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the only way respondent could recover the tentative refunds was
to bring an erroneous refund suit under section 7405, for which
the period of limitations had expired. Petitioner argued that
respondent’s failure to bring an erroneous refund suit under
section 7405 rendered the tentative refunds uncollectible as a
matter of law.
On December 7, 2001, the bankruptcy court issued an opinion
and order that granted respondent’s request for relief from stay
as to 1981 and 1984. The court recited section 362 of the
Bankruptcy Code, which provides that the bankruptcy court shall
grant relief from the automatic stay only for “cause”. In
deciding whether cause existed, the bankruptcy court weighed
three factors: (1) The prejudice that would result if the stay
were lifted; (2) the balance of hardships; and (3) the probable
success on the merits.
The bankruptcy court found that petitioner would not be
prejudiced because it submitted to the jurisdiction of the Tax
Court when it filed the petition and because, but for the
bankruptcy petition, a final decision would have already been
entered by the Tax Court for 1981 and 1984. The court also held
that the balance of hardships weighed in favor of respondent,
emphasizing that to deny the relief from the automatic stay would
be to deny respondent the benefit of his bargain with petitioner
in the stipulation of settled issues. The bankruptcy court
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