                         T.C. Memo. 2010-176



                       UNITED STATES TAX COURT



                 STUART A. GROSS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 26902-07L.               Filed August 5, 2010.



     Steven Mather and Elliott Kajan, for petitioner.*

     Elaine Fuller, for respondent.



                         MEMORANDUM OPINION


     VASQUEZ, Judge:    Pursuant to section 6330(d),1 petitioner

seeks judicial review of respondent’s determination to proceed


     *
        Brief amicus curiae was filed by A. Lavar Taylor as
attorney for the Center for the Fair Administration of Taxes.
     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 -

with a proposed levy to collect petitioner’s unpaid Federal

income tax liabilities for 1998, 1999, 2000, and 2001.       The

matter is presently before the Court on petitioner’s motion for

summary judgment and respondent’s motion for partial summary

judgment pursuant to Rule 121.    We are asked to decide whether

petitioner’s interest in an ERISA-qualified pension plan was

excluded from, or included in and exempted from, his chapter 7

bankruptcy estate.

                            Background

      Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.       Petitioner resided in

California at the time he filed his petition.

I.   Petitioner’s Bankruptcy Proceedings

      On October 16, 2005, petitioner filed a petition under

chapter 7 of the U.S. Bankruptcy Code in the U.S. Bankruptcy

Court for the Central District of California.       On the date he

filed his bankruptcy petition, petitioner owned an interest in an

ERISA-qualified pension plan from the Director’s Guild of America

(the DGA plan) valued at $300,000.       Petitioner listed his

interest in the DGA plan on Schedule B, Personal Property,

attached to the bankruptcy petition.       On Schedule C, Property

Claimed as Exempt, also attached to the bankruptcy petition,

petitioner listed as exempt the full value of his interest in the
                                   - 3 -

DGA plan.    Petitioner included the following description on

Schedules B and C:    “This is an ERISA Qualified Pension Plan

which is not property of the estate but in an abundance of

caution has been listed herein and exempted.”

      On December 16, 2005, the chapter 7 trustee filed his report

in petitioner’s bankruptcy case.      No objections to the exemptions

claimed on petitioner’s Schedule C were filed.      On June 2, 2006,

the bankruptcy court entered an order of discharge pursuant to 11

U.S.C. sec. 727 (2006).       On August 7, 2006, the bankruptcy court

entered an order closing petitioner’s bankruptcy case.2

II.   Respondent’s Collection Efforts

      On August 7, 2006, the same day petitioner’s bankruptcy case

was ordered closed, the IRS Insolvency Unit sent petitioner a

Final Notice--Notice of Intent to Levy and Notice of Your Right

to a Hearing (levy notice).      The levy notice indicated that

petitioner owed Federal income taxes for 1998, 1999, 2000, and

2001 which totaled $270,041.15.      Respondent, before the filing of

petitioner’s bankruptcy petition, had not filed a notice of



      2
          The order stated:

            Order of Discharge in the above referenced case was
            entered on 6/2/06, and notice was provided to parties
            in interest. Since it appears that no further matters
            are required that this case remain open, or that the
            jurisdiction of this Court continue, it is ordered that
            the Trustee is discharged from his/her duties in this
            case, his/her bond is exonerated, and the case is
            closed.
                                   - 4 -

Federal tax lien (NFTL) with respect to any of the Federal income

tax liabilities which were the subject of the levy notice.      The

parties stipulated that petitioner, as a result of the discharge

in bankruptcy, has no present personal obligation to pay the

Federal income tax liabilities.

III.    Petitioner’s CDP Hearing

       Petitioner timely filed a Form 12153, Request for a

Collection Due Process or Equivalent Hearing (CDP hearing).

Petitioner disputed respondent’s intent to levy on his future

entitlement to an annuity from the DGA plan because he was not

entitled to receive any benefit or distribution at present.

Petitioner further asserted that future distributions from the

DGA plan would be needed to pay for essential medical insurance

and treatment because of his chronic medical conditions.

Petitioner asserted he would offer an alternative resolution at

the CDP hearing.

