Jonathan Fuller

Document Type

Research Memorandum

Publication Date




In bankruptcies, tax status often effects whether claims are entitled to priority. Thus, debates about whether charges are penalties or taxes date back to the early twentieth century. In 1930, the Supreme Court established that courts are not bound to the characterization given to a charge by the municipality that created it. Rather, courts have a duty to consider the “real nature” and “effect” of the charge. Accordingly, different circuits have implemented different approaches to make these determinations.

This Article examines the ambiguity among circuits regarding charges’ “tax” status and resulting priority entitlement. Part I outlines In re Lorber’s multi-factor test in the Ninth Circuit. Part II outlines In re Peete’s functional examination test in the Seventh Circuit. Part III examines the tests’ similarities and differences. The Article concludes by contextualizing the concurrent validity of both approaches.


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