Opinion ID: 14457
Heading Depth: 2
Heading Rank: 2

Heading: Pecuniary Penalty or Part of the Underlying Tax Debt?

Text: 23 This court has already determined that interest payable in respect of a tax debt is a penalty in compensation for actual pecuniary loss under § 507(a)(8)(G). See Jones v. United States (In re Garcia), 955 F.2d 16, 18-19 (5th Cir.1992). It follows that § 6621(c) interest falls within § 507(a)(8)(G), making the next step in our determination whether interest is part of the underlying tax debt or just a pecuniary penalty. We expressly left this question open in Garcia. See id. at 19. 24 In In re Larson, 862 F.2d 112, 118-19 (7th Cir.1988), the Seventh Circuit has directly addressed whether interest is part of the underlying tax debt and answered in the affirmative. The Larson court considered the Bankruptcy Code's definition of claim in § 101 and its exclusion of only post-petition interest from an allowed claim in § 502. See id. at 119; see also 11 U.S.C. §§ 101(5) (defining claim to be a right to payment, whether or not liquidated, fixed, matured, disputed, or secured), 502(b) (allowing a claim in such amount, except to the extent that-- ... such claim is for unmatured interest). Therefore, the Larson court found that pre-petition interest is part of the allowed claim, that is the underlying tax debt. Id.; accord United States v. H.G.D. & J. Mining Co. (In re H.G.D. & J. Mining Co.), 74 B.R. 122, 124-25 (S.D.W.Va.1986), aff'd, 836 F.2d 546 (4th Cir.1987) (unpublished table decision); In re Hall, 191 B.R. 814, 816-17 (Bankr.D.Alaska 1995); Pierce v. United States (In re Pierce), 184 B.R. 338, 344 (Bankr.N.D.Iowa 1995); Brinegar v. United States (In re Brinegar), 76 B.R. 176, 178-79 (Bankr.D.Colo.1987); In re Treister, 52 B.R. 735, 737 (Bankr.S.D.N.Y.1985); 4 COLLIER ON BANKRUPTCY p 523.07, at 523-38 (Lawrence P. King ed., 15th ed. rev. 1997); cf. Bruning v. United States, 376 U.S. 358, 360, 84 S.Ct. 906, 907-08, 11 L.Ed.2d 772 (1964) (in considering post-petition interest, stating: In most situations, interest is considered to be the cost of the use of the amounts owing a creditor and an incentive to prompt repayment and, thus, an integral part of a continuing debt.). 25 Following Larson's reasoning, interest on a tax debt is part of the underlying tax debt. Therefore, § 6621(c) interest is part of the underlying tax debt and is treated like a tax under § 507 of the Bankruptcy Code. The interest at issue was assessed within 240 days of the filing of the petition, and it is therefore excepted from discharge under §§ 523(a)(1)(A) and 507(a)(8)(A)(ii). 5