              United States Bankruptcy Appellate Panel
                       FOR THE EIGHTH CIRCUIT



                          No. 97-6088 NE


In re:    Richard L. Kearns,
     *
                                  *
                                  *
          Debtor.                 *
                                  *
                                  *
United States of America,              *                      APPEAL
FROM THE UNITED
                                  *    STATES BANKRUPTCY
          Appellant,                   *                      COURT
FOR THE
                                  *    DISTRICT OF NEBRASKA
    v.                            *
                                  *
Richard L. Kearns,                                            *
                                  *
                                  *
          Appellee.                    *


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


Before WILLIAM A. HILL, SCHERMER and SCOTT, Bankruptcy Judges.


SCOTT, Bankruptcy Judge
                                 I

     The United States of America appeals from an Order of the
Bankruptcy Court entered on October 15, 1997, determining the
debtor’s post-petition tax liability for the 1990, 1991, 1992,
1993, and 1994 taxable years, and permitting an offset against
the proof of claim filed by the Internal Revenue Service for
1989 federal income taxes. Because we determine that




                             2
the bankruptcy court was without subject matter jurisdiction
to determine the federal income tax liability for the 1990
through 1994 taxable years, the opinion 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 several
improper withdrawals from a trust account. On June 3, 1991,
the United States, by the Internal Revenue Service, filed a
proof of claim in the amount of $142,718 for federal income
taxes for the 1989 taxable year. The taxes were based upon the
additional $500,000 of income the debtor acquired through
embezzlement during the 1989 taxable year. The debtor objected
to the proof of claim on the basis that the funds were not
income. An evidentiary hearing was held on the objection after
which the bankruptcy court found, by opinion entered on
November 10, 1994, that the debtor had embezzled the funds and
that these funds constituted income to him under the Internal
Revenue Code.     The IRS proof of claim was allowed in its
entirety.    Near the conclusion of the opinion, the Court
indicated that it would consider any appropriate motion for
reconsideration, Fed. R. Bankr. Proc.3008, apparently based
upon the implication, from evidence at the hearing, that the
debtor may have made restitution in subsequent tax years. No
years were specified and the opinion does not indicate what tax
years the Court believed would be in issue.1




       1
        Payments in the nature of restitution are deductible with respect to the tax years in
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
     Almost two years later,2 on August 5, 1996, the debtor
filed his motion for reconsideration.     The motion does not
reference any tax year other than 1989 and requests that the
Court find that the debtor made restitution and that the debtor
and his wife receive an offset equal to 25% of the embezzlement
amount. The United States filed a formal




       2
       From the recitation in the motion for reconsideration, it appears that the delay was
occasioned by settlement negotiations between the parties.

                                             4
response objecting to the motion. On February 12, 1996, the
Court issued an order stating that it would reconsider the
allowance of the claim and would set an evidentiary hearing.



     In the course of this second stage of the tax litigation,
the parties submitted a preliminary pretrial statement in which
the United States specifically asserted that the bankruptcy
court lacked subject matter jurisdiction over the 1990 through
1994 taxable years.3 The United States asserted that the only
tax year over which the bankruptcy court had jurisdiction was
1989, the year for which a proof of claim was filed. On March
10, 1997, the court removed the case from the hearing docket
after the parties agreed to stipulate to the facts.         The
stipulation was submitted on March 31, 1997. The United States
position that the bankruptcy court lacked subject matter
jurisdiction over any year other than 1989 was again raised.4

                             III.
     Substantive tax issues arise in the bankruptcy court by
several avenues.    Such issues most frequently arise when a
debtor in bankruptcy, or the trustee, objects to a proof of
claim filed by the Internal Revenue Service. Complaints to
determine dischargeability, although more frequently raising
lien issues, may also involve substantive tax issues.
Inasmuch as the United States has waived sovereign immunity
with respect to the tax years stated in the proof of claim, 11
U.S.C. § 106, there is no issue of subject matter jurisdiction

