Donald Wayne Bush and Kimberly Ann Bush, Plaintiffs-Appellants,
United States of America, Defendant-Appellee.
May 22, 2017
from the United States District Court for the Southern
District of Indiana, Indianapolis Division. No.
l:15-cv-1318-WTL-DKL - William T. Lawrence, Judge.
Flaum, Easterbrook, and Sykes, Circuit Judges.
EASTERBROOK, CIRCUIT JUDGE.
appeal presents the question whether a bankruptcy court can
determine the amount of a debtor's tax obligations, when
the debtor is unlikely to pay them. Bankruptcy Judge Carr
answered yes and scheduled a trial on the merits, 2015 Bankr.
LEXIS 4494 (Bankr. S.D. Ind. July 7, 2015), but a district
judge disagreed. 2016 U.S. Dist. LEXIS 106671 (S.D. Ind. Aug.
12, 2016). The interlocutory appeal to the district judge was
authorized by 28 U.S.C. §158(a)(3). Because the district
judge blocked further proceedings in the bankruptcy court,
his decision is final and appealable to us under 28 U.S.C.
§1291, for, outside of bankruptcy, tax obligations are
stand-alone matters independently appealable. See Bullard
v. Blue Hills Bank, 135 S.Ct. 1686, 1692 (2015). See
also In re Anderson, 917 F.3d 566 (7th Cir. 2019).
dispute began in 2013 when the Internal Revenue Service
demanded that Donald and Kimberly Bush pay $107, 000 in
taxes, plus $80, 000 in fraud penalties, for tax years 2009,
2010, and 2011. (We round all figures to the nearest
thousand.) The Bushes petitioned the Tax Court for review. By
the time trial was imminent the parties had stipulated that
the Bushes owed $100, 000 in taxes, but penalties remained in
dispute: the IRS sought a 75% fraud penalty under 26 U.S.C.
§6663(a), while the Bushes proposed a 20% negligence
penalty under 26 U.S.C. §6662(a). On the date set for
trial, the Bushes filed for bankruptcy, and the automatic
stay prevented the Tax Court from proceeding. The bankruptcy
court declined to lift the stay. The United States did not
appeal but did file a proof of claim seeking taxes and
penalties. It also proposed that the tax debt be given
priority over the Bushes' other unsecured debts, while
the penalty (whatever its ultimate amount) be determined to
be nondis-chargeable under 11 U.S.C. §523(a)(7). The
Bushes then initiated an adversary proceeding, asking the
bankruptcy court to set the penalty at 20% of their unpaid
Bushes pointed the bankruptcy court to 11 U.S.C.
§505(a)(1), which reads:
Except as provided in paragraph (2) of this subsection, the
court may determine the amount or legality of any tax, any
fine or penalty relating to a tax, or any addition to tax,
whether or not previously assessed, whether or not paid, and
whether or not contested before and adjudicated by a judicial
or administrative tribunal of competent jurisdiction.
United States concedes that paragraph (2) does not apply to
its dispute with the Bushes. But it argues that §505 as
a whole does not grant subject-matter jurisdiction to
bankruptcy judges and that only a potential effect on
creditors' distributions justifies a decision by a
bankruptcy judge about any tax dispute. The Bushes insisted
that §505 does supply jurisdiction, a view that the
bankruptcy judge accepted and the district judge did not. The
parties' briefs in this court continue the debate about
the "jurisdictional" nature of §505.
unfortunate, though we grant that other circuits writing
about §505 have used a "jurisdictional"
characterization. See, e.g., In re Luongo, 259 F.3d
323, 328 (5th Cir. 2001) (calling §505 a "broad
grant of jurisdiction"); In re Custom Distribution
Services, Inc., 224 F.3d 235, 239-40 (3d Cir. 2000)
("We have consistently interpreted §505(a) as a
jurisdictional statute"). But we do not see what
§505 has to do with jurisdiction, a word it does not
use. Section 505 simply sets out a task for bankruptcy
judges. Almost the entirety of the Bankruptcy Code prescribes
tasks for bankruptcy judges. For example, §503 tells
bankruptcy judges how to determine administrative expenses,
and §547 provides for resolution of trustees'
preference-recovery actions. Those and other sections in the
Code are unrelated to jurisdiction, just as few of the many
thousand substantive rules in the United States Code as a
whole concern jurisdiction.
Supreme Court insists that judges distinguish procedural and
substantive rules from jurisdictional ones. See, e.g.,
Fort Bend v. Davis, 139 S.Ct. 1843 (2019);
United States v. Kwai Fun Wong, 135 S.Ct. 1625
(2015); Gonzalez v. Thaler, 565 U.S. 134 (2012). The
rule in §505 is on the non-jurisdictional side. The
Justices have acknowledged that in earlier years they used
the word "jurisdiction" loosely, and our colleagues
in other circuits may have been influenced by that old usage
when calling §505 "jurisdictional." But the
Supreme Court has restricted the category of laws that can be
called jurisdictional, and we must follow its current
understanding of that term.
genuine jurisdictional rules appear in Title 28, the Judicial
Code, and that's true of bankruptcy too. The Bankruptcy
Code itself tells us this. Section 105(c) reads: "The
ability of any district judge or other officer or employee of
a district court to exercise any of the authority or
responsibilities conferred upon the court under this title
shall be determined by reference to the provisions relating
to such judge, officer, or employee set forth in title
28." Bankruptcy judges act as officers of the district
courts, see 28 U.S.C. §157(a), so §105(c) means
that bankruptcy jurisdiction depends on Title 28. See also
Wellness International Network, Ltd. v. Sharif, 135
S.Ct. 1932, 1939 (2015).
Title 28 addresses bankruptcy jurisdiction in detail:
(a) Except as provided in subsection (b) of this section, the
district courts shall have original and exclusive