United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT

No. 97-6088 NE

In re: Richard L. Kearns,
*
*
* Debtor. *
*
* United States of America, * APPEA L FROM THE UNITED * STATES BANKRUPTCY

Appellant, * COUR T FOR THE * DISTRICT OF NEBRASKA v. *
* Richard L. Kearns, *
*
* Appellee. *

Submitted: February 12, 1998 Filed: April 6, 1998

Before WILLIAM A. HILL, SCHERMER a nd SCOTT, Bankruptcy Judges.

SCOTT, Bankruptcy Judge I
The United States of Ame rica appeals from an Order of the Ba nkruptcy Court entered on October 15, 1997, determining the debtor’s post-petition tax liabili ty for the 1990, 1991, 1992, 1993, and 1994 taxable years, and permitting an offset against2

the proof of claim filed by the Internal Revenue Service fo r 1989 federal income taxes. Because we determine thatPayments in the nature of restitution are deductible with respect to the tax years in 1 which they are made. 26 U.S.C. § 165; see generally Stephens v. Comm’r , 905 F.2d 667 (2d Cir. 1990). Thus, if the debtor made a restitution payment in 1991, he was entitled to claim a deductions of the amounts paid on his 1040 return for the 1991 taxable year. Apparently, the debtor did not avail himself of this opportunity.
3 th e bankruptcy court was without subject matter jurisdictio n to d etermine the federal income tax liability for the 199 0 through 1994 taxable years, the op inion below will be vacated.

II. This Chapter 11 bankruptcy case was filed by the debtor on August 24, 1990, ten days after he made the last of severa l improper withdrawals from a trust account. On June 3, 1991 , the Unit ed States, by the Internal Revenue Service, filed a pr oof of claim in the amount of $142,718 for federal incom e taxes for the 1989 taxable year. The taxes were based upon th e additional $500,000 of income the debtor acquired throug h embezzlement during the 1989 taxable year. The debtor objecte d to the pro of of claim on the basis that the funds were no t income. An evidentiary hearing was held on the objection afte r which the bankruptcy court found, by opinion entered o n November 10, 1994, that the debtor had embezzled the funds an d th at these funds constituted income to him under the Internal Revenu e Code. The IRS proof of claim was allowed in it s entir ety. Near the conclusion of the opinion, the Cour t indica ted that it would consider any appropriate motion fo r re consideration, Fed. R. Bankr. Proc.3008, apparently base d upo n the implication, from evidence at the hearing, that th e deb tor may have made restitution in subsequent tax years. N o years were specified and the opinion does not indicate what ta x years the Court believed would be in issue. 1From the recitation in the motion for reconsideration, it appears that the delay was 2 occasioned by settlement negotiations between the parties.
4 Almo st two years later, on August 5, 1996, the debto r 2 file d his motion for reconsideration. The motion does no t reference any tax year other than 1989 and requests that th e Court find that the debtor made restitution and that the debto r andhis wife receive an offset equal to 25% of the embezzlemen t amount. The United States filed a formalOf course, lack of subject matter jurisdiction may be raised at any stage of the 3 litigation, including before an appellate court. At this juncture, the United States untimely raised the defense that the statute of 4 limitations had lapsed. Inasmuch as the bankruptcy court lacked subject matter jurisdiction based upon the debtor’s failure to file a claim for refund, we do not reach the issues relating to the statute of limitations defense.
5 response objecting to the motion. On February 12, 1996, th e Cour t issued an order stating that it would reconsider th e all owance of the claim and would set an evidentiary hearing

.