       3
         Of course, lack of subject matter jurisdiction may be raised at any stage of the
litigation, including before an appellate court.
       4
         At this juncture, the United States untimely raised the defense that the statute of
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
in such cases where a proof of claim governing the disputed
taxes is filed. Occasionally, a non-debtor seeks determination
of tax liability before the bankruptcy court.   However, there
is little, if any basis for bankruptcy court jurisdiction over
tax liabilities of a nondebtor. In re Proactive Technologies,
Inc., 215 B.R. 796 (Bankr. N.D. Okla. 1997); see 26 U.S.C. §
7421(a). The situation is less clear, however, when the debtor
seeks a determination of tax liability which




                              6
does not relate to the tax years which are asserted in the
proof of claim or for which the estate has no interest.

     The Internal Revenue Code provides that “No suit or
proceeding shall be maintained in any court for the recovery
of any internal revenue tax alleged to have been erroneously
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 matter
jurisdiction over a tax dispute unless the taxpayer has filed
a claim for refund with the Internal Revenue Service. United
States v. Dalm, 494 U.S. 596, 609 n.6 (1990); Smith v. United
States (In re Smith), 921 F.2d 136, 138-39 (8th Cir. 1990).

     The Bankruptcy Code also addresses the ability of the
bankruptcy court to make determinations of tax liability:
         (a)(1)Except    as    provided    in
         paragraph (2) of this subsection,
         the court may determine the amount
         or legality of any tax, any fine or
         penalty relating to a tax, or any
         addition to tax, whether or not
         previously assessed, whether or not
         paid, and whether or not contested
         before and adjudicated by a judicial
         or   administrative    tribunal   of
         competent jurisdiction.

         (2) The court may not so determine –
         ***

              (B) any right of the estate to
         a tax refund, before the earlier of
         –

                   (i) 120 days after the
              trustee properly requests
              such   refund    from   the
              governmental    unit   from


                              7
              which such    re       fund   is
              claimed; or

                   (ii) a determination
              by such governmental unit
              of such request.

11 U.S.C. § 505(a)(1), (2)(B). Although section 505(a) begins
with broad language, permitting the bankruptcy court to
determine tax liability, the grant of authority is




                                 8
subsequently restricted by the provision of paragraph (2),
which requires the trustee, an entity       which includes the
debtor-in-possession, to file a claim for refund with the
appropriate governmental unit.     Thus, under the Bankruptcy
Code, the refund procedures outlined in the Internal Revenue
Code and regulations must be pursued as a condition to
bankruptcy court jurisdiction over refund disputes. Smith v.
United States (In re Smith), 921 F.2d 136, 139 (8th Cir. 1990);
Graham v. United States (In re Graham), 981 F.2d 1135,1138 (10th
Cir. 1992)(“the Grahams do not contend that they have filed the
requisite administrative claim for a refund. Absent such a
filing, the bankruptcy court erred in awarding them a tax
refund. Simply put, no claim, no refund.”); In re St. John’s
Nursing Home, Inc., 169 B.R. 795, 801 (D. Mass. 1994); Perkins
v. United States (In re Perkins), 216 B.R. 220, 225, 227
(Bankr. S.D. Ohio Oct. 10, 1997); In re Penking Trust, 196 B.R.
389, 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, Inc. v. Town of Barnstable (In
re Cumberland Farms, Inc.), 175 B.R. 138, 139-142 (Bankr. D.
Mass. 1994); Millsaps v. United States (In re Millsaps), 133
B.R. 547, 552-553 (Bankr. M.D. Fla.), aff’d, 138 B.R. 87 (M.D.
Fla. 1991); see King v. United States, 495 F. Supp. 334, 336
(D. Neb. 1980). In this manner, the taxing authority5 is given
a reasonable opportunity to review any refund claim under its
normal administrative procedures.

