Source: http://www.law.cornell.edu/uscode/text/11/507?quicktabs_8=4
Timestamp: 2014-07-29 07:24:11
Document Index: 254541524

Matched Legal Cases: ['§ 350', '§ 2522', '§ 108', '§ 207', '§ 304', '§ 501', '§ 212', '§ 705', '§ 1401', '§ 1502', '§ 1101', '§ 2', '§ 1911', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 507', '§ 212', '§ 212', '§ 212', '§ 1401', '§ 212', '§ 212', '§ 212', '§ 1401', '§ 212', '§ 1502', '§ 212', '§ 212', '§ 705', '§ 705', '§ 705', '§ 705', '§ 706', '§ 1502', '§ 223', '§ 1502', '§ 1502', '§ 207', '§ 108', '§ 108', '§ 108', '§ 304', '§ 304', '§ 304', '§ 501', '§ 449', '§ 449', '§ 449', '§ 350', '§ 350', '§ 350', '§ 449', '§ 1406', '§ 3']

entered for consumption within four years before the date of the filing of the petition but unliquidated on such date, if the Secretary of the Treasury certifies that failure to liquidate such entry was due to an investigation pending on such date into assessment of antidumping or countervailing duties or fraud, or if information needed for the proper appraisement or classification of such merchandise was not available to the appropriate customs officer before such date; or
a penalty related to a claim of a kind specified in this paragraph and in compensation for actual pecuniary loss.
Ninth, allowed unsecured claims based upon any commitment by the debtor to a Federal depository institutions regulatory agency (or predecessor to such agency) to maintain the capital of an insured depository institution.
Tenth, allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.
If the trustee, under section 362, 363, or 364 of this title, provides adequate protection of the interest of a holder of a claim secured by a lien on property of the debtor and if, notwithstanding such protection, such creditor has a claim allowable under subsection (a)(2) of this section arising from the stay of action against such property under section 362 of this title, from the use, sale, or lease of such property under section 363 of this title, or from the granting of a lien under section 364
(d) of this title, then such creditor’s claim under such subsection shall have priority over every other claim allowable under such subsection.
For the purpose of subsection (a) of this section, a claim of a governmental unit arising from an erroneous refund or credit of a tax has the same priority as a claim for the tax to which such refund or credit relates.
An entity that is subrogated to the rights of a holder of a claim of a kind specified in subsection (a)(1), (a)(4), (a)(5), (a)(6), (a)(7), (a)(8), or (a)(9) of this section is not subrogated to the right of the holder of such claim to priority under such subsection.
(Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2583; Pub. L. 98–353, title III, §§ 350, 449,July 10, 1984, 98 Stat. 358, 374; Pub. L. 101–647, title XXV, § 2522(d),Nov. 29, 1990, 104 Stat. 4867; Pub. L. 103–394, title I, § 108(c), title II, § 207, title III, § 304(c), title V, § 501(b)(3), (d)(11),Oct. 22, 1994, 108 Stat. 4112, 4123, 4132, 4142, 4145; Pub. L. 109–8, title II, §§ 212, 223, title VII, §§ 705, 706, title XIV, § 1401, title XV, § 1502(a)(1),Apr. 20, 2005, 119 Stat. 51, 62, 126, 214, 216; Pub. L. 111–203, title XI, § 1101(b),July 21, 2010, 124 Stat. 2115; Pub. L. 111–327, § 2(a)(15),Dec. 22, 2010, 124 Stat. 3559.)
Section 507(a)(3) of the House amendment represents a compromise dollar amount and date for the priority between similar provisions contained in H.R. 8200 as passed by the House and the Senate amendments. A similar compromise is contained in section 507
(a)(5) represents a compromise on amount between the priority as contained in H.R. 8200 as passed by the House and the Senate amendment. The Senate provision for limiting the priority to consumers having less than a fixed gross income is deleted.
Section 507(b) of the House amendment is new and is derived from the compromise contained in the House amendment with respect to adequate protection under section 361. Subsection (b) provides that to the extent adequate protection of the interest of a holder of a claim proves to be inadequate, then the creditor’s claim is given priority over every other allowable claim entitled to distribution under section 507
(a). Section 507(b) of the Senate amendment is deleted.
