## F I L E D United States Court of Appeals Tenth Circuit 

### AUG 26 1997 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

In re: GARY TALBOT and SHERRY TALBOT, Debtors.

------------------------------- UNITED STATES OF AMERICA,

Appellant,

v. BARBARA W. RICHMAN,

Appellee. No. 95-4130

Appeal from the United States District Court for the Central District of Utah (D.C. No. 94-CV-1044-G)

Laurie Snyder, Tax Division, Department of Justice, Washington, D.C. (Loretta C. Argrett, Assistant Attorney General, Washington, D. C., and Gary D. Gray, Tax Division, Department of Justice, Washington, D.C., Scott M. Matheson, Jr., United States Attorney, Of Counsel, on the brief), for Appellant. Barbara W. Richman, Salt Lake City, Utah, (as and f or Standing Chapter 13 Trustee for the Estate of Gary and Sherry Talbot, D ebtors), for Appellee.-2-

Before BALDOCK, HOLLOWAY, and MURPHY, Circuit Judges.

MURPHY , Circuit Judge.

I. INTRODUCTION The United States appeals a district court order di recting the Internal Revenue Service (“IRS”) to disgorge monies paid to it by Chapter 13 debtors, Gary and Sherry Talbot. The district court determi ned that a large payment made by the Talbots to the IRS for unpaid income taxes w as improper because it was made outside of the confirmed plan of reorganizatio n (the “Plan”). Exercising jurisdiction pursuant to 28 U.S.C. §§ 158(d) and 12 91, this court reverses the order of disgorgement and remands to the district court for further proceedings.

II. BACKGROUND On June 17, 1991, the Talbots petitioned the bankruptcy court for relief under Chapter 13 of the Bankruptcy Code (the “Code” ). The IRS filed a proof of claim for pre-petition federal income taxes and int erest in the aggregate amount of $37,660. A sizable amount of the $37,660 owed b y the Talbots to the IRS was properly secured through the filing of notices of t ax lien which had previously1 The $18,674 represents the amount of the Talbots’ e quity after subtracting

a mortgage and state tax lien from the undisputed v alue of the home. -3- attached to the Talbots’ home. According to the un disputed schedule of assets filed with the Talbots’ petition, the home was worth $77,000. Using that undisputed valuation, the IRS asserted that $18,674 1 of its claim was secured. See 11 U.S.C. § 506(a) (providing that a claim secured by a lien on property is secured only to the extent “of the value of [the] c reditor’s interest in the estate’s interest in [the] property”). The IRS also asserte d that $15,875 of its claim was priority unsecured and that the remainder, $3111, w as general unsecured. See id. § 507(a) (setting out priority of certain classes o f unsecured claims). In a proceeding brought pursuant to Chapter 13 of the Code, the debtor generally retains her assets and pays part of her f uture earnings to the trustee for distribution to creditors pursuant to a debt adjustment plan. See generally8 Collier on Bankruptcy¶ 1300.01-.02 (Lawrence P. King ed., 15th ed. 1996 ). Consistent with that scheme, the Talbots proposed aPlan under which creditors’ claims, including the claims of the IRS, would be p aid from the Talbots’ future earnings. On February 4, 1992, the bankruptcy court ordered the Plan confirmed. Under the Plan, the IRS retained its lien and the T albots promised full payment of both the IRS’ secured and priority unsec ured claims, and at least-4-