     The debtor first asserts that the United States
essentially conceded all issues by “stipulating to allow the
deductions against the proof of claim in settlement.” First,


       5
        The taxing authority, the Internal Revenue Service, is the entity which reviews a
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
since the issue is one of subject matter jurisdiction, any
“concession” is of no relevance. No party may waive a lack of
subject matter jurisdiction. Williams v. Rogers, 449 F.2d 513,
517 (8th Cir. 1971), cert. denied, 405 U.S. 926 (1972). Every
court has an independent obligation to determine its
jurisdiction, and, if subject matter jurisdiction does not
exist, the matter must be dismissed. See id.       Indeed, the
matter may be dismissed at any stage of the proceeding or
appellate review if no subject matter jurisdiction exists. Id.




                              10
     Second, The United States did not stipulate to the
jurisdiction of the bankruptcy court to determine the
deductions, but merely stipulated to the calculations of the
amount of the deductions and the taxable amount that the
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 of
filing a claim for refund or the court’s subject matter
jurisdiction.

     The debtor next asserts that the bankruptcy court had
jurisdiction to determine whether an offset was available.
While it is true that a bankruptcy court has jurisdiction to
make the appropriate decisions under section 553 of the
Bankruptcy Code governing offset of debts, that provision does
not permit a party to leapfrog over the initial issue of
whether the court has jurisdiction to determine whether the
party is entitled to a refund at all. The proposed use of the
funds is not relevant to the determination of the entitlement
to a refund.     Whether an offset is appropriate under the
Bankruptcy Code is a separate, secondary issue.

     Section 505(a)(2)(B) provides that the bankruptcy court
may not determine any right of the estate to a refund until the
trustee requests a refund. The debtor concludes that since it
is not the estate requesting a refund, the subparagraph does
not apply such that the bankruptcy court has jurisdiction to
determine the right to refund.      The difficulties with this
argument are legion. The debtor is essentially asserting that
the bankruptcy court has unlimited jurisdiction to determine
a tax dispute of, apparently, any person or entity, at any
time, so long as the estate will not receive the funds. The
absurdity of this argument is demonstrated by the simple fact
that if the estate is not to receive the refund, the matter

                              11
does not belong in bankruptcy court. The general unsecured
creditors, not the debtor, are the intended beneficiaries of
section 505(a). In re Penking Trust, 196 B.R. 389, 394 (Bankr.
E.D. Tenn. 1996).       Indeed, bankruptcy courts, even if
jurisdiction exists, will abstain if the estate has no interest
in the funds. See, e.g., Williams v. United States (In re
Williams), 190 B.R. 225 (Bankr. W.D. Pa. 1995); Starnes v.
United 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. 117
(Bankr. D. Mass. 1993), aff’d, 169 B.R. 795 (D. Mass.
1994)(abstention in trustee's action for valuation of property-
tax purposes warranted where plan had been confirmed, no other
issues barred closing twelve-year old case, and only party to
benefit from redetermination would be the




                              12
debtor); In re Hemaya, 153 B.R. 71 (Bankr. D. Kan. 1993);
Millsaps 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
debate in the House of Representatives leading to the passage
of this section clearly shows that, when there is no need for
a determination of the amount of the tax for estate
administration purposes, Congress did not intend or foresee
that the bankruptcy court would be the forum for this
litigation.”). Second, if the funds sought are not property
of the estate, there is no right to an offset and the
bankruptcy court would have no jurisdiction on that asserted
basis. 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.
Fourth, the confirmed plan did not provide that any refund
would be paid to creditors.        Indeed, the plan did not
contemplate that any refund was due; it addressed only the
objection to the proof of claim and contemplated that the
estate may have to pay all or part of that claim. It thus
appears that only the individual debtor would receive the
refund and there is no interest of the estate in the refund.