First. Administration expenses: The amendment generally follows the Senate amendment in providing expressly that taxes incurred during the administration of the estate share the first priority given to administrative expenses generally. Among the taxes which receives first priority, as defined in section 503, are the employees’ and the employer’s shares of employment taxes on wages earned and paid after the petition is filed. Section 503
(b)(1) also includes in administration expenses a tax liability arising from an excessive allowance by a tax authority of a “quickie refund” to the estate. (In the case of Federal taxes, such refunds are allowed under special rules based on net operating loss carrybacks (sec. 6411 of the Internal Revenue Code [title 26]).
Second. “Involuntary gap” claims: “Involuntary gap” creditors are granted second priority by paragraph (2) of section 507
(a). This priority includes tax claims arising in the ordinary course of the debtor’s business or financial affairs after he has been placed involuntarily in bankruptcy but before a trustee is appointed or before the order for relief.
If, following assessment of a tax, the debtor submits an offer in compromise to the governmental unit, the House amendment provides that the 240-day period is to be suspended for the duration of the offer and will resume running after the offer is withdrawn or rejected by the governmental unit, but the tax liability will receive priority if the title 11 petition is filed during the balance of the 240-day period or during a minimum of 30 days after the offer is withdrawn or rejected. This rule modifies a provision of the Senate amendment dealing specifically with offers in compromise. Under the modified rule, if, after the assessment, an offer in compromise is submitted by the debtor and is still pending (without having been accepted or rejected) at the date on which a title 11 petition is filed, the underlying liability will receive sixth priority. However, if an assessment of a tax liability is made but the tax is not collected within 240 days, the tax will not receive priority under section 507
(a)(6)(A)(i) and the debtor cannot revive a priority for that tax by submitting an offer in compromise.
For purposes of the above priority rules, the House amendment adopts the provision of the Senate bill that any tax liability which, under otherwise applicable tax law, is collectible in the form of a “penalty,” is to be treated in the same manner as a tax liability. In bankruptcy terminology, such tax liabilities are referred to as pecuniary loss penalties. Thus, any tax liability which under the Internal Revenue Code [title 26] or State or local tax law is payable as a “penalty,” in addition to the liability of a responsible person under section 6672 of the Internal Revenue Code [26 U.S.C. 6672] will be entitled to the priority which the liability would receive if it were expressly labeled as a “tax” under the applicable tax law. However, a tax penalty which is punitive in nature is given subordinated treatment under section 726
The House amendment deletes the express provision of the Senate amendment that a tax liability is to receive sixth priority if it satisfies any one of the subparagraphs of section 507
(a)(6) even if the liability fails to satisfy the terms of one or more other subparagraphs. No change of substance is intended by the deletion, however, in light of section 102(5) of the House amendment, providing a rule of construction that the word “or” is not intended to be exclusive.
The House amendment also adopts the substance of the definition in section 346
(a) the Senate amendment of when taxes are to be considered “incurred” except that the House amendment applies these definitions solely for purposes of determining which category of section 507 tests the priority of a particular tax liability. Thus, for example, the House amendment contains a special rule for the treatment of taxes under the 45-day exception to the preference rules under section 547 and the definitions of when a tax is incurred for priority purposes are not to apply to such preference rules. Under the House amendment, for purposes of the priority rules, a tax on income for a particular period is to be considered “incurred” on the last day of the period. A tax on or measured by some event, such as the payment of wages or a transfer by reason of death or gift, or an excise tax on a sale or other transaction, is to be considered “incurred” on the date of the transaction or event.
Section 507 specifies the kinds of claims that are entitled to priority in distribution, and the order of their priority. Paragraph (1) grants first priority to allowed administrative expenses and to fees and charges assessed against the estate under chapter 123 [§ 1911 et seq.] of title 28. Taxes included as administrative expenses under section 503(b)(1) of the bill generally receive the first priority, but the bill makes certain qualifications: Examples of these specially treated claims are the estate’s liability for recapture of an investment tax credit claimed by the debtor before the title 11 case (this liability receives sixth priority) and the estate’s employment tax liabilities on wages earned before, but paid after, the petition was filed (this liability generally receives the same priority as the wages).
The sixth priority is for certain taxes. Priority is given to income taxes for a taxable year that ended on or before the date of the filing of the petition, if the last due date of the return for such year occurred not more than 3 years immediately before the date on which the petition was filed (§ 507(a)(6)(A)(i)). For the purposes of this rule, the last due date of the return is the last date under any extension of time to file the return which the taxing authority may have granted the debtor.
