By: Karen Cordry, NAAG Bankruptcy Chief Counsel and Mark D. Silverschotz, Co-Chair, Anderson Kill's Bankruptcy & Restructuring Practice Group
The U.S. Supreme Court and various circuit courts have tried to provide guidance on how best to determine whether a particular obligation owed to a governmental entity is a “tax,” “fee,” “penalty,” or a simple contract debt, but clarity on the subject remains lacking. And, even if it were easy to define these terms, governments appearing in bankruptcy cases must still properly analyze their claims so as to be able to assert the most beneficial status that is legally appropriate. Failure to take those steps can result in millions of dollars lost to the states during these times of tight revenues and rising expenses. The goal of this article is to help government counsel avoid those losses.
The article first addresses the history of the distinctions among taxes, fees, penalties, and other types of debts, then reviews relevant opinions addressing those distinctions and the tests set forth, and, finally, assesses the merits of those tests. We will critique the cases we find less than persuasive and conclude with the same point we made to begin this article, namely that, as state lawyers charged with representing the best interests of our clients and their non-bankrupt taxpayers, attorneys general must put forward their strongest arguments for claiming the highest justifiable bankruptcy claim status for the states’ debts.
To read the full article: Read My Lips: No New Fees | Recognizing and Recovering "Tax" Claims in Bankruptcy Cases