                          105 T.C. No. 26



                       UNITED STATES TAX COURT



       CHAN Q. KIEU AND QUYNH KIEU, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


Docket No. 22997-94.             Filed December 7, 1995.


     On Oct. 21, 1993, Ps filed a bankruptcy petition under
chapter 7 of the Bankruptcy Code. On March 14, 1994, R issued a
notice of deficiency to Ps for the taxable year 1989. On Nov. 1,
1994, the bankruptcy court entered an order granting summary
judgment against Ps and determining that Ps' debts are
nondischargeable under 11 U.S.C. sec. 727 (1988). On Dec. 12,
1994, Ps filed a petition for redetermination with this Court. On
Jan. 23, 1995, the bankruptcy court entered an order granting Ps'
motion for relief from judgment and vacating its order entered
Nov. 1, 1994. On July 21, 1995, this Court issued an order
directing the parties to show cause why this case should not be
dismissed for lack of jurisdiction.

      Held: The bankruptcy court's order entered Nov. 1, 1994,
denied Ps a discharge of their debts under 11 U.S.C. sec. 727
(1988), and, thus, served to terminate the automatic stay imposed
under 11 U.S.C. sec. 362(a)(8) (1988). See 11 U.S.C. sec.
362(c)(2)(C) (1988). Held, further, The bankruptcy court's order
entered Jan. 23, 1995, while vacating the bankruptcy court's order
entered Nov. 1, 1994, does not reinstate the automatic stay. See
Allison v. Commissioner, 97 T.C. 544 (1991). Held, further, the
petition filed herein was not filed in violation of the automatic
stay and Ps properly invoked this Court's jurisdiction. Sec.
6213(f), I.R.C.


Kevin O'Hara and Thomas A. Greco, for petitioners.

Linas N. Udrys and Peter Reilly, for respondent.
                                        - 2 -


                                        OPINION

         GERBER, Judge:   This case was assigned to Special Trial Judge Carleton

D. Powell pursuant to the provisions of section 7443A(b)(4) and Rules 180,

181, and 183.1    The Court agrees with and adopts the opinion of the Special

Trial Judge, which is set forth below.

                          OPINION OF THE SPECIAL TRIAL JUDGE

         POWELL, Special Trial Judge:   This case is before the Court on the

Court's Order dated July 21, 1995, directing the parties to show cause why

this case should not be dismissed for lack of jurisdiction.     The issues are

whether (1) the so-called automatic stay imposed pursuant to 11 U.S.C. section

362(a)(8) (1988), was lifted by an order of a bankruptcy court determining

that all debts of the petitioners/debtors are nondischargeable, and (2) if so,

whether a subsequent order, entered approximately 3 months later, vacating

that order reinstates the automatic stay provisions.

                                     Background

     On October 21, 1993, Chan Q. Kieu and Quynh Kieu (petitioners) filed a

voluntary petition for relief under chapter 7 of the Bankruptcy Code with the

U.S. Bankruptcy Court for the Central District of California.       On January 24,

1994, Pacific Inland Bank (Pacific), a creditor, filed an adversary action

against petitioners requesting that the bankruptcy court determine that

petitioners' debts were nondischargeable pursuant to 11 U.S.C. section

523(a)(2)(A) and (B) (1988).2     On the same date, the bankruptcy trustee filed


     1
        All section references are to the Internal Revenue Code in effect for
the year in issue, unless otherwise indicated. All Rule references are to the
Tax Court Rules of Practice and Procedure.
     2
          11 U.S.C. sec. 523(a)(2)(A) and (B) (1988), provides in pertinent
part:

               (a) A discharge under section 727 * * * of this        title does
         not discharge an individual debtor from any       debt--

                    *      *     *      *       *   *    *
                                       - 3 -


a separate adversary action against petitioners requesting that the bankruptcy

court determine that petitioners' debts were nondischargeable pursuant to 11

U.S.C. section 727(a) (1988).3    After filing the above-described complaints,

Pacific and the bankruptcy trustee filed separate motions for summary judgment

with the bankruptcy court. These matters were consolidated under the docket

number for Pacific's action, and all pleadings were filed under that action.

     On March 14, 1994, respondent mailed a notice of deficiency to

petitioners determining a deficiency in their Federal income tax for 1989 in

the amount of $78,978 along with an accuracy-related penalty pursuant to

section 6662(a) in the amount of $15,796.

