[Congressional Record Volume 163, Number 91 (Thursday, May 25, 2017)]
[Senate]
[Pages S3215-S3216]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself and Mr. Franken):
  S. 1237. 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 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. 1237

       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 2017''.

     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.

[[Page S3216]]

       ``(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.

  Mr. GRASSLEY. Mr. President, I rise today to introduce, along with 
Senator Franken, the Family Farmer Bankruptcy Clarification Act of 
2017. I thank Senator Franken for supporting and working with me, since 
the 112th Congress, on this important bill to help our Nation's family 
farmers.
  This bipartisan bill addresses the 2012 United States Supreme Court 
case Hall v. United States. In a 5-4 decision, the Supreme Court ruled 
a provision that I authored in the 2005 Bankruptcy Abuse Prevention and 
Consumer Protection Act did not accomplish what we in Congress 
intended. The Family Farmer Bankruptcy Clarification Act of 2017 
corrects this unfortunate result and restores Congress's original 
intent. The bill clarifies that bankrupt family farmers reorganizing 
their debts, under chapter 12 of the bankruptcy code, may treat capital 
gains taxes owed to the government, arising from the sale of farm 
assets during the bankruptcy, as general unsecured claims. This bill 
will give family farmers a chance to reorganize successfully and remove 
the Internal Revenue Service's veto power over a plan's confirmation.
  Congress created chapter 12 in 1986 as a temporary measure to provide 
a specialized bankruptcy process for family farmers. In 2005, Congress 
made chapter 12 a permanent part of the bankruptcy code. Between 1986 
and 2005, we learned what worked and did not work for family farmers 
reorganizing under chapter 12. In particular, family farmers faced 
serious problems when they needed to sell land to fund their 
reorganization plan. For example, a family farmer might sell portions 
of the farm in order to generate cash and pay creditors. Unfortunately, 
in most of these cases, the family farmer is selling land with a low 
cost basis, because it has likely been held in the family for a very 
long time. As a result, the family farmer gets hit with a substantial 
capital gains tax, which is owed to the Internal Revenue Service.
  Under the bankruptcy code's priorities structure for claims, taxes 
owed to the IRS must be paid in full, unless the IRS agrees otherwise. 
This creates problems for the family farmer who needs cash to pay 
creditors and reorganize. Since the IRS has the ability to require full 
payment, it essentially holds veto power over the confirmation of a 
family farmer's chapter 12 plan. In many instances, the effect is that 
a family farmer will not be able to have a plan confirmed. This is a 
harsh result and does not make sense if the goal is to give family 
farmers a fresh start. Recognizing this problem, Congress amended the 
bankruptcy code in 2005 to provide that in these limited and particular 
situations, the taxes owed to the IRS would be 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 under chapter 12.
  Unfortunately, in Hall v. United States, the Supreme Court ruled that 
despite Congress's express goal of helping family farmers, the language 
we used failed to accomplish the intended result. To be clear, the Hall 
case was about statutory interpretation. There is no question about 
what Congress was trying to do; rather, the question is, ``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 certain tax liabilities owed to the government. Justice 
Breyer noted this point in his 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) (Breyer, J., dissenting) (internal citations 
and quotations omitted).
  As a result of the Hall case, family farmers facing bankruptcy now 
find themselves caught between a rock and a hard place. The rules have 
changed and must be corrected in order to provide certainty and clarity 
in the law. The Family Farmer Bankruptcy Clarification Act of 2017 does 
this and provides the help needed for family farmers.
  This bill adds a new section 1232 to the bankruptcy code. This new 
section, along with other conforming changes, gives guidance and 
certainty to debtors, practitioners, and courts as to how these claims 
are to be treated during bankruptcy. I'm pleased that the bill we're 
introducing today will help family farmers who are facing hard times.
  In the wake of the Hall decision, this bill ensures that what 
Congress sought to do in 2005 actually occurs. The Family Farmer 
Bankruptcy Clarification Act of 2017 provides the help that may one day 
be needed for the hard working family farmers across our great Nation.
                                 ______