Supreme Court Holds Post-Petition Tax Liabilities Non-Dischargeable ...

American Bankruptcy Institute Law Review Staff

 

 

Adopting a textualist approach, the U.S. Supreme Court, in Hall v. United States,[1] ruled that capital gains liability resulting from the debtors’ post-petition sale of their farm was not “incurred by the estate”[2] and therefore not dischargeable under chapter 12 of the Bankruptcy Code (“Code”).[3] After filing for chapter 12 bankruptcy protection, the debtors, Lynwood and Brenda Hall, sold their farm and incurred income tax liability as a result.[4] The Halls proposed a plan of reorganization under which they classified the resulting income tax liability as a dischargeable general unsecured claim and the IRS objected. The IRS argued that the taxes were the debtors’ independent responsibilities and were neither collectible nor dischargeable in bankruptcy.[5] The Court agreed with the IRS and held that the tax is neither a collectible nor dischargeable administrative expense under a chapter 12 plan of reorganization.[6]