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 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 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 befo