The Second Circuit reversed a district court opinion that upheld a bankruptcy court's decision granting a liquidating trustee a $3.8 million tax refund, holding that the bankruptcy court lacked jurisdiction over the refund claim because neither the debtor nor the bankruptcy trustee filed a refund claim before confirmation of the bankruptcy plan.
In US v. EDWARD P. BOND, LIQUIDATING TRUSTEE OF THELIQUIDATING TRUST U/A/W PT1COMMUNICATIONS, INC., a liquidating trust that had been assigned tax refund claims pursuant to a Chapter 11 reorganization plan was awarded a federal income tax refund by the United States Bankruptcy Court for the Eastern District of New York (Craig, C.J.). The United States District Court for the Eastern District of New York (Cogan, J.) affirmed the award, but held that the government could bring a separate action to offset the refund against taxes owed by the liquidating trust. The trustee of the liquidating trust appeals from the portion of the district court judgment upholding the government's right to setoff. Because the bankruptcy court lacked subject matter jurisdiction to decide the tax refund claim. The Second Circuit reversed.
The Second Circuit held that the bankruptcy court lacks jurisdiction over the Liquidating Trustee's refund claim and that the jurisdictional defense was not waived by the government's withdrawal of its appeal. Section 505(a) of the Bankruptcy Code ("Code") allows a tax refund suit in bankruptcy court only after a refund claim is filed with the IRS by "the trustee" in bankruptcy. (A debtor-in-possession has the status "of a trustee serving in a case under this Chapter," 11 U.S.C. § 1107; in this opinion, all references to a bankruptcy trustee include the debtor-in-possession.) Here, however, the refund claim was filed by the Liquidating Trustee, a representative of the estate who was appointed under the reorganization plan and whose status is distinct from that of a trustee in bankruptcy. Because Congress authorized a bankruptcy trustee (not a plan-appointed estate representative) to administratively exhaust a refund claim before bringing that claim in bankruptcy court, and the refund claim here was not filed with the IRS by a bankruptcy trustee, the bankruptcy court lacked jurisdiction to award the refund.