Employment taxes and transfer taxes (including gift, estate, sales, use and other excise taxes) are also given sixth priority if the transaction or event which gave rise to the tax occurred before the petition date, provided that the required return or report of such tax liabilities was last due within 3 years before the petition was filed or was last due after the petition date (§ 507(a)(6)(A)(ii)). The employment taxes covered under this rule are the employer’s share of the social security and railroad retirement taxes and required employer payments toward unemployment insurance.
Priority is given to income taxes and other taxes of a kind described in section 507
(a)(6)(A)(i) and (ii) which the Federal, State, or local tax authority had assessed within 3 years after the last due date of the return, that is, including any extension of time to file the return, if the debtor filed in title 11 within 240 days after the assessment was made (§ 507(a)(6)(B)(i)). This rule may bring into the sixth priority the debtor’s tax liability for some taxable years which would not qualify for priority under the general three-year rule of section 507
(a)(6)(A).
The sixth priority category also includes taxes which the tax authority was barred by law from assessing or collecting at any time during the 300 days before the petition under title 11 was filed (§ 507(a)(6)(B)(ii)). In the case of certain Federal taxes, this preserves a priority for tax liabilities for years more than three years before the filing of the petition where the debtor and the Internal Revenue Service were negotiating over an audit of the debtor’s returns or were engaged in litigation in the Tax Court. In such situations, the tax law prohibits the service’s right to assess a tax deficiency until ninety days after the service sends the taxpayer a deficiency letter or, if the taxpayer files a petition in the Tax Court during that 90-day period, until the outcome of the litigation. A similar priority exists in present law, except that the taxing authority is allowed no time to assess and collect the taxes after the restrictions on assessment (discussed above) are lifted. Some taxpayers have exploited this loophole by filing in bankruptcy immediately after the end of the 90-day period or immediately after the close of Tax Court proceedings. The bill remedies this defect by preserving a priority for taxes the assessment of which was barred by law by giving the tax authority 300 days within which to make the assessment after the lifting of the bar and then to collect or file public notice of its tax lien. Thus, if a taxpayer files a title 11 petition at any time during that 300-day period, the tax deficiency will be entitled to priority. If the petition is filed more than 300 days after the restriction on assessment was lifted, the taxing authority will not have priority for the tax deficiency.
Taxes for which an offer in compromise was withdrawn by the debtor, or rejected by a governmental unit, within 240 days before the petition date (§ 507(a)(6)(B)(iii)) will also receive sixth priority. This rule closes a loophole under present law under which, following an assessment of tax, some taxpayers have submitted a formal offer in compromise, dragged out negotiations with the taxing authority until the tax liability would lose priority under the three-year priority period of present law, and then filed in bankruptcy before the governmental unit could take collection steps.
Also included are certain taxes for which no return or report is required by law (§ 507(a)(6)(C)), if the taxable transaction occurred within three years before the petition was filed.
Taxes (not covered by the third priority) which the debtor was required by law to withhold or collect from others and for which he is liable in any capacity, regardless of the age of the tax claims (§ 507(a)(6)(D)) are included. This category covers the so-called “trust fund” taxes, that is, income taxes which an employer is required to withhold from the pay of his employees, the employees’ shares of social security and railroad retirement taxes, and also Federal unemployment insurance. This category also includes excise taxes which a seller of goods or services is required to collect from a buyer and pay over to a taxing authority.
Also covered by this sixth priority are property taxes required to be assessed within 3 years before the filing of the petition (§ 507(a)(6)(E)).
Taxes attributable to a tentative carryback adjustment received by the debtor before the petition was filed, such as a “quickie refund” received under section 6411 of the Internal Revenue Code [title 26] (§ 507(a)(6)(F)) are included. However, the tax claim against the debtor will rein a prepetition loss year for which the tax return was last due, including extensions, within 3 years before the petition was filed.
Taxes resulting from a recapture, occasioned by a transfer during bankruptcy, of a tax credit or deduction taken during an earlier tax year (§ 507(a)(6)(G)) are included. A typical example occurs when there is a sale by the trustee of depreciable property during the case and depreciation deductions taken in prepetition years are subject to recapture under section 1250 of the Code [title 26].
Taxes owed by the debtor as a transferee of assets from another person who is liable for a tax, if the tax claim against the transferor would have received priority in a chapter 11 case commenced by the transferor within 1 year before the date of the petition filed by the transferee (§ 507(a)(6)(H)), are included.