In the course of this se cond stage of the tax litigation, the parties submitted a preliminary pretrial statement in whic h the Un ited States specifically asserted that the bankruptc y court lacked subject matter jurisd iction over the 1990 through 1994 taxable years. The United States asserted that the only 3 ta x year over which the bankruptcy court had jurisdiction was 1989, the year for which a proof o f claim was filed. On March 10, 1997, the court removed the case from the hearing docke t after th e parties agreed to stipulate to the facts. Th e stipulationwas submitted on March 31, 1997. The United State s posi tion that the bankruptcy court lacked subject matte r jurisdiction over any year other than 1989 was again raised. 4

III. Substantive tax issues arise in the bankruptcy court b y seve ral avenues. Such issues most frequently arise when a de btor in bankruptcy, or the trustee, objects to a proof o f claim filed by the Internal Revenue Service. Complaints t o determine dischargeability, although more frequently raisin g lien issues, may also involve sub stantive tax issues. Inasmu chas the United States has waived sovereign immunit y with respect to the tax years stat ed in the proof of claim, 11 U.S.C. § 106, there is no issue of subject matter jurisdiction6

in such cases where a proof of claim governing the dispute d taxes is filed. Occasionally, a non-debtor seeks determinatio n of tax liability before the bankruptcy court. However, there is little, if any basis for bankruptcy court jurisdiction over tax liabilities of a nondebtor. I n re Proactive Technologies, Inc. , 21 5 B.R. 796 (Bankr. N.D. Okla. 1997); see 26 U.S.C. § 7421(a). The situation is less clear, however, when the debto r seeks a determination of tax liability which7

does n ot relate to the tax years which are asserted in th e proof of claim or for which the estate has no interest.

The Internal Revenue Code provides that “No suit o r pro ceeding shall be maintained in any court for the recover y of any internal revenue tax alleged to have been erroneousl y or illegally assessed or collected...until a claim for refund
or credit has been duly filed with the Secretary...” 26 U.S.C

. § 7422(a). It is well settled that no court has subject matte r ju risdiction over a tax dispute unless the taxpayer has filed
a claim for refund with the Internal Revenue Service. United St ates v. Dalm , 494 U.S. 596, 609 n.6 (1990); Smith v. United States (In re Smith) , 921 F.2d 136, 138-39 (8 Cir. 1990). th

The Bankruptcy Code also addresses the ability of th e bankruptcy court to make determinations of tax liability:

(a)(1)Except as provided i n paragraph (2) of this subsection , th e court may determine the amoun t or legality of any tax, any fine or pen altyrelating to a tax, or an y add ition to tax, whether or no t previously assessed, whether or no t pa id, and whether or not conteste d before and adjudicated by a judicial or administrative tribunal o f competent jurisdiction. (2) The court may not so de termine –
*** (B) any right of the estate t o a tax refund, before the earlier of

– (i) 120 days after th e trustee properly request s su chrefund from th e governmental unit fro m8 which such re fund i s claimed; or (ii) a determinatio n by such governmental uni t of such request. 11 U.S.C. § 505(a)(1), (2)(B). Al though section 505(a) begins with broad language, permitting the bankruptcy court t o determine tax liability, the grant of authority isThe taxing authority, the Internal Revenue Service, is the entity which reviews a 5 claim for refund and makes an administrative determination with regard to that claim. In contrast, officers of the Department of Justice are the persons authorized to represent the United States in a court of law. 28 U.S.C. § 516.
9 sub sequentlyrestricted by the provision of paragraph (2) , whichrequires the trustee, an entity which includes th e debtor -in-possession, to file a claim for refund with th e app ropriate governmental unit. Thus, under the Bankruptc y Co de, the refund procedures outlined in the Internal Revenue Code a nd regulations must be pursued as a condition t o ba nkruptcy court jurisdiction over refund disputes. Smith v. United States (In re Smith ), 921 F.2d 13 6, 139 (8 Cir. 1990); th Graham v. United States (In re Graham) , 981 F.2d 1135,1138 (10 th Cir. 1992)(“the Grahams do not contend that they have filed th e requisit e administrative claim for a refund. Absent such a filing, the bankruptcy court erred in awarding them a ta x re fund. Simply put, no claim, no refund.”); In re St. John’s Nursing Home, Inc. , 169 B.R. 795, 801 (D. Mass. 1994); Perkins
v. Unite d States ( In re Perkins ), 216 B.R. 220, 225, 22 7 (Bankr. S.D. Ohio Oct. 10, 1997); In re Penking Trust , 196 B.R

