[Congressional Record Volume 161, Number 9 (Tuesday, January 20, 2015)]
[Senate]
[Pages S284-S285]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. GRASSLEY (for himself and Mr. Franken):
S. 194. A bill to amend title 11 of the United States Code to clarify
the rule allowing discharge as a nonpriority claim of governmental
claims arising from the disposition of farm assets under chapter 12
bankruptcies; to the Committee on the Judiciary.
Mr. GRASSLEY. Mr. President, I rise today to introduce, along with
Senator Franken, the Family Farmer Bankruptcy Clarification Act of
2015. I thank Senator Franken for his work on this bill and for his
support. We introduced identical legislation in the 113th Congress and
similar legislation in the 112 Congress. Unfortunately, the Senate has
never had the opportunity to consider these bills and the problem we
seek to correct.
This bipartisan bill addresses the 2012 United States Supreme Court
case Hall v. United States. In a 5-4 decision, the Supreme Court ruled
that a provision I inserted into the 2005 Bankruptcy Abuse Prevention
and Consumer Protection Act didn't accomplish what we in Congress
intended. The Family Farmer Bankruptcy Clarification Act of 2015
corrects this and clarifies that bankrupt family farmers reorganizing
their debts are able to treat capital gains taxes owed to a
governmental unit, arising from the sale of farm assets during a
bankruptcy, as general unsecured claims. This bill will remove the
Internal Revenue Service's veto power over a bankruptcy reorganization
plan's confirmation, giving the family farmer a chance to reorganize
successfully.
In 1986 Congress enacted Chapter 12 of the Bankruptcy Code to provide
a specialized bankruptcy process for family farmers. In 2005 Chapter 12
was made permanent. Between 1986 and 2005 we learned what aspects
worked and didn't work for family farmers reorganizing in bankruptcy.
One problematic area was where a family farmer needed to sell assets in
order to generate cash for the reorganization. Specifically, a family
farmer would have to sell portions of the farm to generate cash to fund
a reorganization plan so that the creditors could receive payment.
Unfortunately, in situations like this, the family farmer is selling
land that has been owned for a very long time, with a very low cost
basis. Thus, when the land is sold, the family farmer is hit with a
substantial capital gains tax, which is owed to the Internal Revenue
Service.
Under the Bankruptcy Code, taxes owed to the Internal Revenue Service
receive priority treatment. Holders of priority claims must receive
payment in full, unless the claim holder agrees to be treated
differently. This creates problems for the family farmer who needs the
cash to pay creditors to reorganize. However, since the Internal
Revenue Service has the ability to require full payment, they hold veto
power over a plan's confirmation, which means in many instances the
plan will not be confirmed. This does not make sense if the goal is to
give the family farmer a fresh start. Thus, in 2005 Congress said that
in these limited situations, the taxes owed to the Internal Revenue
Service would be
[[Page S285]]
stripped of their priority and treated as general unsecured debt. This
removed the government's veto power over plan confirmation and paved
the way for family farmers to reorganize.
Unfortunately, in Hall v. United States, the Supreme Court ruled that
despite Congress's express goal of helping family farmers, the language
inserted into the Bankruptcy Code in 2005 conflicted with the Tax Code.
The Hall case was one of statutory interpretation. There is no question
what Congress was trying to do; rather, did Congress use the correct
language? My goal, along with others at the time, was to relieve family
farmers from having their reorganization plans fail because of huge tax
liabilities to the Federal Government. Justice Breyer noted this in the
dissent: ``Congress was concerned about the effect on the farmer of
collecting capital gains tax debts that arose during (and were
connected with) the Chapter 12 proceedings themselves. . . . The
majority does not deny the importance of Congress' objective. Rather,
it feels compelled to hold that Congress put the Amendment in the wrong
place.'' Hall v. United States, 132 S.Ct. 1882, 1897, 2012.
As a result of the Hall case, family farmers facing bankruptcy now
find themselves caught in a tough spot. The rules have now been changed
and must be corrected in order to provide certainty and clarity in the
law. The Family Farmer Bankruptcy Clarification Act of 2015 will
provide the clarity needed to help family farmers.
This bill adds a new section 1232 to title 11 of the United States
Code. This new section, along with other conforming changes to the
Bankruptcy Code, gives guidance and certainty to debtors,
practitioners, and courts as to how these claims are to be treated
during bankruptcy. I am pleased that the bill we are introducing today
will help family farmers who are facing hard times. The Family Farmer
Bankruptcy Clarification Act of 2015 ensures that what Congress sought
to do in 2005 actually occurs. In the wake of the Hall decision, this
bill is needed in order to help family farmers reorganize successfully.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 194
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Family Farmer Bankruptcy
Clarification Act of 2015''.
