                          T.C. Memo. 1995-587



                        UNITED STATES TAX COURT



           ESMAT A. AND SYLVIA G. ZAKLAMA, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket Nos. 18474-91, 28167-92.       Filed December 12, 1995.


     Esmat A. and Sylvia G. Zaklama, pro se.

     Peter Reilly, for respondent.


                          MEMORANDUM OPINION


     POWELL, Special Trial Judge:     These cases are before the

Court on the Court's orders dated July 26, 1995, directing

petitioners to show cause why the stay of these proceedings

should not be lifted.    The question is whether the so-called

automatic stay imposed pursuant to 11 U.S.C. section 362(a)(8)
                                    - 2 -


(1988),1 was terminated by virtue of the bankruptcy court's

dismissal of petitioners' bankruptcy case that was contingent

upon several conditions.

                                 Background

         On July 10, 1991, respondent issued a notice of deficiency

to Esmat A. and Sylvia G. Zaklama (petitioners) determining a

deficiency in and additions to their Federal income tax for 1987.

Petitioners filed an imperfect petition with the Court on August

15, 1991, followed by a proper amended petition on October 17,

1991, that was assigned docket No. 18474-91.           On September 21,

1992, respondent issued a notice of deficiency to petitioners

determining a deficiency in and additions to their Federal income

tax for 1988.      Petitioners filed a petition with the Court on

December 21, 1992, that was assigned docket No. 28167-92.2

         On April 5, 1993, petitioners filed a voluntary petition for

relief under chapter 11 of the Bankruptcy Code with the U.S.

Bankruptcy Court for the District of New Jersey.            As a result,

this Court issued orders staying all proceedings in these cases

consistent with 11 U.S.C. section 362(a)(8) (1988).

         On March 21, 1995, the bankruptcy court issued an order

stating that, upon consideration of its own motion to dismiss or


     1
        All section references are to Title 11 of the United States Code,
unless otherwise indicated.
     2
        At the time that the petitions were filed, petitioners resided at
Jersey City, New Jersey.
                                    - 3 -


convert the case to a chapter 7 proceeding, petitioners' case

would be dismissed subject to certain terms and conditions.              See

11 U.S.C. sec. 1112(b) (1988).3        In particular, the bankruptcy

court's order of dismissal is conditioned on: (1) petitioners

depositing $40,000 with the bankruptcy trustee and remitting such

additional sums as might be necessary to cover administrative

claims to be awarded by the court; (2) the dismissal with

prejudice of petitioners' motion for the turnover from the

trustee and disgorgement of fees previously paid; (3) staying

relief as to all secured creditors in the event petitioners

should seek protection under any chapter of the Bankruptcy Code

during a 1-year period following the date of entry of the order

of dismissal; and (4) petitioners' filing a certification

indicating that all unsecured creditors have been paid in full

within 90 days of the date of entry of the order of dismissal.

The bankruptcy court's order of dismissal further provides that

the court shall retain jurisdiction over all claims by

petitioners against certain professionals involved in the

bankruptcy proceedings and that the order would be rescinded in

the event of a breach of any term or condition of the order.              An

"Amended Notice of Conditional Dismissal of Case" was entered by

the bankruptcy court on May 11, 1995, stating: "Notice is given


     3
        11 U.S.C. sec. 1112(b) (1988), provides that the bankruptcy court may
convert a case under chapter 11 to a case under chapter 7 or dismiss the case,
whichever is in the best interests of the creditors and the estate, for cause.
                                - 4 -


that on the 21st day of March, 1995 subject to the terms and

conditions stated in the Order of Dismissal filed March 21, 1995

the above captioned matter be and hereby is dismissed."     Neither

the bankruptcy court's order of dismissal nor the amended notice

contains any reference to the automatic stay imposed under 11

U.S.C. section 362(a) (1988).

     On or about May 17, 1995, petitioners filed an appeal in

respect of the bankruptcy court's order of dismissal.      The record

does not reflect the disposition of petitioners' appeal.

     On July 26, 1995, this Court issued an order in each case

directing petitioners to show cause why the stay of proceedings

herein should not be lifted and these cases restored to the

general docket.   On August 16, 1995, petitioners filed a response

in each case stating that the conditions for dismissal set forth

in the bankruptcy court's order have not been met and that their

bankruptcy case has not been closed.    It appears to be

petitioners' position that the proceedings in this Court should

be stayed until such time as their bankruptcy case is closed.

     A hearing was conducted in these cases in Washington, D.C.,

on September 20, 1995.   Counsel for respondent appeared at the

hearing and presented argument in respect of the Court's orders

to show cause.    Although petitioners were not represented at the

hearing, they did file a brief written statement in each case

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).   When operative, the automatic stay serves to preclude

the commencement or continuation of proceedings in this Court.

Relevant here, 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 which normally precludes the commencement or

continuation of proceedings in this Court.          Allison v.

