                         T.C. Summary Opinion 2012-116



                         UNITED STATES TAX COURT



  TERRANCE DALE MOORE, JR., AND RHONDA R. MOORE, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 22724-10S L.                        Filed November 29, 2012.



      Terrance Dale Moore, Jr., and Rhonda R. Moore, pro sese.

      David M. McCallum, for respondent.



                              SUMMARY OPINION


      RUWE, Judge: This case was heard pursuant to the provisions of section

74631 of the Internal Revenue Code in effect when the petition was filed. Pursuant



      1
       Unless otherwise indicated, all section references are to the Internal Revenue
Code, and all Rule references are to the Tax Court Rules of Practice and Procedure.
                                         -2-

to section 7463(b), the decision to be entered is not reviewable by any other court,

and this opinion shall not be treated as precedent for any other case. The

proceeding was commenced in response to a Notice of Determination Concerning

Collection Actions(s) Under Section 6320 and/or 6330. The issue for decision is

whether the settlement officer abused her discretion in sustaining the proposed levy.

                                    Background

      At the time the petition was filed, petitioners resided in North Carolina.

      Petitioners timely filed a joint Federal income tax return for the taxable year

2005. On April 9, 2007, respondent mailed to petitioners a Notice CP2000 for

2005. In the Notice CP2000 respondent proposed an increase in petitioners’ tax of

$20,077, a section 6662(a) accuracy-related penalty of $4,015, and interest of

$2,089. The total proposed balance due was $26,181. In response petitioners made

payments of $4,500 and $1,600 to the Internal Revenue Service (IRS). On

September 10, 2007, respondent sent a notice of deficiency to petitioners. The

notice of deficiency increased petitioners’ income tax liability by $20,077 and added

a section 6662(a) accuracy-related penalty of $4,015, the same amounts in the

Notice CP2000. Petitioners did not file a petition with this Court regarding the

notice of deficiency.
                                        -3-

Bankruptcy Case

      On October 24, 2007, petitioners filed a petition under chapter 13 of title 11

of the United States Code (Bankruptcy Code)2 with the U.S. Bankruptcy Court for

the Middle District of North Carolina (bankruptcy court). Petitioners were

represented by counsel during their bankruptcy proceeding. As part of petitioners’

bankruptcy petition they filed a Schedule E - Creditors Holding Unsecured Priority

Claims, that listed the IRS as having an unsecured priority claim of $20,081 for

2005 Federal income tax. This amount represented the proposed balance due on the

Notice CP2000, consisting of the tax, interest, and penalty, of $26,181 less the

$6,100 of payments petitioners made to the IRS. On November 20, 2007, as part of

the bankruptcy proceeding, respondent filed a proof of claim for an unsecured

priority claim of $16,536.47. The proof of claim indicated that the IRS had no

secured claims or unsecured nonpriority claims. The amount of the unsecured

priority claim consisted of “tax due” of $13,977 and interest due of $2,559.47 for

2005 as of the date of the bankruptcy petition. Respondent has provided no

explanation for why his proof of claim failed to state the full amount he claims was

actually due. After the trial before this Court, respondent acknowledged that the


      2
       References to the Bankruptcy Code refer to the provisions in effect during
the pendency of petitioners’ bankruptcy proceeding.
                                         -4-

filing of a proof of claim for an amount less than the total balance due for

petitioners’ liability was “likely an error by respondent”.

      Petitioners’ chapter 13 bankruptcy plan was confirmed by the bankruptcy

court on April 4, 2008. Pursuant to the chapter 13 bankruptcy plan respondent was

paid the entire amount of his claim of $16,536.47. Subsequently, on August 25,

2009, petitioners’ bankruptcy case was converted from chapter 13 to chapter 7 of

the Bankruptcy Code. Before the conversion to chapter 7, petitioners understood

that all of the IRS’ claims had been fully paid. At the time of the conversion,

petitioners had also paid $3,151.38 to holders of unsecured nonpriority claims. At

least a portion of this amount would presumably have been available to pay

respondent if he had filed a correct proof of claim. Petitioners received a discharge

under Bankruptcy Code section 727 on December 3, 2009, and the chapter 7

bankruptcy case was closed on December 15, 2009.

