[87-2 USTC ¶9570] In re Phillip Gene Mills, Debtor. Phillip Gene Mills, Plaintiff v. Commissioner of Internal Revenue Service, Defendant

U.S. Bankruptcy Court, No. Dist. Tex., Dallas Div., 385 3245 7-A-7, 8/4/87

[Code Sec. 6325 --Result unchanged by the Tax Reform Act of 1986]

Lien for taxes: Release of lien: Bankruptcy.--

A bankrupt taxpayer could not force the IRS to apply proceeds from the sale of property to tax debts for 1983 and 1984 when the parties had agreed to apply the proceeds to tax debts for other years. The understanding of the parties was for the release of liens on homestead property in exchange for application of the proceeds of the sale to unpaid taxes for the years 1978 through 1981. Although the debtor attempted to unilaterally alter that agreement and have the proceeds applied to more recent tax debts that were excepted from discharge, such attempt was ineffective. The IRS had applied the proceeds as originally directed, but the debtor attempted to change the agreement after he learned of the assessments for the later years, well after the IRS had committed itself to release its tax lien covering the tax years 1978 through 1981.

Hytken, Harlan, Nye, 1710 One Galleria Tower , Dallas , Tex. 75240 , for plaintiff. Steven A. Maurer, Department of Justice, Dallas , Tex. 75242-1-10599, for defendant.

MEMORANDUM OPINION

ABRAMSON, Bankruptcy Judge:

This proceeding appears to be but one chapter in a long saga of one citizen's travails with the Internal Revenue Service. The case comes before the Court on the complaint of the Debtor, Phillip Gene Mills, to determine dischargeability. This is a core proceeding in bankruptcy. This memorandum shall constitute findings of fact and conclusions of law.

The matter comes before the Court on the cross motions for summary judgment filed by the parties. A hearing was held on June 22, 1987 after which the Court took the matter under advisement. The Debtor has requested in its prayer that the Court declare the tax liens filed against the Debtor's property to be void and that the Debtor's tax liability be discharged. The United States asks that the Court declare taxes due for the years 1978 to 1981 discharged, taxes due for years 1983 and after non-dischargeable, and that the Court abstain from determining the taxes due for the year 1982.

Under Section 523(a)(1)(A) of the Bankruptcy Code, 11 U.S.C., taxes which are entitled to priority of distribution under Sections 507(a)(2) and 507(a)(7) are excepted from discharge. The concern here is with Section 507(a)(7)(A)(i) which specifies that income taxes due for a pre-petition taxable year for which the return was due within three years prior to the bankruptcy petition are entitled to priority payment. This bankruptcy was initiated by the Debtor's voluntary petition on September 24, 1985 . Thus, in this case, federal income taxes due for 1983 and subsequent years are excepted from discharge under Section 523(a)(1)(A). In re Verran [80-2 USTC ¶9606 ], 623 F.2d 477 (6th Cir. 1980); In re Resnick [85-2 USTC ¶9457 ], 52 B.R. 90 (Bankr. D. Mass. 1985).

The significance of this analysis is made clear by a brief review of the factual background. Most of the facts are set out in the affidavit of the Debtor filed on June 17, 1987 , which the Court accepts. At the time this case was commenced, the Internal Revenue Service (" IRS ") had assessed taxes for the years 1978 through 1984. Prior to the filing, the IRS had filed two notices of federal tax lien for the years 1978 through 1981. ¹ A third tax lien notice, for the tax years 1983 and 1984, was filed on August 26, 1985 .