       On October 29, 2007, respondent issued a Notice of

Determination Concerning Collection Action(s) Under Section 6320

and/or 6330.    Therein respondent sustained the proposed levy

because petitioner’s interest in the DGA plan was excluded from

petitioner’s bankruptcy estate and petitioner did not make an

acceptable proposal for payment or resolution of his Federal

income tax liabilities.    The memo attached to the notice of

determination states:    “The government * * * is not precluded
                                  - 5 -

from attaching (or levying) assets excluded from the bankruptcy,

in this case, Gross’ ERISA account.       See 11 USC section 541;

certain retirement savings accounts or pension plans may be

excluded from the bankruptcy estate.”

                                Discussion

I.    Summary Judgment

       Rule 121(a) provides that either party may move for summary

judgment upon all or any part of the legal issues in controversy.

Summary judgment is intended to expedite litigation and to avoid

unnecessary and expensive trials of phantom factual issues.         See

Fla. Country Clubs, Inc. v. Commissioner, 122 T.C. 73, 75 (2004),

affd. 404 F.3d 1291 (11th Cir. 2005).        Full or partial summary

judgment may be granted only if it is demonstrated that no

genuine issue exists as to any material fact and that the issues

presented by the motion(s) may be decided as a matter of law.

Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), affd. 17 F.3d 965 (7th Cir. 1994).

II.    The Parties’ Arguments

       Petitioner argues that the exclusion of his interest in an

ERISA-qualified pension plan is permissive pursuant to Rains v.

Flinn, 428 F.3d 893, 905-907 (9th Cir. 2005), and that he

properly included the DGA plan account in his chapter 7

bankruptcy estate and claimed it as exempt without objection.

Therefore, petitioner contends that respondent may not levy on
                                     - 6 -

the DGA plan account because respondent did not file a valid

NFTL.

       Respondent argues that an ERISA-qualified pension plan

account is per se excluded from the bankruptcy estate (i.e.,

exclusion is mandatory) and cannot be included in the bankruptcy

estate, not even for the sole purpose of listing it as exempt.

Respondent further argues that even if a debtor may include an

ERISA-qualified pension plan account in the bankruptcy estate and

claim it as exempt, petitioner did not do so.        Instead,

respondent takes the position that petitioner excluded the DGA

plan account by describing it on his bankruptcy schedules as an

“ERISA Qualified Pension Plan which is not property of the

estate”.       Either way, in respondent’s view the DGA plan account

was excluded.         Respondent concludes that therefore the statutory

lien survives the bankruptcy and respondent may collect in rem

from the DGA plan.

III.       Analysis

       The filing of a petition in bankruptcy automatically creates

a bankruptcy estate consisting of “all legal or equitable

interests of the debtor in property as of the commencement of the

case.”3      11 U.S.C. sec. 541(a)(1) (2006).    The bankruptcy estate

includes all of the debtor’s prepetition property and rights to


       3
        For a more comprehensive discussion on the sec. 6321 lien
and the effect of bankruptcy on the sec. 6321 lien, see Wadleigh
v. Commissioner, 134 T.C. __, __ (2010) (slip op. at 19-23).
                                - 7 -

property except property excluded from the estate under 11 U.S.C.

sec. 541 (2006).    Title 11 U.S.C. sec. 541(c)(2), as interpreted

in Patterson v. Shumate, 504 U.S. 753, 760 (1992), permits a

debtor to exclude an interest in an ERISA-qualified pension plan

from his bankruptcy estate.4

     In addition, 11 U.S.C. sec. 522 allows a debtor to exempt

from his bankruptcy estate certain property, including retirement

funds, to ensure that the debtor has at least some property with

which to make a fresh start.    Carlson v. Commissioner, 116 T.C.

87, 102 (2001).    Property that is exempt from the bankruptcy

estate pursuant to 11 U.S.C. sec. 522 is not available to satisfy

prepetition debts during or after the bankruptcy, except debts

secured by liens that are not avoided in the bankruptcy and

section 6321 liens with respect to which an NFTL has been filed.

