by Court Rules Bankruptcy Court Should Have Deferred to IRS’s Later-Filed—but First Jurisdictionally Proper—District Court Action
In In re Goebel, No. 25-103 (2d Cir. July 28, 2026), the Second Circuit held that a Chapter 7 debtor lacked Article III standing to obtain a determination of the dischargeability of federal income-tax debts where, at the time she filed her adversary complaint, the IRS had not taken any concrete action indicating that it intended to assert that the debts were nondischargeable.
The court further held that, once the IRS later filed an action in district court asserting that the tax debts were excepted from discharge under 11 U.S.C. § 523(a)(1)(C), the bankruptcy court should have deferred to the district court because the IRS action was the first jurisdictionally proper proceeding addressing the issue. The Second Circuit therefore vacated the bankruptcy court’s order denying the IRS’s motion to dismiss and remanded with instructions to dismiss the debtor’s original and supplemental complaints.
NCBRC and the National Association of Consumer Bankruptcy Attorneys (NACBA) participated as amici curiae in support of the debtor. The amicus brief was authored by David W. Foster, Chad J. Husnick, Anthony V. Sexton, and Leah Davis Patrick of Kirkland & Ellis LLP.
Background
•Bankruptcy petition and adversary complaint: Goebel filed a Chapter 7 petition in the Eastern District of New York on September 2, 2022, listing $623,331.31 in total debt, including $512,545.17 in federal income-tax debt. In October 2022, she commenced an adversary proceeding against the IRS seeking a declaration that her tax liabilities for 2008–2018, including penalties and interest, were dischargeable under 11 U.S.C. § 523(a)(1).
•Discharge and delayed service: The bankruptcy court entered Goebel’s general discharge in December 2022, but she did not complete formal service of the adversary complaint on the IRS until March 22, 2023. The IRS acknowledged that it had received actual notice of the adversary proceeding sometime before formal service.
•IRS’s intervening district-court action: On March 14, 2023—eight days before formal service of Goebel’s complaint—the IRS filed a separate action in the Eastern District of New York. It sought to reduce Goebel’s unpaid federal income-tax liabilities for 2010–2018 to judgment and expressly anticipated her bankruptcy-discharge defense.
•The IRS moved to dismiss Goebel’s adversary proceeding on April 21, 2023. The IRS argued that Goebel’s adversary complaint did not present a justiciable dispute because it alleged no concrete or imminent effort by the IRS to treat her tax debts as nondischargeable and that the federal-tax exception to the Declaratory Judgment Act, 28 U.S.C. § 2201(a), barred the declaratory relief she sought.
•On March 18, 2024, the bankruptcy court denied dismissal and allowed Goebel to supplement her pleading with the IRS’s later conduct; she filed that supplemental complaint on March 28, 2024.
•A direct appeal to the 2nd Circuit was granted.
The Second Circuit: No Injury in Fact When the Complaint Was Filed
The Second Circuit began with Article III standing. Although bankruptcy courts are Article I courts, the Second Circuit joined several other circuits in concluding that Article III standing requirements apply to adversary proceedings because bankruptcy-court jurisdiction is derivative of the jurisdiction conferred on the district courts.
To establish standing, Goebel therefore had to plausibly allege a concrete, particularized, and actual or imminent injury.
The court concluded that she had not done so.
At the time Goebel filed her adversary complaint, the automatic stay prohibited collection activity. After discharge, the discharge injunction would protect her from efforts to collect discharged debts. Her exposure therefore depended upon the IRS successfully asserting that her tax debts fell within an exception to discharge.
Section 523(a)(1)(C) excepts from discharge a tax debt where the debtor “made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.” The IRS bears the burden of establishing both the required conduct and willfulness by a preponderance of the evidence.
But Goebel’s original complaint alleged no facts indicating that the IRS believed § 523(a)(1)(C) applied or otherwise intended to challenge dischargeability.
The Second Circuit therefore concluded that Goebel’s concern that the IRS might someday assert nondischargeability was conjectural rather than an actual or imminent injury. Importantly, the court acknowledged that subsequent events made the IRS’s intent unmistakable, but emphasized that standing had to be evaluated based upon the circumstances alleged when Goebel filed her original complaint—not through hindsight.
Accordingly, the bankruptcy court lacked jurisdiction over the original adversary proceeding.
Rule 4007(b) Did Not Eliminate the Constitutional Standing Requirement
Goebel argued that the Bankruptcy Code and Bankruptcy Rules expressly authorized her to seek a dischargeability determination when she did. Bankruptcy Rule 4007(b), unlike Rule 4007(c), permits certain dischargeability complaints to be filed “at any time.”
The Second Circuit nevertheless held that statutory authorization to bring an action does not itself satisfy Article III.