thirty percent payment of IRS’ general unsecured cl aim. Under the particular terms of the Plan, the Talbots were required to mak e monthly payments of $1060 to the Chapter 13 Trustee (the “Trustee”) from thei r future earnings for a period of between thirty-six and sixty months. The Truste e would collect the payments, make distributions to creditors, and collect her ow n fee in accordance with the terms of the Plan. In October 1993, some twenty months into the Plan, the Talbots sold their home for $137,500. This amount was substantially m ore than the $77,000 value placed on the home when the Talbots filed for Chapt er 13 relief in June of 1991. By October of 1993, the federal taxes secured by li ens against the Talbots’ home had increased to $38,646. Of that amount, $19,229 represented unpaid debts relating to the Talbots’ pre-petition taxes; the re maining $19,417 represented tax debts that had accrued post-petition. The IRS refu sed to release its lien on the residence unless the Talbots paid off their tax deb ts. Accordingly, the Talbots paid $38,646 to the IRS out of the proceeds of the sale of the home; the IRS, in turn, released the tax liens. By that time, the Ta lbots had already paid $11,703 of their pre-petition federal tax debt through payment s under the Plan. The IRS then2 The amended proof of claim indicated that the IRS s till held a $8888

priority tax claim and a $697 general unsecured cla im. In light of the IRS’s amended proof of claim, it is clear at least part o f the funds paid by the Talbots were applied by the IRS to pre-petition taxes and p enalties not provided for under the Plan and were also used to pay down unsecured c laims at a percentage higher than that provided in the Plan. -5- filed amended proofs of claim in the bankruptcy pro ceeding reflecting the $19,229 payment. 2 After the sale of their home and payment to the IRS , the Talbots filed a motion in the bankruptcy court to reduce the amountof their monthly payments under the Plan from $1060 to $600 per month. The trustee objected "to the portion of the debtors’ motion which allowed the [I RS] to retain proceeds received directly from the sale of debtors’ real pr operty, rather than provided for the proceeds to be paid through the plan to [the IR S]." She asked the court to order the IRS to disgorge and pay to her on behalf of the estate the $19,229 the Talbots paid directly to the IRS from the sale proc eeds of their residence. She conceded that the IRS could keep the $19,417 it had received in satisfaction of post-petition taxes. As support for her request, the trustee argued that the amount the IRS could properly collect on its lien was limi ted to the balance remaining due on its secured claim, which she contended was $6971

. The United States filed a memorandum in support of the Talbots' motion to reduce their Plan payments. The United States argu ed that its tax lien survived-6-

the confirmation of the Plan and was not limited to the amount of the IRS's secured claim. The United States maintained that t he only way in which a federal tax lien may be avoided is through an adversary pro ceeding. Because neither the trustee nor the Talbots brought an adversary procee ding to avoid the IRS lien, the United States asserted the lien continued to exist post-petition. The bankruptcy court approved the Talbots’ motion t o modify the Plan. Nevertheless, by a separate order dated October 4, 1994, the court directed the IRS to disgorge $19,229 to the trustee so that the IRS’s claim could be paid as provided in the Plan. The only rationale the bankr uptcy court gave for its order was that the sale of Talbots’ residence "had not be en specifically approved by the
Court.” On appeal to the district court, the United States again argued that the IRS tax lien survived confirmation of the Plan. In add ition, the United States argued that the bankruptcy court should not have ordered d isgorgement because the Talbots’ home revested in the Talbots upon confirmation and was no longer property of the estate subject to bankruptcy court oversight. The district court affirmed the order of the bankruptcy court without opinion.-7- III. ANALYSIS A. Sovereign Immunity The United States asserts for the first time on app eal that as a sovereign it was immune from the Trustee’s suit in this case and , concomitantly, that the district court was without power to order the IRS t o disgorge the monies paid to it by the Talbots. Although the general rule in the T enth Circuit is that the court will not consider an issue raised for the first tim e on appeal, Hicks v. Gates Rubber Co. , 928 F.2d 966, 970 (10th Cir. 1991), the United St ates’ claim of sovereign immunity presents an exception to the gen eral rule. “It has long been established . . . that the United States, as sovereign ‘is immune from suit save as it consents to be sued.’” United States v. Testan , 424 U.S. 392, 399 (1976) (quoting United States v. Sherwood, 312 U.S. 584, 586 (1941)). “[T]he existence of consent is a prerequi site for jurisdiction.” United States v. Mitchell , 463 U.S. 206, 212 (1983). “Thus, if the governme nt has not consented to suit, the courts have no jurisdiction to either ‘restrain the government from acting, or to compel it to act.’” See United States v. Murdock Mach. & Eng’g Co. , 81 F.3d 922, 930 (10th Cir. 1996) (quoting Larson v. Domestic & Foreign Commerce Corp. , 337 U.S. 682, 704 (1949)). Furthermore,-8-

