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BANKRUPTCY COURT RULES ACA SHARED RESPONSIBILITY PAYMENT IS NOT ENTITLED TO IRS PRIORITY TREATMENT
Government Printing House ^ | 02/09/2018 | IRS

Posted on 02/28/2018 9:21:35 AM PST by texas booster

Court case: Chesteen v. U.S. (Bankr. E.D. La., No. 17-11472 Section “B” Chapter 13, 2/9/18)

A U.S. Bankruptcy Court for the Eastern District of Louisiana ruled that a taxpayer’s $695 shared responsibility payment under the ACA individual mandate is more properly characterized as a penalty, not a tax, and as such is not entitled to priority treatment under the Bankruptcy Code.

Background. John D. Chesteen, Jr. filed for relief under Chapter 13 of the Bankruptcy Code on June 8, 2017. His amended priority claim was $5,100.10, based on amounts he owed the IRS for 2015 and 2016. After several amendments to its original proof of claim, the IRS listed the amount of $5,795.10, exactly $695 more than the debtor’s claim. The additional amount represented Mr. Chesteen’s shared responsibility payment under IRC §5000A for not maintaining health insurance. The sole issue before the court was whether the payment is a tax entitled to priority status or a penalty not entitled to priority status under the Bankruptcy Code.

Law and discussion. The Bankruptcy Code in §507 sets out the framework for determining whether a claim is entitled to “priority status,” meaning that it is an unsecured claim of a governmental unit and not dischargeable in bankruptcy. Generally, a tax assessed within a three-year period ending on or before the date a bankruptcy petition is filed is given priority status and cannot be discharged.

The court must look to the substance of a statute, rather than the name of a particular obligation or “exaction” to determine whether it is a “tax.” In bankruptcy law, a tax is a “pecuniary burden laid upon individuals or property for the purpose of supporting the Government.” In CF & I (U.S. v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 224 (1996)), the Supreme Court characterized a tax as “an enforced contribution to provide for the support of a government,” as distinguished from a “penalty” which is a “punishment for an unlawful act or commission.”

In applying these definitions, the court set out to determine whether the IRC §5000A payment is more like a penalty or more like a tax for purposes of determining priority status in bankruptcy. In order to decide, the court looked at whether the purpose of the mandate is to support the government or to punish or discourage certain conduct.

The court rejected the IRS’s argument that the mandate penalty is similar to the payroll trust fund recovery penalty (TFRP), which is non-dischargeable. Citing the Sotelo (U.S. v. Sotelo, 436 U.S. 268, 275 (1942)) case, the court said that despite its penalty “moniker,” the TFRP represented a “pecuniary loss to the government” of taxes that were already collected but which the taxpayer failed to pay over.

In contrast, the court noted that the ACA individual mandate is more like a penalty because it is designed to deter citizens from living without health insurance. If the individual fails to obtain minimum essential coverage, the only consequence is the shared responsibility payment. If the individual doesn’t make the payment, the IRS may withhold it from future refunds. Otherwise, it is not subject to wage garnishments, tax liens, or other collection procedures that apply to non-payment of taxes.

Conclusion. The Bankruptcy Court for the Eastern District of Louisiana concluded that Congress’s primary purpose of imposing the ACA individual mandate was to discourage Americans from living without health insurance. An exaction (i.e. the shared responsibility payment) not enacted for the primary purpose of fiscally supporting the government is a penalty and thus not entitled to a priority claim. Because the $695 was not a “tax” within the meaning of §507(a)(8) of the Bankruptcy Code, the IRS’s claim for the amount was not entitled to priority status and Mr. Chesteen’s objection was sustained.

Application. The court pointed out that the ACA refers to the individual mandate as a “penalty” eighteen times, and does not refer to it as a tax even once. However, the court cited only in the footnotes the landmark Supreme Court decision (National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012)) in which the payment was found to be a tax, and stated that it must “look beyond” that decision. The Chesteen decision applies only to the court’s jurisdiction in Eastern Louisiana. The IRS may decide to appeal this decision and may also continue to argue that the shared responsibility payment is a tax. Taxpayers filing bankruptcy should consult their legal advisors for more information about whether their unpaid shared responsibility payments should be treated as priority claims.


TOPICS: Crime/Corruption; Government; News/Current Events; US: Louisiana
KEYWORDS: aca; obamacare
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Follow the main link for the exact District Court decision and reasoning.

So is the ACA "penalty" a tax as per the Supreme Court or a true penalty, as defined by the weasels in Congress?

Much like a Tootsie Roll pop, the world may never know.

1 posted on 02/28/2018 9:21:35 AM PST by texas booster
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To: texas booster

This stuff is infuriating.

The law today is “whatever”.


2 posted on 02/28/2018 9:23:22 AM PST by ClearCase_guy (The government cannot protect you and isn't even trying. Self-defense is a right.)
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To: texas booster

Justice Roberts has some explaining to do...


3 posted on 02/28/2018 9:24:31 AM PST by Hotlanta Mike ("You can avoid reality, but you can't avoid the consequences of avoiding reality.")
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To: texas booster

The bankruptcy court must have read the text of the law. That text contradicts Roberts’ ruling.


