Opinion
CIVIL ACTION NO. 00-65, BANKRUPTCY CASE NO. 00-50199
March 1, 2001
JUDGMENT
In accordance with the order entered contemporaneously herewith, and the Court being sufficiently advised, IT IS HEREBY ORDERED THAT:
(1) the ruling of the United States Bankruptcy Court of February 4, 2000, is AFFIRMED;
(2) this matter shall be STRICKEN from the active docket of the Court; and
(3) that this is a final and appealable Judgment.
ORDER
This matter is before the Court on appeal from the United States Bankruptcy Court's Opinion and Order entered February 4, 2000, in bankruptcy Case No. 00-50199. The appellant-debtor Madison Recycling Associates ("Madison") appeals the bankruptcy court's denial of its motion for an order holding the appellee Internal Revenue Service ("IRS") in contempt for violation of the automatic stay.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
On May 17, 1988, Madison, a limited partnership, filed a petition with the United States Tax Court apparently to determine the propriety of a Final Partnership Administrative Adjustment made with respect to the partnership by the IRS. On February 1, 2000, one week prior to the scheduled trial date in that twelve-year-old case, Madison filed for Chapter 7 bankruptcy protection. The next day, the parties held a telephone conference with the tax court judge. He refused to stay the tax court litigation and held that the automatic stay did not affect the proceedings before the tax court. Immediately thereafter, Madison filed a notice and motion for emergency hearing in the bankruptcy court, asking the court to hold the IRS in contempt for failure to abide by the automatic stay. After a hearing on the motion, the bankruptcy court denied the motion and this appeal followed.
II. JURISDICTION AND STANDARD OF REVIEW
This court has jurisdiction over this matter pursuant to Bankruptcy Rules 9020 and 9033. In re Carrico, 214 B.R. 842, 845 (6th Cir. 1997) ("`[A]ny exercise of a bankruptcy court's contempt power will be subject to immediate supervision by the district court upon objection.'") (citation omitted). This court reviews contempt orders under a de novo standard. Id.; F.R.Bankr.P. 9033(d).
III. ANALYSIS
In its opinion and order, the bankruptcy court relied on 1983 Western Reserve Oil Gas Co., Ltd., v. Comm'r, 95 T.C. 51 (1990), aff'd, 995 F.2d 235 (9th Cir. 1993) (unpublished opinion), and W.J. Hoyt Sons Mgmt. Co. v. United States, 1999 WL 1249499 (Bankr. D. Or. 1999). Those cases hold that because a partnership itself is not a taxable entity, a partnership readjustment proceeding brought in Tax Court affects only the tax liabilities of the partners. Therefore, the automatic stay provisions of the bankruptcy code do not automatically stay a partner's readjustment proceeding in the Tax Court where the partnership — as opposed to one or more of the partners — is in bankruptcy.
In this appeal, Madison argues that the bankruptcy court "misconstrued the basic nature of the action in U.S. Tax Court as being one to determine the tax liability of the limited partners" and argues that the petitioner in the tax court case was the partnership, not the limited partners, so the automatic stay provision should operate to stop all proceedings in that action. In reviewing the issue de novo, the court agrees with the conclusion reached by the bankruptcy court. Pursuant to the Internal Revenue Code, the petitioner in a readjustment proceeding is not the partnership, but the partner(s) of the partnership, so long as they have an interest in the outcome of the litigation. 26 U.S.C. § 6226. Therefore, even though inform Madison may have filed the petition (because the tax matter partner had abandoned the partnership), Madison is not in substance a party to that litigation.
The fact that tax treatment is determined at the partnership level does not require a different conclusion. To say that the tax determinations are made at this level is not the same to say that the partnership itself is liable for the tax — it is still the partners who are liable for any assessed taxes. Also, as noted by the bankruptcy court, it appears that the tax court proceeding would not in any way affect assets of the bankruptcy estate. Therefore, its ruling to deny the motion for an order of contempt was correct.
Madison also essentially argues that this court should consider the merits of substantive arguments raised in the tax court proceeding involving questions of statute of limitations and collateral estoppel. These are not questions that were considered by the court below in ruling on the contempt motion. Therefore, this court declines to decide them in the first instance on appeal. Further, these are issues more properly addressed to the Tax Court.
As to Madison's motion to reassign appeal [DE #6] to the Honorable Henry R. Wilhoit, Jr., a review of the copies of the pleadings presented in support of that motion reveal that the case heard by Judge Wilhoit may have substantive issues in common with the proceeding before the Tax Court, but have little to do with the issue presented to the bankruptcy court and to this court on appeal. Therefore, the case need not be reassigned. Accordingly,
IT IS HEREBY ORDERED THAT:
(1) the ruling of the United States Bankruptcy Court of February 4, 2000, is AFFIRMED;
(2) the appellant's motion to reassign appeal [DE #6] is DENIED;
(3) this matter shall be STRICKEN from the active docket of the Court; and
(4) this is a final and appealable Order.