neither the government’s attorneys nor any other of ficer of the United States may waive the United States’ sovereign immunity. See Murdock Mach. , 81 F.3d at 931. Accordingly, questions of sovereign immunity may be raised at any time in the proceeding. See Daigle v. Shell Oil Co. , 972 F.2d 1527, 1539 (10th Cir. 1992); Hicks , 928 F.2d at 970; Farmers Ins. Co. v. Hubbard, 869 F.2d 565, 570 (10th Cir. 1989). Substantively, the doctrine of sovereign immunity p rohibits suits against the United States except in those instances in whic h it has specifically consented to be sued. See Murdock Mach. , 81 F.3d at 929. The United States consents to be sued only when Congress unequivocally expresses in statutory text its intention to waive the United States’ sovereign immunity. See United States v. Nordic Village, Inc. , 503 U.S. 30, 33 (1992); Irwin v. Department of Veterans Affairs , 498 U.S. 89, 95 (1990). Any waiver “must be construed strictly in favor of the sovereign and not enlarged beyond what [its] langua ge requires.” See Nordic Village , 503 U.S. at 34 (citations and quotations omitted)

. Section 106(a) of the Code specifies the exact Code provisions for which the United States’ sovereign immunity is waived. S ection 106(a) provides, in pertinent part, as follows:3 According to the Code, “governmental unit means Uni ted States; State;

Commonwealth; District; Territory; municipality; fo reign state; department, agency, or instrumentality of the United States (but not a United States Trustee while serving as a trustee in a case under this tit le), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.” 11 U.S.C. § 101(27). -9- (a) Notwithstanding an assertion of sovereign immun ity, sovereign immunity is abrogated as to a governmenta l unit [3] to the extent set forth in this section with respect to th e following:

(1) Sections 105, 106, . . . , 362, . . . , 1301, 1 303, 1305, and 1327 of this title. (2) The court may hear and determine any issue arising with respect to the application of such sec tions to governmental units. 11 U.S.C. § 106(a). Although the parties have expended considerable ene rgy debating the question of sovereign immunity, this court need nottarry on the issue. The resolution of this case depends on the resolution o f the following two issues: (1) whether the Talbots’ home remained property of the bankruptcy estate after the confirmation of the Plan or, instead, revested in t he Talbots upon confirmation of the Plan; and (2) whether, by extracting the paymen t from the Talbots outside of the Plan before it would release its lien, the IRS obtained monies that it was not entitled to under the Plan. These questions can on ly be answered by reference to § 1327 of the Code. Because § 106(a) of the Code s pecifically waives the United States’ sovereign immunity with respect to § 1327 and provides that a court “may-10-

hear and determine any issue arising with respect t o the application of” § 1327 to the United States, the courts below had and this co urt has jurisdiction to reach the merits of this case. 11 U.S.C. § 106(a)(1) & (2). B. The Bankruptcy Court’s Disgorgement Order “‘In reviewing a district court’s decision affirmi ng the decision of a bankruptcy court, this court applies the same stand ards of review which governed the district court. The bankruptcy court’s finding s of fact will be rejected only if clearly erroneous. Its conclusions of law, however , are reviewed de novo .” Tulsa Energy, Inc. v. KPL Prod. Co. (In re Tulsa Energy, Inc.) , 111 F.3d 88, 89 (10th Cir. 1997) (quoting Broitman v. Kirkland (In re Kirkland) , 86 F.3d 172, 174 (10th Cir. 1996)). 1. 11 U.S.C. § 1327(b) The Trustee argues that the bankruptcy court’s orde r of disgorgement was proper because the Talbots’ house was property of the bankruptcy estate. See 11 U.S.C. § 362 (a) & (c) (setting out automatic stay and providing that it remains in effect at least until property is “no longer property of the estate”). The IRS, on the other hand, contends that the Talbots’ house wa s not property of the estate and, accordingly, the bankruptcy court lacked the p ower to regulate the Talbots’ disposition of the house. See Black v. United States Postal Service (In re Heath) , 115 F.3d 521, 524 (7th Cir. 1997) (holding that ban kruptcy court is without4 Section 1327(b) provides as follows: “Except as oth erwise provided in the

plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.”

