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Date: 05-11-2022
Case Style:
Case Number: 2:20-cv-03133
Judge: Joseph F. Leeson, Jr.
Court: United States District Court for the Eastern District of Pennsylvania (Philadelphia County)
Plaintiff's Attorney: Sergey Joseph Litvack
Defendant's Attorney: David A. Hubbert
Description: Philadelphia, Pennsylvania bankruptcy lawyer represented Debtor in a Chapter 13 proceeding.
The ACA requires certain individuals to maintain
“minimal essential [health insurance] coverage” throughout
the year (the Individual Mandate). 26 U.S.C. § 5000A(a). A
person subject to the Individual Mandate who fails to maintain
the required insurance for one month or more is assessed a
“shared responsibility payment.” Id. § 5000A(b)(1). Though
described by the statute as a “penalty,” id., the payment is
collected by the Internal Revenue Service along with one’s
federal income tax return. Id. § 5000A(b)(1)–(2).
Whether the payment is a “penalty” or a “tax” remains
contested. In NFIB v. Sebelius, 567 U.S. 519 (2012), the
Supreme Court held that the shared responsibility payment is a
tax for constitutional purposes, id. at 570, but is not a tax for
purposes of the Anti-Injunction Act, id. at 546. This appeal
requires us to decide whether the shared responsibility
payment is a tax for bankruptcy purposes. If it is, we must also
determine whether it is entitled to priority under the
Bankruptcy Code.
In July 2019, Robert and Bonnie Szczyporski (Debtors)
filed a Chapter 13 bankruptcy petition. The IRS filed a proof
of claim against their estate for various unpaid taxes and
interest, including a $927.00 shared responsibility payment the
Debtors owed for failing to maintain health insurance in 2018.
The IRS’s proof of claim characterized the payment as an
“EXCISE” tax entitled to priority. The Debtors objected to the
IRS’s claim, arguing that the shared responsibility payment
was not a tax. They claimed it was a penalty not entitled to
priority.
The Bankruptcy Court confirmed the Debtors’
repayment plan in February 2020, but reserved decision on
their objection to the IRS’s proof of claim. After briefing from
the parties and a hearing, the Bankruptcy Court held: (1) under
NFIB v. Sebelius, the shared responsibility payment is a tax—
not a penalty—for bankruptcy purposes; and (2) the payment
is entitled to priority under Section 507(a)(8) of the Bankruptcy
Code, 11 U.S.C. § 507(a)(8), as either an income or an excise tax. In re Szczyporski, 617 B.R. 529, 531–32 (Bankr. E.D. Pa.
2020).
Outcome: The District Court affirmed. In re Szczyporski, 531 F.
Supp. 3d 934, 936 (E.D. Pa. 2021). The Court found Sebelius’s
analysis dispositive but explained that it would also find the
payment to be a tax for bankruptcy purposes under the
functional examination we used in In re United Healthcare
Systems, Inc., 396 F.3d 247 (3d Cir. 2005). In re Szczyporski,
531 F. Supp. 3d at 939–40.
The District Court also agreed that the shared
responsibility payment is entitled to priority, but only as an
“income tax” under Section 507(a)(8)(A). Id. at 943; 11 U.S.C.
§ 507(a)(8)(A). The Court concluded the payment is not
entitled to priority as an excise tax, since it is not a tax “on a
transaction” as required by Section 507(a)(8)(E). In re
Szczyporski, 531 F. Supp. 3d at 942. The Debtors filed this
timely appeal.
or the reasons stated, we hold that the shared
responsibility payment is a tax “measured . . . by income.” As
such, it is entitled to priority under Section 507(a)(8)(A). We
will affirm the District Court’s order.
Plaintiff's Experts:
Defendant's Experts:
Comments: