Hall v. United States
132 S. Ct. 1882
| SCOTUS | 2012Background
- Chapter 12 allows farmer debtors to treat certain government claims arising from farm asset dispositions as unsecured, dischargeable claims under §1222(a)(2)(A).
- Postpetition taxes arising from a farmer’s sale of farm assets during the bankruptcy are at issue for dischargeability as to economic recoveries under the plan.
- Petitioners Hall sold their farm after filing Chapter 12 and faced about $29,000 federal income tax on capital gains from the sale.
- IRS objected; petitioners proposed treating postpetition taxes as general unsecured claims payable to the extent funds were available, with any unpaid balance discharged.
- Lower courts split on whether postpetition taxes are “incurred by the estate” under §503(b)(1)(B)(i), triggering priority under §507 and the §1222(a)(2)(A) exception; the Court granted certiorari to resolve this.
- The Court holds that postpetition federal income taxes are not incurred by the Chapter 12 estate and are not collectible or dischargeable under the plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does ‘incurred by the estate’ include postpetition taxes in Chapter 12? | Hall: postpetition taxes are incurred by the estate because the estate administers assets and incurs taxes. | U.S.: the estate is not a separate taxable entity in Chapter 12; postpetition taxes are incurred by the debtor, not the estate. | No; postpetition taxes are not incurred by the estate. |
| Does §1222(a)(2) create priority for postpetition taxes under §507? | Hall: amendment places postpetition taxes in the §507 priority queue. | The amendment only carves out a §507 priority exception for prepetition taxes arising from farm asset sales. | No; §1222(a)(2)(A) does not redefine which taxes are payable as priority; postpetition taxes are not treated as priority under §507. |
| Should IRC tax-entity rules govern the bankruptcy tax liability allocation in Chapter 12? | Hall: §346 and related IRC provisions support treating postpetition taxes as administrative expenses incurred by the estate. | The majority reasons that the IRC’s separate taxable-entity rules govern tax liability, excluding postpetition taxes from the estate. | The Court aligns with IRC/entity-based approach; postpetition taxes are not incurred by the estate. |
| Is there a policy basis to reconcile Chapter 12 with Chapter 13 practice on postpetition taxes? | Hall: administrative-expense treatment in Chapter 12 should align with Chapter 13. | The majority cautions against rewriting closely related chapters without clear indication from Congress. | Not dispositive to the outcome; statutory text governs. |
Key Cases Cited
- United States v. Noland, 517 U.S. 535 (1996) (postpetition taxes treated as administrative expenses in corporate Chapter 11)
- Miles v. Apex Marine Corp., 450 U.S. 242 (1981) (statutory interpretation; Congress aware of existing law when enacting amendments)
- FCC v. AT&T Inc., 131 S. Ct. 1101 (2011) (ordinary-meaning rule for undefined statutory terms)