FILED

United States Court of Appeals

Tenth Circuit

June 21, 2011

Elisabeth A. Shumaker

Clerk of Court

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

In re: DONALD W. DAWES;

PHYLLIS C. DAWES,

 Debtors,

------------------------------

UNITED STATES OF AMERICA, 

 Appellant,

v.

DONALD W. DAWES; PHYLLIS C.

DAWES, 

 Appellees,

and

EDWARD J. NAZAR, Trustee,

 Defendant.

No. 09-3129 

Appeal from the United States District Court

for the District of Kansas

(D.C. No. 6:08-CV-01054-WEB)

Patrick J. Urda, Attorney, Tax Division (John A. DiCicco, Acting Assistant

Attorney General; Bruce R. Ellisen, Attorney, Tax Division; and Lanny D. Welch,

United States Attorney, with him on the briefs), United States Department of

Justice, Washington, D.C., for Appellant.
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Mark J. Lazzo, Mark J. Lazzo, P.A., Wichita, Kansas, for Debtors-Appellees.

Before TYMKOVICH, McKAY, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

Can a taxpayer avoid income taxes by selling farm assets after declaring

Chapter 12 bankruptcy? In at least this respect, the tax collector bears

resemblance to the grim reaper: always hovering, never avoidable. While the law

provides some forms of tax relief, it stops short of forgiving taxes incurred by a

Chapter 12 debtor after filing a bankruptcy petition. And the taxes at issue here

were incurred by the Daweses after they petitioned for bankruptcy. So it is that

the Daweses must pay the tax collector his due and we must reverse.

The Daweses’ struggle with the IRS has a lengthy provenance. Decades

ago, and after repeated trips up and down the federal court system, the couple

pleaded guilty for failing to file income tax returns in 1981 through 1983. All

this is documented in no fewer than three of our published opinions. See United

States v. Dawes, 951 F.2d 1189 (10th Cir. 1991); United States v. Dawes, 895

F.2d 1581 (10th Cir. 1990); United States v. Dawes, 874 F.2d 746 (10th Cir.

1989). But all this, as it turned out, was just the beginning. The Daweses also

failed to pay all their taxes for still more years, including 1986–1988 and 1990. 

This led the IRS to seek — and ultimately obtain — a judgment declaring, first,
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that the Daweses had fraudulently conveyed certain assets in an effort to avoid

their creditors; and, second, that those unlawful conveyances were null and void. 

Some six years ago we affirmed this result. See United States v. Dawes, 161 F.

App’x 742 (10th Cir. 2005) (unpublished). After and in light of this ruling the

government proceeded to execute its judgment, notifying the Daweses that it

intended to take possession of various pieces of their property. But before it

could do so, the Daweses declared bankruptcy, seeking the protections of Chapter

12.

And that brings us to the latest installment of this epic. After declaring

bankruptcy, the Daweses, with the permission of the bankruptcy court, sold

several tracts of farm land. This sale, of course, created income tax liabilities. 

The Daweses proceeded to submit a bankruptcy reorganization plan in which they

proposed to treat their newly incurred tax liabilities as general unsecured claims. 

As unsecured claims, the taxes would be entitled to no priority, paid only to the

extent funds might be available after priority claims were satisfied, and any

remaining unpaid portion would be eligible for discharge. Unsurprisingly, the

IRS didn’t take kindly to this proposal. It opposed the plan vigorously — but just

as unsuccessfully — first before the bankruptcy court and then on appeal before

the district court. The IRS now brings its complaint to this court, asking us to

undo its earlier losses. 
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How is that the Daweses think they can defeat the IRS’s tax claim? For the

most part, of course, a bankruptcy filing offers scarce relief from the tax man. 

Other creditors may be neglected, but rarely the IRS. See, e.g., 11 U.S.C. §§

503(b), 507(a)(2), 507(a)(8) & 523(a)(1). Even so, the Daweses have their eye on

a special provision of Chapter 12 that, they say, makes their situation special. 