     Finally, this argument raises the problematic issue of
post-confirmation jurisdiction. The plan was confirmed on
August 5, 1992, before the debtor objected to the proof of
claim. The third amendment to the plan, filed on July 15,
1992, provided for full payment of the 1989 federal income
taxes stated in the proof of claim.        This provision was
qualified, however, by the ability to object to the proof of
claim and pay any lesser amount, as determined by the
bankruptcy court. This retention of right to object to the
plan had been stated in the Second Amendment to the Plan filed
on May 1, 1992, the Amendment to Plan filed on April 8, 1992,
and the Amended Liquidating Plan of Reorganization, filed on
December 4, 1991. Each of these plans and amendments provided

                              13
for post-confirmation bankruptcy court jurisdiction “for a
determination of said claim at a later date at Debtor’s
election.” (Emphasis added.)     The plan also provided for
retention of jurisdiction to allow claims and hear objections
to claims “for the purpose of determining and resolving all
matters incident to the Plan and to carry out the provisions
of the plan and to determine any controversies thereunder.”

     Although the language in the plan is broad, this provision
does not necessarily provide for post-confirmation subject
matter jurisdiction or post-confirmation jurisdiction over




                              14
disputes relating to tax refunds for post-confirmation tax
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
right 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   for
reconsideration filed with the bankruptcy court constitutes a
claim for refund. A motion for reconsideration is not a claim
for refund. Section 505 requires that the trustee properly
request a refund from the governmental unit from which such
refund is claimed.    There is no authority to suggest that the
United States Bankruptcy Court is the governmental unit with
which to file an administrative claim for refund.       Indeed,
such a construction renders subparagraph (B) of section
505(a)(2) a nullity.    If a motion filed with the court can be
construed as a proper claim for refund, there is no purpose in
the requirement that a claim for refund be filed at all, or for
that matter, with any other governmental unit.

     The   governmental   unit   charged   with   determining
administrative tax matters is the Department of Treasury,
Internal Revenue Service. Cf. Bob Jones University v. United
States, 461 U.S. 574, 596 (1983).         It is in the IRS
regulations (26 C.F.R.) that the procedures for filing claims
for tax refunds are found. Thus, in order to comply with the
requirements of section 505(a)(2), the debtor was required to
submit a “proper”6 claim for refund with the Internal Revenue


       6
         It is also questionable whether the motion for reconsideration contains sufficient
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
Service pursuant to the regulations governing claims for
refund. See generally 26 C.F.R. §§ 301.6402-2, 301.6402-3.
The debtor admits that he failed to file a claim for refund
with the Internal Revenue Service. Accordingly, there is no
subject matter jurisdiction over the disputed, post-bankruptcy
tax years for which no claim was filed.




                              16
     Finally, the debtor asserts that the filing of the proof
of claim for the 1989 taxable year constituted a waiver of
sovereign immunity under Bankruptcy Code section 106(b), (c).
Section 106 provides in pertinent part:
          (b) A governmental unit that has
          filed a proof of claim in the case
          is deemed to have waived sovereign
          immunity with respect to a claim
          against such governmental unit that
          is property of the estate and that
          arose out of the same transaction or
          occurrence out of which the claim of
          such governmental unit arose.

         (c) Nothwithstanding any assertion
         of   sovereign    immunity   by   a
         governmental unit, there shall be
         offset against a claim or interest
         of a governmental unit any claim
         against such governmental unit that
         is property of the state.

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

     Debtor’s argument with regard to section 106(c) is in
direct conflict with his argument construing section
505(a)(2)(B).     For purposes of section 505(a), the debtor
asserts that he, the individual who happens to be a debtor in
bankruptcy, is seeking a tax refund. Because, he argues, the
estate is not seeking the refund, the restrictions of section
505(a)(2)(B) do not apply to him such that he was not required
to file a claim for refund. However, in order for section
106(c) to apply to waive sovereign immunity, the claim against
the governmental unit must be property of the estate.      The
debtor cannot have it both ways.

