DONALD WAYNE BUSH and KIMBERLY ANN BUSH v. United States of America

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

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2 No. 16-3244
so that readers can follow the reasoning and understand the
full decision. (To the extent that the original decision is un-
changed, 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 de-
cision 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 Ser-
vice 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

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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 de-
termined 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 pen-
alty relating to a tax, or any addition to tax, whether or not previ-
ously 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 bank-
ruptcy judges and that only a potential effect on creditors’ dis-
tributions justifies a decision by a bankruptcy judge about any
tax dispute. The Bushes insisted that §505 does supply juris-
diction, 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” characteriza-
tion. See, e.g., In re Luongo, 259 F.3d 323, 328 (5th Cir. 2001)
(calling §505 a “broad grant of jurisdiction”); In re Custom Dis-
tribution Services, Inc., 224 F.3d 235, 239–40 (3d Cir. 2000) (“We

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4 No. 16-3244
have consistently interpreted §505(a) as a jurisdictional stat-
ute”). 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’ prefer-
ence-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 con-
cern jurisdiction.
The Supreme Court insists that judges distinguish proce-
dural 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 cir-
cuits may have been influenced by that old usage when call-
ing §505 “jurisdictional.” But the Supreme Court has re-
stricted 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 Ju-
dicial Code, and that’s true of bankruptcy too. The Bank-
ruptcy Code itself tells us this. Section 105(c) reads: “The abil-
ity of any district judge or other officer or employee of a dis-
trict 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 of-
ficers of the district courts, see 28 U.S.C. §157(a), so §105(c)

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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 com-
menced in a court of the United States absent jurisdiction under
this section, the district court shall abstain from hearing such pro-
ceeding 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 subsec-
tion (c) (other than a decision not to abstain in a proceeding de-
scribed in subsection (c)(2)) is not reviewable by appeal or other-
wise 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 sec-
tion 1254 of this title. Subsection (c) and this subsection shall not
be construed to limit the applicability of the stay provided for by

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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 dis-
putes, 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 ne-
gates 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 subject-
maber jurisdiction. See United States v. Cook County, 167 F.3d
381 (7th Cir. 1999).
Section 1334 creates jurisdiction for three potentially rele-
vant categories of disputes: those “arising in” bankruptcy lit-
igation, those “arising under” the Bankruptcy Code, and
those “related to” the resolution of the bankruptcy proceed-
ing. 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 Re-
pository Technologies, Inc., 601 F.3d 710, 719 (7th Cir. 2010). A

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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 un-
der Title 11. Most tax disputes are resolved outside of bank-
ruptcy. 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 dis-
pute’s substance depends on the Internal Revenue Code, not
the Bankruptcy Code, so the “arising under” grant of jurisdic-
tion 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 reexami-
nation. 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 ob-
serve that the permissible authority of judges (including
bankruptcy judges) who lack life tenure is limited.

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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 un-
der 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 main-
tains that the tax dispute is not related to this bankruptcy, be-
cause the disposition will not affect other creditors’ entitle-
ments. 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, be-
cause 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.

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No. 16-3244 9
This line of argument suggests that the statement in FedPak
needs a qualification. If the related-to jurisdiction really de-
pends 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 deter-
mined 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. Tor-
rance, 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 con-
tradict 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 re-
lated-to jurisdiction favorably quoted a rule, which it at-
tributed to nine courts of appeals, that a maber comes within
the related-to jurisdiction if it “could conceivably have any

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10 No. 16-3244
effect on the estate being administered in bankruptcy”. Ce-
lotex 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 for-
ever. 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 state-
ment 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 con-
clude 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

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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 rehear-
ing 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 bank-
ruptcy 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 inter-
est 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

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12 No. 16-3244
power to relinquish jurisdiction and provides that its decision
“is not reviewable by appeal or otherwise by the court of ap-
peals”. 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).

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