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Sur. Co. v. LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772,
781-782 (2d Cir. 1996); United States v. Jones, 230 Bankr. 875,
878 (M.D. Ala. 1999). Mutuality means that the creditor and the
debtor must be mutually indebted in order to exercise the right
of offset. 11 U.S.C. sec. 553; see In re O.P.M. Leasing Servs.,
Inc., 68 Bankr. 979, 985-986 (Bankr. S.D.N.Y. 1987). “The
mutuality requirement is satisfied if the debts at issue are
‘owing between the same parties, in the same right or capacity,
and ... [are] of the same kind and quality.’” In re O.P.M.
Leasing Servs., Inc., supra at 986 (quoting In re Braniff
Airways, Inc., 42 Bankr. 443, 449 (Bankr. N.D. Tex. 1984)).
Accordingly, obligations owing between a creditor and a
prepetition debtor may not be offset against obligations owing
between that same creditor and the debtor’s estate since the
requisite mutuality of obligations is absent. Id.
The 1997 overpayment is a postpetition debt that the IRS
owed to petitioners’ bankruptcy estate. The tax liabilities for
1992 and 1993 are prepetition debts that petitioners owed to the
IRS. Therefore, respondent is correct that the IRS lacked the
requisite mutuality to offset the refund for 1997 against the
1992 and 1993 taxes of petitioners. The tax liability for 1996,
however, is a postpetition debt. Respondent could have exercised
his right to offset but chose not to do so. Therefore,
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