11 U.S.C. sec. 522(c).

     Unlike exempt property, excluded property never becomes part

of the bankruptcy estate and is therefore never subject to the

bankruptcy estate trustee’s or the debtor’s power to avoid the

section 6321 lien.    Thus if a section 6321 lien on excluded


     4
        In Patterson v. Shumate, 504 U.S. 753, 762 (1992), the
Supreme Court held that “a debtor may exclude his interest in an
ERISA-qualified pension plan from the bankruptcy estate”. The
bankruptcy trustee in Patterson argued that the Court’s holding
rendered 11 U.S.C. sec. 522(d)(10)(E) superfluous, but the Court
rejected the argument, observing that 11 U.S.C. sec.
522(d)(10)(E) “exempts from the bankruptcy estate a much broader
category of interests than * * * [11 U.S.C. sec.] 541(c)(2)
excludes.” Id.
                                - 8 -

property has not expired or become unenforceable under section

6322, it survives the bankruptcy.5      Wadleigh v. Commissioner, 134

T.C. __, __ (2010) (slip op. at 22).

     As we noted in Wadleigh v. Commissioner, supra at __ n.10

(slip op. at 21) (citing In re Stevens, 177 Bankr. 619, 620 n.2

(Bankr. E.D. Ark. 1995)), there is no formal procedure within the

bankruptcy process to clarify what property is excluded, and

confusion has resulted from this lack of clarity.      Simply listing

an ERISA-qualified pension plan account, an excludable asset, on

Schedule C is not necessarily sufficient to claim an exemption if

all of the facts, including any statements made on the bankruptcy

schedules, indicate that the debtor excluded the ERISA-qualified

pension plan account from his bankruptcy estate.      See id. at __

n.10 (slip op. at 21); cf. Klein v. Chappell, 373 Bankr. 73, 77

(B.A.P. 9th Cir. 2007) (citing Hyman v. Plotkin, 967 F.2d 1316,

1319 n.6 (9th Cir. 1992) (ambiguity in the bankruptcy schedules

is to be construed against the debtor)).

     Petitioner was granted a discharge in bankruptcy on June 2,

2006.    On Schedule C of his bankruptcy petition, petitioner

stated that the DGA plan account was not property of the estate

but in an abundance of caution was listed on the bankruptcy



     5
        The Commissioner has taken the position that “A Notice of
Federal Tax Lien need not be on file to pursue collection against
assets excluded from the bankruptcy estate.” Internal Revenue
Manual pt. 5.9.2.9.1.1(2) (Mar. 1, 2007).
                                - 9 -

schedules and claimed as exempt.   Clearly petitioner intended to

foreclose his creditors from reaching the DGA plan account in the

bankruptcy proceedings.   On the basis of the record before us and

our review of 11 U.S.C. sec. 541, we conclude that petitioner’s

pension plan account was properly excludable from his bankruptcy

estate under 11 U.S.C. sec. 541(c)(2) and Patterson v. Shumate,

supra, and that petitioner excluded the pension plan account from

his bankruptcy estate.    See Wadleigh v. Commissioner, supra at __

(slip op. at 5) (debtor excluded ERISA-qualified pension plan

claimed as exempt on Schedule C on basis of attached statement).6

As a result, the section 6321 lien that attached to the pension

plan account before bankruptcy continued to attach to

petitioner’s interest in his pension even after petitioner’s

personal liability for his tax liabilities was discharged in

bankruptcy.


     6
        In Wadleigh v. Commissioner, supra at __ (slip op. at 5),
the debtor included the following statement:

     “The interest in the Honeywell Pension Plan is claimed
     as exempt to the extent, if any, that said Pension Plan
     is property of the estate, and the claims of exemption
     include any increases in the value of Debtors’
     interests therein. Debtors contend that their interest
     in the Honeywell Plan are [sic] excluded from the
     bankruptcy estate under 11 U.S.C. § 541(c)(2);
     Patterson v. Shumate, 504 U.S. 753 (1992).”

We find petitioner’s statement that the DGA plan account was not
property of the estate but was listed therein and exempted out of
an abundance of caution to be essentially the same, taking into
account its necessary implication, as the debtor’s more explicit
statement in Wadleigh.
                              - 10 -

IV.   Conclusion

      Petitioner excluded his DGA plan account from his bankruptcy

estate.   Accordingly there is no need to decide whether the

exclusion of an ERISA-qualified pension plan account from a

bankruptcy estate is mandatory or permissive.   To reflect the

foregoing,


                                    An appropriate order will be

                               issued denying petitioner’s motion

                               for summary judgment and granting

                               respondent’s motion for partial

                               summary judgment.