5 This court notes that contrary to the assertions of the IRS and the acquiescence of the Trustee, it is not without ques tion that the vesting provisions of § 1327(b) operate to grant absolute “ownership” of estate property to the debtor upon confirmation of a Chapter 13 plan. See City of Chicago v. Fisher (In re Fisher) , 203 B.R. 958, 960-962 (N.D. Ill. 1997) (setting o ut competing views of effect of § 1327(b)’s vesting provision, includi ng view that § 1327(b) grants debtors something less than ownership); In re Leavell , 190 B.R. 536, 539-40 (Bankr. E.D. Va. 1995) (same). Nevertheless, becau se the Trustee does not contest the premise that § 1327(b)'s vesting provis ion operates to grant ownership rights, this court need not address the issue. Acc ordingly, the only issue before the court is whether the Talbots’ Plan or the orderconfirming the Plan altered § 1327(b)’s default provision of revesting ownershi p of the Talbots’ residence in -11- jurisdiction to control disposition of Chapter 13 d ebtor’s property that is not property of the bankruptcy estate unless the property is related to the bankruptcy proceedings of the Code). The resolution of this i ssue depends upon an analysis of § 1327(b) 4 and the Plan. The Trustee does not dispute that § 1327(b) general ly effects a revesting of the property of the bankruptcy estate in debtors up on confirmation of a Chapter 13 plan of reorganization. She notes, however, that the automatic revesting provided in § 1327(b) is subject to a contrary resu lt when “otherwise provided in the plan or the order confirming the plan.” Id. According to the Trustee, the Talbots’ Plan and the order confirming the Plan alt ered § 1327(b)’s automatic revesting scheme, with the Talbots’ house remaining property of the bankruptcy estate and, therefore, subject to district court ju risdiction post-confirmation. 5the Talbots upon confirmation. -12-

The Plan and the order confirming the Plan control the disposition of this issue. In addressing secured claims such as the cl aim secured by the IRS’ lien, the Plan provides as follows:

Each allowed secured creditor shall receive the fai r market value of the collateral held by said creditor as in dicated below. The balance of the claim due to said creditor shall bec ome an unsecured claim. The discounted rate applied to the payment to be received by each creditor to compensate for any decrease in val ue of any personal property securing a claim shall be 10% of fair mark et value. Creditors may appear at the confirmation hearing an d present testimony regarding the fair market value of their collateral. Each creditor shall retain its lien up to the fair marke t value of the collateral as determined by the Court. The order confirming the Plan adds little, providin g only that secured claimants retaining liens shall be paid the present value of their security. Neither the Plan nor the order confirming the Plan contain any langu age purporting to alter or delay the automatic vesting provisions of § 1327(b)

. The Trustee’s assertion that the above referenced P lan and confirmation order prevented the Talbots’ residence from revesti ng after the confirmation of the Plan is based on a novel premise. According to the Trustee,

