Appeal from the United States Tax Court. T.C. Nos. 6379-87 & 6388-87
Before: Dorothy W. Nelson, Stephen Reinhardt, and Melvin Brunetti, Circuit Judges. Opinion by Judge Reinhardt.
REINHARDT, Circuit Judge:
This case raises the question whether an automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362(a)(1) ("Section 362(a)(1)"), applies to an appeal from a Tax Court judgment concerning an alleged tax deficiency on the part of the debtor. We conclude that Section 362(a)(1) applies to such an appeal. Accordingly, we hold that the proceedings before us are stayed as a matter of law.
This case arose from a $38,939,020.97 claim by respondent-appellee Commissioner of Internal Revenue ("Commissioner") against petitioners-appellants Larry D. Delpit and Dorothy D. Delpit ("Delpits"). On December 12, 1986, the Commissioner issued a Notice of Deficiency in the above amount to the Delpits. The Commissioner claimed that the Delpits were responsible for certain tax liabilities arising from sham accounting transactions by Kern, Inc. ("Kern"), an oil refinery holding company that was formerly owned by the Delpits.
The Delpits disputed the Commissioner's claim and filed a petition in Tax Court on March 13, 1987. On April 2, 1992, the Tax Court issued memorandum findings of fact and an opinion in favor of the Commissioner. See Delpit v. C.I.R., 1991 Tax Ct. Memo LEXIS 166, 61 T.C.M. (CCH) 2303, 1991 T.C. Memo 147 (1991), supplemented by 63 T.C.M. (CCH) 3053 (1992). On May 20, 1992, the Tax Court entered judgment against the Delpits for $25,284,011.00 plus interest. The Delpits' total tax liability now exceeds $70 million. On September 18, 1992, the Delpits filed a timely notice of appeal, and on December 2, 1993, they filed a voluntary petition for bankruptcy.
In their notice of bankruptcy filing to this court, the Delpits claimed that their appeal was automatically stayed under Section 362 of the Bankruptcy Code. The Commissioner disagreed, and urged that we proceed to hear the appeal on the merits. On January 13, 1994, we issued an order limiting oral argument to the stay question.
Section 362 of the Bankruptcy Code, 11 U.S.C. § 362, imposes an automatic stay on certain proceedings upon the filing of a voluntary petition for bankruptcy.*fn1 Specifically, Section 362(a)(1) provides that a stay shall be imposed on:
the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding [i] against the debtor that was or could have been commenced before the commencement of the case under this title, or [ii] to recover a claim against the debtor that arose before the commencement of the case under this title[.]
Id. We conclude that both clauses of Section 362(a)(1) apply to an appeal pending before us from a Tax Court judgment concerning an alleged tax deficiency on the part of the debtor.
An appeal from a Tax Court judgment concerning an alleged tax deficiency on the part of the debtor is a "continuation" of an administrative proceeding "against the debtor" within the meaning of the first clause of Section 362(a)(1). The IRS has established a comprehensive income tax assessment procedure that begins with an audit and wends its way through the federal courts, including the Court of Appeals, the final potential step being a denial of certiorari or a judgment in favor of one party or the other by the ...