Postbankruptcy Collection

      Respondent sent petitioners a Letter 1058, Final Notice of Intent to Levy and

Notice of Your Right to a Hearing, dated February 1, 2010, advising them that

respondent intended to levy to collect their unpaid tax liability for 2005 and that

petitioners could request a hearing with respondent’s Office of Appeals. The Letter

1058 identified an assessed uncollected balance of $5,780.06. Petitioners
                                           -5-

questioned what the uncollected balance consisted of. The IRS did not specify what

was included in the uncollected balance.

         Petitioners submitted a timely Form 12153, Request for a Collection Due

Process or Equivalent Hearing, in which petitioners asserted that they had already

paid respondent the entire amount for 2005 that was listed on respondent’s proof of

claim in the bankruptcy case. By letter dated June 25, 2010, respondent’s

settlement officer acknowledged receipt of petitioners’ collection due process

(CDP) hearing request and scheduled a telephonic CDP hearing for July 28, 2010.

During the CDP hearing petitioners told the settlement officer that their 2005 tax

liability had been fully satisfied in their bankruptcy case. Petitioners did not request

any collection alternatives on Form 12153 or during the CDP hearing.

         Respondent issued petitioners a Notice of Determination Concerning

Collection Action(s) Under Section 6320 and/or 6330, dated September 17, 2010,

sustaining the proposed levy action. Petitioners timely filed a petition with this

Court.

                                       Discussion

         Section 6331(a) provides that if any person liable to pay any tax neglects or

refuses to pay such tax within 10 days after notice and demand for payment, then

the Secretary is authorized to collect such tax by levy upon the person’s property.
                                           -6-

Section 6331(d) provides that, at least 30 days before enforcing collection by way of

a levy on the person’s property, the Secretary is obliged to provide the person with a

final notice of intent to levy, including notice of the administrative appeals available

to the person (Appeals hearing). If a taxpayer requests an Appeals hearing, he may

raise at that hearing any relevant issue relating to the unpaid tax or proposed levy.

Sec. 6330(c)(2).

      The determination of the Office of Appeals must take into consideration: (1)

the verification that the requirements of applicable law and administrative procedure

have been met; (2) issues raised by the taxpayer; and (3) whether any proposed

collection action balances the need for the efficient collection of taxes with the

legitimate concern of the person that any collection be no more intrusive than

necessary. Sec. 6330(c)(3); see Lunsford v. Commissioner, 117 T.C. 183, 184

(2001). It would be an abuse of discretion to try to collect more tax than is legally

required to be paid.

Collection of Petitioners’ Tax Liability

      Petitioners argue that respondent should be prevented from collecting the

amount in issue because respondent has already received the full amount of his

proof of claim pursuant to the confirmed chapter 13 plan in the bankruptcy case. As

a result, petitioners argue, it would be improper for respondent to now collect an
                                         -7-

additional amount for 2005. Respondent contends that the additional tax liability

that he is attempting to collect was not dischargeable in a chapter 7 bankruptcy

case; therefore, the fact that the proof of claim erroneously listed a lower amount of

tax liability should not prevent respondent from now collecting the rest of the

liability.

       Confirmed Chapter 13 Plan

       A confirmed chapter 13 plan determines the amount each creditor will be

paid. See United States v. Richman (In re Talbot), 124 F.3d 1201, 1209 (10th Cir.

1997). Parties who fail to object to the confirmation of a plan are generally barred

from later attacking the confirmed plan. See Miller v. Ameriquest Mortg. Co. (In re

Laskowski), 384 B.R. 518, 535 (Bankr. N.D. Ind. 2008); see also In re Harvey, 213

F.3d 318, 321 (7th Cir. 2000) (“It is a well-established principle of bankruptcy law

that a party with adequate notice of a bankruptcy proceeding cannot ordinarily

attack a confirmed plan.”). Respondent did not object to the bankruptcy court’s

confirmation of petitioners’ chapter 13 plan. Indeed, respondent received the full

amount of the claim he made in petitioners’ chapter 13 bankruptcy case.

