In Cochran v. Commissioner, 159 T.C. No. 4 (2022), the Tax Court rendered a precedential decision and ruled that the enactment of 11 U.S.C. § 1141(d)(5) created a limitation to the Tax Court’s prior holding in Moody v. Commissioner, 95 T.C. 655 (1990) with respect to the effect under 11 U.S.C. § 362(c) of a confirmation of a debtor’s chapter 11 bankruptcy plan.

A bankruptcy filing generally triggers an automatic stay of a Tax Court proceedings concerning the debtor-taxpayer pursuant to 11 U.S.C. § 362(a)(8) which specifically stays Tax Court proceedings “concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief” under title 11 of the United States Code.  This automatic stay is generally lifted at “the earliest of” the closing of the bankruptcy case, the dismissal of the bankruptcy case, or the granting or denial of a discharge to the debtor unless “a party in interest” obtains relief from stay pursuant to 11 U.S.C. § 362(d).

However, as a result of the addition of the new limitation in paragraph (5) of 11 U.S.C. § 1141(d), the Tax Court now has charted a different course since 11 U.S.C. § 1141(d)(5) clearly provides in relevant part that any debt provided for in the plan is not discharged until (i) the bankruptcy court grants a discharge on completion of all payments under the plan or (ii) a bankruptcy court grants a discharge before that time after notice and a hearing (i.e., upon a showing that the value, as of the effective date of the plan, of property actually distributed under the plan on account of each allowed unsecured claim is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 on such date; (ii) modification of the plan under section 1127 is not practicable; and (iii) subparagraph (C) permits the court to grant a discharge).