In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 16-3244

DONALD WAYNE BUSH and KIMBERLY ANN BUSH,

Plaintiffs-Appellants,

v.

UNITED STATES OF AMERICA,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. 1:15-cv-1318-WTL-DKL — William T. Lawrence, Judge.

____________________

ON REHEARING — DECIDED APRIL 29, 2024

____________________

Before SYKES, Chief Judge, and FLAUM and EASTERBROOK,

Circuit Judges.

EASTERBROOK, Circuit Judge. Our original decision in this 

case remanded to the district court with instructions to send 

the dispute to the Tax Court. 939 F.3d 839 (7th Cir. 2019). All 

parties petitioned for rehearing and rehearing en banc. After 

considering supplemental filings the panel has decided to 

grant rehearing and revise our decision. What follows is an 

amended opinion, which repeats much of the original opinion 
2 No. 16-3244

so that readers can follow the reasoning and understand the 

full decision. (To the extent that the original decision is unchanged, both rehearing and rehearing en banc are denied. 

No judge in active service has called for a vote on the petitions 

for rehearing en banc.)

* * * * *

This 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 mabers 

independently appealable. See Bullard v. Blue Hills Bank, 575 

U.S. 496, 501–02 (2015). See also In re Anderson, 917 F.3d 566 

(7th Cir. 2019).

The 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 
No. 16-3244 3

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 nondischargeable 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 

taxes.

The 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.

The 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-maber 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.

This is 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 
4 No. 16-3244

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.

The 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, 575 U.S. 402 (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.

Most 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) 
No. 16-3244 5

means that bankruptcy jurisdiction depends on Title 28. See 

also Wellness International Network, Ltd. v. Sharif, 575 U.S. 665, 

669–70 (2015).

And 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 jurisdiction of all cases 

under title 11.

(b) Except as provided in subsection (e)(2), and notwithstanding 

any Act of Congress that confers exclusive jurisdiction on a court 

or courts other than the district courts, the district courts shall 

have original but not exclusive jurisdiction of all civil proceedings 

arising under title 11, or arising in or related to cases under title 

11.

(c)(1) Except with respect to a case under chapter 15 of title 11, 

nothing in this section prevents a district court in the interest of 

justice, or in the interest of comity with State courts or respect for 

State law, from abstaining from hearing a particular proceeding 

arising under title 11 or arising in or related to a case under title 

11.

(2) Upon timely motion of a party in a proceeding based upon a 

State law claim or State law cause of action, related to a case under 

title 11 but not arising under title 11 or arising in a case under title 

11, with respect to which an action could not have been commenced in a court of the United States absent jurisdiction under 

this section, the district court shall abstain from hearing such proceeding if an action is commenced, and can be timely adjudicated, 

in a State forum of appropriate jurisdiction.

(d) Any decision to abstain or not to abstain made under subsection (c) (other than a decision not to abstain in a proceeding described in subsection (c)(2)) is not reviewable by appeal or otherwise by the court of appeals under section 158(d), 1291, or 1292 of 

this title or by the Supreme Court of the United States under section 1254 of this title. Subsection (c) and this subsection shall not 

be construed to limit the applicability of the stay provided for by 
6 No. 16-3244

section 362 of title 11, United States Code, as such section applies 

to an action affecting the property of the estate in bankruptcy.

(e) The district court in which a case under title 11 is commenced 

or is pending shall have exclusive jurisdiction—

(1) of all the property, wherever located, of the debtor as of 

the commencement of such case, and of property of the estate; 

and

(2) over all claims or causes of action that involve construction 

of section 327 of title 11, United States Code, or rules relating 

to disclosure requirements under section 327.

28 U.S.C. §1334. Other grants of jurisdiction also may apply. 

A provision allowing district courts to resolve certain tax disputes, 28 U.S.C. §1346(a)(1), comes to mind. But the parties 

disregard it, and so shall we. The Bushes, as the proponents 

of jurisdiction, are entitled to choose which grants they rely 

on.

The United States protests that sovereign immunity negates any jurisdiction based on §1334, but 11 U.S.C. §106(a)(1) 

waives that defense for subjects within §505. What is more, 

we have held that sovereign immunity does not affect subjectmaber jurisdiction. See United States v. Cook County, 167 F.3d 

381 (7th Cir. 1999).

Section 1334 creates jurisdiction for three potentially relevant categories of disputes: those “arising in” bankruptcy litigation, those “arising under” the Bankruptcy Code, and 

those “related to” the resolution of the bankruptcy proceeding. The Bushes rely on all three; the United States contends 

that none applies. We take them in order.

