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Pension excise tax entitled to bankruptcy priority.

Mansfield Tire & Rubber filed a petition under chapter 11 of the Bankruptcy Code in 1979. The United States asserted a claim for pension excise taxes under IRC section 4971(a) (failure to meet minimum funding standards). Liability for the taxes was not disputed.

The bankruptcy trustees claimed the section 4971 liability was not an excise tax but a disguised penalty and thus not entitled to priority under section 507(a)(7)(E) of the Bankruptcy Code. That section grants priority over certain other claims to unsecured goverment claims for "excise taxes." The Bankruptcy Court and the district court both agreed with the bankruptcy trustees.

Result: The Sixth Circuit Court of Appeals disagreed. Regardless of the regulatory nature of the section 4971 tax, Congress has labeled it an "excise tax." And the Bankruptcy Code grants priority to excise taxes, without further definition or limitation. Therefore, the Bankruptcy Code's plain language mandates the section 4971 excise tax be given priority; the courts cannot read a modification into the statute.
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Author:Wagenbrenner, Anne
Publication:Journal of Accountancy
Date:Nov 1, 1991
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