Under § 1222(a)(2)(A), certain claims that are otherwise entitled to priority

payment status under § 507, but that happen to be owed to the government as a

result of the sale of farm assets, are downgraded, treated as mere unsecured

claims, and made eligible for discharge. No one disputes that the taxes at issue

here are owed to the government and are owed as a result of the sale of farm

assets. So the only question is whether the taxes are entitled to priority under

§ 507. Moving to that provision, the Daweses point out that claims entitled to

priority include “administrative expenses allowed under section 503(b).” 11

U.S.C. § 507(a)(2). And with this the Daweses take us next to § 503(b). That

statute, they observe, speaks of “administrative expenses . . . including . . . any

tax . . . incurred by the estate.” 11 U.S.C. § 503(b)(1)(B)(i). Mapping their way

through the thicket of the U.S. Code in this way, the Daweses argue that, because

the federal income taxes at issue here are owed to the IRS as a result of a farm

asset sale and were “incurred by the estate,” they may be treated as general

unsecured claims. 
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Whether this is so — whether income taxes flowing from the sale of a farm

asset during a Chapter 12 bankruptcy are taxes “incurred by the estate” and so

subject to downgrade and discharge — is a question that has divided our sister

circuits. The Eighth Circuit says yes; the Ninth says no. See Knudsen v. I.R.S.,

581 F.3d 696, 710 (8th Cir. 2009); United States v. Hall, 617 F.3d 1161, 1163

(9th Cir. 2010), cert. granted, 79 U.S.L.W. 3421 (June 13, 2011) (No. 10-875). 

The same disagreement has beset the bankruptcy courts as well. Compare I.R.S.

v. Ficken, 430 B.R. 663, 672 (10th Cir. BAP 2010) and In re Schilke, 379 B.R.

899, 903 (Bankr. D. Neb. 2007) with Smith v. I.R.S., 447 B.R. 435, 447 (Bankr.

W.D. Pa. 2011).

Today, we must pick sides in this debate and we side with the Ninth. 

Whatever other problems may lurk in the Daweses’ statutory analysis (and the

IRS insists there are several), post-petition income taxes incurred during Chapter

12 proceedings are liabilities of the individual debtor and not the bankruptcy

estate. As such, they are not within the purview of the bankruptcy proceedings or

included in the reorganization plan. Instead, the taxes are due from the debtor

personally, and the IRS’s recourse remains exclusively with the individual debtor,

separate and apart from the Chapter 12 estate and unaffected by the bankruptcy

discharge. That this is so is suggested by an examination of the plain language of

the statute before us, the larger statutory structure, and Congress’s expressed

purposes.
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To begin, the plain language of § 503(b). The Daweses’ argument hinges

on the term “incurred by the estate” and the submission that the post-petition

income tax at issue here was incurred by their bankruptcy estate rather than by

them personally. But what does it mean for a tax to be incurred by the estate? 

Happily, that critical term has a definition that is as well-settled as it is precise. 

Black’s Law Dictionary tells us that to “incur” means to “suffer or bring on

oneself,” as in a “liability or expense.” Black’s Law Dictionary 782 (8th ed.

2004). Webster’s says the same thing, and adds the alternate definition “[to]

become liable or subject to.” Webster’s Third New International Dictionary 1146

(2002) (unabridged); see also 7 Oxford English Dictionary 834-35 (2d ed. 1989)

(“To run or fall into (some consequence, usually undesirable or injurious); to

become through one’s own action liable or subject to”). While at the margin

there might be some distinctions between these definitions, they don’t leave any

room for debate on this proposition: one who has “incurred” an expense is liable

for it.

To determine who has “incurred” a tax, then, we must ask who is liable for

paying it. And to answer that question we must look to the relevant tax authority. 