A dispute “arises in” bankruptcy if it concerns a maber 

that is exclusive to bankruptcy law and practice. See In re Repository Technologies, Inc., 601 F.3d 710, 719 (7th Cir. 2010). A 
No. 16-3244 7

proceeding to determine taxes and penalties does not arise in 

bankruptcy in this sense. As we have mentioned, it was set for 

trial in the Tax Court until the Bushes filed their petition under Title 11. Most tax disputes are resolved outside of bankruptcy. The requirements of “arises in” jurisdiction have not 

been satisfied.

A dispute “arises under” the Bankruptcy Code when it 

presents a substantive question of bankruptcy law. See, e.g., 

BarneN v. Stern, 909 F.2d 973, 981 (7th Cir. 1990). This tax dispute’s substance depends on the Internal Revenue Code, not 

the Bankruptcy Code, so the “arising under” grant of jurisdiction is unavailable.

What remains is the “related to” jurisdiction in the second 

clause of §1334(b), which is how most non-bankruptcy issues, 

such as tort and contract disputes, come within a bankruptcy 

judge’s powers. The Bushes contend that, if this jurisdiction 

permits a bankruptcy judge to resolve a contract dispute, it 

also permits a bankruptcy judge to resolve a tax dispute.

Language in In re Collazo, 817 F.3d 1047, 1053 (7th Cir. 

2016), suggesting that entry of a money judgment following 

the conclusion of a bankruptcy always is “related to” that 

bankruptcy for the purpose of §1334(b), is unreasoned and 

has the quality of a drive-by ruling, subject to ready reexamination. See Steel Co. v. Citizens for a BeNer Environment, 523 U.S. 

83, 91 (1998). We do not think that the unreasoned language 

of Collazo can be given effect, particularly in light of Northern 

Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 

(1982), and Stern v. Marshall, 564 U.S. 462 (2011), which observe that the permissible authority of judges (including 

bankruptcy judges) who lack life tenure is limited.
8 No. 16-3244

The difficulties in allocating authority between Article I 

and Article III tribunals, and between federal and state courts, 

when a dispute is “related to” bankruptcy but not part of it, 

need not concern us today, however. After all, disputes about 

the financial demands of the Internal Revenue Service always 

are resolved by federal rather than state tribunals—and the 

alternative to resolution by a bankruptcy judge serving under 

Article I is resolution by a judge of the Tax Court serving under Article I. Whether the bankruptcy judge or the Tax Court 

judge makes the initial decision, the disposition is subject to 

review by one or more judges serving under Article III. The 

constitutional and prudential concerns that have led to limits 

on the “related to” jurisdiction for state-law disputes are not 

salient to federal tax disputes.

The United States does not contend that resolution of tax 

disputes is never “related to” a bankruptcy. Instead it maintains that the tax dispute is not related to this bankruptcy, because the disposition will not affect other creditors’ entitlements. It points to In re FedPak Systems, Inc., 80 F.3d 207, 213–

14 (7th Cir. 1996), which states that a dispute is “related to” 

bankruptcy when resolution “affects the amount of property 

for distribution [to creditors] or the allocation of property 

among creditors.” See also, e.g., In re Kubly, 818 F.2d 643 (7th 

Cir. 1987); In re Xonics, Inc., 813 F.2d 127 (7th Cir. 1987). That 

condition is not met here, the United States maintains, because other creditors’ claims exceed the Bushes’ assets. The 

existence of insufficient assets would not by itself be enough 

to demonstrate the lack of a relation, for the size of any one 

debt may affect the allocation among creditors. But tax debts 

are subordinated to many other claims, so determining taxes 

and penalties has no effect here.
No. 16-3244 9

This line of argument suggests that the statement in FedPak

needs a qualification. If the related-to jurisdiction really depends on how things look at the end of the bankruptcy—if 

jurisdiction turns, for example, on how many other claims 

eventually are presented—then authority cannot be determined at the time of filing. Yet one of the most fundamental 

rules of federal jurisdiction is that judicial authority depends 

on the state of affairs when a case begins (equivalently, when 

a claim is filed in bankruptcy) rather than on how things turn 

out. See, e.g., Grupo Dataflux v. Atlas Global Group, L.P., 541 

U.S. 567, 570–71 (2004); Freeport-McMoRan Inc. v. K N Energy, 

Inc., 498 U.S. 426 (1991); Louisville, New Albany & Chicago Ry. 

v. Louisville Trust Co., 174 U.S. 552, 566 (1899); Mollan v. Torrance, 22 U.S. (9 Wheat.) 537, 539–40 (1824); Gardynski-Leschuk 

v. Ford Motor Co., 142 F.3d 955 (7th Cir. 1998). And when the 

Bushes filed their motion under §505, just two months into 

their bankruptcy, only three creditors’ claims had been filed 

against them.

