100 F.4th 807
7th Cir.2024Background
- The IRS demanded that Donald and Kimberly Bush pay substantial taxes and fraud penalties for 2009-2011.
- The Bushes challenged the penalties in Tax Court, proposing a lesser negligence penalty.
- On the eve of trial in Tax Court, the Bushes filed for bankruptcy, triggering an automatic stay.
- The government filed a claim for taxes and penalties in bankruptcy and argued the penalty should be nondischargeable.
- The Bushes asked the bankruptcy court, under 11 U.S.C. §505(a)(1), to determine the penalty amount.
- The district court blocked the bankruptcy court from deciding the issue, prompting this appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §505(a)(1) give bankruptcy courts jurisdiction? | Bushes: Yes, §505 grants jurisdiction to set taxes/penalties. | U.S.: No, §505 does not confer subject-matter jurisdiction. | §505 is not jurisdictional; jurisdiction derives from Title 28 statutes, not §505. |
| What Title 28 jurisdiction provision applies? | Bushes: "Arising in", "arising under", and "related to" bankruptcy. | U.S.: None apply; tax dispute not sufficiently related. | Only "related to" jurisdiction possibly applies, evaluated ex ante. |
| When is "related to" jurisdiction measured? | Bushes: At time claim filed (ex ante). | U.S.: At end of case (ex post), when creditors' claims known. | Jurisdiction is determined ex ante—when the claim is filed. |
| Must district court abstain in favor of Tax Court? | Bushes: Not addressed directly. | U.S.: Not addressed directly. | District court must decide on abstention; appellate court cannot review that decision. |
Key Cases Cited
- Bullard v. Blue Hills Bank, 575 U.S. 496 (2015) (finality in bankruptcy for appeal purposes)
- Fort Bend v. Davis, 139 S. Ct. 1843 (2019) (distinction between jurisdictional and claim-processing rules)
- United States v. Kwai Fun Wong, 575 U.S. 402 (2015) (limitations on jurisdictional rules)
- Gonzalez v. Thaler, 565 U.S. 134 (2012) (clarifying jurisdictional rules)
- Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (Article III limits on bankruptcy courts)
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on bankruptcy court power)
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (scope of "related to" jurisdiction in bankruptcy)
- Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567 (2004) (jurisdiction determined at filing, not based on outcome)
- Freeport-McMoRan Inc. v. K N Energy, Inc., 498 U.S. 426 (1991) (jurisdiction based on facts at commencement)
- Louisville, N.A. & Ch. Ry. v. Louisville Trust Co., 174 U.S. 552 (1899) (time of jurisdictional assessment)
- Mollan v. Torrance, 22 U.S. (9 Wheat.) 537 (1824) (jurisdiction set at outset)