The Debtor had been negotiating with the IRS over a method of payment of this tax liability. The Debtor had agreed to sell his interest in a homestead property located in Denton County , Texas and assign to the IRS the proceeds received beyond payment of costs and prior liens. Subsequent to this agreement but prior to closing the homestead sale, the IRS filed the notice of tax lien for the years 1983 and 1984. The sale was closed as planned and proceeds of $15,077.29 were sent to the IRS . A certificate of discharge of the federal tax lien as to the homestead was issued by the IRS , listing the value of the lien at $15,077.29 and the debt to which the proceeds would be applied as the unpaid taxes from 1978 through 1981. When the Debtor endorsed the check for $15,077.29 over to the IRS , he wrote "applied to years 1985, 1984, 1983, remainder to be applied to previous years . . . ." The Debtor also sent a note to the IRS requesting that the proceeds of the homestead sale be applied to taxes from 1984 first, 1983 second, and the balance to prior years. ²

Thus we come to the crux of this adversary proceeding. The IRS applied the $15,077.29 homestead proceeds to tax debts that would be discharged under Section 523(a)(1) ³ instead of applying the proceeds to the more recent tax debts that are excepted from discharge, as was requested by the Debtor. The Debtor contends that because the payment of the homestead proceeds was voluntary, he has a right to direct the application to the most recent taxes and the IRS should have applied the $15,077.29 according to the endorsement on the check and the accompanying note. See Muntwyler v. United States [83-1 USTC ¶9275 ], 703 F.2d 1030 (7th Cir. 1983); O'Dell v. United States, 326 F.2d 451 (10th Cir. 1964). The IRS argues that it did apply the homestead sale proceeds as directed, only the Debtor attempted to change the agreement after he learned of the assessments for 1984 and 1983, well after the IRS had committed itself to release its tax lien covering the tax years 1978 to 1981. The Court agrees with the IRS .

The IRS may discharge any part of a taxpayer's property subject to a lien for unpaid taxes when an application for such is made and, inter alia, the IRS receives payment equal to the value of the interest of the United States in the property to be released. The record shows, by citation in the certificate of discharge, that the IRS released the homestead from its lien pursuant to 26 U.S.C. §6325(b)(2)(A) , which provides for such release upon the payment to the IRS of the value of its interest in the subject property. This procedure is detailed in Treasury Regulations found at 26 CFR §301.6325-1 (4-1-86 ed.) and 26 CFR §401.6325-1 (4-1-86 ed.), which, to the Court's reading, ⁴ appear to be aptly described in the opinion in the case of Brittle v. United States [62-2 USTC ¶9652 ], 209 F.Supp. 409, 411 (S.D. Cal. 1962):

Briefly stated, under 26 U.S.C.A. §6325 , the person desiring the certificate discharging the Government liens submits to the District Director to whom the assessment is charged a written application requesting that a certificate be issued discharging the property from the federal liens. Petitioner submits detailed statements including the property description, reason for which the discharge is sought, description of all senior encumbrances, proof of the fair market value of the property, and any other information which the applicant believes may have a bearing on the Director's determination of value. The Director then makes a thorough analysis of the law and facts of the case, checks all material submitted for accuracy, and reaches a determination and informs the applicant of the result. If the applicant is satisfied with the Director's determination, he pays the amount specified.

This administrative procedure benefits the taxpayer by obviating the need for levy and sale by the IRS and by freeing the property from an encumbrance that could impede its transfer by the taxpayer. The procedure also may make possible realization of a greater recovery to the IRS and reduction of taxpayer liability. The benefits of the procedure authorized by 26 U.S.C. §6325(b)(2)(A) are reciprocal and voluntary as to both parties. Brittle v. United States , supra.

Because the record clearly shows the understanding of the parties was for release of the homestead property in exchange for application of the proceeds of the sale to the unpaid taxes for the years 1978 to 1981, ⁵ the Bankruptcy Court finds that the Debtor's unilateral attempt to alter that understanding was ineffective. Cf., United States v. Lane [62-1 USTC ¶9467 ], 303 F.2d 1 (5th Cir. 1962) (compromise with IRS usually treated as a contract).

Thus, the Bankruptcy Court denies the relief prayed for in the Debtor's motion for summary judgment on his complaint to determine dischargeability and declares that taxes due for years prior to 1983 are discharged. The Court abstains from determining the Debtor's tax liability for the year 1982 because the issue is moot as to any further proceedings before this Court. Counsel for IRS is to prepare an appropriate form of order.

