The Supreme Court of the United States announced its decision in one case this morning:
Hall v. United States, No. 10-875: Under Chapter 12 of the Bankruptcy Code, farmer debtors may treat certain claims owed to a governmental unit resulting from the disposition of farm assets as dischargeable, unsecured liabilities. One such claim is for “any tax . . . incurred by the estate.” 11 U.S.C. §503(b)(B)(i). Petitioners filed for Chapter 12 bankruptcy and then sold their farm. The Internal Revenue Service asserted a tax on the capital gains from the sale, and Petitioners proposed treating the tax as an unsecured claim to be paid to the extent funds were available, with the unpaid balance being discharged. The Bankruptcy Court sustained an IRS objection to that treatment, the District Court reversed, and the Ninth Circuit then reversed the District Court, holding that because a Chapter 12 estate is not a separate taxable entity under the Internal Revenue Code, it does not “incur” postpetition federal income taxes. The Court today affirmed the Ninth Circuit and held that a federal income tax liability resulting from individual debtors’ sale of a farm during the pendency of a Chapter 12 bankruptcy is not “incurred by the estate” and thus is not dischargeable.
The Court’s opinion is available here.