U.S.A. v. Bond

Docket No. 12-4803-bk (2d Cir. August 13, 2014)
The bankruptcy court lacked subject matter jurisdiction to decide a tax refund claim because the liquidating trustee appointed pursuant to the Debtors' confirmed plan of reorganization did not constitute a "trustee" for purposes of satisfying the requirement of Section 505 of the Bankruptcy Code that a trustee first request such a refund. Only a Chapter 7 or 11 trustee or a debtor in possession constitutes such a trustee under Section 1107 of the Bankruptcy Code. In addition, the government had not waived its jurisdictional defense merely because it withdrew its cross-appeal of the lower court's order.
Procedural context:
The United States Bankruptcy Court for the Eastern District of New York granted summary judgment in favor of the Debtors, awarding the tax refund, holding that the government’s setoff and recoupment rights were extinguished by the Debtors’ plan and that sovereign immunity did not bar the refund suit. On appeal, the United States District Court for the Eastern District of New York upheld the bankruptcy court’s jurisdiction, affirmed the tax refund award, and vacated the bankruptcy court’s order as it related to the plan provision barring recoupment and set-off by the government. Both parties appealed, and the government subsequently withdrew its appeal.
Debtors PT-1 Communications, Inc., PT-1 Long Distance, Inc., and PT-1 Technologies, Inc., commenced Chapter 11 bankruptcy cases on March 9, 2001. The Debtors filed a federal income tax return for the period from the filing date through the end of the year. The Debtors’ plan of reorganization, which provided for a liquidating trustee to manage the liquidating trust that succeeded to most of the Debtors’ assets, including rights to tax refunds, was confirmed on November 23, 2004. After confirmation, the liquidating trustee sought a refund of the taxes paid in connection with the tax return.
Jacobs, Sack, and Lohier

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