¹ Excluding application of the homestead sale proceeds, the Debtor's unpaid tax liability is set out in the following table:

Taxable             Assessment

 Year     Amount       Date     Lien Date

1978 .. $11,015.47   
1-04-82
     
6-22-82

1979 ...  5,760.68   
2-15-82
     
6-22-82

1980 ...  5,925.55   
1-04-82
     
6-22-82

1981 ...  1,806.37   
8-30-82
     
4-25-83

1983 ...  1,077.54   
5-06-85
     
8-26-85

1984 ...  3,391.86   
6-17-85
     
8-26-85

² The Debtor also complains of collection letters received from the IRS regarding taxes owed for 1978 to 1981, the IRS contention that he owes taxes for 1982, and the application of excess taxes withheld from 1986 to the tax debt for 1978. The Court is informed by counsel for the United States that the excess taxes withheld will be re-applied to non-discharged taxes, if any, or refunded. The Debtor's tax liability for the year 1982 will not be determined by this Court.

³ The IRS has conceded that the Debtor will be discharged from his tax debts for the years 1978 through 1981 under Section 523(a)(1). The Court notes, however, that even after application of the $15,077.29 payment there remains a balance due on the taxes for 1978. In the main bankruptcy case the Debtor received his discharge on February 24, 1986 . Neither the Debtor nor the IRS has filed a proof of claim nor has the Debtor requested a determination of secured status concerning the tax debts. See In re Brager, 28 B.R. 966 (Bankr. E.D. Pa. 1983). Thus, the Court finds that the IRS lien, to the extent unsatisfied, survives despite his bankruptcy being a "no asset" chapter 7 proceeding. See 11 U.S.C. §506(d); In re Simmons, 765 F.2d 547 (5th Cir. 1985); Matter of Brown, 73 B.R. 740 (Bankr. W.D. Wis. 1987); 3 Collier on Bankruptcy, ¶506.07 (15th ed. 1987).

⁴ 26 CFR §301.6325-1(b) (4-1-86 ed.), provides in part:

(2) Part payment; interest of United States valueless--(i) Part payment. The district director may, in his discretion, issue a certificate of discharge of any property subject to a lien imposed under chapter 64 of the Code if there is paid over to him in partial satisfaction of the liability secured by the lien an amount determined by him to be not less than the value of the interest of the United States in the property to be so discharged. In determining the amount to be paid, the district director will take into consideration all the facts and circumstances of the case, including the expenses to which the Government has been put in the matter. In no case shall the amount to be paid be less than the interest of the United States in the property with respect to which the certificate of discharge is to be issued.

* * *

(4) Application for certificate of discharge. Any person desiring a certificate of discharge under this paragraph shall submit an application in writing to the district director responsible for collection of the tax. The application shall contain such information as the district director may require.

* * *

⁵ The Debtor's application for the certificate of discharge of the homestead property from the tax lien specifically refers to the tax lien filings which list unpaid taxes for the years 1978 to 1981. No reference is made to taxes for any other years.

U.S. Court of Appeals, 8th Circuit; 02-4138, 345 F3d 563, October 3, 2003.

Affirming the Tax Court, Dec. 54,850(M), TC Memo. 2002-210, 84 TCM 217.

[ Code Secs. 6321, 6325 and 6871]

Bankruptcy: Assessment and collection: Property subject to tax liens: Discharge of property from lien: Equitable estoppel. --

The Tax Court properly concluded that the IRS was not estopped from levying upon married debtors' pension plan to satisfy their delinquent tax liability, which was discharged in bankruptcy. Oral and written representations of an IRS employee indicating that the tax liability would be abated did not amount to negligence and bad faith and, as a result, were insufficient grounds for estoppel. Likewise, the IRS 's failure to respond to a letter from the debtors' attorney clarifying the terms of an installment agreement in effect for additional tax years, which also indicated that the IRS would not commence additional collection procedures for the tax year at issue, did not support the debtors' claim that equitable estoppel applied..

Before: Smith, Lay and Bright, Circuit Judges.



