Source: https://www.law.cornell.edu/supremecourt/text/10-875
Timestamp: 2015-11-28 20:44:27
Document Index: 446286275

Matched Legal Cases: ['§1222', '§1222', '§1222', '§503', '§1201', '§1301', '§1221', '§1222', '§1003', '§1222', '§1398', '§503', '§1222', '§1398', '§1398', '§6012', '§1398', '§346', '§1398', '§503', '§346', '§346', '§346', '§346', '§1222', '§1222', '§503', '§1305', '§503', '§1222', '§503', '§1222', '§1222', '§1222', '§1222', '§503', '§346', '§346', '§346', '§346', '§1305', '§503', '§25', '§25', '§5', '§5', '§1222', '§346', '§346', '§1222', '§1222', '§507', '§1222', '§507', '§507', '§1225', '§1222', '§1225', '§1228', '§507', '§507', '§1225', '§507', '§507', '§54', '§507', '§507', '§705', '§507', '§1222', '§507', '§507', '§507', '§507', '§507', '§503', '§503', '§1398', '§346', '§503', '§1227', '§541', '§61', '§541', '§6012', '§1104', '§91', '§101', '§109', '§6013', '§1501', '§503', '§1398', '§503', '§1305', '§507', '§1305', '§1325', '§507', '§507', '§1222', '§1227', '§101', '§1226', '§1226', '§1222', '§101', '§726', '§1226', '§1222', '§1226', '§1227', '§1228', '§1227', '§137', '§503']

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Chapter 12 of the Bankruptcy Code allows farmer debtors with regular annual income to adjust their debts subject to a reorganization plan. The plan must provide for full payment of priority claims.
11 U. S. C. §1222(a)(2). Under §1222(a)(2)(A), however, certain governmental claims arising from the disposition of farm assets are stripped of priority status and downgraded to general, unsecured claims that are dischargeable after less than full payment. That exception applies only to claims “entitled to priority under [
LYNWOOD D. HALL, et ux., PETITIONERS v.UNITED STATES
11 U. S. C. §1222(a)(2)(A). One such claim is for “any tax . . . incurred by the estate.” §503(b)(B)(i). The question presented is whether a federal income tax liability resulting from individual debtors’ sale of a farm during the pendency of a Chapter 12 bankruptcy is “incurred by the estate” and thus dischargeable. We hold that it is not.
In 1986, Congress enacted Chapter 12 of the Bankruptcy Code, §1201 et seq., to allow farmer debtors with regu-lar annual income to adjust their debts. Chapter 12 was modeled on Chapter 13, §1301 et seq., which permits individual debtors with regular annual income to preserve existing assets subject to a “court-approved plan under which they pay creditors out of their future income.” Hamilton v. Lanning, 560 U. S. ___, ___ (2010) (slip op., at 1). Chapter 12 debtors similarly file a plan of reorganization. §1221. To be confirmed, the plan must provide for the full payment of priority claims. §1222(a)(2).
In the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), §1003,
“(A) the claim is a claim owed to a governmental unit that arises as a result of the sale, transfer, exchange, or other disposition of any farm asset usedin the debtor’s farming operation, in which case the claim shall be treated as an unsecured claim that is not entitled to priority under section 507, but the debt shall be treated in such manner only if the debtor receives a discharge.”
11 U. S. C. §1222.
The Bankruptcy Court sustained the objection. The court reasoned that because a Chapter 12 estate is not a separate taxable entity under the Internal Revenue Code (IRC), see 26 U. S. C. §§1398, 1399, it cannot “incur” taxes for purposes of
11 U. S. C. §503(b).
Judge Paez dissented, siding with a sister Circuitthat had concluded that Congress intended §1222(a)(2)(A) to extend to such postpetition federal income taxes. We granted certiorari to resolve the split of authority.