Also included are certain tax payments required to have been made during the 1 year immediately before the petition was filed, where the debtor had previously entered into a deferred payment agreement (including an offer in compromise) to pay an agreed liability in periodic installments but had become delinquent in one or more installments before the petition was filed (§ 507(a)(6)(I)). This priority covers all types of deferred or part payment agreements. The priority covers only installments which first became due during the 1 year before the petition but which remained unpaid at the date of the petition. The priority does not come into play, however, if before the case began or during the case, the debtor and the taxing authority agree to a further extension of time to pay the delinquent amounts.
Certain tax-related liabilities which are not true taxes or which are not collected by regular assessment procedures (§ 507(a)(6)(J)) are included. One type of liability covered in this category is the liability under section 3505 of the Internal Revenue Code [title 26] of a lender who pays wages directly to employees of another employer or who supplies funds to an employer for the payment of wages. Another is the liability under section 6332 of the Internal Revenue Code [title 26], of a person who fails to turn over money or property of the taxpayer in response to a levy. Since the taxing authority must collect such a liability from the third party by suit rather than normal assessment procedures, an extra year is added to the normal 3-year priority periods. If a suit was commenced by the taxing authority within the four-year period and before the petition was filed, the priority is also preserved, provided that the suit had not terminated more than 1 year before the date of the filing of the petition.
Also included are certain unpaid customs duties which have not grown unreasonably “stale” (§ 507(a)(6)(K)). These include duties on imports entered for consumption with 3 years before the filing of the petition if the duties are still unliquidated on the petition date. If an import entry has been liquidated (in general, liquidation is in an administrative determination of the value and tariff rate of the item) or reliquidated, within two years of the filing of the petition the customs liability is given priority. If the Secretary of the Treasury certifies that customs duties were not liquidated because of an investigation into possible assessment of antidumping or countervailing duties, or because of fraud penalties, duties not liquidated for this reason during the five years before the importer filed under title 11 also will receive priority.
Section 13(3) of the Federal Reserve Act, referred to in subsec. (a)(2), is classified to section 343
(3) of Title 12, Banks and Banking.
2010—Subsec. (a)(2). Pub. L. 111–203inserted “unsecured claims of any Federal reserve bank related to loans made through programs or facilities authorized under section 13(3) of the Federal Reserve Act (12 U.S.C. 343),” after “this title,”.
Subsec. (a)(8)(A)(ii)(II). Pub. L. 111–327substituted “; or” for period at end.
2005—Subsec. (a)(1). Pub. L. 109–8, § 212(9), added par. (1). Former par. (1) redesignated (2).
Subsec. (a)(2). Pub. L. 109–8, § 212(2), (3), redesignated par. (1) as (2) and substituted “Second” for “First”. Former par. (2) redesignated (3).
Subsec. (a)(3). Pub. L. 109–8, § 212(2), (4), redesignated par. (2) as (3) and substituted “Third” for “Second”. Former par. (3) redesignated (4).
Subsec. (a)(4). Pub. L. 109–8, § 1401, which directed amendment of par. (4), “as amended by section 212”, by substituting “$10,000” for “$4,000” and “180” for “90” in introductory provisions, effective Apr. 20, 2005, was executed to this par., which was par. (3), to reflect the probable intent of Congress, notwithstanding that the redesignation of this par. as (4) by Pub. L. 109–8, § 212(2), was effective 180 days after Apr. 20, 2005. See Effective Date of 2005 Amendment notes below.
Pub. L. 109–8, § 212(2), (5), redesignated par. (3) as (4) and substituted “Fourth” for “Third” in introductory provisions and a period for semicolon at end. Former par. (4) redesignated (5).
Subsec. (a)(5). Pub. L. 109–8, § 212(2), (6), redesignated par. (4) as (5) and substituted “Fifth” for “Fourth” in introductory provisions. Former par. (5) redesignated (6).
Subsec. (a)(5)(B)(i). Pub. L. 109–8, § 1401(2), which directed amendment of par. (5), “as amended by section 212”, by substituting “$10,000” for “$4,000”, effective Apr. 20, 2005, was executed to this par., which was par. (4), to reflect the probable intent of Congress, notwithstanding that the redesignation of this par. as (5) by Pub. L. 109–8, § 212(2), was effective 180 days after Apr. 20, 2005. See Effective Date of 2005 Amendment notes below.