SEC. 2. CLARIFICATION OF RULE ALLOWING DISCHARGE TO
GOVERNMENTAL CLAIMS ARISING FROM THE
DISPOSITION OF FARM ASSETS UNDER CHAPTER 12
BANKRUPTCIES.
(a) In General.--Subchapter II of chapter 12 of title 11,
United States Code, is amended by adding at the end the
following:
``Sec. 1232. Claim by a governmental unit based on the
disposition of property used in a farming operation
``(a) Any unsecured claim of a governmental unit against
the debtor or the estate that arises before the filing of the
petition, or that arises after the filing of the petition and
before the debtor's discharge under section 1228, as a result
of the sale, transfer, exchange, or other disposition of any
property used in the debtor's farming operation--
``(1) shall be treated as an unsecured claim arising before
the date on which the petition is filed;
``(2) shall not be entitled to priority under section 507;
``(3) shall be provided for under a plan; and
``(4) shall be discharged in accordance with section 1228.
``(b) For purposes of applying sections 1225(a)(4),
1228(b)(2), and 1229(b)(1) to a claim described in subsection
(a) of this section, the amount that would be paid on such
claim if the estate of the debtor were liquidated in a case
under chapter 7 of this title shall be the amount that would
be paid by the estate in a chapter 7 case if the claim were
an unsecured claim arising before the date on which the
petition was filed and were not entitled to priority under
section 507.
``(c) For purposes of applying sections 523(a), 1228(a)(2),
and 1228(c)(2) to a claim described in subsection (a) of this
section, the claim shall not be treated as a claim of a kind
specified in section 523(a)(1).
``(d)(1) A governmental unit may file a proof of claim for
a claim described in subsection (a) that arises after the
date on which the petition is filed.
``(2) If a debtor files a tax return after the filing of
the petition for a period in which a claim described in
subsection (a) arises, and the claim relates to the tax
return, the debtor shall serve notice of the claim on the
governmental unit charged with the responsibility for the
collection of the tax at the address and in the manner
designated in section 505(b)(1). Notice under this paragraph
shall state that the debtor has filed a petition under this
chapter, state the name and location of the court in which
the case under this chapter is pending, state the amount of
the claim, and include a copy of the filed tax return and
documentation supporting the calculation of the claim.
``(3) If notice of a claim has been served on the
governmental unit in accordance with paragraph (2), the
governmental unit may file a proof of claim not later than
180 days after the date on which such notice was served. If
the governmental unit has not filed a timely proof of the
claim, the debtor or trustee may file proof of the claim that
is consistent with the notice served under paragraph (2). If
a proof of claim is filed by the debtor or trustee under this
paragraph, the governmental unit may not amend the proof of
claim.
``(4) A claim filed under this subsection shall be
determined and shall be allowed under subsection (a), (b), or
(c) of section 502, or disallowed under subsection (d) or (e)
of section 502, in the same manner as if the claim had arisen
immediately before the date of the filing of the petition.''.
(b) Technical and Conforming Amendments.--
(1) In general.--Subchapter II of chapter 12 of title 11,
United States Code, is amended--
(A) in section 1222(a)--
(i) in paragraph (2), by striking ``unless--'' and all that
follows through ``the holder'' and inserting ``unless the
holder'';
(ii) in paragraph (3), by striking ``and'' at the end;
(iii) in paragraph (4), by striking the period at the end
and inserting ``; and''; and
(iv) by adding at the end the following:
``(5) subject to section 1232, provide for the treatment of
any claim by a governmental unit of a kind described in
section 1232(a).'';
(B) in section 1228--
(i) in subsection (a)--
(I) in the matter preceding paragraph (1)--
(aa) by inserting a comma after ``all debts provided for by
the plan''; and
(bb) by inserting a comma after ``allowed under section 503
of this title''; and
(II) in paragraph (2), by striking ``the kind'' and all
that follows and inserting ``a kind specified in section
523(a) of this title, except as provided in section
1232(c).''; and
(ii) in subsection (c)(2), by inserting ``, except as
provided in section 1232(c)'' before the period at the end;
and
(C) in section 1229(a)--
(i) in paragraph (2), by striking ``or'' at the end;
(ii) in paragraph (3), by striking the period at the end
and inserting ``; or''; and
(iii) by adding at the end the following:
``(4) provide for the payment of a claim described in
section 1232(a) that arose after the date on which the
petition was filed.''.
(2) Table of sections.--The table of sections for
subchapter II of chapter 12 of title 11, United States Code,
is amended by adding at the end the following:
``1232. Claim by a governmental unit based on the disposition of
property used in a farming operation.''.
(c) Effective Date.--The amendments made by this section
shall apply to any bankruptcy case that--
(1) is pending on the date of enactment of this Act and
relating to which an order of discharge under section 1228 of
title 11, United States Code, has not been entered; or
(2) commences on or after the date of enactment of this
Act.
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