As the IRC makes clear, only certain estates are liable for federal income taxes. Title 26 U. S. C. §§1398 and 1399 address taxation in bankruptcy and define the division of responsibilities for the payment of taxes between the estate and the debtor on a chapter-by-chapter basis. Section 1398 provides that when an individual debtor files for Chapter 7 or 11 bankruptcy, the estate shall be liable for taxes. In such cases, the trustee files a separate re-turn on the estate’s behalf and “[t]he tax” on “the taxable income of the estate . . . shall be paid by the trustee.” §1398(c)(1); see also §6012(b)(4) (“Returns of . . . an estate of an individual under chapter 7 or 11 . . . shall be made by the fiduciary thereof”). Section 1399 provides that “[e]xcept in any case to which section 1398 applies, no separate taxable entity shall result from the commencement of a [bankruptcy] case.” In Chapter 12 and 13 cases, then, there is no separately taxable estate. The debtor—not the trustee—is generally liable for taxes and files the only tax return. See In re Lindsey, 142 B. R. 447, 448 (Bkrtcy. Ct. WD Okla. 1992) (“It is clear that, pursuantto
26 U. S. C. §1398 and 1399, the standing Chapter 12 trustee neither files a return nor pays federal income tax”); cf. infra, at 15 (discussing special trustee duties in corporate-debtor cases).
These provisions suffice to resolve this case: Chapter 12 estates are not taxable entities. Petitioners, not the estate itself, are required to file the tax return and are liable for the taxes resulting from their postpetition farm sale. The postpetition federal income tax liability is not “incurred by the estate” and thus is neither collectible nor discharge-able in the Chapter 12 plan.
Our reading of “incurred by the estate” as informed by the IRC’s separate taxable entity rules draws support from a related provision of the Bankruptcy Code,
11 U. S. C. §346, and its longstanding interplay with 26 U. S. C. §§1398 and 1399. That relationship illustrates that from the inception of the current Bankruptcy Code, Congress has specified on a chapter-by-chapter basis which estates are separately taxable and therefore liable for taxes. That relationship also refutes the dissent’s suggestion that applying such rules is an incongruous importation of “tax law” unconnected to “bankruptcy principles (as Congress understood them).” Post, at 8–9 (opinion of Breyer, J.). And it reinforces the reason-ableness of our view that whether an estate “incurs”taxes under §503(b) turns on such chapter-by-chapter distinctions.
In the original Bankruptcy Code, Congress included a provision, §346, that set out a chapter-specific division of tax liabilities between the estate and the debtor. Bankruptcy Reform Act of 1978,
2565. Section 346(b)(1) provided that in an individual-debtor Chapter 7 or 11 bankruptcy, “any income of the estate may be taxed under a State or local law imposing a tax . . . only to
estate, and may not be taxed to such
2565 (emphasis added); see also 11 Collier on Bankruptcy ¶TX12.03[5][b][i], p. TX12–21 (16th ed. 2011) (hereinafter Collier) (§346(b) “provided that in a case under chapter 7 [or] 11 . . . the estate of an individual is a taxable entity”). Section 346(d) provided, meanwhile, that in a Chapter 13 bankruptcy, “any income of the estate or the debtor may be taxed under a State or local law imposing a tax . . . only to
debtor, and may not be taxed to the
Congress applied its framework to federal taxes two years later. In the Bankruptcy Tax Act of 1980,
“(b) Whenever the Internal Revenue Code of 1986 provides that no separate taxable estate shall be created in a case concerning a debtor under this title,and the income . . . of an estate shall be taxed to or claimed by the debtor, such income . . . shall be taxed to or claimed by the debtor under a State or local law imposing a tax on or measured by income and may not be taxed to or claimed by the estate.” (Emphasis added.)
Thus, whenever the estate is separately taxable under federal income tax law, that “is also” the case under state or local income tax law, §346(a), and vice versa, §346(b). And given that the Bankruptcy Code instructs that the as-signment of state or local tax liabilities shall turn on the IRC’s separate taxable entity rules, there is parity in turning to such rules in assigning federal tax liabilities.
