Respondent determined that petitioners' use of their residence for day-care services was 75 hours per week. Respondent's estimate was based upon a log kept by petitioners that reflects the times and days that children were in petitioners' care.

In addition to the time children were actually present in petitioners' residence, petitioners spent about 2 hours each morning organizing the facility and preparing luncheon meals for the children. Petitioners also spent about 1 hour each evening after the children departed cleaning and reorganizing the day-care facility. Respondent did not consider the preparation and clean-up time in estimating 75 hours per week. Petitioners, on occasion, also provided day care on weekends. Respondent's formula did not consider the weekend use of petitioners' residence. Petitioners utilized their residence for day-care business purposes for an average of 90 hours per week or 54 percent (90 divided by 168) of the time.

Petitioners claimed and respondent disallowed $532 and $608 for lawn care in 1983 and 1984, respectively. During 1983 and 1984, petitioners used the lawn areas around their residence for day-care business purposes. During 1983 and 1984, petitioners paid $532 and $608, respectively, for lawn care expenses, 54 percent of which is deductible in each taxable year.

OPINION

Petitioners contend that their 1983 and 1984 income tax liabilities were discharged by the discharge orders issued in their respective bankruptcy proceedings and that this Court lacks jurisdiction to redetermine the deficiencies. Respondent counters that these taxes are not dischargeable under the Bankruptcy Code. The parties have incorrectly couched the jurisdictional issue in a manner where jurisdiction would be dependent upon our authority to determine whether the taxes in issue were dischargeable or discharged in the bankruptcies. In so couching the issue, the parties have overlooked the possibility that we may have jurisdiction over the merits of the 1983 and 1984 tax deficiencies without having the jurisdiction to determine the dischargeability question. It is not necessary for us to determine the

dischargeability issue as a prerequisite to redetermining the merits of the income tax issue presented in this case. This is especially true in this case where the deficiencies at issue were not assessed prior to the bankruptcy proceedings, the Government did not file a proof of claim in the case, the merits of the tax liabilities and their dischargeability were not litigated by the parties in the bankruptcy court, and the notice of deficiency and the Tax Court petition were timely mailed and filed after both petitioners were discharged in bankruptcy.

Jurisdiction Over Federal Income Tax Controversy

Properly stated, the first issue we must consider is whether this Court has jurisdiction to redetermine Federal income tax deficiencies with respect to prebankruptcy years when: (1) The deficiencies were not assessed; (2) the deficiencies were not claimed by respondent in a "no-assets" bankruptcy proceeding; (3) the notice of deficiency was mailed after the discharge and before the close of the bankruptcy proceeding; and (4) the petition was filed after the discharge and after the close of the bankruptcy proceeding. This issue is substantially similar to that considered in Graham v. Commissioner, 75 T.C. 389, 390 (1980).

In Graham, we held that "a notice of deficiency relating to prebankruptcy years is valid if it is mailed after the termination of the bankruptcy proceeding, and the Tax Court will have jurisdiction if a timely petition is filed with respect to such notice." (Emphasis supplied.) 75 T.C. at 397. Graham involved a voluntary chapter 7 bankruptcy proceeding instituted by the taxpayer after he executed a Form 872 consent and after he received a 30-day letter. Subsequent to the filing of the bankruptcy petition, the court notified respondent that the proceeding was a "no assets" case and that it was not necessary to file a proof of claim at that time. Respondent did not file a proof of claim in the bankruptcy case. Additionally, neither respondent nor the taxpayer filed a complaint to determine the dischargeability of the tax liabilities. The taxpayer was later formally discharged and the estate was closed. Thereafter, the Internal Revenue Service mailed its notice of deficiency to the taxpayer.

The single factual difference between this case and Graham is that the notice of deficiency in this case was mailed after the discharge and before the closing of the bankruptcy proceeding, as opposed to being mailed after both of those events. Accordingly, we must consider whether the holding in Graham has vitality and, if so, whether the difference in this case would distinguish it from the Graham holding. Specifically, we must analyze whether the mailing of the notice of deficiency after the discharge but before the close of the bankruptcy proceeding presents circumstances under which we acquire jurisdiction to consider the merits of respondent's income tax determination for prebankruptcy years.

Graham was decided pursuant to former section 6871 and prior to both the enactment of the 1978 Bankruptcy Code and the Bankruptcy Tax Act of 1980, Pub. L. 96-589, 94 Stat. 3389. Under section 6871, a taxpayer's ability to file a petition in this Court terminated once he filed a petition in the bankruptcy court and was concomitantly "adjudicated bankrupt." The bar to filing a petition with this Court was extended until removal by order of a court or until the termination of the bankruptcy. The 1978 Bankruptcy Code and the Bankruptcy Tax Act do not require, in the circumstances of this case, that the bankruptcy proceeding be terminated before a petition may be filed in this Court.

