors have the status quo. Likewise, Tax Court need not examine or determine any underlying issues in the case before it to decide to dismiss, so there’s no “continuation” in this case. The stay only applies to commencement or continuation of a proceeding, and this motion does neither.

So Tom, you’re outta here.

Next is Rick E. Payne and Dee M. Payne, 2012 T.C. Sum. Op. 43, filed 5/8/12. Sad story: Rick loses job, son dies, Rick and Dee file bankruptcy, and Rick can’t pay the taxes although he filed the returns. IRS sends NFTL, and Rick and Dee appeal.

The SO is singularly unsympathetic, given that Rick is elderly and bewildered, and gives him a fast shuffle, like 48 hours to file a Form 433-A with supporting documents. Judge Wells doesn’t like this, and goes at length into the SO’s behavior as contrasted with the procedures set forth in the IRM. Is Rick in the clear on abuse-of-discretion?

No, because Rick delayed in seeking continuance of trial, and never provided a Form 433-A despite Judge Wells telling IRS’s counsel to offer Rick ample time to do so, to make up for the SO’s quick whistle. Rick did nothing. IRS moved to dismiss, or in the alternative for summary judgment

Judge Wells seems more than slightly steamed at Rick’s delay-of-the-game: “Throughout the pendency of their case, petitioners have repeatedly failed to file requested motions, responses, and other documents. Despite instructions from respondent’s counsel and ample time, petitioners failed to file a motion for a continuance until after respondent filed his motion for summary judgment. Petitioners failed to file a response to respondent’s motion for summary judgment, even after we extended the time for them to do so. Petitioners failed to submit a proposed collection alternative by February 1, 2012, in compliance with our order of November 16, 2011. According to respondent’s counsel, when he contacted petitioners on February 3, 2012, they informed him that they had elected not to complete a collection alternative form at this time. Petitioners have failed to prosecute the instant case despite repeated opportunities and ample time.

“On the basis of petitioners’ repeated failures to comply with our orders and apparent disinterest in pursuing any collection alternatives, we will dismiss their case for lack of prosecution. Accordingly, we will deny respondent’s motion for summary judgment as moot.” 2012 T.C. Sum. Op. 43, at pp. 14-15.

Takeaway–Do what the judge tells you. It is rarely a good idea to annoy the judge.