In the case of United States v. Nordic Village Inc., David O. Simon, Trustee (1991), the U.S Supreme Court ruled that bankruptcy trustees cannot retroactively recover mistakenly paid taxes to the IRS without explicit congressional authorization. The court held that a provision in Bankruptcy Code 106(c) did not unequivocally waive sovereign immunity for purposes of allowing a trustee to pursue an action against the government under section 544(b). This decision was based on their interpretation of statutory language and legislative history, which they found lacked clear intent from Congress to allow such actions against governmental units. Therefore, despite any financial hardship this may cause bankrupt estates who have erroneously made tax payments prior to filing for bankruptcy protection, these funds could not be recouped unless there is specific legislation permitting it.

In the dissenting opinion for United States v. Nordic Village Inc., Justice Blackmun, joined by Justices Stevens and O'Connor, disagreed with the majority's interpretation of 11 U.S.C §106(c). They argued that this provision does not bar a bankruptcy trustee from recovering an erroneous refund from the IRS. The dissent pointed out that Congress intended to waive sovereign immunity in cases where it would be fair and equitable to do so, such as when a government agency has mistakenly made an overpayment. They also criticized the majority for its overly narrow reading of "involuntary," arguing that it should include situations where payment was induced by mistake or fraud. Furthermore, they contended that denying recovery in these circumstances undermines one of bankruptcy law’s primary goals: ensuring equal distribution among creditors.