Companies with underfunded pension plans may have to pay federal taxes before they can pay money owed to 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.