623 B.R. 841
E.D. Wis.2020Background:
- Gary and Jody Huenerberg filed Chapter 13 on Aug. 31, 2017; IRS filed a proof of claim Sept. 7, 2017 for $6,502.96, of which $1,043 was an unpaid ACA shared responsibility payment (SRP) for 2016.
- IRS characterized the SRP as an "excise tax" and sought priority treatment under 11 U.S.C. §507(a)(8)(E)(i); the debtors objected, calling the SRP a penalty and non‑priority unsecured debt.
- The bankruptcy court sustained the objection and held the SRP was not an "excise tax on a transaction" under §507(a)(8)(E)(i) and therefore was not entitled to eighth‑priority treatment.
- The central legal question was whether the SRP qualifies as an "excise tax" and, if so, whether it is an excise tax "on a transaction" for priority purposes in bankruptcy.
- The Supreme Court in NFIB v. Sebelius treated the SRP as a "tax" for constitutional analysis, but the bankruptcy court applied the Reorganized CF&I functional bankruptcy analysis to tax/penalty classification.
- (Context) Congress eliminated the individual SRP as of Dec. 31, 2018 by the 2017 amendment, but the claim at issue arose for 2016.
Issues:
| Issue | Plaintiff's Argument (IRS) | Defendant's Argument (Huenerberg) | Held |
|---|---|---|---|
| Is the SRP a tax or a penalty for bankruptcy purposes? | SRP is a tax (per Sebelius) | SRP is a penalty, not a tax | Court did not definitively reject tax characterization but treated analysis as unnecessary to disposition; accepted that SRP could be tax for some purposes but proceeded to other grounds. |
| Is the SRP an "excise tax" under §507(a)(8)(E)? | Yes — IRS contends SRP is an excise tax and thus priority | No — SRP is not an excise tax; it penalizes inaction | Held: SRP is not an excise tax within the ordinary/Bankruptcy context. |
| If an excise tax, is the SRP an excise tax "on a transaction"? | Yes — IRS: tax on "living without insurance" qualifies | No — Debtors: SRP arises from inaction (absence of transaction), so not a transaction tax | Held: SRP is not a tax on a transaction and therefore not covered by §507(a)(8)(E)(i). |
| Do all unpaid taxes receive priority under §507(a)(8)? | All taxes should get priority if they are "taxes" | Only the specific tax categories listed in §507(a)(8) receive priority | Held: Priority is limited to the enumerated types; IRS waived any alternate §507(a)(8)(A) argument and cannot claim blanket priority. |
Key Cases Cited
- Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519 (2012) (Supreme Court treated the ACA SRP as a tax for constitutional purposes)
- United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213 (1996) (functional test distinguishing tax vs. penalty in bankruptcy)
- Stamat v. Neary, 635 F.3d 974 (7th Cir. 2011) (standard of review: factual findings for clear error; legal conclusions de novo)
- Rosenow v. Illinois Dep’t of Revenue, 715 F.2d 277 (7th Cir. 1983) (discussion of excise tax as tax on act, sale, consumption)
- Groetken v. Illinois Dep’t of Revenue (In re Groetken), 843 F.2d 1007 (7th Cir. 1988) (same; treatment of excise/sales/use tax)
- Illinois Dep’t of Revenue v. Hayslett/Judy Oil, Inc., 426 F.3d 899 (7th Cir. 2005) (uses Black’s definition of excise tax in tax cases)
- Williams v. Motley, 925 F.2d 741 (4th Cir. 1991) (upheld tax on affirmative act — operating an uninsured vehicle)
- In re Chesteen, [citation="799 F. App'x 236"] (5th Cir. 2020) (court held SRP not entitled to priority as an "excise tax on a transaction")