In the same Act, Congress added §1222(a)(2)(A). Section 1222(a)(2)(A) carves out an exception to the ordinary priority classification scheme. But §1222(a)(2)(A) did not purport to redefine which claims are otherwise entitled to priority, much less alter the underlying division of tax liability between the estate and the debtor in Chapter 12 cases. “We assume that Congress is aware of existing law when it passes legislation,” Miles v. Apex Marine Corp.,
498 U. S. 19,
A provision in Chapter 13 confirms that postpetition income taxes fall outside §503(b). Section 1305(a)(1) pro-vides that “[a] proof of claim may be filed by any entity that holds a claim against the debtor . . . for taxes that become payable to a governmental unit while the case is pending.” (Emphasis added.) That provision gives holders of postpetition claims the option of collecting postpetition taxes within the bankruptcy case—an option that the Government would never need to invoke if postpetition tax liabilities were already collectible inside the bankruptcy. Accordingly, lest we render §1305 “ ‘inoperative or superfluous,’ ” Hibbs v. Winn,
542 U. S. 88,
Because both chapters cross-reference §503(b) in an identical manner, see §§1222(a)(2), 1322(a)(2), we are cognizant that any conflicting reading of §503(b) here could disrupt settled Chapter 13 practices. See Cohen v. de la Cruz,
523 U. S. 213,
At bottom, “identical words and phrases within the same statute should normally be given the same meaning.” Powerex Corp. v. Reliant Energy Services, Inc.,
551 U. S. 224,
The dissent, echoing both of these points, urges thatwe “simply . . . consider the debtor and estate as merged.” Post, at 11. “The English language,” the dissent reasons, “permits this reading” and “do[es] not require” our reading. Post, at 8–9. But any reading of “tax . . . incurred by the estate” that is contingent on merging the debtor and estate—despite Congress’ longstanding efforts to distinguish between when tax liabilities are borne by the debtor or borne by the estate—is not a natural construction of the statute as written.
Petitioners also point to cases suggesting that postpetition taxes were treated as administrative expenses. E.g.,
United States v. Noland,
517 U. S. 535,
(cor-porate Chapter 11 debtor); Nicholas v. United States,384 U. S. 678–688 (1966) (corporate Chapter XI case under predecessor Bankruptcy Act). But those cases involve corporate debtors and are therefore inapposite. Among estates that are not separately taxable, those involving corporate debtors have long been singled out by Congress for special responsibilities.
Finally, petitioners and the dissent contend that the purpose of
11 U. S. C. §1222(a)(2)(A) was to provide debtors with robust relief from tax debts, relying on statements by a single Senator on unenacted bills introduced in years preceding the enactment. See Brief for Petitioners 23–36. They argue that deeming §1222(a)(2)(A) inapplicable to their postpetition income taxes would undermine that purpose and confine the exception to prepetition taxes. But we need not resolve here what other claims, if any, are covered by §1222(a)(2)(A).
Whatever the 2005 Congress’ intent with respect to §1222(a)(2)(A), that provision merely carved out an exception to the pre-existing priority classification scheme. The exception could only apply to claims “entitled to priority under section 507” in the first place. That pre-existing scheme was in turn premised on antecedent, decades-old understandings about the scope of §503(b) and the division of tax liabilities between estates and debtors. See Dewsnup v. Timm,
502 U. S. 410,
419 (1992)
Certainly, there may be compelling policy reasons for treating postpetition income tax liabilities as discharge-able. But if Congress intended that result, it did not so provide in the statute. Given the statute’s plain language, context, and structure, it is not for us to rewrite the statute, particularly in this complex terrain of interconnected provisions and exceptions enacted over nearly three decades. Petitioners’ position threatens ripple effects beyond this individual case for debtors in Chapter 13 and the broader bankruptcy scheme that we need not invite. As the Court of Appeals noted, “Congress is entirely free to change the law by amending the text.” 617 F. 3d, at 1167.
3 For those of us for whom it is relevant, the legislative historyconfirms that Congress viewed §346 as defining which estates were separate taxable entities. See H. R. Rep. No. 95–595, p. 275 (1977) (here-inafter H. R. Rep.) (“A threshold issue to be considered when a debtor files a petition under title 11 is whether the estate created . . . should be treated as a separate taxable entity”); id., at 334 (“Subsection (d) indicates that the estate in a chapter 13 case is not a separate taxable entity”); accord, S. Rep. No. 95–989, p. 45 (1978) (hereinafter S. Rep.); H. R. Rep., at 335 (noting “the creation of the estate of an individual under chapters 7 or 11 of title 11 as a separate taxable entity”); accord, S. Rep., at 46.