I. BACKGROUND

LAY, Circuit Judge: This case arises out of tax assessments made against W. Richard Morgan and Janice J. Morgan (collectively "Morgan") for federal income tax deficiencies for the years 1981, 1982, and 1983 resulting from investments in a tax shelter later invalidated by the Internal Revenue Service. As a result of these deficiencies, Morgan filed for bankruptcy. On December 22, 1994, the bankruptcy court issued an order in which it refused to discharge Morgan's tax liabilities for 1981 and 1982, but granted a discharge as to Morgan's 1983 tax liability. The bankruptcy court also ruled, however, that the IRS retained the right to collect the 1983 liability from any assets that were exempt from the bankruptcy estate, which were limited to a pension plan held in the name of W. Richard Morgan.

In March of 1995, Morgan submitted an offer-in-compromise to the IRS , which was later rejected. Some time in 1997, Morgan's account was assigned to Revenue Officer Elizabeth Cooper, who sought on several occasions to convince Morgan to begin repaying his delinquent taxes. In May of 1998, the IRS issued a wage levy to Morgan's employer. On May 19, 1998, Cooper wrote a letter to Morgan's attorney, expressing the need for Morgan to submit another offer-in-compromise and to attempt to negotiate an installment agreement for the payment of all unpaid taxes. In this letter, Cooper also wrote: "regarding the 1983 [tax liability], Special Procedures Branch is in the process of getting it abated." Cooper wrote this based upon her conversations with the Special Procedures Branch of the IRS .

The wage levy provided an impetus for Morgan to enter into negotiations for an installment agreement. On June 4, 1998, Morgan and the IRS finalized an agreement covering only Morgan's 1981 and 1982 tax liabilities. Morgan's 1983 tax liability was not included in the installment agreement because at the time of its execution, both Morgan and Cooper believed that it would be abated. Shortly after the execution of this agreement, however, the Special Procedures Branch decided not to abate Morgan's 1983 liability. On September 11, 1998, Morgan's attorney sent a letter to Cooper explaining his understanding of the effect of the installment agreement, which was that the IRS would not commence additional collection procedures (including any pertaining to the 1983 liability) so long as Morgan remained current on payments. Morgan's attorney asked Cooper to verify or, if necessary, correct his understanding of the agreement. Although Cooper was aware at the time she received this letter that the IRS had decided not to grant an abatement of the 1983 liability, she did not respond to this letter. ¹

On December 27, 1999, the IRS notified Morgan of its intent to levy to recover all unpaid taxes and penalties for the 1981, 1982, and 1983 tax years. Following a Collection Due Process hearing, the IRS Office of Appeals ruled that the IRS could not enforce by levy the 1981 and 1982 liabilities so long as Morgan complied with the terms of the installment agreement. The Office of Appeals also ruled, however, that the IRS could enforce by levy the 1983 tax liability against assets exempt from the bankruptcy.

Morgan filed an appeal in United States Tax Court, arguing that the IRS was estopped from enforcing by levy the 1983 tax liability based on its previous representations that the 1983 liability would be abated, and further that there would be no attempts at collection while the installment agreement remained in effect. Morgan argued that as a result of these representations, he suffered a detriment by entering into an installment agreement that failed to include his 1983 liability. The tax court affirmed the decision of the Commissioner. It held that it was not reasonable for Morgan to rely on Cooper's statements that his 1983 liability would be abated for two reasons. First, Morgan knew that the IRS could levy on his exempt assets to recover his 1983 liability. ² Second, Morgan was represented by attorneys in the bankruptcy proceeding and in his dealings with the IRS . The tax court also held that Morgan had not relied on Cooper's statements to his detriment, but had instead gained a benefit insofar as the payment of his 1983 liability had been delayed, and that he also received a favorable installment agreement for his 1981 and 1982 liabilities. ³ Morgan now appeals.