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

     The period that the automatic stay remains in effect is

prescribed in 11 U.S.C. section 362(c) (1988), as follows:
                                 - 6 -


          (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.

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).

     There is no dispute in these cases that the automatic stay

became operative on April 5, 1993--the date that petitioners

filed their chapter 11 bankruptcy petition.    The question is

whether the automatic stay was terminated in these cases as a

consequence of the bankruptcy court's order of dismissal issued

March 21, 1995.
                              - 7 -


     Petitioners contend, without citing any authority, that the

bankruptcy court's order providing for the conditional dismissal

of their case is not sufficient to terminate the automatic stay.

Relying on cases such as Allison v. Commissioner, supra, and

Smith v. Commissioner, supra, respondent maintains that, despite

the conditions set forth therein, the bankruptcy court's order of

dismissal terminated the automatic stay.   We agree with

respondent.

     As previously discussed, the automatic stay imposed under 11

U.S.C. section 362(a)(8) (1988), 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); Smith v. Commissioner, supra at 14.      Though not

expressly cited in the order of dismissal, it is evident that the

bankruptcy court dismissed petitioners' case pursuant to 11

U.S.C. section 1112(b) (1988), which provides that the bankruptcy

court may, for cause, convert a case under chapter 11 to a case

under chapter 7 or dismiss the case, whichever is in the best

interests of the creditors and the bankruptcy estate.   The

dismissal of a chapter 11 bankruptcy case pursuant to 11 U.S.C.

section 1112(b) (1988), generally terminates the automatic stay.

See In re 266 Washington Associates, 141 Bankr. 275, 288 (Bankr.

E.D.N.Y. 1992); In re Lumber Exchange Ltd. Partnership, 125

Bankr. 1000 (Bankr. D. Minn. 1991), affd. 968 F.2d 647 (8th Cir.
                                - 8 -


1992); In re Lindbergh Plaza Associates, L.P., 115 Bankr. 202

(Bankr. E.D. Mo. 1990).    In Olson v. Commissioner, 86 T.C. 1314

(1986), we concluded that dismissal of a bankruptcy case pursuant

to 11 U.S.C. section 1112(b) (Supp. III, 1979), served to

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

(Supp. III, 1979).

     Unlike the order of dismissal at issue in Olson v.

Commissioner, supra, the bankruptcy court's order of dismissal in

these cases imposes certain terms and conditions on petitioners

and provides that the bankruptcy court would retain jurisdiction

in the case for certain issues.    Although we are not aware of any

case involving an order of dismissal with these specific

characteristics, we nonetheless conclude that the automatic stay

imposed under 11 U.S.C. section 362(a)(8) (1988), terminated with

the issuance of the bankruptcy court's order of dismissal.

     Viewing the order of dismissal as a whole, that order

reflects the bankruptcy court's intention to dismiss petitioners'

case while retaining jurisdiction over the matter for the purpose

of resolving any collateral disputes that might arise as a

consequence of enforcement of the conditions set forth therein.

There is no link between the conditions imposed by the bankruptcy

court in its order of dismissal and the policies to be furthered

by the automatic stay.    Similarly, the bankruptcy court's

decision to dismiss the case, while retaining jurisdiction, does
                                - 9 -


not provide a basis for concluding that the automatic stay

remains in effect.   See Moody v. Commissioner, 95 T.C. 655, 661

(1990); see also Allison v. Commissioner, supra at 546; Roth v.

Commissioner, T.C. Memo. 1993-229.      Further, petitioners' appeal

of the bankruptcy court's order of dismissal, standing alone,

does not provide a basis for concluding that the automatic stay

remains in effect.   See Olson v. Commissioner, supra at 1318

(absent an order staying dismissal, the automatic stay is

terminated upon dismissal).

     In concluding that the bankruptcy court's order of dismissal

terminated the automatic stay in these cases, we find it

particularly significant that the order makes no mention of the

status of the automatic stay.   Consistent with the approach taken

by this Court in Allison v. Commissioner, supra at 546-547, and

Kieu v. Commissioner, 105 T.C. ___ (1995), we proceed on the

premise that the automatic stay is terminated upon dismissal of a

bankruptcy case (whether conditional or otherwise) absent a clear

indication from the bankruptcy court to the contrary.     See

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

Halpern v. Commissioner, 96 T.C. at 902), we note that a

bankruptcy court has the means to bring about a stay of the
                               - 10 -


proceedings in this Court in the event it intends to rule with

respect to petitioners' tax liabilities.   See Allison v.

Commissioner, 97 T.C. 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).

     Consequently, we will proceed in these cases consistent with

the view that the automatic stay was terminated on March 21,

1995.   In this regard, the Court's orders dated July 26, 1995,

directing petitioners to show cause why the stay of these

proceedings should not be lifted will be made absolute, and these

cases will be restored to the general docket for trial on the

merits or other disposition in due course.

        To reflect the foregoing,

                                    Appropriate orders will be

                               issued.
