In re: Howard D. Juntoff, 636 B.R. 868

Background

The ACA required non-exempt individuals to maintain minimum health coverage or pay a shared responsibility payment (SRP); SRP for 2017–2018 was computed as the greater of a flat dollar amount or 2.5% of taxable income (subject to a ceiling).
Debtors Juntoff and the McPhersons lacked coverage for parts of the relevant years, self‑reported SRP amounts on their tax returns, and did not pay those SRP obligations prepetition.
The IRS filed amended proofs of claim in each Chapter 13 case treating the SRP liabilities as priority “excise/income tax” claims under 11 U.S.C. § 507(a)(8).
Bankruptcy Court sustained Debtors’ objections, concluding the SRP was neither “a tax on or measured by income or gross receipts” under § 507(a)(8)(A) nor “an excise tax on a transaction” under § 507(a)(8)(E).
The IRS appealed to the Bankruptcy Appellate Panel (Sixth Circuit). The Panel applied the Sixth Circuit’s functional test (Lorber/Suburban framework) and Supreme Court guidance on tax v. penalty.
The Panel reversed: it held the SRP qualifies as a “tax” under the Sixth Circuit functional test and is a tax “measured by income” for purposes of § 507(a)(8)(A); the cases were remanded for further proceedings.

Issues

Issue	Plaintiff's Argument (IRS)	Defendant's Argument (Debtors)	Held
Whether the SRP is a “tax” for priority purposes under the Sixth Circuit functional test	SRP is an involuntary pecuniary burden imposed by Congress for public purposes, universally applicable to similarly situated individuals, and thus a tax under Lorber/Suburban	SRP is a statutory “penalty,” labeled and structured as punitive, with discretionary hardship exemptions and limited enforcement tools, so it should not be treated as a tax	Held: SRP is a “tax” under the Sixth Circuit functional analysis (Lorber/Suburban and CF&I/Sebelius guidance)
Whether the SRP is a tax “on or measured by income” under § 507(a)(8)(A)	SRP formula uses taxable income (or a flat amount triggered by income thresholds), so the SRP is measured by income and falls within § 507(a)(8)(A)	Because some taxpayers pay a flat amount and multiple non‑income factors enter the SRP formula, it is not a tax “measured by income” in the statutory sense	Held: SRP is a tax “measured by income”; income is an integral component of the SRP calculation and thus fits § 507(a)(8)(A)
Whether the SRP is an excise tax on a transaction under § 507(a)(8)(E)	(Alternate) IRS argued SRP could be treated as an excise tax on the transaction of going uninsured	Debtors disputed excise characterization; primary focus was on (A) and on SRP being a penalty	Panel did not need to decide (E) after concluding SRP is a tax measured by income under (A) (so no definitive holding on (E))

Key Cases Cited

National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012) (Supreme Court applied a functional test and concluded the SRP may be considered a tax for constitutional purposes)
United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213 (1996) (adopts functional examination distinguishing taxes from penalties for bankruptcy priority analysis)
United States v. La Franca, 282 U.S. 568 (1931) (defines penalty as punishment for unlawful act or omission)
Howard Delivery Serv., Inc. v. Zurich Am. Ins. Co., 547 U.S. 651 (2006) (requires tight construction of priority classes in bankruptcy)
Yoder v. Ohio Bureau of Workers’ Comp. (In re Suburban Motor Freight, Inc.), 998 F.2d 338 (6th Cir. 1993) (Suburban I) (Sixth Circuit functional approach: involuntary, universally applicable exactions may be taxes)
Ohio Bureau of Workers’ Comp. v. Yoder (In re Suburban Motor Freight, Inc.), 36 F.3d 484 (6th Cir. 1994) (Suburban II) (refines universality and competition concerns; liabilities arising solely from default tend not to qualify)
County Sanitation Dist. No. 2 v. Lorber Indus. of Cal., Inc., 675 F.2d 1062 (9th Cir. 1982) (four‑prong test frequently used in functional analyses)
Rizzo v. Michigan Dep’t of Treasury (In re Rizzo), 741 F.3d 703 (6th Cir. 2014) (applies CF&I functional test in Sixth Circuit context)
Begier v. Internal Revenue Serv., 496 U.S. 53 (1990) (bankruptcy priority principles and pro rata distribution policy)