Of course, Congress is free (and in some cases has chosen) to use the bankruptcy

code to control certain aspects of how federal or state tax law operates during

reorganizations. But, when the code hasn’t told us otherwise, our attention is

rightly turned to the underlying tax law to see who owes what. Indeed,
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bankruptcy law often relies on underlying income tax laws to assign priorities in

bankruptcy. See, e.g., § 507(a)(8)(A)(i) (treatment of pre-petition tax turns on

when the tax return was due); § 507(a)(8)(B) (treatment of property tax turns on

when it was last payable without penalty); § 346 (commanding that state and local

income taxes be allocated between debtor and bankruptcy estate in a way that

generally follows their treatment under the federal Internal Revenue Code). 

When the bankruptcy code defers a question to existing tax law, our role is to

apply that law, not to invent new rules of our liking.

This is one of those occasions, and the relevant tax authority is the federal

government itself, so we need only flip forward a few titles in the U.S. Code to

see how tax liability is allocated as between debtor and estate. And there, in Title

26, the answer is plain. In individual Chapter 7 and 11 bankruptcies, the trustee

is charged with filing a separate return on behalf of the bankruptcy estate and

paying from that estate any resulting taxes. See 26 U.S.C. §§ 1398(c), 6012(a)(8),

(b)(3), (b)(4), & 6151(a). There’s no escaping that those are “taxes incurred by

the estate” — the estate is obligated by federal law to pay them. But in Chapter

12 and 13 bankruptcies, the debtor — not the bankruptcy estate — bears the sole

responsibility for filing and paying post-petition federal income taxes. See 26

U.S.C. § 1399; 26 U.S.C. § 6151(a); Holywell Corp. v. Smith, 503 U.S. 47, 52

(1992) (“The Internal Revenue Code ties the duty to pay federal income taxes to

the duty to make an income tax return.”). Only the debtor, not the estate, is liable
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for the payment of these taxes. And this, in turn, answers the question posed by §

503(b): because a Chapter 12 or Chapter 13 estate isn’t liable for post-petition

federal income taxes, the estate does not incur such taxes. Those taxes aren’t in

the bankruptcy at all but remain the personal obligation of the debtor during,

after, and apart from the bankruptcy. It’s little different than when a corporate

officer executes a transaction that generates a tax bill for his employer: the

officer may have caused the tax to arise, but it is the corporation that incurred

and is liable for it. Here, the markings of bankruptcy may be all over the

transaction that produced the tax liability. The estate may have once possessed

the farm assets in question. The bankruptcy court may have authorized their sale. 

And the estate might well have caused a tax liability to arise. But none of this

means the estate incurs those taxes. Only the Daweses do. 

The rationale for allocating tax liability like this in Chapter 12 and 13

bankruptcies appears to be a pragmatic one. Upon confirmation of a plan under

those chapters, the estate property, including any post-petition income, joins the

post-petition income taxes back in the hands of the debtor. See 11 U.S.C.

§§ 1227(b) & 1327(b). Disregarding the temporary existence of a bankruptcy

estate for purposes of tax liability tidies the accounting somewhat, because there’s

only a single return — the debtor’s — that needs to be filed and kept track of. 

And, because Chapter 12 and 13 cases are typically confirmed quickly (at least

compared to bankruptcies under Chapters 7 and 11), the expectation is that the
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debtor’s post-petition earnings and taxes will meet up in his hands soon enough. 

See 8 Collier on Bankruptcy ¶ 1200.01[4] (16th ed.) (noting that Chapter 12

debtor is required to file a plan within 90 days and court is required to confirm or

deny that plan within 45 days); cf. H.R. Rep. No. 95-595, at 276 (1977), reprinted

in 1978 U.S.C.C.A.N. 5963, 6233 (“The administrative reality [is] that most

Chapter 13 estates will only remain open for 1 or 2 months until confirmation of

the plan.”).

The Daweses reply to all this by urging us to follow the Eighth Circuit in

reading “tax incurred by the estate” to mean “tax incurred during bankruptcy.” 

The problem is, there’s just no way to root this reading in the text of the statute. 