. 38 9, 393 (Bankr. E.D. Tenn. 1996); Great Bay Power Corp. v

. Town of Seabrook (In re EUA Power Corp. ), 184 B.R. 631 (Bankr. D.N.H. 1995); Cumberland Farms, In c. v. Town of Barnstable (In
re Cumberland Farms, Inc.) , 175 B.R. 138, 139-142 (Bankr. D

. Mas s. 1994); Millsaps v. United States (In re Millsaps) , 13 3 B.R. 547, 552-553 (Bankr. M.D. Fla .), aff’d , 138 B.R. 87 (M.D. Fla. 199 1); see King v. United States , 495 F. Supp. 334, 33 6 (D. Neb. 1980). In this manner, the taxing authority is given 5
a reasonable opportunity to review any refund claim under its normal administrative procedures.

Th e debtor first asserts that the United State s essent iallyconceded all issues by “stipulating to allow th e de ductions against the proof of claim in settlement.” First,10

sinc e the issue is one of subject matter jurisdiction, an y “concession” is of no relevance. No party may waive a lack of subject matter jurisdiction. Williams v. Rogers , 449 F.2d 513 , 517 (8 Cir. 1971), cert. denied , 405 U.S. 926 (1972). Every

th court has an independent obligation to determine it s jur isdiction, and, if subject matter jurisdiction does no t exist, the matter must be dismissed. See id. Indeed, th e matter may be dismissed at any stage of the proceeding o r appellate review if no subject matter jurisdiction exists. Id

.11

Second, The United States did not stipulate to th e ju risdiction of the bankruptcy court to determine th e deduct ions, but merely stipulated to the calculations of th e amoun t of the deductions and the taxable amount that th e payments based upon proof that the payments were in the nature of restitution. Thus, the United States stipulated to many of the mechanical facts which were not in dispute, but did not , in any manner waive arguments concerning the necessity o f filing a claim for refund or the court’s subject matte r jurisdiction.

The debtor next asserts that the bankruptcy court ha d jur isdiction to determine whether an offset was available

. While it is true that a bankruptcy court has jurisdiction t o make t he appropriate decisions under section 553 of th e Bankruptcy Code governing offset o f debts, that provision does not perm it a party to leapfrog over the initial issue o f whethe r the court has jurisdiction to determine whether th e party is entitled to a refund at a ll. The proposed use of the fu nds is not relevant to the determination of the entitlement to a ref und. Whether an offset is appropriate under th e Bankruptcy Code is a separate, secondary issue.

Sect ion 505(a)(2)(B) provides that the bankruptcy cour t may not determine any right of the estate to a refund until th e trustee requests a refund. The de btor concludes that since it is not the estate requesting a refund, the subparagraph doe s not apply such that the bankruptcy court has jurisdiction t o de termine the right to refund. The difficulties with thi s argument are legion. The debtor i s essentially asserting that th e bankruptcy court has unlimited jurisdiction to determin e a ta x dispute of, apparently, any person or entity, at an y time, so long as the estate will not receive the funds. Th e ab surdity of this argument is demonstrated by the simple fact that if the estate is not to receive the refund, the matte r12

does not belong in bankruptcy court. The general unsecure d credit ors, not the debtor, are the intended beneficiaries o f section505(a). In re Penking Trust , 196 B.R. 389, 394 (Bankr

. E.D. T enn. 1996). Indeed, bankruptcy courts, even i f jurisdictionexists, will abstain if the estate has no interes t in the funds. See, e.g. , Williams v. United States ( In r e Wi lliams ), 190 B.R. 225 (Bankr. W.D. Pa. 1995); Starnes v

. Uni ted States ( In re Starnes ), 159 B.R. 748 (Bankr. W.D.N.C

. 1993) ; In re St. John's Nursing Home, Inc. , 154 B.R. 11 7 (B ankr. D. Mass. 1993), aff’d , 169 B.R. 795 (D. Mass