4 A dispute over Committee jurisdiction led to the insertion of “State or local” before each mention of “law imposing a tax.” Compare H. R. 8200, 95th Cong., 1st Sess., §346 (1977), with §346,
2565. Nonetheless, the House Report underscored that the policy behind §346 applied equally to federal taxes:“[T]here is a strong bankruptcy policy that these provisions apply equally to Federal, State, and local taxes. However, in order to avoid any possible jurisdictional conflict with the Ways and Means Committee over the applicability of these provisions to Federal taxes, H. R. 8200 has been amended to make the sections inapplicable to Federal taxes. The amendment . . . will obviate the need for a sequential referral of the bill to Ways and Means, which will be considering these provisions and other bankruptcy-related tax law later in this Congress.” H. R. Rep., at 275.
In re Maxfield, No. 04–60355, 2009 WL 2105953, *5–*6 (Bkrtcy. Ct. ND Ind. 2009); In re Jagours, 236 B. R. 616, 620 (Bkrtcy. Ct. ED Tex. 1999); In re Whall, 391 B. R. 1, 5–6 (Bkrtcy. Ct. Mass. 2008); In re Brown, No. 05–41071, 2006 WL 3370867, *3 (Bkrtcy. Ct. Mass. 2006); In re Gyulafia, 65 B. R. 913, 916 (Bkrtcy. Ct. Kan. 1986).
6 The dissent suggests that Chapter 12 can be distinguished from Chapter 13 because Chapter 12 bankruptcies tend to be longer, such that the treatment of taxes is more “important.” Post, at 13. Asa practical matter, it is not clear that Chapter 12 bankruptcies are substantially longer. Compare Brief for Neil E. Harl. et al. as Amici Curiae 33 (median Chapter 12 case duration is under 8 months) with Tr. of Oral Arg. 49 (“on average we’re talking about 4 months in a chapter 13 case”). In any event, there is no indication that Congress intended any difference in duration—if it anticipated a difference at all—to flip the characterization of postpetition income taxes from one chapter to the other. Nor does the absence of a §1305 equivalent in Chapter 12 justify shoehorning postpetition taxes into §503(b), as the dissent argues. That Chapter 12 lacks a provision allowing such taxes to be brought inside the plan only clarifies that such taxes fall outside of the plan.
7 IRS manuals dating back to 1998 indicate that the Government did not view postpetition federal income taxes as collectible in an individ-ual debtor’s Chapter 12 plan, even when that view was adverse to its interests. See IRM §25.17.12.9.3 (2004); id., §25.17.12.9.3(1) (2002);id., §5.9, ch. 10.8(4) (1999); id., §5.9, ch. 10.8(4) (1998). Until the en-actment of
11 U. S. C. §1222(a)(2)(A), treating such taxes as priority claims in the plan would have assured the Government of full payment before or at the time of the plan.
9 The original §346 established that the estate of a corporate debtoris not a separate taxable entity, but nonetheless provided that “the trustee shall make any [State or local] tax return otherwise required . . . to be filed by or on behalf of such . . . corporation.” §§346(c)(1)–(2),
Chapter 12 of the Bankruptcy Code helps family farmers in economic difficulty reorganize their debts without losing their farms. Consistent with the chapter’s pur-poses, Congress amended §1222(a) of the Code to enable the debtor to treat certain capital gains tax claims as ordinary unsecured claims.
11 U. S. C. §1222(a)(2)(A). The Court’s holding prevents the Amendment from carrying out this basic objective. I would read the statute differently, interpreting it in a way that, in my view, both is consistent with its language and allows the Amendment better to achieve its purposes.
The holder of a §507
priority claim (a category that includes, among other things, domestic support obligations, debts for taxes incurred before filing the bankruptcy petition, and administrative expenses) must receive the full amount of the priority claim in deferred cash payments paid over the life of the Plan. §1222(a)(2).
