617 B.R. 851
Bankr. E.D.N.C.2020Background
- Debtor Ryan A. Albracht filed Chapter 13 on August 12, 2019; the IRS filed an amended proof of claim for $73,269.65, which included a $1,874.89 "shared responsibility payment" (SRP) for tax years 2016 and 2018.
- The Debtor objected, arguing the SRP is a penalty (general unsecured claim), not a tax entitled to priority; the IRS maintained the SRP is a tax (excise or income) and sought priority under 11 U.S.C. § 507(a)(8).
- The court treated the issue as a core proceeding and considered prior related litigation and appellate authority addressing the SRP's character.
- The court concluded the SRP functions as a regulatory penalty, and even assuming it were a tax, it does not qualify as an excise tax on a "transaction" for priority under § 507(a)(8)(E).
- Because the IRS asserted the claim as an excise tax, the court refused to reclassify the SRP as an income tax (priority) as an advisory ruling would be inappropriate.
- Order: Debtor's objection sustained; SRP $1,874.89 removed from priority portion and reclassified as general unsecured; IRS allowed a priority claim of $35,151.73 and a general unsecured claim of $38,117.92.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Characterization of the SRP: tax vs. penalty | Albracht: SRP is a penalty, not a tax | IRS: SRP is a tax (excise or income) | Court: SRP functions as a penalty; for argument's sake it will assume tax but treats it as non-excise |
| Whether SRP is an "excise tax on a transaction" under § 507(a)(8)(E) | Albracht: No transaction; SRP arises from inaction, so not an excise | IRS: §507(a)(8) covers excises broadly; SRP should fit a category | Court: SRP is not an excise on a transaction and thus not entitled to §507(a)(8)(E) priority |
| Whether SRP should be treated as an income tax entitled to priority under §507(a)(8)(A) | Albracht: SRP is not an income tax | IRS: alternatively, SRP is an income tax and entitled to priority | Court: Claim is pleaded as an excise; reclassifying to income tax is not ripe and would be advisory, so court declines |
Key Cases Cited
- National Federation of Independent Business v. Sebelius, 567 U.S. 519 (Supreme Court) (treated SRP as a tax for constitutional-saving construction; described mandate as compelling commercial activity).
- Williams v. Motley, 925 F.2d 741 (4th Cir.) (uninsured motor vehicle assessment classified as an excise tied to registration activity).
- DeRoche v. Arizona Industrial Commission (In re DeRoche), 287 F.3d 751 (9th Cir.) (reimbursement for failure to carry workers' compensation treated as an excise tied to employing activity).
- Groetken, 843 F.2d 1007 (7th Cir.) (excise categories tied to active business/sales or occupational activity).
- Rizzo v. Michigan Department of Treasury (In re Rizzo), 741 F.3d 703 (6th Cir.) (noting excise may be imposed on exercise of a right or privilege).
- Aetna Life Insurance Co. v. Haworth, 300 U.S. 227 (Supreme Court) (articulating limits on advisory opinions).
- Hooper v. California, 155 U.S. 648 (Supreme Court) (statutory interpretation should, where possible, avoid constitutional invalidity).
- Steward Machine Co. v. Davis, 301 U.S. 548 (Supreme Court) (discussion of excise taxes extending to vocations or activities).