Richard Cook v. United States, 27 F.4th 960

Yahweh Center, a North Carolina nonprofit, filed Chapter 11 in 2016 with longstanding unpaid federal and state taxes, penalties, interest, and tax liens.
The Chapter 11 plan appointed Richard P. Cook as plan trustee, who sued the United States seeking to avoid tax penalty obligations and recover prior payments under 11 U.S.C. § 544(b) and the North Carolina Uniform Voidable Transactions Act (N.C. Gen. Stat. § 39-23.5).
Cook alleged penalties and payments were constructively fraudulent because Yahweh Center received no "reasonably equivalent value."
The bankruptcy court granted the government's motion to dismiss; the district court affirmed. Cook appealed to the Fourth Circuit.
The Fourth Circuit held sovereign immunity did not bar the suit (citing 11 U.S.C. § 106 and waiver via the IRS proof of claim), but on the merits found tax penalties are not voidable under the state Act or Bankruptcy Code and payments on those penalties are not recoverable.

Issue	Plaintiff's Argument (Cook)	Defendant's Argument (United States)	Held
Does sovereign immunity bar a trustee from suing the U.S. under § 544(b) via the NC Act?	§106 abrogates sovereign immunity; IRS filing a proof of claim also waives immunity.	Sovereign immunity prevents applying state voidable-transfer law to the United States; no "applicable law" to void transfers against gov't.	Sovereign immunity does not bar the suit: §106(a) abrogates and §106(b) plus IRS proof of claim waive immunity.
Are statutorily imposed tax penalty obligations "obligations" voidable as lacking "reasonably equivalent value" under the NC Act/§ 544?	Tax penalties were imposed without exchange and thus were incurred without reasonably equivalent value and are avoidable.	Tax penalties are involuntary, statutorily required, noncompensatory obligations not within the Act's exchange-based scope.	Penalties are not the kind of incurred obligations the Act targets; tax penalties are not voidable.
Are prior payments made on tax penalties recoverable as fraudulent transfers?	Payments on penalties should be recoverable because penalties were voidable for lack of value.	Payments reduced a legitimate obligation dollar-for-dollar and thus conferred reasonably equivalent value.	Payments are not recoverable: because the underlying penalties are not voidable, payments satisfied a legitimate obligation and constitute reasonably equivalent value.

In re Southeast Waffles, LLC, 702 F.3d 850 (6th Cir. 2012) (tax penalties not avoidable under fraudulent-transfer law)
Schlossberg v. Barney, 380 F.3d 174 (4th Cir. 2004) (tax liabilities arise by statute; gov't is an involuntary creditor)
In re Haas, 31 F.3d 1081 (11th Cir. 1994) (IRS is an involuntary creditor; tax liabilities differ from voluntary exchanges)
United States ex rel. IRS v. McDermott, 507 U.S. 447 (1993) (limits of applying first-to-record presumptions to federal tax liens; taxation is not a voluntary transaction)
Gardner v. New Jersey, 329 U.S. 565 (1947) (a governmental unit that files a proof of claim submits to the bankruptcy court’s equitable jurisdiction)
In re DBSI, Inc., 869 F.3d 1004 (9th Cir. 2017) (contrasting view on applying avoidance actions to governmental claims)
In re Equip. Acquisition Res., Inc., 742 F.3d 743 (7th Cir. 2014) (court supporting the government’s sovereign-immunity-based position)