       A confirmed chapter 13 plan has been analogized to a contract.     A

confirmed chapter 13 plan is a “new and binding contract, sanctioned by the court,

between the debtors and their pre-confirmation creditor[s].” Murphy v. O’Donnell
                                          -8-

(In re Murphy), 474 F.3d 143, 148 (4th Cir. 2007) (quoting In re Penrod, 169 B.R.

910, 916 (Bankr. N.D. Ind. 1994)). “[A] confirmed plan acts more or less like a

court-approved contract”. In re Harvey, 213 F.3d at 321.

      Petitioners fulfilled their obligations to respondent under the confirmed plan.

Respondent received everything he asked for in the bankruptcy proceeding. By

filing a notice of intent to levy to collect an additional amount that was not included

in respondent’s proof of claim, respondent is failing to fulfill his end of the contract

to refrain from collecting more. Respondent received everything he asked for in the

bankruptcy proceeding but now asks the Court to allow him to renege on the

implicit bargain he made in the bankruptcy proceeding.

      In the bankruptcy proceeding petitioners listed the correct amount of their tax

liability. There was no subterfuge by petitioners. Respondent then filed a proof of

claim for a lesser amount. The mistake was solely the responsibility of respondent.

In the final analysis respondent got everything he asked for in the bankruptcy

proceeding and suffered no disadvantage in that proceeding when it was

subsequently converted.

      Effect of Conversion From Chapter 13 to Chapter 7

      “[A] confirmed Chapter 13 plan is res judicata, and as such, absent a default

under the terms of the confirmed plan, creditors are precluded from making post-
                                          -9-

confirmation assertions of any interest other than those specifically provided for in

the plan.” In re Cleveland, 349 B.R. 522, 533 (Bankr. E.D. Tenn. 2006).

Generally, a debtor’s conversion of his chapter 13 case to a chapter 7 case

constitutes a default that deprives any res judicata effect for the chapter 13

confirmation plan. See Hutchinson v. Delaware Sav. Bank FSB, 410 F. Supp. 2d

374, 380 (D. N.J. 2006) (“[W]e hold that Plaintiff’s confirmed Chapter 13 plan was

not a final judgment and had no binding effect upon conversion to a Chapter 7

case.”); Michael v. DeHart (In re Michael), 436 B.R. 323 (Bankr. M.D. Pa. 2010),

aff’d, 446 B.R. 665 (M.D. Pa. 2011); aff’d, 2012 U.S. App. LEXIS 22244 (3d Cir.

Oct. 26, 2012). However, a significant factual difference in this case is that

petitioners had paid the entire amount listed on respondent’s proof of claim before

they converted their chapter 13 case to a chapter 7 case. It has been held that a

creditor’s rights in a chapter 13 bankruptcy case are “totally extinguished upon

payment of the sums called for in the order of confirmation.” In re Habtemichael,

190 B.R. 871, 874 (Bankr. W.D. Mo. 1996) (citing In re Pourtless, 93 B.R. 23, 26

(Bankr. W.D.N.Y. 1988). It would therefore seem to follow that respondent’s

rights to collect petitioners’ 2005 tax liability were extinguished when he received

the entire amount of his proof of claim in the chapter 13 bankruptcy case. As
                                         - 10 -

previously indicated, a confirmation plan approved by the bankruptcy court in a

chapter 13 case is viewed as a contract. See Murphy, 474 F.3d at 148.

      In the chapter 13 case respondent was paid everything he asked for; i.e., the

entire amount listed on his proof of claim, which was the entire amount he was

entitled to under the chapter 13 confirmation plan. Petitioners’ conversion from

chapter 13 to chapter 7 had no negative impact on respondent’s claim. Had

petitioners completed their chapter 13 plan, respondent would clearly not have been

able to collect any amount of petitioners’ tax liability that was not listed on his proof

of claim. 3 We see no reason why respondent should be able to collect additional

money from petitioners solely as a result of petitioners’ converting their bankruptcy

case from chapter 13 to chapter 7 after respondent’s claim was paid in full.