The holder of an ordinary unsecured claim—i.e., an unsecured claim of a kind not listed in §507—may receive at least a partial payment from the amount left over after the payment of the secured and §507 priority claims. This amount may well be more than zero, for the Plan must provide that the farmer will devote all “disposable income” (as defined by §1225(b)(2)) or property of equivalent value to the repayment of his debts over the next three years (sometimes extended to five years). §§1222(c), 1225(b)(1). And that amount must prove sufficient to provide the un-secured creditor with no less than that creditor would re-ceive in a Chapter 7 liquidation. §1225(a)(4).
Once the farmer completes his Plan payments, he will receive a discharge even if his payments did not fully satisfy all unsecured claims. The Code does not, however, permit all debts to be discharged. There are categoriesof nondischargeable debts (including, for example, secured claims), which creditors can pursue after bankruptcy. §1228(a).
For present purposes, it is important to understand that if the debtor owes too much money to his §507 priority creditors, he may not have sufficient assets or future income to pay all his secured creditors and his §507 prior-ity creditors while leaving enough funds over to guarantee unsecured creditors the minimum amounts that Chapter 12 requires. If so, the farmer may not be able to proceed under Chapter 12. See §§1225(a)(1), (6) (bankruptcy court will not confirm Plan unless it satisfies statutory criteria and debtor will be able to make good on his commitments under the Plan).
Congress did not intend this result. In a significant number of instances a Chapter 12 farmer, in order tohave enough money to pay his creditors, might have to sell farmland or other farm assets at a price that would give rise to considerable capital gains taxes (particularly if the family has held the land or assets for many years). If the resulting tax debt were treated as a §507 priority claim, then it might well absorb much of the money raised to the point where (depending upon the size of his other debts) the farmer might be unable to proceed under Chapter 12. The Amendment accordingly seeks to place the tax authorities farther back in the creditor queue, requiring them, like ordinary unsecured creditors, to seek payment from the funds that remain after the §507 priority creditors (and secured claim holders) have been paid.
See also 14A J. Mertens, Law of Federal Income Taxation §54:61, p. 11 (Oct. 2011 Supp.) (“This provision attempts to mitigate the tax expense often incurred by farmers who have significant taxable capital gains or depreciation re-capture when their low basis farm assets are foreclosed, sold, or otherwise disposed of by their creditors”).
The majority, following the Government’s suggestion, interprets the relevant language in a way that denies the Amendment its intended effect. It holds that the only income tax claims to which §507 accords priority are claims for taxes due for years prior to the taxable year in which the farmer filed for bankruptcy. (We shall call these “prepetition tax claims.”) In the majority’s view, §507 does not cover income tax liabilities that arise during the year of filing or during the Chapter 12 proceedings. (We shall call these “postpetition tax claims.”) Ante, at 4–5; see Brief for United States 8 (the Amendment “provides farmers relief from [only] those tax claims that are otherwise entitled to priority under 11 U. S. C. 507(a)(8), namely pre-petition claims arising from the sale of farm as-sets”); Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, §705(1)(A),
The majority then observes that the Amendment creates an exception only in respect to §507 priority claims. §1222(a) (“The plan shall . . . provide for the full payment . . . of all claims entitled to priority under section 507, unless . . . .” (Emphasis added.)). Ante, at 2. Thus, if (without the Amendment) §507 would not cover postpetition capital gains taxes in the first place, the Amendment (creating only a §507 exception) cannot affect postpeti-tion tax claims. An exception from nothing amounts to nothing.
It is common ground that subsection (a)(2) of §507 cov-ers, and gives §507 priority to, “administrative expenses allowed under section 503(b).” §507(a)(2) (2006 ed., Supp. IV). It is also common ground that the relevant definitional section, namely §503(b), defines allowed “administrative expenses” as “including . . . any tax . . . incurred by the estate.” §503(b)(1)(B)(i) (2006 ed.). But after this point, we part company.
