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The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust

Summarizing by Amir Shachmurove

In re- Howard D. Juntoff

Case Type:
Consumer
Case Status:
Reversed
Citation:
21-8011 & 21-8012 (6th Circuit, Mar 21,2022) Published
Tag(s):
Ruling:
Hearing consolidated appeals arising from two chapter 13 cases that presented solely legal issues, with one dissent, the Bankruptcy Appellate Panel of the Sixth Circuit (BAP) reversed the bankruptcy court's refusal to classify the "shared responsibility payment" (SRP), owed by two sets of debtors per the Affordable Act for failure to maintain full yearly insurance, as "a tax on or measured by income or gross receipts" or "an excise tax on ... a transaction" entitled to priority under § 507(a)(8)(A) or (E) and thus sustain objections to the IRS' SRP-based claim in each case..
Procedural context:
Oversights by two different sets of persons lay at the root of this appeal of two decisions, predicated on the same reasoning, by the U.S. Bankruptcy Court for the Northern District of Ohio (BC). In 2019, Howard Juntoff (Juntoff) filed a chapter 13 petition; in 2020, George and Melanie McPherson (McPhersons) did the same. At the time, both the McPhersons and Juntoff (Debtors, collectively) had not yet paid the SRP each owed due to their failure to maintain insurance coverage for nine months in 2017 and the entirety of 2018, respectively. Accordingly, the IRS filed, and subsequently amended, proofs of claim-Claim No. 8 in the McPhersons' case, and Claim No. 3 in the Juntoff one-for this debt in each case. In each case, the IRS’s last amended proof of claim sought priority treatment as an "excise/income tax." The Debtors objected to these claims in both cases, arguing that the SRP debt was not entitled to priority treatment. Before the BC on these objections, it confirmed a chapter 13 plan in each case. (The McPhersons' provided for payment in full of all allowed priority claims and projected distributions to general unsecured creditors that would pay approximately 22% of their claims. Juntoff’s second amended plan provided for payment in full of all priority unsecured claims and no distributions to general unsecured claims.) After multiple round of briefings and several hearings, the BC issued a consolidated opinion sustaining the Debtors' objections. With the U.S. Department of Justice as its counsel, the IRS timely appealed. It initially elected to so in the United States District Court for the Northern District of Ohio (DC). Subsequently, the DC transferred this appeal to the BAP at the IRS' request and with the Debtors' consent. The divide between the majority, with Judge Stout writing for himself and Judge Croom, and the dissent, authored by Judge Dales, over whether the SRP qualified as a tax (majority) or a penalty (dissent) under the framework fashioned by the Sixth Circuit's Lorber/Suburban I/Suburban II line of cases, with the latter highlighting the Court's decision in Sebelius (and the Debtors making much of the dissent).
Facts:
The ACA requires non-exempt individuals either to maintain a minimum level of health insurance or to pay a “penalty.” In tax years 2017 and 2018, the ACA provided that non-exempt individuals who did not have "minimum essential coverage" for one or more months had to make the SRP with their annual federal tax payment. The monthly SRP amount owed equaled 1/12 of the greater of either a flat dollar amount or 2.5% of the taxpayer's taxable income for taxable years beginning after 2015. If the taxpayer's income fell below a certain threshold, however, the flat dollar amount would be higher than 2.5% of the taxable income, and the SRP would be the flat dollar amount rather than a percentage of the taxpayer's income. The relevant debtors, three in total, ran afoul of this mandate. In 2017, the McPhersons did not maintain health insurance for nine months of the year; in 2018, Juntoff did not do so during the course of any month. Nonetheless, the Debtors did not pay their SRP obligations, calculated based on the number of months during which they lacked health insurance, when they subsequently filed their taxes.
Judge(s):
Alan C. Stout; James L. Croom; and Scott W. Dales

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