Because the Talbots’ plan and Order Confirming Planprovide that the IRS has an allowed claim secured by a dulyperfected prepetition tax lien, and provides for secured classif ication and treatment of the claim in compliance with 11 U.S.C. § 1325(a)(5)(B), including the retention of the lien to secure that portion of the IRS claim, then it is “otherwise provided” by the plan and the Order6 Absent a provision in the Plan providing that the I RS would retain its lien

on the Talbots’ residence, the Plan was unconfirmab le. Section 1325(a) of the Code provides as follows: [T]he court shall confirm a plan if— (5) with respect to each allowed secured claim prov ided for by the plan— (A) the holder of such claim has accepted the plan; (B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and (ii) the value, as of the effective date of the pla n, of property to be distributed under the plan on acc ount of such claim is not less than the allowed amount o f such claim; or (C) the debtor surrenders the property securing such claim to such holder . . . . Because the IRS did not accept the Plan and the Pla n did not propose to surrender the residence to the IRS, the Plan could only be co nfirmed if it provided that the IRS would retain its lien. -13- Confirming Plan pursuant to 11 U.S.C. § 1327(b) andthe Talbots’ property remains property of the estate until the s ecured claim is paid in full. The Trustee can bring matters before the court concerning the disposition of such estate property and the cou rt is empowered to consider and rule upon proposed sales of such prope rty. Appellee Br. at 14. Thus, under the Trustee’s viewof the Plan and confirmation order, the mere reference to the lien retained by t he IRS to protect the secured portion of its claim 6 serves to prevent the Talbots’ residence from reve sting in them pursuant to § 1327(b). The Trustee reads far too much into the Plan and co nfirmation order. There is nothing in either document explicitly stating th at the Talbots’ residence will7 It must be noted that the bankruptcy court’s treatm ent of the payment by

the Talbots to the IRS belies the Trustee’s asserti on that the residence remained in the bankruptcy estate upon confirmation of the Plan . As noted above, the IRS refused to release the lien on the Talbots house until the Talbots paid $38,646. Of that amount, $19, 417 was applied to the Talbots ’ post-petition liability for 1991 and 1992 taxes which were not part of the Planobligations; the remaining $19,229 was applied to the tax obligations secured by the lien. When the Trustee learned of the payment, she sought an order of disg orgement only as to the $19,229 that had been applied to pre-petition tax o bligations. The bankruptcy court entered an order of disgorgement, as requeste d by the Trustee, limited to the portion of the payment attributable to pre-petition tax obligations. The facts set out above militate against the Truste e’s argument, raised for the first time on appeal, that the house remained i n the bankruptcy estate postconfirmation. If the house remained in the bankrup tcy estate, all of the proceeds of the sale, not just those paid to the IRS on acco unt of pre-petition debts, were property of the estate and, therefore, subject to t urnover to the Trustee. When the Trustee limited its request for disgorgement to the monies applied to the prepetition debts and the bankruptcy court limited its order of disgorgement to only that limited portion of the sale proceeds, each tac itly acknowledged that the house was not part of the estate and not subject to the u nlimited jurisdiction of the bankruptcy court. -14- remain in the bankruptcy estate after the confirmat ion of the Plan. 7Furthermore, the Trustee has not identified, and we could not fi nd, a single case holding that a plan provision in a Chapter 13 plan which provides for the retention of liens by secured creditors pursuant to § 1325(a)(5) of the C ode prevented the property subject to the lien from revesting in the debtor up on confirmation of the debtor’s plan. Cf

. In re Habtemichael , 190 B.R. 871, 873 (Bankr. W.D. Mo. 1996) (noting that an automobile subject to a retained lien veste d in the debtors upon8 The Trustee appears to argue, although her brief is far from clear on this

point, that allowing property secured by liens reta ined under a Chapter 13 plan to revest in debtor’s pursuant to § 1327(b) places deb tors in danger of overzealous post-confirmation collection efforts on the part of secured creditors. The Trustee’s concerns are overblown. Property subjectto retained liens need not remain in the bankruptcy estate to remain protected against collection activities of pre-petition creditors. See 11 U.S.C. § 362(a)(5)& (c)(2). Furthermore, to th e extent that debtors, trustees, or creditors are con cerned about meddling by secured creditors, potential problems of debtors managing p roperty subject to retained liens, or abuse of the bankruptcy system by debtors , they are free to advocate that a plan defer § 1327 revesting until discharge.

