The recent decision by the US Supreme Court to restrict a liquidating trustee’s ability to reclaim personal tax payments previously made to the IRS has caught the bankruptcy community off guard. On March 26, 2025, the Court delivered an 8-1 ruling, emphasizing that the Internal Revenue Service’s sovereign immunity takes precedence over the US Bankruptcy Code and state fraudulent transfer laws in determining how far back a trustee might go to recover assets.
This decision, arising from the United States v. Miller case, allows the federal government a degree of preferential treatment not extended to ordinary creditors under the standard lookback window established by bankruptcy law. The outcome restricts the reach of bankruptcy trustees when it comes to attempting to claw back taxes paid to governmental entities.
While the decision surprised many legal professionals within the bankruptcy sector, its longer-term consequences are anticipated to be restricted due to the ruling’s narrow scope. Specifically, the judgment pertains directly to the capability of trustees to reclaim funds from a government entity under the sovereign immunity doctrine, rather than significantly altering the landscape of bankruptcy proceedings as a whole.
For further insights into the implications of this ruling, the detailed decision is discussed in Bloomberg Law’s coverage available here.