      On November 1, 1994, the bankruptcy court entered an order granting

Pacific's motion for summary judgment.    The bankruptcy court's order states in

pertinent part:



                  (2) for money, property, services, or an    extension,
            renewal, or refinancing of credit, to        the extent obtained
            by--

                        (A) false pretenses, a false representation, or actual
                  fraud, other than a statement respecting the debtor's or an
                  insider's financial condition;

                        (B) use of a statement in writing--

                                 (i) that is materially false;

                              (ii) respecting the debtor's or an insider's
                        financial condition;

                              (iii) on which the creditor to whom the debtor
                        is liable for such money, property, services, or
                        credit reasonably relied; and

                              (iv) that the debtor caused to be made or
                        published with intent to deceive; * * *
     3
        The bankruptcy trustee argued that the bankruptcy court should deny
petitioners a discharge pursuant to 11 U.S.C. sec. 727(a) (1988), which
provides in pertinent part that a debtor shall be granted a discharge unless
the debtor is found to have transferred, removed, destroyed, mutilated, or
concealed property of the debtor or property of the estate with the intent to
hinder, delay, or defraud a creditor or an officer of the estate charged with
custody of property under the Bankruptcy Code.
                                     - 4 -



           IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Pacific's
     debt be determined non-dischargeable pursuant to 11 U.S.C. §523 of
     the Bankruptcy Code and such Judgment shall be res judicata on any
     further proceedings before this Court or any other.

           IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Judgment
     be, and it is hereby, entered * * * that all debts pursuant to 11
     U.S.C. §727 are determined non-dischargeable in this case and any
     other proceeding currently pending or to be filed by the Debtors.
     This Judgment should be considered res judicata to any future
     filing by either Chan Quang Kieu or Quynh Kieu, the Debtors
     herein. [Emphasis added.]

There was no stay, and the order contains no mention of the status of the

automatic stay imposed under 11 U.S.C. section 362(a) (1988).

     On December 12, 1994, petitioners filed a petition with this Court

seeking a redetermination of their tax liability for the taxable year 1989.

At the time the petition was filed, petitioners resided at Irvine, California.

     On December 19, 1994, petitioners made a motion for relief in respect of

the bankruptcy court's order entered November 1, 1994.    On January 23, 1995,

the bankruptcy court entered an order granting petitioners' motion for relief

and vacating its prior order entered November 1, 1994.    The bankruptcy court's

order entered January 23, 1995, contains no mention of the automatic stay

imposed under 11 U.S.C. section 362(a) (1988), and does not impose any stay of

proceedings.

    On July 21, 1995, this Court issued an order directing the parties to

show cause why this case should not be dismissed for lack of jurisdiction on

the ground that the petition was filed in violation of the automatic stay

imposed under 11 U.S.C. section 362(a)(8) (1988).    Both parties filed

responses to the Court's order.   A hearing was conducted in this case in

Washington, D.C., on September 20, 1995.     Counsel for respondent appeared at

the hearing and presented oral argument.     Although petitioners were not

represented at the hearing, they did file a written statement with the Court

pursuant to Rule 50(c).
                                       - 5 -


                                    Discussion

     Title 11 of the United States Code provides uniform procedures designed

to promote the effective rehabilitation of the bankrupt debtor and the

equitable distribution of his assets among his creditors.    See H. Rept. 95-

595, at 340 (1977).     One of the key elements to achieving these aims is the

automatic stay that generally operates to temporarily bar actions against or

concerning the debtor or property of the debtor or the bankruptcy estate.     See

Halpern v. Commissioner, 96 T.C. 895, 897-898 (1991).    The automatic stay

serves to preclude the commencement or continuation of proceedings in this

Court.    Specifically, 11 U.S.C. section 362(a)(8) (1988), provides in

pertinent part:

              (a) Except as provided in subsection (b) of this section, a
         petition filed under section 301, 302, or 303 of this title, * * *
         operates as a stay, applicable to all entities, of--

                    *     *     *     *        *   *    *

              (8) the commencement or continuation of a proceeding before
         the United States Tax Court concerning the debtor.

In short, the filing of a bankruptcy petition invokes the automatic stay that

precludes the commencement or continuation of proceedings in this Court.

Allison v. Commissioner, 97 T.C. 544, 545 (1991).

         Notwithstanding the foregoing, respondent is free to issue a notice of

deficiency to a taxpayer involved in bankruptcy proceedings.    See 11 U.S.C.

sec. 362(b)(9) (1988).4    In the event that respondent issues a notice of

deficiency to a taxpayer during the pendency of a bankruptcy case, the running



     4
           11 U.S.C. sec. 362(b)(9) (1988), provides in pertinent part:
              (b) The filing of a petition under section 301, 302, or 303
         of this title, * * * does not operate as a stay--

                    *     *     *     *        *   *    *

               (9) under subsection (a) of this section, of the issuance to
         the debtor by a governmental unit of a notice of tax deficiency;
                                    - 6 -


of the time for filing a petition with this Court is suspended for the period

during which the taxpayer is prohibited by reason of the automatic stay from

filing a petition in this Court and for 60 days thereafter.   Sec. 6213(f);

Olson v. Commissioner, 86 T.C. 1314, 1318-1319 (1986), and cases cited

therein; see also Zimmerman v. Commissioner, 105 T.C. 220 (1995).

