Major Development in Income Taxation of Chapter 12 Bankruptcy Debtors

Date
2009-10-09
Authors
Harl, Neil
Peiffer, Joseph
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Abstract

The Eighth Circuit Court of Appeals,1 on September 16, 2009, handed down a decision in the long-running battle between the Internal Revenue Service and Chapter 12 bankruptcy debtors over the meaning of the 2005 amendment to the Bankruptcy Code.2 That amendment was to provide relief to Chapter 12 farm and ranch debtors in light of the long-standing favorable treatment given individual debtors under Chapter 7 and Chapter 11 of the Bankruptcy Code.3 Congress had refused to extend the same treatment to individuals filing under Chapter 12 but instead enacted in 2005 a special provision for Chapter 12 filers4 that proved to be controversial as to its meaning because of the ambiguities in the language chosen by Congress.5 As it turned out, the Chapter 12 solution was more favorable to the debtor than the provisions applicable to Chapter 7 and 11 filers inasmuch as tax claims are treated as unsecured claims even if not paid in full.

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