The majority believes that the words any tax “incur-red by the estate” cannot include postpetition taxes. It emphasizes that tax law does not treat a Chapter 12bankruptcy estate as a “separate taxable entity,” i.e., as separate from the farmer-debtor for federal income tax purposes. 26 U. S. C. §§1398, 1399. This means that there is just one entity—the debtor—for these purposes. And §346 of the Bankruptcy Code makes clear that any state and local income tax liabilities incurred by a Chapter 12 estate must also be taxed to the debtor. The majority says that these provisions mean that only the debtor, and not the estate, can “ ‘incu[r]’ ” taxes within the meaning of
11 U. S. C. §503(b)(1)(B)(i). Ante, at 4–5.
The bankruptcy estate is in existence during this time. Cf. §1227(b) (property of the estate vests in the debtorat confirmation unless the Plan provides otherwise). The bankruptcy court has jurisdiction over the farmer’s assets during this time. See §§541, 1207; 4 Norton §61:1, at 61–2 (§541’s “broad definition of estate property . . . centralizes all of the estate’s assets under the jurisdiction of the bankruptcy court”). And, as a matter of both the English language and bankruptcy principles, one can consider a tax liability that the farmer incurs during this period (such as a capital gains tax arising from a sale of a portion of his farm assets to raise funds for creditors) as a liability that, in a bankruptcy sense, the estate incurs.
The English language permits this reading of the phrase tax “incurred by the estate.” When the farmer, in the midst of Chapter 12 proceedings, sells a portion of his farm to raise money to help pay his creditors, one cansay, as a matter of English, that the bankruptcy estate has “incurred” the associated tax, even if it is ultimately taxed to the farmer, just as one can say that an employee who makes purchases using a company credit card “incurs costs” for which his employer is liable.
As a matter of general bankruptcy principles (as Congress understood them), the history of the 1978 Bank-ruptcy Code revision is replete with statements to the effect that “[t]axes arising from the operation of the estate after bankruptcy are entitled to priority as administrative expenses.” H. R. Rep. No. 95–595, p. 193 (1977) (emphasis added). See S. Rep. No. 95–1106, p. 13 (1978) (administrative expenses include “[t]axes incurred during the administration of the estate” (emphasis added)); S. Rep. No. 95–989, p. 66 (1978) (“In 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” (emphasis added)); 124 Cong. Rec. 32415 (1978) (“The amendment generally follows the Senate amendment in providing expresslythat taxes incurred during the administration of the estate share the first priority given to administrative expenses generally” (emphasis added)); id., at 34014 (Senate version of the joint floor statement saying exactly the same).
And importantly, as the majority concedes, ante, at 14–15, bankruptcy law treats taxes incurred by corporate debtors while they are in bankruptcy proceedings as “tax[es] incurred by the estate,” even though the Tax Code does not treat the bankruptcy estate of a corporate debtor as a “separate taxable entity.” See, e.g., United States v. Noland,
Even though, as the majority says, corporate bankruptcies have some special features (in particular, a trustee in a corporate bankruptcy is required to file the estate’s income tax return), it is unclear why these features should have any bearing on the definition of administrativeexpenses. See ante, at 15 (discussing
26 U. S. C. §6012(b)(3)). Indeed, in many corporate Chapter 11 bankruptcies, there is no trustee, in which case the debtor-in-possession, just like an individual Chapter 12 debtor, must file the tax return. See 11 U. S. C. §§1104, 1107 (2006 ed. and Supp. IV); 5 Norton §§91:3, 93:1 (typically, no trustee is appointed in a Chapter 11 bankruptcy, and the debtor-in-possession assumes most of the duties and powers of a trustee, continuing in possession and managing the business until the court determines, upon request of a party in interest, that grounds exist for the appointment of a trustee); Holywell Corp. v. Smith,
503 U. S. 47,
(“As the assignee of ‘all’ or ‘substantially all’ of the propertyof the corporate debtors, the trustee must file the re-turns that
the corporate debtors would have filed had the plan not assigned their property to the trustee” (emphasis added)).