It would be one thing if we faced a difference of opinion over the meaning of the

word “incurred” — facing divergent definitions, one might reasonably move on to

contextual clues to determine the term’s meaning. But the Daweses neither cite

some authority for an alternate definition of the word “incurred” nor urge one of

their own creation. And once we accept that one must be liable for an expense in

order to have incurred it, it’s the phrase “by the estate” that poses the problem for

the Daweses. That language focuses unavoidably on the question who did the

incurring and there’s just no way we can turn it into a question about when a

liability was incurred. Trying to do so would be like saying that the phrase “debts

incurred by my wife” (who) means “debts incurred by either of us while we were

married” (when). The two statements simply mean different things. The
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Daweses’ interpretation is thus irreconcilable with the plain language of § 503(b). 

Who does not mean when.

The Daweses insist that, because a bankruptcy estate can’t incur taxes

before it exists, the phrase “incurred by the estate” necessarily references taxes

incurred post-petition. And with this much we have no objection. But the

Daweses err when they take the further step of equating “incurred by the estate”

with “incurred post-petition.” The fact that a bankruptcy estate can’t incur

liabilities until it comes into existence doesn’t mean every liability that arises

after a petition is filed is automatically incurred by the estate and becomes its

liability. Being incurred post-petition is a necessary — but not sufficient —

condition for a claim to be “incurred by the estate.” And the Daweses don’t

address the requirement that is both necessary and sufficient under the text of the

statute — that the estate be liable for payment of the taxes in question.

Beyond the narrow statutory provision before us, the larger structure of the

bankruptcy code casts further doubt on the direction the Daweses urge us to take. 

If Congress had wanted to capture all post-petition taxes in § 503(b) — if it had

wanted to focus on when the tax was incurred rather than by whom — it surely

knew how to do so. And we don’t need to look far to find some examples. 

Section 503 itself addresses many expenses with regard to when rather than who

incurred them. See § 503 (b)(1)(A)(i) (“wages, salaries, and commissions for

services rendered after the commencement of the case”) (emphasis added);
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(b)(1)(B)(ii) (certain tax carryback adjustments “whether the [relevant] taxable

year . . . ended before or after the commencement of the case”) (emphasis added). 

For that matter, and in addition to taxes “incurred by the estate,” § 503(b)

categorizes a host of other charges based on who did the incurring. See § 503

(b)(3) (“the [following] actual, necessary expenses . . . incurred by [] a creditor”)

(emphasis added). All this seems evidence that Congress was deliberately

navigating the distinction between timing and identity when crafting § 503(b). To

accept the Daweses’ argument that when and who mean the same thing would

require trampling these carefully delineated rules for administrative priority.

Other structural features confirm the Daweses’ wrong turn. Their reading of

§ 503(b) would make nonsense of a central provision for paying post-petition taxes

under Chapter 13. To accept that post-petition federal income taxes are “incurred”

by the estate in Chapter 12 proceedings, we would seemingly need to say the same

thing in the Chapter 13 context — after all, Chapter 12 is modeled on Chapter 13,

and individual Chapter 12 and Chapter 13 estates are given the same treatment

under the Internal Revenue Code. See 26 U.S.C. § 1399. But Chapter 13

explicitly allows the government the option of having post-petition taxes incurred

by the debtor treated as part of the bankruptcy proceeding and dealt with in the

reorganization plan. See 11 U.S.C. § 1305(a)(1). The Daweses’ reading of

§ 503(b) forestalls that flexibility, forcing governmental claims into the

bankruptcy proceedings whether the government wants them there or not. And,
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beyond thwarting the choice bestowed by § 1305, the Daweses’ handiwork raises

an even more troubling question: what is § 1305(a)(1) doing on the books at all? 

If post-petition taxes are automatically included in the bankruptcy plan as taxes

“incurred by the estate,” then § 1305(a)(1)’s optional inclusion of these same

claims is left loitering around the U.S. Code with no apparent purpose. So, to

adopt the Daweses’ reading of § 503(b), we would need to ignore “one of the most

basic interpretive canons” — that a “statute should be construed so that effect is

given to all its provisions, so that no part will be inoperative or superfluous, void

or insignificant.” See Corley v. United States, 129 S. Ct. 1558, 1566 (2009)

(citation omitted); see also Bilski v. Kappos, 130 S. Ct. 3218, 3229 (2010) (“This

principle . . . applies . . . even when Congress enacted the provisions at different

times.”). 

