United States v. Equipment Acquisition Resource, 742 F.3d 743

Equipment Acquisition Resources, Inc. (EAR), an Illinois Subchapter S corporation, made nine federal income tax payments to the IRS before filing Chapter 11; eight payments were within two years of the petition, one was older.
EAR (as debtor in possession) sued the United States to recover all nine payments as fraudulent transfers: eight under 11 U.S.C. § 548 (two-year avoidability) and the ninth under 11 U.S.C. § 544(b) (derivative state-law avoidance using Illinois’ Uniform Fraudulent Transfer Act).
Section 106(a)(1) of the Bankruptcy Code waives sovereign immunity “with respect to” several Code provisions, including § 544 and § 548; the government conceded liability under § 548 but contested the § 544 claim.
The bankruptcy and district courts held § 106(a)(1) abrogated sovereign immunity for § 544, permitting EAR to bring the Illinois fraudulent-transfer claim against the IRS; the United States appealed.
The Seventh Circuit considered whether § 106(a)(1)’s waiver lets a trustee/debtor in possession invoke § 544(b)(1) even when, outside bankruptcy, sovereign immunity (and other barriers) would prevent an actual unsecured creditor from suing the United States.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether § 106(a)(1)’s abrogation of sovereign immunity allows a trustee to bring a § 544(b)(1) state-law fraudulent-transfer claim against the United States	§ 106(a)(1) unambiguously waives immunity “with respect to” § 544, so the United States cannot assert immunity in a § 544(b)(1) action	§ 544(b)(1) requires that the transfer be voidable by an actual unsecured creditor under applicable (state) law; because sovereign immunity (and other legal barriers) prevent such a creditor from suing the U.S., the trustee cannot bring the claim	The court held § 106(a)(1) does not eliminate § 544(b)(1)’s actual-creditor requirement; because no unsecured creditor could have sued the U.S. under Illinois law, EAR’s § 544(b)(1) claim fails

FDIC v. Meyer, 510 U.S. 471 (distinguishes waiver inquiry from substantive-legal avenue for relief)
U.S. Postal Serv. v. Flamingo Indus. (USA) Ltd., 540 U.S. 736 (an absence of immunity does not create liability if substantive law does not reach the government)
Office of Personnel Management v. Richmond, 496 U.S. 414 (Appropriations Clause limits recovery against the Treasury)
McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (states cannot control or impede federal operations)
United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1 (recognizes strong federal interest in financial stability of government tax collection)
Nordic Village, Inc. v. United States, 503 U.S. 30 (ambiguities in waiver of sovereign immunity construed against finding waiver)
Conn. Nat’l Bank v. Germain, 503 U.S. 249 (statutory text governs when unambiguous)
RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (courts should apply Bankruptcy Code as written)