According to the court, even if the Bankruptcy Code and Rules authorized Goebel to file the complaint, she still had to establish a concrete Article III injury. The existence of a statutory cause of action could not substitute for constitutional standing.
The court also distinguished situations in which determining dischargeability is necessary to resolution of an existing bankruptcy dispute. For example, determinations involving tax liability under § 505, priority under § 507, or certain Chapter 13 issues may arise as part of an otherwise justiciable controversy. But the court reasoned that a Chapter 7 estate can generally be administered and a discharge entered without first deciding whether § 523(a)(1)(C) ultimately applies to a particular tax debt.
The IRS Action Became the First Jurisdictionally Proper Case
The procedural posture created an unusual problem.
Goebel had filed her bankruptcy adversary proceeding first. But the Second Circuit held that her complaint was not jurisdictionally proper when filed because she lacked standing.
The IRS filed its district-court action later. By that point, however, there was unquestionably a live dispute: the IRS expressly asserted that the tax liabilities were nondischargeable under § 523(a)(1)(C).
The Second Circuit declined to decide whether Rule 15(d) supplementation can ever cure an Article III jurisdictional defect existing at the outset of litigation. The court noted that the issue has divided other circuits but determined that it did not need to resolve that question here.
Even assuming Goebel’s supplemental complaint could cure the defect prospectively, the IRS’s district-court action had already become the first jurisdictionally proper action.
The court relied on the principle that priority ordinarily belongs to the first court that obtains jurisdiction over the parties and the issues. The relevant question was therefore not simply which pleading was filed first, but which court first obtained jurisdiction over an actual controversy.
Because Goebel’s original complaint lacked standing and the IRS’s district-court action did not, the district court won that race.
Bankruptcy Courts Do Not Have “Superior” Jurisdiction Over Dischargeability Questions
Goebel also argued that bankruptcy courts possess superior jurisdiction over questions concerning the scope of a bankruptcy discharge.
The Second Circuit rejected that contention.
The court emphasized that under 28 U.S.C. §§ 1334 and 157, bankruptcy-court jurisdiction derives from the district court. Section 1452 does not authorize removal of an action from a district court to the bankruptcy court within that same district, and nothing in the jurisdictional statutes gives a bankruptcy court automatic priority over a district court that has already obtained jurisdiction over the controversy.
Nor did § 524 give the bankruptcy court exclusive control over the dispute. The discharge injunction applies only to debts that are in fact discharged. An action seeking a determination that a debt was not discharged therefore does not itself violate § 524 merely by asking the court to decide that question.
What the Court Did Not Decide
Two significant issues remain unresolved.
First, the Second Circuit did not decide whether a supplemental pleading under Rule 15(d) can cure a constitutional standing defect that existed when the original complaint was filed. It assumed for purposes of the decision that such supplementation might be possible.
Second, the court did not decide whether the federal-tax exception to the Declaratory Judgment Act bars a debtor from seeking a determination of tax dischargeability. Because the court resolved the appeal on standing and jurisdictional-priority grounds, it expressly declined to reach the IRS’s Declaratory Judgment Act argument.
Practical Significance for Consumer Bankruptcy Attorneys
Goebel creates an important procedural limitation for debtors seeking certainty regarding the dischargeability of federal tax debts under § 523(a)(1)(C).
At least in the Second Circuit, the fact that Rule 4007(b) permits a debtor to file a dischargeability complaint “at any time” does not mean that the debtor may obtain an advisory determination before a concrete dispute exists. A complaint should contain facts demonstrating that the IRS has taken, threatened, or otherwise manifested a sufficiently concrete position that the debt is nondischargeable.
The decision also creates a potentially significant forum consequence. A debtor who files too early may lack standing, while the IRS can later create a justiciable dispute by filing an enforcement action in district court. If that occurs before the debtor has a jurisdictionally sufficient bankruptcy-court complaint, Goebel indicates that the district-court action may receive priority even though the debtor nominally filed first.
For debtor’s counsel, the lesson is therefore not merely to file early, but to carefully document the facts establishing an existing or imminent dispute regarding dischargeability.
NCBRC and NACBA filed an amicus brief in support of Ms. Goebel, arguing that the Bankruptcy Code and Rules permit debtors to obtain timely determinations regarding the scope of their discharge and warning that requiring debtors to wait for later IRS action may undermine the fresh start by forcing dischargeability litigation to occur after the bankruptcy case has concluded. Although the Second Circuit rejected the debtor’s jurisdictional arguments in this case, it left unresolved both the Rule 15(d) supplementation question and the application of the Declaratory Judgment Act’s federal-tax exception.
NCBRC thanks David W. Foster, Chad J. Husnick, Anthony V. Sexton, and Leah Davis Patrick of Kirkland & Ellis LLP for their work on behalf of NCBRC and NACBA in this important appeal.