II. DISCUSSION

The IRS argues, as an initial matter, that Morgan failed to raise his estoppel claim before the Office of Appeals, and that he should therefore be precluded from raising it on appeal. The tax court considered this argument, and determined that Morgan had adequately raised the factual circumstances underlying a claim of estoppel. ⁴ Although this is a close question, we assume, as did the tax court, that the facts underlying Morgan's claim of estoppel were sufficiently presented to the Office of Appeals to preserve the issue for our review. See Ohio v. EPA, 838 F.2d 1325, 1329 (D.C. Cir. 1988) (finding exhaustion doctrine satisfied where agency had the "opportunity to consider the very argument pressed" on judicial review) (internal quotations and citations omitted). We therefore turn to consider the merits of Morgan's claim of equitable estoppel.

Morgan argues that the tax court erred by refusing to apply estoppel against the IRS . Although the Supreme Court has explicitly left undecided the question of whether a private party can ever estop the government, "it is well settled that the Government may not be estopped on the same terms as any other litigant." Heckler v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S. 51, 60 (1984) (footnote omitted). In addition to establishing the traditional elements of estoppel, a party seeking to estop the government must first establish that it engaged in affirmative misconduct. See INS v. Miranda, 459 U.S. 14, 19 (1982) ( per curiam) (when evaluating estoppel claim asserted against government, courts should inquire "whether, as an initial matter, there was a showing of affirmative misconduct"); see also Rutten v. United States, 299 F.3d 993, 995-96 (8th Cir. 2002). This is a heavy burden to carry. See Office of Personnel Mgmt v. Richmond, 496 U.S. 414, 422 (1990) (noting that "we have reversed every finding of estoppel [against the government] that we have reviewed").

Morgan claims that affirmative misconduct on the part of the IRS is demonstrated by the "totality of the circumstances." Morgan notes that Cooper's representations regarding the abatement of the 1983 liability were made both orally and in writing. See Heckler, 467 U.S. at 65 (expressing concern over estoppel claims against government based solely on alleged oral misrepresentations). Morgan also notes that the actions of the IRS violated its own internal policies. Specifically, Internal Revenue Manual §5.14.1.5(1)(b) provides that no levy may be made on taxpayer accounts while installment agreements are in effect.

Morgan directs a majority of his affirmative misconduct argument, however, to the fact that Cooper failed to respond to his attorney's letter of September 11, 1998. He argues that she knew at the time that the 1983 liability would not be abated and that collection attempts were forthcoming. In this regard, Morgan principally relies upon Fredericks v. Comm'r [ 97-2 USTC ¶50,692], 126 F.3d 433 (3d Cir. 1997). Fredericks involved a tax assessment made by the IRS against a taxpayer some time after the three year statute of limitations to file such assessments had expired. The taxpayer agreed to file Form 872-A (Special Consent to Extend Time to Assess Taxes), thereby permitting the IRS to extend the statute of limitations indefinitely unless the taxpayer revoked his consent. The IRS represented to the taxpayer that it never received Form 872-A, and successfully sought on three separate occasions to extend the statute of limitations for an additional year, the last of which expired on June 30, 1984. Sometime prior to this date, however, the IRS located Form 872-A, yet failed to inform the taxpayer of this fact. On July 9, 1992, eleven years after informing the taxpayer that Form 872-A did not exist, and eight years after the final one-year extension of the statute of limitations expired, the IRS mailed a notice of deficiency to the taxpayer. Based upon these facts, the Third Circuit concluded that the taxpayer had "mounted the high hurdle" of establishing equitable estoppel against the government. Id. at 435.

We hold the present case to be distinguishable from Fredericks. Between the date on which Cooper failed to correct Morgan's misunderstanding of the effect of the installment agreement, and the date the IRS notified Morgan of its intent to levy, nearly seventeen months had passed. While not insubstantial, this is a far shout from the eight-year period involved in Fredericks. See id. at 442 ("The IRS ' decision to lie doggo, and induce the taxpayer into thinking all was well, coupled with its additional eight-year delay in producing a document it previously represented as non-existent, compels us to conclude that the IRS was guilty of affirmative misconduct....") (emphasis added); see also In re Charter Behavioral Health Sys., LLC, 292 B.R. 36, 44 (Bankr. D. Del. 2003).