4 posted on 02/28/2018 9:26:37 AM PST by savedbygrace
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To: texas booster

I don’t know why Trump hasn’t just decreed that he will not enforce the individual mandate for years prior to its repeal. He can say it was unconstitutional in his opinion. No one is going to sue him over it. (Well, with leftists, you never know). It’s crazy that his IRS is still pushing for recovery of these fees.


5 posted on 02/28/2018 9:28:39 AM PST by Defiant (I may be deplorable, but I'm not getting in that basket.)
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To: ClearCase_guy
The law today is “whatever”.

Yup. We're completely untethered from the rule of law now.


6 posted on 02/28/2018 9:29:44 AM PST by Buckeye McFrog
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To: texas booster

This judge has a point, a very clear, strong, and valid point.

It was never a tax, it was a penalty.

To our Lousiana Freepers, tell us how you home grow these judges and give us the recipe!


7 posted on 02/28/2018 9:31:56 AM PST by Hostage (Article V)
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To: texas booster

8 posted on 02/28/2018 9:34:35 AM PST by Jeff Chandler (President Trump divides Americans . . . from anti-Americans.)
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To: texas booster
So is the ACA "penalty" a tax as per the Supreme Court or a true penalty, as defined by the weasels in Congress?

It depends on the circumstance. Whichever way goes against the citizen, that's what it is.

9 posted on 02/28/2018 9:36:22 AM PST by Jeff Chandler (President Trump divides Americans . . . from anti-Americans.)
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To: texas booster

Ruh-Roh...................


10 posted on 02/28/2018 9:38:00 AM PST by Red Badger (The people who call Trump a tyrant are the same people who want the president to confiscate weapons.)
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To: Jeff Chandler

Another gift from the Bush family.

To go along with the 30 million illegal aliens they invited here against the will of the citizens.


11 posted on 02/28/2018 9:38:23 AM PST by Lurkinanloomin (Natural Born Citizen Means Born Here of Citizen Parents__Know Islam, No Peace-No Islam, Know Peace)
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To: Defiant

My Life Under The Affordable Care Act or My OBAMACARE DISASTER [Vanity] - By Red Badger

https://www.freerepublic.com/focus/f-news/3401341/posts


12 posted on 02/28/2018 9:39:25 AM PST by Red Badger (The people who call Trump a tyrant are the same people who want the president to confiscate weapons.)
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To: Hotlanta Mike

“Justice Roberts has some explaining to do...”

Yep. I wonder if Roberts even mentioned the below disparity in his decision.

” The court pointed out that the ACA refers to the individual mandate as a “penalty” eighteen times, and does not refer to it as a tax even once. However, the court cited only in the footnotes the landmark Supreme Court decision (National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012)) in which the payment was found to be a tax, and stated that it must “look beyond” that decision. “


13 posted on 02/28/2018 9:46:56 AM PST by jonno (Having an opinion is not the same as having the answer...)
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To: texas booster

At this point who cares? The govt cannot make you pay it or put it on your property as a lien. It does not go on your credit report.


14 posted on 02/28/2018 10:19:31 AM PST by Georgia Girl 2 (The only purpose of a pistol is to fight your way back to the rifle you should never have dropped)
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To: texas booster

This BK judge properly analyzed the question before him. It’s only as the definition pertains to the bankruptcy code, but it shows how absurd the whole thing is. It’s going to be difficult to overturn this, and I doubt it will ever get to the Supreme Court. The decisions will be narrow enough that they can take a pass on it.


15 posted on 02/28/2018 10:19:46 AM PST by cdcdawg
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To: Defiant
It’s crazy that his IRS is still pushing for recovery of these fees

Once you understand that the government is a retarded, malevolent 900-pound troll, you begin to understand a lot of things...

16 posted on 02/28/2018 10:25:02 AM PST by kiryandil (Never pick a fight with an angry beehive)
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To: jonno
...and stated that it must “look beyond” that decision. “

Bankruptcy is the supreme law of the land. It overrides every other law including this SCOTUS decision.

17 posted on 02/28/2018 10:27:39 AM PST by houeto
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To: Buckeye McFrog; ClearCase_guy
Yup. We're completely untethered from the rule of law now.

Why do you think they're using the "Camera" Hogg child sockpuppet to get our AR15s?

18 posted on 02/28/2018 10:27:51 AM PST by kiryandil (Never pick a fight with an angry beehive)
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To: texas booster

Someone should look into an impeachment for Roberts, considering the blatantly destructive ruling that he made.

How many lives have been affected by that stupid act?


19 posted on 02/28/2018 10:32:16 AM PST by Maris Crane (`)
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To: cdcdawg
A narrowly aimed decision like this will make it even harder for CPAs and lawyers to provide adequate advice to clients.

So does a family of four facing a “penalty” of $2800 ignore it or just go ahead and pay it? That is real money.

The IRS feels that if you were not insured then you must pay. That a taxpayer fought over this “small” $695 penalty shows how difficult it is for the average family.

It is a mess indeed.

20 posted on 02/28/2018 10:32:25 AM PST by texas booster (Join FreeRepublic's Folding@Home team (Team # 36120) Cure Alzheimer's!)
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