In re: Affirmative Insurance Holdings, Inc., 620 B.R. 73

Debtors (Affirmative Insurance Holdings and affiliates) filed Chapter 11 on October 14, 2015; their tax year was the calendar year ending December 31, 2015.
Trustee filed the consolidated 2015 federal tax return on September 14, 2016, showing taxable income and a tax liability (~$792,113 plus penalties/interest).
The IRS filed an administrative-expense claim in the bankruptcy for the 2015 tax year (amended to include tax, interest, and penalties).
The Bankruptcy Court held that a ‘‘straddle’’ tax year must be bifurcated: tax liability attributable to pre-petition events is a general unsecured claim, while post-petition events are administrative expenses; it allowed the IRS to amend to specify any post-petition allocation.
The United States (IRS) appealed; the District Court reversed, holding that under the Internal Revenue Code a corporation’s income tax accrues and becomes a fixed liability only at the end of the taxable year (Dec. 31), so the 2015 tax was incurred by the estate post-petition and is an administrative expense.

Issue	Plaintiff's Argument	Defendant's Argument	Held
When is a corporate income tax for a straddle year "incurred by the estate" under §503(b)(1)(B)?	United States: Under the IRC the corporate tax for a taxable year accrues and becomes fixed on the last day of that year; here Dec. 31, 2015 → incurred post-petition → administrative expense.	Trustee: Tax liability accrues daily as taxable events occur; pre-petition events gave rise to a pre-petition claim that should be unsecured.	Court: Look to substantive tax law; corporate income tax accrues at year-end, so the 2015 tax was incurred post-petition and is an administrative expense.
Did BAPCPA unambiguously make straddle-year income taxes entirely post-petition administrative expenses?	United States: BAPCPA amendments were intended to eliminate bifurcation and treat straddle-year income taxes as post-petition administrative claims.	Trustee: Statutory text and legislative history do not clearly mandate that result; bifurcation remains viable under some readings.	Court: No clear textual or legislative-history basis to hold BAPCPA unambiguously intended to resolve the straddle-year issue, but resolution turns on tax-law accrual (which here yields post-petition treatment).

Hall v. United States, 566 U.S. 506 (2012) ("incurred by the estate" bears a plain reading; tax a liability the estate may "incur")
In re Grossman's, Inc., 607 F.3d 114 (3d Cir. 2010) (bankruptcy "claim" timing analysis; when rights to payment arise)
In re Frenville Co., 744 F.2d 332 (3d Cir. 1984) (pre-Grossman's approach to claim accrual)
Conn. Motor Lines, 336 F.2d 96 (3d Cir. 1964) (transaction-based/employment tax accrual issues)
In re Pac.-Atl. Trading Co., 64 F.3d 1292 (9th Cir. 1995) (legislative-history discussion treating income taxes as incurred on last day of period)
Dawes, 652 F.3d 1236 (10th Cir. 2011) (look to underlying tax law to determine when tax is incurred)
Federated Dep't Stores, Inc., 270 F.3d 994 (6th Cir. 2001) (determining tax accrual date under state law for priority purposes)