Equally strange things would happen to state and local income taxes. Under

the Daweses’ reading of § 503(b), the bankruptcy estate would of course be

responsible for paying state income taxes incurred during bankruptcy. But the

bankruptcy code specifically prohibits state and local income taxes from being

either “taxed to” or “claimed by” a Chapter 12 estate, instead directing that these

state and local taxes be the liabilities of the debtor. See § 346(b) (requiring state

and local income taxes to assign liability exclusively to the debtor whenever

federal income tax law does so). So, under the Daweses reading of § 503(b), the

bankruptcy trustee would face conflicting instructions: § 503 would tell him to
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pay post-petition state income taxes while § 346(b) would tell him not to do just

that. Either the trustee would have to reject the Daweses’ understanding of

§ 503(b), or he would have to turn a blind eye to another provision of the

bankruptcy code. 

 All of these riddles disappear if we apply the plain meaning of § 503(b). 

Post-petition federal income taxes are not ordinarily included in the Chapter 12 or

Chapter 13 bankruptcy plan because they are not “taxes incurred by the estate.” 

Section 1305 operates to give the government the option of having these taxes

included — though only in Chapter 13. And otherwise mixed messages about the

treatment of post-petition state and federal income taxes during Chapter 12

proceedings dissipate: none is treated as “taxes incurred by the estate” and so none

is payable by the trustee during the bankruptcy proceedings — a result that

comports with the plain language of § 346(b) and ensures the even-handed

treatment of federal and state taxes Congress clearly sought to achieve.

The Daweses ask us to look beyond the statutory text and beyond even the

larger statutory structure to the statute’s underlying purpose, stressing that

§ 1222(a)(2)(A) was enacted to provide special solicitude to bankrupt farmers. But

spotting the Daweses the premise that in § 1222(a)(2)(A) Congress sought to

provide tax relief to farmers does not mean their interpretation of § 503(b)

ineluctably follows. Our interpretation as well gives effect and respect to the

congressional purpose they identify. Ordinarily, of course, taxes are not
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dischargeable in bankruptcy; the tax man is rarely avoidable. Yet under our

interpretation of § 503(b), income taxes incurred as a result of the pre-petition

disposition of certain farm assets are eligible for § 1222(a)(2)(A)’s generous rule

allowing them to be treated as unsecured claims, compromised, and discharged. 

See Knudsen, 581 F.3d at 699 (applying § 1222(a)(2)(A) to pre-petition sale of

slaughter hogs). Clearly, then, our reading gives respect to Congress’s wish to

provide a substantial form of special assistance targeted to farmers. We only stop

short of extending § 1222(a)(2)(A)’s treatment to income taxes incurred postpetition by the debtor rather than the estate. 

Neither is there any indication that this particular result is at odds with

Congress’s purposes. If Congress had wished to grant farmers additional relief for

post-petition income taxes it would have needed to attend to a number of thorny

issues across the bankruptcy and tax codes. For example, to prevent § 1305 from

becoming a nullity, Congress would have needed either to do away with it entirely

— a tectonic shift in the treatment of taxes under Chapter 13 — or give “incurred

by the estate” one meaning in Chapter 12 and a different one in Chapter 13. 

Congress also would have needed to revise § 346 to allow the Chapter 12 trustee to

pay state and local income taxes. And, having accomplished all that, Congress still

would have needed to measure the consequences — for debtors, governments, and

other creditors — of including post-petition taxes in the many Chapter 12

bankruptcies where § 1222(a)(2)(A) doesn’t even apply. It is entirely
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understandable that Congress, while intent on providing special tax relief to

farmers, may not have seen fit to undertake such a large rewriting of the

bankruptcy or tax codes in service of that mission — especially when pre-petition

income tax relief could be provided surgically with the simple addition of

§ 1222(a)(2)(A). After all, “‘[n]o legislation pursues its purposes at all costs’

without consideration of competing goals and concerns.” Hydro Res., Inc. v.