However, in Mancini v. Redland Ins. Co., 248 F.3d 729 (8th Cir. 2001), this court encountered a claim made by homeowners for flood insurance benefits pursuant to the National Flood Insurance Act, 42 U.S.C. §4001 et seq. The proof of loss form submitted by the homeowners did not contain their signatures, as was required under the terms of the policy. After their claim was denied, the homeowners' attorney wrote to the insurance company, specifically asking whether they intended to take the position that the homeowners had failed to submit a proper proof of loss. Although the insurance company responded to this letter, it did not address the proof of loss issue. Id. at 733. Thereafter, the homeowners filed suit for benefits under the policy, arguing that the insurance company, by virtue of its failure to respond to their attorney's letter, should be estopped from arguing that the proof of loss was defective. This court disagreed, ruling that the government could not be estopped on the facts of the case. Id. at 735. We see no reason why a different result should obtain under the facts of the present case. In fact, both at trial and on appeal Morgan conceded that Cooper's conduct was not intended to purposely mislead him. The "negligence and possible bad faith" of the IRS in this case is insufficient grounds for estoppel. Wang v. Att'y Gen., 823 F.2d 1273, 1277 (8th Cir. 1987).



III . CONCLUSION

To be sure, the conduct of the IRS in this case falls short of that which should be expected of an agency of the government, especially one touching on the financial affairs of its citizens. But as the Supreme Court has instructed, "not even the temptations of a hard case," Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 386 (1947), can justify the application of estoppel against the government.

For the foregoing reasons, the judgment of the tax court is AFFIRMED.

¹ In the tax court, Cooper testified that she called Morgan's attorney on September 16, 1998, but that she did not recall mentioning anything about the effect of the installment agreement.

² During the course of the bankruptcy proceeding, Morgan acknowledged that a federal tax lien encumbered all of his property, including any exempt property, to the extent it existed.

³ The installment required Morgan to make monthly payments in the amount of $1,000, an amount which, given the magnitude of Morgan's total tax liability, failed even to cover the interest accruing on the debt.

⁴ In particular, the tax court concluded:

Well, I think I agree with [Morgan] that if the matter of the effect of the installment agreement on collections for 1983 was discussed [during the Collection Due Process hearing], the failure to put a legal label on it is not fatal so that we're going to have to consider that estoppel issue.

Chief Counsel Advice 200150007, September 5, 2001
CCH IRS Letter Rulings Report No. 1294, 12-19-01
IRS REF : Symbol: CC:PA:CBS:Br1-GL-805109-00

Uniform Issue List Information:

UIL No. 6330.00-00

Notice and opportunity for hearing before levy

[Code Secs. 6325 and 6330 ]

MEMORANDUM FOR ASSOCIATE AREA COUNSEL SBSE - SAN FRANCISCO, CC:SB:7:SF:1

FROM: Alan C. Levine, Chief, Branch 1 (Collection, Bankruptcy & Summonses), CC:PA:CBS:Br1

SUBJECT: *****

ATTN: TRMackinson

This memorandum responds to your request for advice dated June 7, 2001. This document is not to be cited as precedent. I.R.C. §6110(k)(3) .

QUESTION PRESENTED

Can a federal tax lien that self-releases, after the debtor receives a bankruptcy discharge of the related tax liabilities, be reinstated against pre-petition property in accordance with the procedures under I.R.C. §6325(f)(2) ?

CONCLUSION

The lien can be reinstated. Reinstatement of an erroneously self-released federal tax lien under I.R.C. §6325(f)(2) against a debtor's pre-petition property does not violate the discharge injunction of B.C. §524(a)(2), since the tax liability underlying the notice of federal tax lien is unaffected.