    The period that the automatic stay remains in effect is prescribed in 11

U.S.C. section 362(c) (1988), as follows:

          (c) Except as provided in subsections (d), (e), and (f) of
     this section--

                 (1) the stay of an act against property of the estate under
           subsection (a) of this section continues until such property is no
           longer property of the estate; and

                 (2) the stay of any other act under subsection (a) of this
           section continues until the earliest of--

                       (A) the time the case is closed;

                       (B) the time the case is dismissed; or

                       (C) if the case is a case under chapter 7 of this
                 title concerning an individual or a case under chapter 9,
                 11, 12, or 13 of this title, the time a discharge is granted
                 or denied. [Emphasis added.]

Thus, unless relief from the automatic stay is granted by order of a

bankruptcy court (see 11 U.S.C. sec. 362(d) (1988)), the automatic stay

generally remains in effect until the earliest of the closing of the case,

dismissal of the case, or the grant or denial of a discharge.   11 U.S.C. sec.

362(c)(2) (1988); see also Allison v. Commissioner, supra at 545; Smith v.

Commissioner, 96 T.C. 10, 14 (1991); Neilson v. Commissioner, 94 T.C. 1, 8

(1990).

     In the instant case, respondent issued a notice of deficiency to

petitioners on March 14, 1994, during the pendency of petitioners' bankruptcy

proceedings, as is permitted under 11 U.S.C. section 362(b)(9) (1988).    It is

not disputed that petitioners were precluded by the automatic stay imposed
                                      - 7 -


under 11 U.S.C. section 362(a)(8) (1988), from filing a petition with this

Court at that time.   On November 1, 1994, however, the bankruptcy court

entered its order granting Pacific's motion for summary judgment and

determined that all of petitioners' debts were nondischargeable under 11

U.S.C. section 727 (1988).   On January 23, 1995, the bankruptcy court entered

an order granting petitioners' motion for relief and vacating its order

entered November 1, 1994.    It is under these circumstances that we decide

whether the petition filed with this Court on December 12, 1994, was filed in

violation of the automatic stay.

    Petitioners argue that the bankruptcy court's order of

nondischargeability, entered November 1, 1994, served to deny them a

discharge, and, therefore, terminated the automatic stay.   But, petitioners

maintain that the bankruptcy court's order entered January 23, 1995, vacating

its order of November 1, 1994, had the effect of reinstating the automatic

stay as of that date.

    Respondent concurs with the proposition that the order of

nondischargeability had the effect of terminating the automatic stay.

Respondent, however, disagrees with petitioners' contention that the

bankruptcy court's order entered January 23, 1995, reinstated the automatic

stay.   In respondent's view the automatic stay is terminated by the judgment

of nondischargeability and, absent express language in the bankruptcy court's

vacating order to the contrary, the stay is not reinstated.

The Automatic Stay

    While the parties agree that the automatic stay was lifted by the order

of nondischargeability, they disagree as to the effect of the order, entered

approximately 3 months later, that vacated that order.   There are, as we view

the issue, three possible results.   First, when a judgment described in 11

U.S.C. section 362(c) (1988), is vacated the stay is deemed to have been in
                                       - 8 -


effect and any action taken in the interim is in violation of the stay.

Second, as petitioner contends, if the stay is lifted by a judgment described

in 11 U.S.C. section 362(c) (1988), and that order is vacated, the stay is

automatically reimposed.    Third, as respondent contends, once the stay is

lifted by an order described in 11 U.S.C. section 362(c) (1988), it is not

automatically reimposed.    In discussing these alternatives, we begin with the

question whether the bankruptcy court's order entered November 1, 1994, had

the effect of terminating the automatic stay.

         As previously discussed, the automatic stay imposed under 11 U.S.C.

section 362(a)(8) (1988), normally remains in effect until the earliest of the

closing of the case, dismissal of the case, or the grant or denial of a

discharge.    11 U.S.C. sec. 362(c)(2) (1988).   Consistent with the plain

language of 11 U.S.C. section 362(c)(2)(C) (1988), we agree with the parties

that the bankruptcy court's order entered November 1, 1994, wherein the

bankruptcy court ruled that petitioners' debts were nondischargeable under 11

U.S.C. section 727 (1988), served to terminate the automatic stay of

proceedings in this Court.5    See In re Calder, 973 F.2d 862, 867 (10th Cir.

1992); see also In re Trevino, 78 Bankr. 29, 37 (Bankr. M.D. Pa. 1987).      Cf.