Consequently, I can find no strong bankruptcy law reason for treating taxes incurred by a corporate debtor differently from those incurred by an individual Chapter 12 debtor. To the contrary, since corporations can filefor bankruptcy under Chapter 12, the majority’s argument implies that the treatment of postpetition taxes in Chapter 12 proceedings turns on whether the debtor happens to be a corporation. See §101(18)(B) (2006 ed.) (defining “family farmer” to include certain corporations); §109(f) (“Onlya family farmer or family fisherman with regular annual income may be a debtor under chapter 12”); Brief for United States 26, n. 9 (“[T]he estate of a corporate (as opposed to individual) Chapter 12 debtor . . . could be viewed as incurring post-petition income taxes . . . collectible as administrative expenses . . . rather than outside the bankruptcy case as required for an individual Chapter 12 debtor”).
The majority does not point to any adverse consequences that might arise were bankruptcy law to treat taxes incurred in administering the bankruptcy estate (i.e., taxes incurred after filing and before Plan confirmation) as administrative expenses. The effect of doing so would simply be to consider the debtor and estate as merged for purposes of determining which taxes fall within the Bankruptcy’s Code’s definition of “administrative expenses,” i.e., determining for that purpose that the estate may “incur” tax liabilities on behalf of the whole (with the ul-timate liability assigned to the debtor), much like amarried couple filing jointly,
26 U. S. C. §6013(a), or an affiliated group of corporations filing a consolidated tax return, §1501. Cf. In re Lumara Foods of America, Inc., 50 B. R. 809, 815 (Bkrtcy. Ct. ND Ohio 1985) (describing the history of §503(b)(1)(B)(i) and concluding that “the elevation [of a tax] to an administrative priority is dependent upon when the tax accrued”). In fact, the very tax provisions that separate the estate from the individual debtor in Chapter 7 and Chapter 11 proceedings, §§1398 and 1399, say that the Chapter 12 estate is not
separate from the debtor for tax purposes—a concept consistent, not at odds, with merging the two for this bankruptcy purpose.
Nor is the majority’s reading free of conceptual problems. If we read the phrase tax “incurred by the estate”as excluding tax liabilities incurred while the farmer is in Chapter 12 bankruptcy, we must read it as excluding not only capital gains taxes but also other kinds of taxes, such as an employer’s share of Social Security taxes, Medicare taxes, or other employee taxes. But no one claims that all of these taxes fall outside the scope of the term “administrative expenses.” See In re Ryan, 228 B. R. 746 (Bkrtcy. Ct. Ore. 1999) (treating postpetition employment taxes as administrative expenses in a Chapter 12 proceeding); IRS Chief Counsel Advice No. 200518002 (May 6, 2005), 2005 WL 1060956 (assuming that some postpetition fed-eral taxes can be treated as administrative expenses in a Chapter 12 bankruptcy).
In fact, the Government, realizing it cannot go this far, concedes that many of these other (e.g., employer) taxes are “administrative expenses,” but only, it suggests, because they fall within a different part of the “administrative expenses” definition, namely
11 U. S. C. §503(b)(1)(A), which says that “administrative expenses” include “the actual, necessary costs and expenses of preserving the estate including . . . wages, salaries, and commissions for services rendered after the commencement of the case.” (Emphasis added.) See Brief for United States 27–28, n. 11. Employment taxes, however, do not fit easily within the rubric “wages, salaries, and commissions.” They may well be “necessary costs and expenses of preserving the estate.” But then so are the capital gains taxes at issue here.
Finally, the majority makes what I believe to be its strongest argument. Ante, at 9–12. Chapter 13, it points out, allows individuals (typically those who are not farmers or fishermen) to reorganize their debts in much the same way as does Chapter 12. And there is authority holding that taxes on income earned between the time the Chapter 13 debtor files for bankruptcy and the time the bankruptcy Plan is confirmed are not “tax[es] incurredby the estate.” See In re Whall, 391 B. R. 1, 5–6 (Bkrtcy. Ct. Mass. 2008); In re Brown, No. 05–41071, 2006 WL 3370867, *3 (Bkrtcy. Ct. Mass. 2006); In re Jagours, 236 B. R. 616, 620, n. 4 (Bkrtcy. Ct. ED Tex. 1999); In re Gyulafia, 65 B. R. 913, 916 (Bkrtcy. Ct. Kan. 1986). Why, asks the majority, should the law treat Chapter 12 taxes differently?