9 The Trustee argues in the alternative that even if the Talbots’ residence was not property of the bankruptcy estate, the sale s proceeds representing postconfirmation appreciation in value of the residence constitutes property of the estate pursuant to § 1306(a)(1) of the Code. This is a dubious argument. See Black v. United States Postal Service (In re Heath) , 115 F.3d 521, 524 (7th Cir. 1997) (holding that post-confirmation income that i s not necessary to the fulfillment of the plan of reorganization does not become part of bankruptcy estate). Because, however, the Trustee did not rai se the issue below, the record is inadequate for this court to reach the merits of th e Trustee’s argument on appeal. For instance, there is no indication in the record that the appreciation in the value of the residence occurred post-confirmation, ratherthan during the period between the Talbots’ filing of their petition and t he confirmation of the Plan. Furthermore, the Trustee can point to no evidence i n the record demonstrating that the IRS was paid out of that portion of the pr oceeds that might be attributable -15- confirmation of plan or reorganization). Finally, the Trustee’s policy arguments about the revesting of the residence in the Talbots are unconvincing. 8 Because neither the Plan nor the order confirming the Plan provides otherwise, the Talbots’ residence revested in them upon confirmation of the Plan. 11 U.S.C. § 1327(b). Accordingly, the bankruptcy c ourt’s order of disgorgement cannot be affirmed on the ground that the residence was part of the bankruptcy

estate. 9to post-confirmation appreciation in value, rather than to the portion attributable

to the pre-confirmation value of the home. Accordi ngly, this court does not reach the merits of the Trustee’s alternative contention. See Dikeman v. National Educators, Inc. , 81 F.3d 949, 954-55 (10th Cir. 1996). -16- 2. 11 U.S.C. § 1327(a) The Trustee argues that even if the Talbots’ reside nce was not property of the estate, the bankruptcy court had jurisdiction t o determine whether the payment extracted from the Talbots by the IRS in order to r elease the IRS lien violated the provisions of § 1327(a). See 11 U.S.C. § 106(a) (waiving the United States’s sovereign immunity under § 1327). Section 1327(a) provides that “The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the p lan, and whether or not such creditor has objected to, has accepted, or has reje cted the plan.” Because the IRS extracted a larger payment than it was entitled to under the plan, the Trustee argues that the bankruptcy court acted properly in ordering the IRS to disgorge the payment. “Upon becoming final, the order confirming a chapte r 13 plan represents a binding determination of the rights and liabilities of the parties as ordained by the plan. Absent timely appeal, the confirmed plan is res judicataand its terms are not subject to collateral attack.” 8 Collier, supra , ¶ 1327.02[1]; Paul v. Monts , 906 F.2d 1468, 1471 & n.3 (10th Cir. 1990) (noting under Chapter 11 provision-17-

analogous to § 1327(a) that a confirmed plan functi ons as a judgment). Furthermore, because “creditors are limited to thos e rights that they are afforded by the plan, they may not take actions to collect d ebts that are inconsistent with the method of payment provided for in the plan.” 8 Collier, supra , ¶ 1327.02[1][b]; see Habtemichael , 190 B.R. at 874 (holding that a creditor’s rights in a given case will “be totally extinguished upon payment of the sums called for in the order of confirmation”). Thus, the IRS was entitled to no more and the Talbots were obligated to pay no less than the amou nts set out in the Plan and confirmation order. In the instant case, the Plan and confirmation or der clearly trifurcated the IRS’ claim as follows: (1) a priority claim of $15, 875; (2) a secured claim of $18,674; and (3) a general unsecured claim of $3,11 1. The Plan further provided that the IRS would retain its lien only to the exte nt of its secured claim. See Plan at 1-2 (“Each allowed secured creditor shall receiv e the fair market value of the collateral held by said creditor as indicated below . The balance of that claim due to said creditor shall become an unsecured claim. . . . Each creditor shall retain its lien up to the fair market value of the collate ral as determined by the Court.”). Accordingly, upon confirmation of the Plan, the IRS held a lien for the present value of $18,674. Upon payment of that sum, the I RS was obligated to release10 The United States argues that to force it to releas e its lien upon the