In re De Jesus Saez, 721 F.2d 848 (1st Cir. 1983) (automatic stay lifted by

dismissal of chapter 13 petition); Smith v. Commissioner, 96 T.C. 10 (1991)

(automatic stay terminated as the result of a waiver of discharge by the

taxpayer/debtor); In re Weston, 110 Bankr. 452 (E.D. Cal. 1989) (automatic

stay lifted by dismissal of chapter 11 petition), affd. without published

opinion 967 F.2d 596 (9th Cir. 1992).

Reinstating a Stay


     5
         There is no evidence in the record that the bankruptcy court intended
for its Nov. 1, 1994, order to have any other effect or that petitioners
sought a continuance of the automatic stay pending the filing of their motion
for relief.
                                     - 9 -


   Having determined that the bankruptcy court's order entered November 1,

1994, had the effect of terminating the automatic stay, we are left with the

question whether that court's order entered January 23, 1995, vacating its

order entered November 1, 1994, reinstated that stay.   The order entered

January 23, 1995, contains no mention of the stay.

     Initially we note that we, as do the parties, reject the approach that

the stay is deemed still to have been in effect.   There is no support for this

approach in the statute and the case law.    Indeed, such a result would only

lead to confusion and uncertainty.   See In re De Jesus Saez, supra; In re

Weston, 110 Bankr. at 456.

    In Allison v. Commissioner, 97 T.C. 544 (1991), we were confronted with

the question whether the reopening of a bankruptcy case had the effect of

reinstating the automatic stay under 11 U.S.C. section 362(a) (1988).   We find

that much of what we said in that case (in support of our conclusion that the

automatic stay was not reinstated) to be pertinent here.

          Like the Tax Court, a bankruptcy court "possesses only the
     jurisdiction and powers expressly or by necessary implication
     conferred by Congress." Johnson v. First National Bank of
     Montevideo, Minn., 719 F.2d 270, 273 (8th Cir. 1983). 11 U.S.C.
     section 362(a) provides that the automatic stay is imposed when a
     petition is filed under sections 301, 302, or 303 of title 11.
     Sections 301, 302, and 303 of title 11 relate to voluntary cases
     in bankruptcy, joint cases, and involuntary cases, respectively.

          In the absence of an indication of congressional intent to
     the contrary, we must assume that Congress meant what it said and
     that the automatic stay should be imposed only upon the filing of
     a petition in bankruptcy. In re State Airlines, Inc., 873 F.2d
     264, 268 (11th Cir. 1989). There is nothing in the language of 11
     U.S.C. sections 350(b) or 362(a) which equates the reopening of a
     case with the filing of a bankruptcy petition. Thus, there is "no
     statutory provision in which Congress has authorized a Bankruptcy
     Court once it has terminated the automatic stay pursuant to
     §362(c)(2) to continue imposition of the automatic stay." In re
     Trevino, 78 Bankr. 29, 37 (Bankr. M.D. Pa. 1987). [Allison v.

     Commissioner, supra at 546.]
                                    - 10 -


     In concluding that the automatic stay was not reinstated in Allison v.

Commissioner, supra, we observed that the taxpayer there, as here, had failed

to show that the bankruptcy court would consider the tax issues pending before

this Court.   Id. at 547.

    While an argument might be made that the bankruptcy court's intent to

reinstate the automatic stay in the present case may be inferred from the fact

that the bankruptcy court vacated its order entered November 1, 1994, we

decline to decide the issue presented in this case on such an assumption.     We

are mindful that the automatic stay respecting the commencement or

continuation of proceedings in this Court was adopted in part to avert

duplicative and inconsistent litigation over tax issues.   Halpern v.

Commissioner, 96 T.C. 895, 902 (1991).    Given the consequences, however, that

follow from a determination respecting the status of the automatic stay, the

soundest approach is to adhere to the reasoning in Allison v. Commissioner,

supra.   Simply stated, where a bankruptcy court has taken action that serves

to terminate the automatic stay under 11 U.S.C. section 362(c)(2) (1988), the

automatic stay remains terminated absent an express indication from the

bankruptcy court to the contrary.   Certainly, if a bankruptcy court intends to

exercise its jurisdiction to resolve the issues surrounding petitioners' tax

liability, that court has the means to bring about a stay of the proceedings

in this Court.   See Allison v. Commissioner, supra at 547 (referring to 11

U.S.C. section 105 (1988), which permits the bankruptcy court to issue any

order necessary to carry out title 11).

    In sum, we shall proceed in this case consistent with the view that the

automatic stay was terminated on November 1, 1994, and was not reinstated by

virtue of the bankruptcy court's order entered January 23, 1995.   In this

regard, it follows that the petition filed herein was not filed in violation

of the automatic
                                   - 11 -


stay and that petitioners have properly invoked this Court's jurisdiction.

Sec. 6213(f).

      To reflect the foregoing,

                                   An appropriate order will be

                             issued discharging this Court's order

                             to show cause dated July 21, 1995.