Finally, if uniformity of interpretation between these two chapters is critical, I do not see the serious harm in treating the relevant taxes as “administrative expenses”in both Chapter 12 and Chapter 13 cases rather than in neither. The majority apparently believes that this would render §1305 (the provision permitting the Government to seek §507 priority treatment) superfluous. Ante, at 10–12. But that is not so. This interpretation would simply limit the scope of operation of §1305 to the period of time after the Chapter 13 Plan is confirmed but while the Chapter 13 case is still pending. And that is likely to be a significant period of time relative to the preconfirmation period. See H. R. Rep. No. 95–595, at 276 (“[M]ost chapter 13 estates will only remain open for 1 or 2 months until confirmation of the plan”); §§1325(b)(1), (4) (debtor must commit all his projected disposable income over a 3-year period (sometimes extended to five) to the Plan, unless all unsecured claims can be paid off over a shorter period). The greatest Chapter 13 harm this interpretation could cause is to re-quire the Government to pursue those tax liabilities as §507 priority administrative expense claims (rather than allow it to choose between §507 priority treatment and pursuing those claims outside bankruptcy) during the relatively brief period of time between the filing of a petition and the Plan’s confirmation.
The Government finds support for its view in the fact that that §1222 deals with the contents of a “plan,” while a later section, §1227(a), says that the provisions of a “confirmed plan bind the debtor, each creditor, [and certain others of no relevance here].” (Emphasis added.) Thisis because the Code defines “creditor” to include only hold-ers of pre-petition claims, thus excluding holders ofpost-petition claims, such as administrative expenses. §101(10).
The Government points out that a different Code section, namely §1226(b)(1), provides for the payment of administrative expenses. That section says that “[b]efore or at the time of each payment to creditors under the plan, there shall be paid . . . any unpaid claim of the kindspecified in section 507(a)(2),” namely “administrative ex-penses.” And Congress did not amend §1226(b)(1); it amended the earlier section, §1222(a).
But the language does not demand the Government’s reading. For the Code also uses the word “claim” to cover both prepetition and postpetition claims (such as administrative expenses). E.g., §101(5)(A) (defining a claim as a “right to payment”); §726(b) (2006 ed., Supp. IV) (refer-ring to “claims” that include administrative expenses). In-deed, the very section that the Government says permits separate collection of administrative expenses, namely §1226(b)(1), refers to “any unpaid claim” for administrative expenses. (Emphasis added.) And one can easily read that section as setting forth when, not whether, administrative expenses will be paid under the Plan (i.e., as specifying that the Plan must provide for the payment of administrative expenses before payments to other creditors are made). Thus, reading §1222(a)(2)’s reference to “claims” as including administrative expenses need not render §1226(b)(1) surplusage.
What about §1227(a), which refers only to “creditor[s]”? One must read it in conjunction with §1228(a), which provides that once the debtor has completed all payments under the Plan, “the court shall grant the debtor a discharge of [1] all debts provided for by the plan[,] [2] allowed under section 503 of this title
[which describes ‘administrative expenses’] or [3] disallowed under section 502 of this title . . . .” (Emphasis added.) (The first few words of §1227(a)—“[e]xcept as provided in section 1228(a)”—explain why I say “must”; the comma comes from 7 Norton §137:2, at 137–3, n. 1, which says that its omission was a typographical error). Thus, by here referring to “administrative expenses” (through its reference to §503), Chapter 12 makes clear that at least some postpetition claims are to be discharged once the debtor has completed his payments under the Plan. That fact, in turn, suggests that the Plan may provide for their payment and that the holders of such claims may be bound by the terms of a confirmed Plan.
I find this last-mentioned consideration determinative. It seems to me unlikely that Congress, having worked on revisions of the Code for many years with the help of Bankruptcy experts, and having considered the Amendment several times over a period of years, would have made the drafting mistake that the Government and the majority necessarily imply that it made. Moreover, I be-lieve it important that courts interpreting statutes make significant efforts to allow the provisions of congressional statutes to function in the ways that that the elected branch of Government likely intended and for which itcan be held democratically accountable.