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United States Supreme Court


No. 95-325

Argued: March 25, 1996Decided: June 20, 1996

The Employee Retirement Income Security Act of 1974 obligated CF&I Steel Corporation and its subsidiaries (CF&I) to make certain annual funding contributions to pension plans they sponsored. The required contribution for the 1989 plan year totaled some $12.4 million, but CF&I failed to make the payment and petitioned the Bankruptcy Court for Chapter 11 reorganization. The Government filed, inter alia, a proof of claim for tax liability arising under §4971(a) of the Internal Revenue Code, 26 U.S.C. § 4971(a), which imposes a 10 percent "tax" (of $1.24 million here) on any "accumulated funding deficiency" of plans such as CF&I's. The court allowed the claim but rejected the Government's argument that the claim was entitled to seventh priority as an "excise tax" under §507(a)(7)(E) of the Bankruptcy Code, 11 U.S.C. § 507(a)(7)(E), finding instead that §4971 created a penalty that was not in compensation for pecuniary loss. The Bankruptcy Court also subordinated the §4971 claim to those of all other general unsecured creditors, on the supposed authority of the Bankruptcy Code's provision for equitable subordination, 11 U.S.C. § 510(c), and later approved a reorganization plan for CF&I giving lowest priority (and no money) to claims for noncompensatory penalties. The District Court and the Tenth Circuit affirmed.


 1. The "tax" under §4971(a) was not entitled to seventh priority as an "excise tax" under §507(a)(7)(E), but instead is, for bankruptcy purposes, a penalty to be dealt with as an ordinary, unsecured claim. Pp. 4-13.

 (a) Here and there in the Bankruptcy Code Congress has referred to the Internal Revenue Code or other federal statutes to define or explain particular terms. It is significant that Congress included no such reference in §507(a)(7)(E), even though the Bankruptcy Code provides no definition of "excise," "tax," or "excise tax." This absence of any explicit connection between §507(a)(7)(E) and §4971 is all the more revealing in light of this Court's history of interpretive practice in determining whether a "tax" so called in the statute creating it is also a "tax" for the purposes of the bankruptcy laws. Pp. 5-6.

 (b) That history reveals that characterizations in the Internal Revenue Code are not dispositive in the bankruptcy context. In every case in which the Court considered whether a particular exaction called a "tax" in the statute creating it was a tax for bankruptcy purposes, the Court looked behind the label and rested its answer directly on the operation of the provision. See, e.g., United States v. New York, 315 U.S. 510, 514-517. Congress has given no statutory indication that it intended a different interpretive method for reading terms used in the Bankruptcy Act of 1978, see Midlantic Nat. Bank v. New Jersey Dept. of Environmental Protection, 474 U.S. 494, 501, and the Bankruptcy Code's specific references to the Internal Revenue Code indicates that no general cross identity was intended. The Government suggests that the plain texts of §4971 and §507(a)(7)(E) resolve this case, but this approach is inconsistent with this Court's cases, which refused to rely on statutory terminology, and is unavailing on its own terms, because the Government disavows any suggestion that the use of the words "Excise Taxes" in the title of the chapter covering §4971 or the word "tax" in §4971(a) is dispositive as to whether §4971(a) is a tax for purposes of §507(a)(7)(E). The Government also seeks to rely on a statement from the legislative history that all taxes "generally considered or expressly treated as excises are covered by" §507(a)(7)(E), but §4971 does not call its exaction an excise tax, and the suggestion that taxes treated as excises are "excise tax[es]" begs the question whether the exaction is a tax to begin with. There is no basis, therefore, for avoiding the functional examination that the Court ordinarily employs. Pp. 6-10.

 (c) The Court's cases in this area look to whether the purpose of an exaction is support of the government or punishment for an unlawful act. If the concept of a penalty means anything, it means punishment for an unlawful act or omission, and that is what this exaction is. The §4971 exaction is imposed for violating a separate federal statute requiring the funding of pension plans, and thus has an obviously penal character. Pp. 11-12.

 (d) The legislative history reflects the statute's punitive character. Pp. 12-13.

 2. The subordination of the Government's §4971 claim to those of the other general unsecured creditors pursuant to §510(c) was error. Categorical reordering of priorities that takes place at the legislative level of consideration is beyond the scope of judicial authority to order equitable subordination under §510(c). Pp. 13-16.

 53 F. 3d 1155, reversed and remanded.

 Souter, J., delivered the opinion for a unanimous Court with respect to Part III, the opinion of the Court with respect to Parts I, II-A, II-B, and II-C, in which Rehnquist, C. J., and Stevens, O'Connor, Scalia, Kennedy, Ginsburg, and Breyer, JJ., joined, and the opinion of the Court with respect to Part II-D, in which Rehnquist, C. J., and Stevens, O'Connor, Kennedy, Ginsburg, and Breyer, JJ., joined. Thomas, J., filed an opinion concurring in part and dissenting in part. 

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