[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.
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