. 1994)(abstentionin trustee's action for valuation of property

tax purposes warranted where plan had been confirmed, no other is sues barred closing twelve-year old case, and only party to benefit from redetermination would be the13

debtor ); In re Hemaya, 153 B.R. 71 (Bankr. D. Kan. 1993) ; Mi llsaps v. United States (In re Millsaps) , 133 B.R. 547, 554 (Bankr. M.D. Fla.), aff’d , 138 B.R . 87 (M.D. Fla. 1991)(“[T]he de bate in the House of Representatives leading to the passage of this section clearly shows that, when there is no need for
a d etermination of the amount of the tax for estat e admini stration purposes, Congress did not intend or forese e th at the bankruptcy court would be the forum for thi s lit igation.”). Second, if the funds sought are not propert y of the estate, there is no right to an offset and th e bankru ptcycourt would have no jurisdiction on that asserte d ba sis. Third, if the property is not property of the estate, there is no jurisdiction over the property such that the Court should not make a determination of the right to refund

. Four th, the confirmed plan did not provide that any refun d woul d be paid to creditors. Indeed, the plan did no t cont emplate that any refund was due; it addressed only th e objection to the proof of claim and contemplated that th e est ate may have to pay all or part of that claim. It thu s appear s that only the individual debtor would receive th e refund a nd there is no interest of the estate in the refund

.
Fi nally, this argument raises the problematic issue o f post-confirmation jurisdiction. The plan was confirmed o n Augu st 5, 1992, before the debtor objected to the proof o f claim. The third amendment to the plan, filed on July 15 , 1992 , provided for full payment of the 1989 federal incom e taxes stated in the proof of claim. This provision wa s qualified, however, by the ability to object to the proof o f cl aim and pay any lesser amount, as determined by th e ba nkruptcycourt. This retention of right to object to th e plan had been stated in the SecondAmendment to the Plan filed
onMay 1, 1992, the Amendment to Plan filed on April 8, 1992, and th e Amended Liquidating Plan of Reorganization, filed o n December 4, 1991. Each of these p lans and amendments provided14

for post-confirmation bankruptcy court jurisdiction “for a determination of said claim at a later date at Debtor’ s electi on.” (Emphasis added.) The plan also provided fo r re tention of jurisdiction to allow claims and hear objections to claim s “for the purpose of determining and resolving al l matters incident to the Plan and to carry out the provision s of the plan and to determine any controversies thereunder.”
Although the language in the plan is broad, this provisi on does not necessarily provide for post-confirmation subjec t matter jurisdiction or post-confirmation jurisdiction overIt is also questionable whether the motion for reconsideration contains sufficient 6 information to apprise the governmental unit of the basis for the refund. The motion for reconsideration does not even state what tax years are involved and for which the debtor seeks a refund. Cf

. Perkins v. United States ( In re Perkins ), 216 B.R. 220, 225 (Bankr. S.D. Ohio Oct. 10, 1997); Meisner v. United States , 78 A.F.T.R.2d 96-5278, 96-2 U.S.T.C. ¶ 50,369, 1996 WL 442717 (D. Neb. June 5, 1996)(same).
15 dis putes relating to tax refunds for post-confirmation ta x years. See In re Maley , 152 B.R. 789, 791-92 (Bankr. W.D. N.Y

. 1992). In any event, the determination of the individual’ s ri ght to a refund for the 1990-1994 taxable years has nothing to do with the administration of the confirmed plan.

The debtor also asserts that his motion fo r re consideration filed with the bankruptcy court constitutes a claim for refund. A motion for re consideration is not a claim for refu nd. Section 505 requires that the trustee properl y request a refund from the governmental unit from which suc h refund is claimed. There is no a uthority to suggest that the United States Bankruptcy Court is the governmental unit wit h wh ichto file an administrative claim for refund. Indeed , such a construction renders subparagraph (B) of sectio n 505(a)(2) a nullity. If a motionfiled with the court can be construed as a proper claim for re fund, there is no purpose in the requirement that a claim for refund be filed at all, or fo r that matter, with any other governmental unit.