BACKGROUND

The debtor, *****, had unpaid federal income tax liabilities for tax years 1982, 1983, 1984, 1988 and 1989. In 1995, she received a discharge of these liabilities in a Chapter 7 bankruptcy case. The bankruptcy court determined that the federal tax liens, however, still attached to pre-petition property (her residence and an adjacent, undeveloped parcel), and this holding was upheld on appeal to the district court. *****. On *****, the debtor filed an administrative claim for innocent spouse relief with the Internal Revenue Service (Service). After her claim was rejected, she filed an action in Tax Court under I.R.C. §6015(e) .

This action is still pending, and has suspended the expiration of the collection statute of limitations, under I.R.C. §6015(e)(2) .

The United States brought a suit to foreclose the tax liens against the pre-petition property on ***** After the initiation of the suit, the notices of federal tax lien for three tax periods, 1982, 1983, and 1984, erroneously self-released. When the mistake was discovered, the Service issued a revocation of the certificate of release, in order to reinstate the assessment liens imposed by I.R.C. §6321 . A new notice of federal tax lien was filed in place of the erroneously-released notices of federal tax liens relating to the three tax years. The Service estimates the current value of the real estate to be $1,200,000.00. The total amount of the encumbrances against the property, including the tax liens, is about $600,000.00.

ANALYSIS

A discharge order in bankruptcy discharges the debtor from a personal obligation to pay, and creates an injunction barring creditors from attempting to collect discharged debts from the debtor personally. B.C. §524(a)(1), (2). The discharge, however, does not destroy the pre-petition liability. Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150 (1991) ("a bankruptcy discharge extinguishes only one mode of enforcing a claim-namely, an action against the debtor in personam"); see also In re Conston, 181 B.R. 769, 773 (D. Del. 1995) (collecting cases). Consequently, although the Service generally may not collect the discharged tax debts from the debtor's pre-petition property, it is not prohibited from collection from exempt, abandoned or excluded property. B.C. §522(c)(2). In addition, in this case, as with other Chapter 7 cases, the federal tax liens pass through bankruptcy unaffected, in spite of the discharge given to the debtor. See Dewsnup v. Timm, 502 U.S. 410, 417 (1992); United States v. Alfano, 34 F.Supp.2d 827, 837 (E.D.N.Y. 1999) [40-2 USTC ¶9659 ]; In re Deppisch, 227 B.R. 806, 808 (S.D. Ohio 1998) [99-1 USTC ¶50,429 ]. The liens continue to attach to the debtor's pre-petition property, including parcels of real estate. Following the close of the case, the automatic stay is lifted, and the United States may proceed to take action to enforce the liens. See B.C. §362(c)(2)(A) ; In re Isom, 901 F.2d 744 (9th Cir. 1990) [90-1 USTC ¶50,216 ].

In 1999, the United States filed a suit to foreclose the tax liens, but the liens self- released, during the pendency of the suit. While a self-release may operate to extinguish a federal tax lien under I.R.C. §6325(f) , the release does not extinguish the underlying liability. We have found no authority for the position that the release of a lien has any impact on the liability. To the contrary, there is specific authority for the position that a certificate of release, while conclusive that the lien is extinguished, does not conclusively establish that the underlying tax liability is not owed or has been paid. See Urwyler v. United States, 95-1 U.S.T.C. ¶50, 238 at 87,862 (E.D. Cal. 1995); Miller v. Commissioner, 23 T.C. 565 (1954) [CCH Dec. 20,792 ], aff'd, 231 F.2d 8 (5th Cir. 1956) [56-1 USTC ¶9398 ]; Commissioner v. Angier Corporation, 50 F.2d 887, 892 (1st Cir. 1931) [2 USTC ¶749 ], cert. denied, 284 U.S. 673 (1931). See also In re Goldston, 104 F.3d 1198 (10th Cir. 1997) [97-1 USTC ¶50,149 ] (distinguishing the liability for tax from the assessment); Rev. Rul. 85-67 , 1985-1 C.B. 364 (same); In re Doerge, 181 B.R. 358, 362 (Bankr. S.D. III. 1995) (distinguishes determination of tax liability and collection of the tax as two distinct steps in the taxation process).