Instead of asking us to evaluate the potential effect of the 

tax debt near the start of the bankruptcy, the United States 

draws our abention to the fact that many creditors had filed 

claims against the Bushes by the time the bankruptcy judge 

proposed to resolve the tax dispute. By then it seemed unlikely 

that the amount the Bushes owe in taxes and penalties would 

affect other creditors. But taking that ex post view would contradict the norm that jurisdictional issues must be resolved ex 

ante, not in light of how things turn out.

The Supreme Court’s most recent engagement with the related-to jurisdiction favorably quoted a rule, which it attributed to nine courts of appeals, that a maber comes within 

the related-to jurisdiction if it “could conceivably have any 
10 No. 16-3244

effect on the estate being administered in bankruptcy”. Celotex Corp. v. Edwards, 514 U.S. 300, 308 n.6 (1996). That’s an ex 

ante inquiry and avoids making a jurisdictional decision only 

after the merits have been resolved and the effect can be 

known with certainty. Under this approach, the §505 motion 

is within the related-to jurisdiction because it might well have 

mabered if no further creditors had made claims.

Celotex said that our circuit uses a “slightly different test” 

and pointed to Xonics and Home Insurance Co. v. Cooper & 

Cooper, Ltd., 889 F.2d 746 (7th Cir. 1989). Xonics dealt with a 

different problem: whether the related-to jurisdiction follows 

an asset after it leaves the estate. We held that it does not: that 

an asset’s chain of title includes a trip through bankruptcy 

does not make the asset a ward of the bankruptcy court forever. Xonics does, however, contain the phrase “affects the 

amount of property available for distribution or the allocation 

of property among creditors.” 813 F.2d at 131. Home Insurance

quoted this language, which also is the genesis of the statement in FedPak.

None of our decisions addresses the distinction between 

ex ante and ex post perspectives. None considers the potential 

difference between demanding an actual effect at the case’s 

end and a potential effect when the claim is filed. The nine 

circuits that have addressed that subject unanimously conclude that the ex ante perspective is the right one. We agree. 

This does not imply an overruling or even a modification of 

circuit precedent; instead we address an issue that the circuit 

has not previously considered and align this circuit with the 

view widely held by our colleagues elsewhere: the related-to 

jurisdiction must be assessed at the outset of the dispute, and 
No. 16-3244 11

it is satisfied when the resolution has a potential effect on 

other creditors.

This leads to the question whether, on the date the Bushes 

asked the bankruptcy judge to determine their tax liabilities, 

a decision could have affected the allocation of assets among 

the creditors with outstanding claims. When seeking rehearing the United States contended that the answer is “no.” In a 

response, the Bushes maintain that the answer is “yes.” This 

subject was not addressed by either the district court or the 

parties’ principal briefs. We think that further proceedings are 

necessary in the district court, unless the parties can agree on 

remand.

There remains one potential question. Suppose the district 

judge agrees with the Bushes that the answer is “yes” and that 

the related-to jurisdiction therefore applies. Should the court 

nonetheless abstain in favor of the Tax Court? When the bankruptcy began, the tax dispute was on the verge of trial in the 

Tax Court. Only the automatic stay imposed by 11 U.S.C. §362 

blocked that trial. The bankruptcy appears to be over—at least 

the parties have not suggested that anything remains to be 

done. The estate’s available assets have been used to pay 

debts; most unpaid debts (though not the debt for 2011 tax 

penalties) have been discharged; the automatic stay has 

lapsed by its own terms; the Trustee’s final report was filed 

on February 22, 2019. Congress has authorized district courts 

to relinquish jurisdiction of bankruptcy disputes “in the interest of justice”, 28 U.S.C. §1334(c)(1), a phrase that may well fit 

given that the tax dispute stands in much the same posture as 

if the Bushes had never filed for bankruptcy.

The right forum for decision, however, is the district court 

rather than this court. The statute gives the district court the 
12 No. 16-3244

power to relinquish jurisdiction and provides that its decision 

“is not reviewable by appeal or otherwise by the court of appeals”. 28 U.S.C. §1334(d). Conway v. Smith Development, Inc., 

64 F.4th 540 (4th Cir. 2023), explores the consequences of 

§1334(d), and we agree with it that appellate courts must 

avoid resolving disputes about the application of §1334(c)(1).

The judgment of the district court is vacated, and the case 

is remanded with instructions (a) to determine whether the 

related-to jurisdiction applies in light of the analysis in this 

opinion and (b), if it does, to decide whether to abstain under 

28 U.S.C. §1334(c).