E.P.A., 608 F.3d 1131, 1158 (10th Cir. 2010) (en banc) (quoting Pension Benefit

Guar. Corp. v. LTV Corp., 496 U.S. 633, 646 (1990)); John F. Manning, Textualism

and the Equity of the Statute, 101 Colum. L. Rev. 1, 18 (2001) (“Because statutory

details may reflect only what competing groups could agree upon, legislation

cannot be expected to pursue its purposes to their logical ends; accordingly,

departing from a precise statutory text may do no more than disturb a carefully

wrought legislative compromise.”). 

The Daweses seek a final refuge in two pieces of legislative history. First,

they point to a 1978 Senate Committee Report accompanying the Bankruptcy Act

that created 11 U.S.C. § 503. That Report, the Daweses emphasize, explained that

“[i]n general, administrative expenses include taxes which the trustee incurs in

administering the debtor’s estate, including taxes on capital gains from sales of

property by the trustee and taxes on income earned by the estate during the case.” 

S. Rep. No. 95-989, at 66 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5852. But

as legislative history goes this is no smoking gun. The report speaks only of taxes
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which the trustee incurs in administering a debtor’s estate. It doesn’t state that the

phrase “taxes incurred by the estate” turns on when the tax is incurred rather than

who is responsible for paying it. It does not negate the possibility that the debtor

may incur taxes during the bankruptcy. And it does not speak to the treatment of

taxes that the debtor, rather than the trustee, incurs. Confirming the point, the

mirror image committee report from the House of Representatives acknowledges

that the bankruptcy estate sometimes may “not [be] a separate taxable entity,” that

there are cases when “any income . . . is to be taxed only to the debtor,” and that

“[t]he duration of a chapter 13 case is so short that there is no reason to impose a

duty to pay taxes on the trustee.” H.R. Rep. No. 95-595, at 277.

On the back foot, the Daweses leap forward two decades and point to a

senator’s floor statement made in 1999 while he was introducing a never-enacted

provision similar to § 1222(a)(2)(A). The senator described his unenacted

provision as aimed at remedying situations in which “the I.R.S. must be paid in full

for any tax liabilities generated during a bankruptcy reorganization.” 145 Cong.

Rec. S750-02, S764. The first problem with this argument, of course, is that

Section 1222(a)(2)(A) wasn’t adopted until six years later, in 2005 — so this floor

statement might not tell us anything about what the Congress that did enact

§ 1222(a)(2)(A) had in mind. We suppose it’s possible for a senator’s remarks to

linger in the hearts and minds of his colleagues and influence their work years

later, but to assume as much would take us well beyond ordinary legislative history
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analysis and require us to engage in the sort of “psychoanalysis of Congress” the

Supreme Court has repeatedly warned against. United States v. Public Util.

Comm’n of Cal., 345 U.S. 295, 319 (1953) (Jackson, J., concurring); see also

Massachusetts v. E.P.A., 549 U.S. 497, 529-30 (2007) (warning against attributing

views of one Congress to another); Doe v. Chao, 540 U.S. 614, 619-21 (2004)

(warning against reading too much into unenacted bills). Notably, too, the remarks

in question, like the Senate Report on which the Daweses rely, don’t speak directly

to the question whether post-petition income taxes qualify as administrative

expenses under § 503(b). Neither could they have influenced or reflected the intent

of the 1978 Congress that enacted § 503(b) many years earlier. And of course it’s

the language of that enacted statute we’re tasked with construing in this case. 

With the plain language and larger statutory structure pointing in the same

direction, and without any convincing counter-indication in the legislative history,

we hold that post-petition federal income taxes are not “incurred” by a Chapter 12

“estate” for purposes of § 503(b)(1)(B)(i). They are, instead, incurred by the

Daweses personally and outside the bankruptcy. Accordingly, the Daweses’ postpetition income tax liabilities at issue before us are not eligible for treatment as

unsecured claims under § 1222(a)(2)(A) as currently proposed in their

reorganization plan. 

Reversed.