      Respondent argues that Bankruptcy Code section 727(b) governs discharges

for chapter 7 debtors. Debts for certain types of income tax liabilities and penalties

are not discharged when a debtor receives a chapter 7 discharge. See Bankruptcy

Code sec. 523(a)(1)(A), (7). However, respondent did not cite any cases where the



      3
         Bankruptcy Code sec. 1328(a) governs discharges for ch. 13 bankruptcy
debtors who complete all payments required under the confirmation plan. See Leber
v. Ill. Dep’t of Revenue (In re Leber), 134 B.R. 911, 914 (Bankr. N.D. Ill. 1991).
The exceptions to discharge under Bankruptcy Code sec. 1328(a) do not apply to
petitioners’ tax liability.
                                         - 11 -

IRS filed an erroneous proof of claim for an amount lower than the taxpayer’s actual

liability, the taxpayer paid off the liability claimed by the IRS pursuant to a

confirmed plan in chapter 13 bankruptcy, the taxpayer converted the case and

received a chapter 7 discharge, and then the IRS subsequently attempted to collect

the remaining amount of the liability.

       Considering the unique facts of this case, we hold that petitioners satisfied

their 2005 tax liability with respondent in the bankruptcy proceeding. Accordingly,

we hold that respondent may not collect any additional amount of petitioners’ 2005

tax liability.

Collection of Post-Bankruptcy-Petition Interest

       Included in the amount that respondent seeks to collect is an unidentified

amount of post-bankruptcy-petition interest. Interest on nondischargeable debt is

allowed to accrue and be collected from debtors after the bankruptcy case is

terminated. See Bruning v. United States, 376 U.S. 358, 361-363 (1964); Wray v.

Harrison, No. 3:97CV353, 1997 U.S. Dist. LEXIS 15912, at *9 (E.D. Va. Aug. 21,

1997) (“post-petition interest continues to accrue against the Debtor personally,

outside of the bankruptcy administration plan”), aff’d without published opinion,

1998 U.S. App. LEXIS 31368 (4th Cir. Dec. 15, 1998). A debtor is “personally

liable for the interest on undischargeable debts after his case has been closed,
                                           - 12 -

regardless of whether the underlying debt is paid in full.” Wray, 1997 U.S. Dist.

LEXIS 15912, at *5.

       Respondent did not articulate to petitioners or the Court the amount of post-

bankruptcy-petition interest that he is seeking to collect from petitioners.

Furthermore, respondent presented no evidence on the rate of interest used to

calculate the post-bankruptcy-petition interest. As a result, we cannot determine

whether the post-bankruptcy-petition interest was properly calculated and assessed.

“[I]t is clear from respondent’s inability to express to this Court the

postconfirmation rate of interest he used in assessing interest on his priority claim

that the Appeals officer did not properly obtain verification that all applicable law

and procedure had been followed pursuant to section 6330(c)(1).” Everett Assocs.,

Inc. v. Commissioner, T.C. Memo. 2012-143, 2012 Tax Ct. Memo LEXIS 143, at

*54-*55. In Everett Assocs., Inc. v. Commissioner, 2012 Tax Ct. Memo LEXIS

143, at *71-*72, the Court refused to sustain the collection of postconfirmation

interest. Respondent’s failure to provide the amount of post-bankruptcy-petition

interest and the rate of interest is disconcerting in the light of the fact that petitioners

already have been heavily burdened by respondent’s submission of an erroneous

proof of claim in their bankruptcy proceeding. Accordingly, we hold that
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respondent may not collect post-bankruptcy-petition interest from petitioners’ 2005

tax liability.4

         In reaching our decision, we have considered all arguments made by the

parties, and to the extent not mentioned or addressed, they are irrelevant or without

merit.

         To reflect the foregoing,


                                                            Decision will be entered for

                                                     petitioners.




         4
             The amount would likely be relatively small.
