OPINION ANALYSIS

Justices validate IRS’s right to retain fraudulent pre-bankruptcy tax payments

United States v. Miller presents the kind of simple facts that populate law-school hypotheticals. A business is in financial distress. The shareholders (who control the business) use some of its funds to pay off their own debts, including taxes owed to the federal government. When the business files for bankruptcy, the creditors of the business justifiably complain that the shareholders should not have used the business’s money to pay off the shareholders’ personal tax liabilities. Can the Internal Revenue Service keep the money? The Supreme Court held last week that the answer is yes.

Justice Ketanji Brown Jackson’s opinion (joined by all the justices except for Justice Neil Gorsuch) presents this as a straightforward textual exercise, turning on “the interplay” between two sections of the Bankruptcy Code. The first is Section 544, which creates a federal cause of action allowing the bankrupt to recover funds it paid out before bankruptcy whenever the transfer “is voidable under applicable law.” The second is Section 106, which waives the federal government’s sovereign immunity for a long list of particular sections of the Bankruptcy Code, including Section 544.

WHAT WE'RE READING

The morning read for Monday, March 31

The justice will hear oral arguments in Catholic Charities Bureau v. Wisconsin Labor & Industry Review Commission and Rivers v. Guerrero this morning. Catholic Charities is one of three religious rights cases the justices will hear in the final weeks of the 2024-25 term’s arguments. The social ministry arm of the Catholic diocese in Wisconsin urges the justices to rule that the state violated the group’s constitutional rights when Wisconsin failed to give it a religious tax exemption from state unemployment tax. 

Each weekday, we select a short list of news articles and commentary related to the Supreme Court. Here’s the Monday morning read:

• Supreme Court hears Catholic groups’ claim for religious tax exemption (Lawrence Hurley, NBC News)
• Is helping people with disabilities a religious act? The core question in a Supreme Court case (Maureen Groppe, USA Today)
• Will Religion’s Remarkable Winning Streak at the Supreme Court Continue? (Adam Liptak, The New York Times)
• Trump increasingly asks the Supreme Court to overrule judges blocking key parts of his agenda (Mark Sherman & Lindsay Whitehurst, The Associated Press)
• Trump Administration Asks Supreme Court for Power to Resume Deportation Flights (Jess Bravin, The Wall Street Journal)

CASE PREVIEW

Supreme Court considers Catholic charity group’s bid for tax exemption

With most of the 2024-25 term behind them, the justices’ final stretch of oral arguments is stacked with all three religious rights cases of the year. All three cases look to the justices to take up an expansive view of the Constitution’s religious protections. The first of those cases, on Monday, could significantly shift the bounds of which organizations receive religious tax exemptions. In the other two, on April 22 and 30, the court will consider whether parents can opt to have their children excused from instruction with LGBTQ-themed storybooks, on religious grounds, and whether a Catholic online school can become the country’s first religious charter school. 

At oral arguments on Monday, the court will take up a tax dispute between Wisconsin and Catholic Charities, which is a social ministry arm of each Roman Catholic diocese in Wisconsin. One Catholic Charities chapter contends that Wisconsin violated the Constitution when it rejected the group’s application for an exemption from a state unemployment tax that the state gives to churches, religious schools, and some religious groups.

EMERGENCY DOCKET

States call on justices to leave restored teacher training funds in place

Eight states, led by California, on Friday urged the Supreme Court to leave in place an order by a federal judge in Massachusetts that requires the Department of Education to restore more than $65 million in grants, intended to address teacher shortages, that it ended in February because the funded programs included diversity, equity, and inclusion initiatives.

In a 40-page filing, the states told the justices that there was no reason for them to intervene. “Because the district court acted responsibly — entering a narrow and time-limited restraining order to preserve the status quo while moving rapidly to adjudicate” the state’s request for a preliminary injunction, the government cannot appeal the district court’s order, the states argue, and the government’s appeal will in any event be moot (that is, no longer a live controversy) by early April.

WHAT WE'RE READING

The morning read for Friday, March 28

Each weekday, we select a short list of news articles and commentary related to the Supreme Court. Here’s the Friday morning read:

• Trump administration asks Supreme Court to intervene in case over canceled DEI-related grants (Melissa Quinn, CBS News)
• Trump wants to ‘defund’ Planned Parenthood. The Supreme Court will hear a case aimed at that. (Shefali Luthra, The 19th News)
• Trump administration asks Supreme Court to let it cut teacher training grants (Maureen Groppe & Bart Jansen, USA Today)
• Supreme Court faces Guantanamo test again: Does president’s power have limits? (David G. Savage, The Los Angeles Times)
• If Trump Defies the Courts, It Will Backfire Badly (Ankush Khardori, Politico)