The argument that the release of a lien extinguishes the tax liability is also inconsistent other aspects of section 6325 . Section 6325(a)(2) provides that, in addition to when the liability is satisfied or unenforceable, the Service is authorized to release the lien upon acceptance of a bond. Clearly, in this circumstance, the lien may be released, but the liability remains until paid or unenforceable. It would be incongruous to assert that a release of a lien under section 6325(a)(1) extinguishes the underlying liability, but a release of a lien under section 6325(a)(2) does not. In addition, section 6325(f)(2) provides the Service with the authority to revoke a certificate of release and reinstate the lien in certain circumstances by mailing and filing notice of the revocation. Conceptually, the argument that the liability is extinguished upon issuance of a certificate of release seems inconsistent with the Service's authority to make such a revocation without having to reassess the liability. See also William D. Elliot, Federal Tax Collection, Liens and Levies at 6-13 (Prentice Hall 1988) (citing Treas. Reg. §301.6325-1(a)(1) for the statement that "when a lien is released, however, the underlying tax liability is not extinguished until (1) the tax has been paid in full or (2) the statutory period for collection of the tax expires"). Accordingly, because neither the release of the lien nor the discharge extinguishes the pre-petition liability, we conclude that a discharge in bankruptcy does not affect the Service's ability to revoke an erroneous lien release. See, e.g., United States v. Peterson, 71 A.F.T.R.2d 1136, 93-1 U.S.T.C. ¶50,230 (1993) (in lien foreclosure suit, district court did not identify as an issue the Service's erroneous release of liens based on the taxpayer's bankruptcy discharge, because release was properly revoked).

In an analogous context, we have previously concluded that a taxpayer's bankruptcy discharge does not affect the Service's ability to reverse an abatement of an assessment and proceed with collection against certain pre-petition assets. See Notice CC-2001-014. Following bankruptcy, it is the Service's normal policy to abate such discharged taxes, to prevent inadvertent collection. See generally IRM 5.9.12.5 (describing procedures for evaluating and processing discharge). However, sometimes, the abatement is performed in error because, for example, there exists pre-petition property against which a notice of federal tax lien was filed, from which all or a portion of the liability can be satisfied. In order to collect from these sources, the Service may reverse the discharge abatement under I.R.C. §See Notice CC-2001-014; United States v. Langrehr, 2001 U.S. Dist. LEXIS 2374 (D. Neb. Jan. 29, 2001) [2000-1 USTC ¶50,253]. The Service may reverse the abatement because, as described in Notice CC-2001-014, a tax debt exists as long as it has not been satisfied and the period for collection has not expired. In a similar manner, because release of a lien under section 6325(a) does not extinguish the liability, the tax lien may be reinstated by mailing and filing notice of the revocation under section 6325(f)(2) , even though the taxpayer has received a discharge.

Although the released federal tax lien can be reinstated, the released notice of federal tax lien, and the priority status the notice provides, cannot. Treas. Reg. §301.6325-1(f)(2) (iii)(b). See United States v. Winchell, 793 F.Supp. 994 (D. Colo. 1992) [92-2 USTC ¶50,394 ]; United States v. Reid, 2000-1 U.S.T.C. ¶50,340; 2000 U.S. Dist. LEXIS 5106. Thus, after revocation, the Service must refile the erroneously self- released notices of federal tax lien to establish a new priority date. Although refiling is required to reestablish priority, the reinstated tax lien nevertheless attaches to the pre-petition property. Treas. Reg. §301.6325-1(f)(2) (iii)(b). The United States could foreclose on the property, even without refiling the notices, by relying on the assessment liens. Refiling does not create a new liability, nor is it an effort to collect directly from the debtor. See In the Matter of Hansen, 1993 U.S. Dist. LEXIS 5593 (W.D. Tex. Apr. 14, 1993 ). Discharge in bankruptcy affects only the Service's ability to effect certain methods of collection. In this case, the Service's ability to collect from the pre-petition property of the debtor was unaffected by the discharge. The self-release and subsequent refiling of the notices of federal tax lien does not alter this ability.

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