     The claim for a refund regarding post-petition (part post-
confirmation) tax years, is not property of the estate. 11


                              17
U.S.C. § 541(a)(property of the estate consists of all
interests in property “as of the commencement of the case.”).
Since the claim for a refund is not property of the estate,
section 106(c) does not apply to waive sovereign immunity.
Accordingly, subject matter jurisdiction cannot be found under
section 106(c).




                              18
     The debtor’s argument under Section 106(b) is met with the
same infirmity. In order for section 106(b) to apply to waive
sovereign immunity, and thereby confer subject matter
jurisdiction, the claim for the tax refund for the post-
petition taxable years must (1) be property of the estate, and
(2) arise out of the same transaction or occurrence out of
which the claim of such governmental unit arose, i.e., the
prepetition 1989 tax year. As discussed above, the claim for
refund belongs to the individual debtor, not the bankruptcy
estate such that this section does not apply.7         In this
context, the error in debtor’s reliance on In re Dunhill
Medical, Inc., 77 A.F.T.R. 2d 96-1917, 96-1U.S.T.C. ¶ 50,276
(Bankr. D.N.J. 1996) and Michaud v. United States, 206 B.R. 1
(D.N.H. 1997) is demonstrated. In both of those cases, the
bankruptcy courts found subject matter jurisdiction to offset
claims with regard to particular prepetition tax years because

       7
        If it is true, as debtor suggests, that the claim for refund arose out of the same
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 judicata would 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
proofs of claim had been filed. In each of those cases, both
the tax years stated in the proof of claim and the years for
which a refund was requested were identical. Extending the
holdings of Dunhill and Michaud beyond the particular tax years
for which a proof of claim is filed conflicts with the holding
of the




                              20
controlling authority in the Eighth Circuit, Smith v. United
States (In re Smith), 921 F.2d 136, 138-39 (8th Cir. 1990).8

                                              IV.
        Under the Bankruptcy Code, a debtor, debtor-in-possession
and trustee are provided means by which to contest tax
liability and dischargeability.                     The Bankruptcy Code, however,
did not abrogate all provisions relating to administrative
procedures under nonbankruptcy law. Indeed, Section 505(a),
while it provides for a shortened procedure with regard to
administrative determination of tax refunds, expressly
maintains the jurisdictional requirement found in the Internal
Revenue Code, 26 U.S.C. § 7422.                           In order to provide for
bankruptcy court jurisdiction over his claim for a federal
income tax refund, the debtor was required to, but did not,
file a “proper” claim for refund with the Internal Revenue
Service. The procedures outlined in section 505(a), governing
determination of refunds from governmental agencies, does not
expand a debtor’s right to a refund beyond that granted to
every other taxpayer. See Millsaps v. United States (In re
Millsaps), 133 B.R. 547, 555 (Bankr. M.D. Fla.), aff’d, 138
B.R. 87 (M.D. Fla. 1991)(“Were this court to respond to the Millsaps’ tardy call
by exercising its jurisdiction, no bankruptcy interest would be furthered...Although it is true
that an exercise of this jurisdiction would benefit the debtors and further the ‘fresh start’
policy of the Bankruptcy Code, that interest would only be served at the expense of the
orderly enforcement of the internal revenue laws. Unless the Court abstains in these unusual
circumstances, every taxpayer would know that he or she could ignore all of the tax protest
and determination procedures and opportunities provided by the Internal Revenue Code and
regulations, allow all time periods they provide to expire, watch the Service finally determine



       8
       It is also questionable whether these cases are correctly decided. Dunhill and
Michaud seem 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. Michaud relies on Dunhill.

                                              21
a tax, and then years later come into this court and obtain the judicial determination the
taxpayer chose 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 determine




                                             22
whether the individual debtor was entitled to a refund, and, thereafter, whether the debtor
was entitled to offset his 1989 federal income tax liability against any refund. Accordingly,
we vacate the order below, entered on October 15, 1997, and remand for the Bankruptcy
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:

                     CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE
                     EIGHTH CIRCUIT




                                              23