The governmental unit charged with determinin g administrative tax matters is the Department of Treasury , In ternal Revenue Service. Cf. Bob Jones University v. United States , 46 1 U.S. 574, 596 (1983). It is in the IR S
re gulations (26 C.F.R.) that the procedures for filing claims fo r tax refunds are found. Thus, in order to comply with the
re quirements of section 505(a)(2), the debtor was required to
su bmit a “proper” claim for refund with the Internal Revenu e 616

Serv ice pursuant to the regulations governing claims fo r refund

. See generally26 C.F.R. §§ 301.6402-2, 301.6402-3

. The deb tor admits that he failed to file a claim for refun d wit hthe Internal Revenue Service. Accordingly, there is n o subject matter jurisdiction over t he disputed, post-bankruptcy tax years for which no claim was filed.17

Finally, the debtor asserts that the filing of the proof of c laim for the 1989 taxable year constituted a waiver o f
so vereign immunity under Bankruptcy Code section 106(b), (c). Section 106 provides in pertinent part:

(b) A governmental unit that ha s fi led a proof of claim in the cas e is deemed to have waived sovereig n immunity with respect to a clai m against such governmental unit tha t is property of the estate and that arose out of the same trans action or occurrence out of which the claim of such governmental unit arose. (c) Nothwithstanding any assertio n of sovereign immunity by a governmental unit, there shall b e of fset against a claim or interes t of a governmental unit any clai m against such governmental unit tha t is property of the state

. 11 U.S.C. § 106(b), (c) (emphasis added).

Debtor’s argument with regard to section 106(c) is i n dire ct conflict with his argument construing sectio n 505( a)(2)(B). For purposes of section 505(a), the debto r as serts that he, the individual who happens to be a debtor in ba nkruptcy, is seeking a tax refund. Because, he argues, the
es tate is not seeking the refund, the restrictions of section 505(a)(2)(B) do not apply to him s uch that he was not required to fil e a claim for refund. However, in order for sectio n 106(c) to apply to waive sovereignimmunity, the claim against the governmental unit must be property of the estate. Th e debtor cannot have it both ways.
The claim for a refund regarding post-petition (part pos tconf irmation) tax years, is not property of the estate. 1 118

U.S.C. § 541(a)(property of the estate consists of al l in terests in property “as of the commencement of the case.”). Since t he claim for a refund is not property of the estate , sectio n 106(c) does not apply to waive sovereign immunity

. Accordingly, subject matter jurisd iction cannot be found under section 106(c).If it is true, as debtor suggests, that the claim for refund arose out of the same 7 transaction or occurrence as the proof of claim, the debtor’s claim was a compulsory counterclaim to the proof of claim. Under Rule 13, Federal Rules of Civil Procedure, the debtor was required to raise these issues at the time of the original objection to the proof of claim. Rule 7013, however, limits the harm to a debtor-in-possession if the failure to plead the counterclaim is “through oversight, inadvertence, or excusable neglect, or when justice so requires, by permitting the debtor-in-possession to amend the pleading or commence a new adversary proceeding or separate action. Fed. R. Bankr. P. 7013. In any event, whether the matters necessarily arise out of the same transaction or occurrence is also problematic. In determining the concept "same conduct, transaction or occurrence," the Eighth Circuit applies four different tests. See generally Blue Dane Simmental Corp. v. American Simmental Assoc. , 952 F. Supp. 1399 (D. Neb. 1997). In only one of these tests can it be considered that the matters arise out of the same transaction or occurrence. In determining the debtor’s right to a refund vis-a-vis the merits of the United States proof of claim, neither the issues of law nor fact are the same. The doctrine of res judicatawould have no impact upon the debtor’s claim for refund despite the determination of the liability for the 1989 tax year, and little, if any, of the evidence presented in the litigation regarding the 1989 tax year would aid in the proof regarding the 1990 through 1994 tax years. The only relationship between the facts and issues is that they are derived from the debtor’s embezzlement of trust funds.
19 The debtor’s argument under Section 106(b) is met with t he same infirmity. In order for sect ion 106(b) to apply to waive
so vereign immunity, and thereby confer subject matte r juris diction, the claim for the tax refund for the post