payment of its allowed secured claim would be to sanction “lien-stripping,” an issue this court has yet to address. This court ne ed not address the difficult issues surrounding lien-stripping in Chapter 13 because th e United States failed to object to the treatment of its claim and the strip-down of its lien prior to the confirmation of the Plan. See In re Szostek, 886 F.2d 1405, 1413 (3d Cir. 1989) (secured creditor’s failure to object to confirmati on leaves the creditor bound by the provisions of the confirmed plan with respect t o its rights as a secured claimant under § 1325(a)(5)); In re Arkell , 165 B.R. 432, 434 (Bankr. M.D. Tenn. 1994) (creditor’s claim that “the extent of its sec urity interest was improperly limited by the confirmation order had to be litigat ed before confirmation”). -18- its lien on the Talbots’ residence. See Habtemichael , 190 B.R. at 874. 10 Thus, under the particular facts of this case and the pro visions of the Plan, we conclude that the bankruptcy court had the power to order th e IRS to disgorge all sums that it extracted from the Talbots in derogation of the Plan. This conclusion does not, however, mandate an affirmance of the bankruptcy co urt’s order of disgorgement. The Trustee argues as follows: The Order Confirming Plan in the Talbot case entitl ed IRS to be paid $18, 674.08 plus interest at 9% per annum f or its claim secured by the Talbots’ property. As reported to the Court, the Trustee had already disbursed $11, 702.83 in princi pal plus interest to the IRS, resulting in a secured claim balance of $6, 971.25. Based upon the effect of confirmation on the IRS claim, 1 1 U.S.C. § 1327, the maximum amount which should have been applied t o the remaining tax liabilities secured by the lien of re cord was $6,971.25. The priority claim of $15, 875.02 and the general u nsecured claim of $3,110.92 (of which the IRS was to receive 30%) wer e ordered to be paid through the confirmed plan and were not secure d by the Talbots’ property. Appellee Br. at 7-8.-19-

There are two basic flaws in the accounting advocat ed by the Trustee. First, even under the Trustee’s accounting, the ban kruptcy court’s order of disgorgement cannot be wholly affirmed because at l east some portion of the payment was properly paid to the IRS for the remain der of the lien. Absent payment in full on the secured claim, the IRS was n ot obligated to release its lien. Thus, to the extent some portion of the payment was properly credited to the IRS’ secured claim, the bankruptcy court should not have ordered those funds disgorged. Second, and more important, the Trustee ’s accounting of plan payments is erroneous. The basic premise of the Trustee’s accounting is that a large portion of the IRS’ secured claim had been pa id, leaving its priority and unsecured claims completely unpaid. Both the Plan and confirmation order, however, provide that allowed claims will be paid i n the following order: administrative/attorney, priority, secured, unsecur ed. Accordingly, it is clear that at the time the Talbots made their payment to the I RS outside of the Plan, the entire secured claim of $18, 674.08 plus interest r emained to be paid. Unfortunately, on the record before this court, it is unclear exactly how much the IRS was entitled to be paid before it was obligatedto release its lien, and thus the amount, if any, the IRS was obligated to disgorge. Accordingly, this court reverses the bankruptcy court’s order directing the IRS to disgorge the entire11 In any event, the res judicataeffect of § 1327(a) prohibits the IRS from

extracting payments for penalties and interest not provided for under the confirmed Plan and prohibits the IRS from mandating payment of unsecured claims at a higher level than that set out in the P lan. See In re Habtemichael , 190 B.R. 871, 874 (Bankr. W.D. Mo. 1996) (holding that a secured creditor “is not entitled to receive any more than that to which it was entitled pursuant to the terms of the confirmed plan”). -20- $19,229.31 and remands the case to the district cou rt to determine how much of the $19,229.31 the IRS is entitled to retain under the principles set out above. 11

IV. CONCLUSION The order of disgorgement is hereby REVERSED and the case is
REMANDED to the district court for action in conformity wit h this opinion.