In re Parrish, 583 B.R. 873

Debtor Angela Boykin Parrish filed Chapter 13 (May 10, 2017). IRS filed proof of claim for a $664 ISRP assessed on her 2016 return for failing to maintain ACA-required health insurance.
Parrish objected, arguing the ISRP is a non‑priority penalty under 11 U.S.C. § 507(a)(8); IRS argued the ISRP is a priority tax (income or excise).
The legal question is whether the ISRP is a "tax" (entitled to § 507(a)(8) priority) or a non‑priority penalty under the Bankruptcy Code.
The parties agreed labels are not dispositive; courts apply a functional test (look to operation and primary purpose) rather than statutory nomenclature.
The IRS relied heavily on the Supreme Court’s decision in National Federation of Independent Business v. Sebelius, which characterized the ISRP as reasonably viewed as a tax for constitutional purposes; debtor relied on precedent treating similar exactions as penalties for bankruptcy priority purposes.
The court found the IRS failed its burden to prove the ISRP is a tax for § 507(a)(8) purposes and allowed Parrish’s objection: the ISRP is a non‑priority penalty and the claim is an unsecured claim of $664.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Is the ISRP a "tax" entitled to priority under 11 U.S.C. § 507(a)(8)?	Parrish: ISRP is a penalty whose primary purpose is to deter going without insurance, not to raise revenue; thus non‑priority.	IRS: ISRP functions like a tax (paid with returns, keyed to income, collected by IRS); Sebelius deemed it reasonably characterizable as a tax.	Court: ISRP is a penalty for § 507(a)(8) purposes; IRS did not meet burden to show it is a tax.

National Fedn. of Indep. Bus. v. Sebelius, 567 U.S. 519 (Sup. Ct. 2012) (considered ISRP as both "penalty" and reasonably characterizable as a tax for constitutional analysis)
United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213 (Sup. Ct. 1996) (adopted La Franca framework distinguishing taxes from penal exactions)
United States v. La Franca, 282 U.S. 568 (Sup. Ct. 1931) (tax defined as enforced contribution for government support; penalty as punishment for discouraged conduct)
Bailey v. Drexel Furniture Co., 259 U.S. 20 (Sup. Ct. 1922) (characteristics of penalties relevant to constitutional analysis)
In re Bradford, 534 B.R. 839 (Bankr. M.D. Ga. 2015) (applied functional test; concluded similar exaction was a penalty for § 507 purposes)
In re Cespedes, 393 B.R. 403 (Bankr. E.D.N.C. 2008) (held early‑withdrawal assessment was a non‑priority penalty; rejected necessity of unlawfulness element for penalty determination)