[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.
                                 ______