In analyzing Graham under the Bankruptcy Code in effect in 1987, we first consider whether respondent was statutorily prohibited from mailing a notice of deficiency to petitioners after the discharge was granted, but before the bankruptcy proceeding had terminated. As a general rule, the filing of a petition in bankruptcy operates to stay the commencement or continuation of any action or proceeding against the debtor. 11 U.S.C. sec. 362(a). However, section 362(b)(9) of the Bankruptcy Code provides an exception to the automatic stay for the issuance to the debtor by a governmental unit of a notice of tax deficiency. Thus, a notice of deficiency may be mailed by respondent at any point in the bankruptcy proceedings.

Despite respondent's ability to issue a notice of deficiency during the bankruptcy case, the Tax Court's jurisdiction is

limited by the stay provisions. Section 362(a)(8) of the Bankruptcy Code provides for an automatic stay prohibiting "the commencement or continuation of a proceeding before the United States Tax Court concerning the debtor." Unless the stay is removed by an order of the bankruptcy court, it continues until the earliest of the case closing, case dismissal, or the time a discharge is granted. 11 U.S.C. sec. 362(c)(2); Thompson v. Commissioner, 84 T.C. 645, 648 (1985). Accordingly, where a bankruptcy proceeding is closed, dismissed, or a discharge is granted, the automatic stay is "lifted" and is no longer in effect. After the automatic stay has been removed there is no bar to this Court's accepting jurisdiction or continuing a proceeding that had been petitioned prior to the automatic stay. Therefore, to the extent that Graham holds that a bankruptcy proceeding must be terminated before a notice of deficiency may be mailed, before a Tax Court petition may be filed, or before we may take jurisdiction of a tax case, it is no longer correct in light of the statutory changes. Under 11 U.S.C. section 362, we may acquire or exercise jurisdiction where the bankruptcy case is terminated or the automatic stay is no longer in effect. This will be the case even where the notice of deficiency was mailed before the stay is lifted.

In this case, the notice of deficiency was mailed after petitioners' discharges were granted and after the automatic stay was lifted. Accordingly, we may acquire and exercise jurisdiction and there was no prohibition to respondent's mailing a notice of deficiency to either petitioner on or before December 9, 1987. See 11 U.S.C. sec. 362(b)(9). We will therefore consider the case on the merits of respondent's income tax deficiency determinations.

Jurisdiction Over Dischargeability in Bankruptcy

We now consider petitioners' primary position that their 1983 and 1984 income tax liabilities were discharged in their bankruptcy proceedings. Petitioners argue that the discharge granted prior to respondent's mailing of a notice of deficiency and the petition to this Court released petitioners from all dischargeable debts, including debts dischargeable under 11 U.S.C. section 523.

As a general rule, the Tax Court's jurisdiction to consider tax matters depends on a notice of deficiency and a timely filed petition. Rule 13; secs. 6212 and 6213. This Court has limited jurisdiction conferred by statute. See sec. 7442; Burns, Stix Friedman & Co. v. Commissioner, 57 T.C. 392, 396 (1971); Magazine v. Commissioner, 89 T.C. 321, 326 (1987). The determination of an income tax deficiency has "nothing to do with collection of the tax nor any similarity to an action for collection of a debt, nor does it involve any other rights and remedies of the sort traditionally enforced in an action at law." Swanson v. Commissioner, 65 T.C. 1180, 1184 (1976).

In exercising our jurisdiction to redetermine deficiencies, we are without jurisdiction to "allow or disallow a claim against a debtor's estate*** or to discharge taxes as a bankruptcy court might." Fotochrome, Inc. v. Commissioner, 57 T.C. 842, 847 (1972). In Graham, when confronted with the identical argument, we held that we lacked "the requisite subject matter jurisdiction to decide whether the petitioner's deficiencies *** were discharged in the bankruptcy proceeding." 75 T.C. at 399. Accordingly, we are without subject matter jurisdiction and petitioners, if they wish a ruling on their dischargeability position, would be required to seek the jurisdiction of the bankruptcy court.

Income Tax Deficiency-Merits

Generally, under section 280A, no deduction otherwise allowable shall be allowed with respect to the use of a dwelling unit which is used by a taxpayer as a residence during the taxable year. An exception to the general rule exists where the residence is used exclusively and on a regular basis as the principal place of business for any trade or business of the taxpayer. Sec. 280A(c)(1). Additionally, where a taxpayer uses a dwelling unit on a regular basis for day-care services, a deduction may be allowable based upon percentage of use. Section 280A(c)(4)(C) provides for a deduction in an amount equal to the expenses attributable to that portion determined by multiplying the total amount of the expense by a fraction, the numerator of which is the number of hours the portion is used for day-care business