petitiontaxable years must (1) be property of the estate, an d (2) arise out of the same transaction or occurrence out o f whic hthe claim of such governmental unit arose, i.e. , th e pr epetition 1989 tax year. As discussed above, the claim for refund belongs to the individual debtor, not the bankruptc y est ate such that this section does not apply. In thi s 7 conte xt, the error in debtor’s reliance on In re Dunhil l Medica l, Inc. , 77 A.F.T.R. 2d 96-1917, 96-1U.S.T.C. ¶ 50,27 6 (B ankr. D.N.J. 1996) and Michaud v. United States , 206 B.R. 1 (D .N.H. 1997) is demonstrated. In both of those cases, th e ba nkruptcy courts found subject matter jurisdiction to offset claims with regard to particular prepetition tax years becaus e20

pr oofs of claim had been filed. In each of those cases, both the ta x years stated in the proof of claim and the years fo r which a refund was requested were identical. Extending th e holdings of Dunhill and Michaudbeyond the particular tax year s for which a proof of claim is file d conflicts with the holding of theIt is also questionable whether these cases are correctly decided. Dunhill and 8 Michaudseem to inappropriately trump the precise language and clear meaning of the Bankruptcy Code with portions of legislative history. Dunhill also rests on case law which does not support its conclusions. Michaudrelies on Dunhill

. 21 co ntrolling authority in the Eighth Circuit, Smith v. United States (In re Smith) , 921 F.2d 136, 138-39 (8 Cir. 1990). th 8

IV. Under the Bankruptcy Cod e, a debtor, debtor-in-possession and tr ustee are provided means by which to contest ta x liability

and dischargeability. The Bankruptcy Code, however , did not abrogate all provisions relating to administrativ e pr ocedures under nonbankruptcy law. Indeed, Section 505(a) , whil e it provides for a shortened procedure with regard t o ad ministrative determination of tax refunds, expressl y maintains the jurisdictional requi rement found in the Internal Reve nue Code, 26 U.S.C. § 7422. In order to provide fo r bankru ptcycourt jurisdiction over his claim for a federa l in come tax refund, the debtor was required to, but did not , file a “proper” claim for refund with the Internal Revenu e Service. The procedures outlined in section 505(a), governing de termination of refunds from governmental agencies, does not expa nd a debtor’s right to a refund beyond that granted t o every ot her taxpayer. See Millsaps v. United States (In r e Millsaps ) , 133 B.R. 547, 555 (Bankr. M.D. Fla.), aff’d , 13 8 B.R. 87 (M.D. Fla. 1991)(“ Were this court to respond to the Millsaps’ tardy call by exercising its jurisdiction, no ba nkruptcy interest would be furthered...Although it is true that an ex ercise of this jurisdiction would benefit the debtors and further the ‘fresh start ’ pol icy of the Bankruptcy Code, that interest would only be served at the expense of th e orderly enforcement of the internal revenue laws. Unless theCourt abstains in these unusual circumstances, every taxpayer would know that he or she could ignore all of the tax protest and determination procedures and opport unities provided by the Internal Revenue Code and regulations, allow all time periods they provide to expire, watch the Service finally determine22

atax, and then years later come into this court and obtain the judicial determination th e taxpayerch ose not to seek before. The interest of justice cannot be furthered by that result.”). Having failed to comply with the provision of section 505(a)(2)(B), the bankruptcy court was without subject matter jurisdiction to determine23

whether the individual debtor was entitled to a refund, and, thereafter, whether the debto r was entitled to offset his 1989 federal income tax liability against any refund. Accordingly,
we v acate the order below, entered on October 15, 1997, and remand for the Bankruptc y Court to allow the United States proof of claim for internal revenue taxes, as filed, in accord with the Bankruptcy Court order entered November 10, 1994.

A true copy.

Attest:

CLER K, U.S. BANKRUPTCY APPELLATE PANEL FOR TH E EIGHTH CIRCUIT