Companies with underfunded pension plans may have to pay federal taxes before they can pay pensioners and other creditors in bankruptcy cases, the U.S. Supreme Court said today in a unanimous ruling in U.S. vs. Reorganized CF&I Fabricators of Utah.
Steel company CF&I and nine subsidiaries sought bankruptcy protection in 1990 after failing to make $12.4 million in required contributions to pension plans. The IRS tried to collect a 10% excise tax imposed on the company for its failure to make the pension plan payments, but a federal bankruptcy judge refused to give the tax a high priority, saying it would reduce the pool of money the company could pay others, including pensioners.
A federal appeals court upheld the bankruptcy judge's decision, saying the ``excise tax'' was really just a penalty, and could be given lower priority than other claims. The nation's high court today agreed it was a penalty, but said the appeals court was wrong to ``subordinate'' the government's claim to that of other creditors.