affordable care act

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Shared-Responsibility Payment Not an Excise Tax Entitled to Priority

The shared-responsibility payment required by the Affordable Care Act is not an “excise tax on a transaction” subject to priority treatment under section 507(a)(8)(E)(i). United States v. Chesteen, No. 19-30195 (5th Cir. Feb. 20, 2020) (unpublished).

In his chapter 13 bankruptcy schedules, Mr. Chesteen listed a $695.00 debt to the government based on his failure to make his 2016 shared-responsibility payment (SRP). His proposed plan did not provide for payment of the debt. The government amended its proof of claim to include the debt as “an excise tax on a transaction” entitled to priority under section 507(a)(8)(E)(i) and requiring repayment under section 1322(a)(2). Mr. Chesteen countered that the debt was not a tax but a penalty that did not enjoy priority under the Code. The bankruptcy court agreed with Mr. Chesteen. In re Chesteen, No. 17–11472, 2018 WL 878847, at *3 (Bankr. E.D. La. 9 Feb. 2018). On appeal, the district court reversed, finding the SRP had been enacted under Congress’s taxing powers. United States v. Chesteen, No. 18–2077, 2019 WL 1499532, at *2–3 (E.D. La. 25 Feb. 2019). Neither the bankruptcy court nor the district court addressed the issue of whether the SRP was an “excise tax on a transaction” under section 507(a)(8)(E)(i). [Read more…] about Shared-Responsibility Payment Not an Excise Tax Entitled to Priority

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ACA’s Shared Responsibility Payment is Priority Tax Debt

The District Court for the Eastern District of Louisiana determined that the tax assessment for failure to maintain health insurance under the Affordable Care Act is a nondischargeable priority tax debt under section 507(a)(8)(A)(iii), rather than a penalty dischargeable in bankruptcy under section 523(a)(7) and 1328(a). United States v. Chesteen, No. 18-2077 (E.D. La. Feb. 25, 2019).

As the chapter 13 debtor, John Chesteen, pointed out on appeal, the shared responsibility payment at issue is described numerous times in the ACA as a penalty and is collected the same way other tax penalties are collected. The district court noted, however, that statutory descriptions, while informative, are not dispositive of whether a payment is a tax or a penalty. Rather, courts rely on the underlying purpose of the payment. A “tax” is a burden placed on the taxpayer for the financial support of the government, and a “penalty” is a punishment of an unlawful act. [Read more…] about ACA’s Shared Responsibility Payment is Priority Tax Debt