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1 1 (April 9, 2025)

handle is hein.crs/usmrsmec0001 and id is 1 raw text is: Congressional ______ *Research Service inforng the qeislative debate since 1914___________________ United States v. Miller: Supreme Court Limits Bankruptcy Trustees' Power to Void Tax Payments April 9, 2025 On March 26, 2025, the Supreme Court in United States v. Miller limited a bankruptcy trustee's ability to void-or recover-a tax payment to the Internal Revenue Service (IRS) made by the debtor prior to the bankruptcy if the trustee is using state law to attempt to avoid the transfer. The case examined the interaction between two sections of the Bankruptcy Code. First, § 544(b) allows a bankruptcy trustee to recover payment that the debtor made before bankruptcy if such payment is voidable under applicable law, including state law. Second, § 106(a)(1) waives the federal government's sovereign immunity for particular sections of the Bankruptcy Code, including § 544. In Miller, the Court considered the extent of the waiver of sovereign immunity: particularly, does § 106(a)(1) waive sovereign immunity for state-law causes of action that might underlie the § 544(b) avoidance action or only the avoidance action itself? In a controlling opinion authored by Justice Jackson, the Court answered the latter, effectively preserving sovereign immunity for underlying state law causes of action. This Legal Sidebar examines the Bankruptcy Code sections at issue in Miller, presents the facts of the case, discusses the controlling and dissenting opinions, and presents considerations for Congress. Sections 106 and 544 of the Bankruptcy Code Under various sections in the Bankruptcy Code, bankruptcy trustees have the power to void, or undo, certain transfers of assets made by a debtor. This power serves to help the trustee maximize the value of the bankruptcy estate and prevents preferential treatment of certain creditors outside the bankruptcy process. Section 544 of the Bankruptcy Code-sometimes called the Strong-Arm powers-gives the bankruptcy trustee similar avoidance powers as a hypothetical creditor or bona fide purchaser. As relevant in Miller, § 544(b) allows a trustee to avoid any transfer of an interest of the debtor ... that is voidable under applicable law by a creditor holding an unsecured claim. Applicable law includes state statutes such as state fraudulent transfer laws, which generally aim to prevent debtors from hiding or shielding their assets from creditors. Some fraudulent transfer laws permit creditors to void constructive Congressional Research Service https://crsreports.congress.gov LSB11282 CRS Legal Sidebar Prepared for Members and Committees of Congress

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