In re Huenerberg, 590 B.R. 862

Debtors in a Chapter 13 case objected to the IRS proof of claim to the extent it sought priority treatment for a portion labeled a "shared responsibility payment" under 26 U.S.C. § 5000A (the ACA individual mandate payment).
§ 5000A(b) describes the payment as a "penalty" (a "shared responsibility payment") but requires inclusion on a tax return and collection by the IRS through tax procedures.
Bankruptcy priority depends on 11 U.S.C. § 507(a)(8), which grants priority to certain "taxes," including "an excise tax on ... a transaction" whose return was last due within three years before the petition date.
IRS argued the shared responsibility payment is a tax (and an excise on the act/choice not to obtain coverage) entitled to § 507(a)(8) priority, relying on the Supreme Court's characterization in Nat'l Fed'n of Ind. Bus. v. Sebelius.
Debtors argued the payment is a penalty designed to induce insurance purchase and thus not a tax/excise for bankruptcy priority purposes.
The court concluded the shared responsibility payment is not a priority excise under § 507(a)(8)(E): it may function like a tax for some purposes, but it does not fit the ordinary, narrow conception of an "excise on a transaction."

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the shared responsibility payment is a "tax" for § 507(a)(8) purposes	IRS: Nat'l Fed'n treated it as a tax (raises revenue, collected by IRS); functional test favors "tax."	Debtors: despite Nat'l Fed'n, in bankruptcy context it operates as a penalty to induce conduct, not a revenue tax.	Court: The question whether it is a tax is close, but this decision resolves outcome on the excise/transaction ground; court rejects expansive penalty-definition approach urged by debtors but does not need to broaden Reorganized CF & I here.
Whether the shared responsibility payment is an "excise tax" under § 507(a)(8)(E)	IRS: It taxes an individual's act/choice (not obtaining insurance) and thus is an excise on an activity/privilege.	Debtors: Payment is owed for doing nothing; not a tax on manufacture/sale/occupation or on an activity; not an excise.	Held: Narrow construction of "excise" excludes the payment; only by expansive reading could it qualify, so it is not an excise for § 507(a)(8)(E).
Whether the payment is an excise "on a transaction" under § 507(a)(8)(E)	IRS: The individual choice not to obtain insurance is a "transaction."	Debtors: No sensible definition of "transaction" reasonably covers a unilateral decision not to act.	Held: "Transaction" implies an action or engagement (often involving two parties); a solitary decision not to obtain coverage is not a transaction for § 507(a)(8)(E).

Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519 (Supreme Court) (construed the ACA shared responsibility payment as within Congress's taxing power for constitutional purposes)
United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213 (Supreme Court) (functional test: look to operation, not labels, to decide whether an exaction is a tax or penalty for bankruptcy priority)
Bailey v. Drexel Furniture Co., 259 U.S. 20 (Supreme Court) (exaction with heavy punitive features treated as a penalty)
Kurth Ranch v. Dep't of Revenue, 511 U.S. 767 (Supreme Court) (tax can become a penalty when penalizing features dominate)
Williams v. Motley, 925 F.2d 741 (4th Cir.) (uninsured motor vehicle assessment held an excise where assessment related to operating an uninsured vehicle)
Rosenow v. Ill. Dep't of Revenue, 715 F.2d 277 (7th Cir.) (definition of "excise" as tax on performance of an act or enjoyment of a privilege)
Ill. Dep't of Revenue v. Hayslett/Judy Oil, Inc., 426 F.3d 899 (7th Cir.) (examples and definitions of excise taxes)