United States, Petitioner v. David L. Miller

The Supreme Court ruled 8-1 that while the Bankruptcy Code removes the federal government's immunity for some claims, it does not allow trustees to use state laws to claw back tax payments. The Court found that because a private creditor could not have sued the IRS under state law outside of bankruptcy, a bankruptcy trustee cannot do so either.

This decision protects the federal government from having to return tax payments that were made using money from a failing company. It means the IRS can keep funds even if those payments might have been considered 'fraudulent transfers' under state rules that apply to private businesses.

The case centers on sovereign immunity, which is the legal rule that the government cannot be sued without its permission. The Court had to decide if Congress intended to give up this protection for specific state-law claims when it wrote the federal Bankruptcy Code.

Justice Ketanji Brown Jackson wrote the majority opinion for eight justices, while Justice Neil Gorsuch was the lone dissenter.

“Section 106(a) grants courts jurisdiction to hear certain bankruptcy claims against the government... but it explicitly states that it does not create any new substantive rights or causes of action.”

The IRS does not have to return tax payments in bankruptcy cases if those claims rely on state laws that normally cannot be used against the federal government.

Lower courts will now apply this rule to other bankruptcy cases where trustees are trying to recover money from federal agencies. Affected parties and bankruptcy professionals will need to adjust their strategies for recovering assets when the government is involved.

A bankruptcy trustee tried to recover over $145,000 in tax payments from the IRS. The trustee argued that federal law allowed them to use state fraudulent-transfer rules against the government.

Bankruptcy estates will have less money to pay back other creditors. They can no longer use state-law claims to force the IRS to return certain types of payments.

The Court applied the principle that waivers of sovereign immunity (the government's protection from lawsuits) must be interpreted narrowly. It found no clear waiver for these specific state-law claims.

The Supreme Court reversed the lower court's decision. The case will likely return to the lower courts to be finalized in favor of the United States government.

The ruling reinforces the Court's strict approach to government immunity. It emphasizes that Congress must be very clear and unambiguous if it wants to allow the government to be sued.