Subsec. (a)(5)(B)(ii). Pub. L. 109–8, § 1502(a)(1)(A)(i), substituted “paragraph (4)” for “paragraph (3)”.
Subsec. (a)(6). Pub. L. 109–8, § 212(2), (7), redesignated par. (5) as (6) and substituted “Sixth” for “Fifth” in introductory provisions. Former par. (6) redesignated (7).
Subsec. (a)(7). Pub. L. 109–8, § 212(1), (2), (8), redesignated par. (6) as (7), substituted “Seventh” for “Sixth”, and struck out former par. (7) which read as follows: “Seventh, allowed claims for debts to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that such debt—
Subsec. (a)(8). Pub. L. 109–8, § 705(2), inserted at end “An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable nonbankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.”
Subsec. (a)(8)(A). Pub. L. 109–8, § 705(1)(A), inserted “for a taxable year ending on or before the date of the filing of the petition” after “gross receipts” in introductory provisions.
Subsec. (a)(8)(A)(i). Pub. L. 109–8, § 705(1)(B), struck out “for a taxable year ending on or before the date of the filing of the petition” before “for which a return”.
Subsec. (a)(8)(A)(ii). Pub. L. 109–8, § 705(1)(C), added cl. (ii) and struck out former cl. (ii) which read as follows: “assessed within 240 days, plus any time plus 30 days during which an offer in compromise with respect to such tax that was made within 240 days after such assessment was pending, before the date of the filing of the petition; or”.
Subsec. (a)(8)(B). Pub. L. 109–8, § 706, substituted “incurred” for “assessed”.
Subsec. (a)(8)(D). Pub. L. 109–8, § 1502(a)(1)(A)(ii), substituted “paragraph (4)” for “paragraph (3)”.
Subsec. (a)(10). Pub. L. 109–8, § 223, added par. (10).
Subsec. (b). Pub. L. 109–8, § 1502(a)(1)(B), substituted “subsection (a)(2)” for “subsection (a)(1)”.
Subsec. (d). Pub. L. 109–8, § 1502(a)(1)(C), substituted “subsection (a)(1)” for “subsection (a)(3)”.
1994—Subsec. (a)(3). Pub. L. 103–394, § 207, amended par. (3) generally. Prior to amendment, par. (3) read as follows: “Third, allowed unsecured claims for wages, salaries, or commissions, including vacation, severance, and sick leave pay—
Subsec. (a)(4)(B)(i). Pub. L. 103–394, § 108(c)(1), substituted “$4,000” for “$2,000”.
Subsec. (a)(5). Pub. L. 103–394, §§ 108(c)(2), 501
(b)(3), substituted “section 557
(b)” for “section 557
(b)(1)” after “grain, as defined in” and “section 557
(b)(2)” after “facility, as defined in” in subpar. (A) and “$4,000” for “$2,000” in concluding provisions.
Subsec. (a)(6). Pub. L. 103–394, § 108(c)(3), substituted “$1,800” for “$900”.
Subsec. (a)(7). Pub. L. 103–394, § 304(c)(3), added par. (7). Former par. (7) redesignated (8).
Subsec. (a)(8). Pub. L. 103–394, § 304(c)(2), redesignated par. (7) as (8) and substituted “Eighth” for “Seventh”. Former par. (8) redesignated (9).
Subsec. (a)(9). Pub. L. 103–394, §§ 304(c)(1), 501
(d)(11)(A), redesignated par. (8) as (9) and substituted “Ninth” for “Eighth” and “a Federal depository institutions regulatory agency (or predecessor to such agency)” for “the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Director of the Office of Thrift Supervision, the Comptroller of the Currency, or the Board of Governors of the Federal Reserve System, or their predecessors or successors,”.
Subsec. (d). Pub. L. 103–394, § 501(d)(11)(B), substituted “(a)(6), (a)(7), (a)(8), or (a)(9)” for “or (a)(6)”.
1990—Subsec. (a)(8). Pub. L. 101–647added par. (8).
1984—Subsec. (a)(3). Pub. L. 98–353, § 449(a)(1), inserted a comma after “severance”.
Subsec. (a)(4). Pub. L. 98–353, § 449(a)(2), substituted “an employee benefit plan” for “employee benefit plans” in provisions preceding subpar. (A).
Subsec. (a)(4)(B)(i). Pub. L. 98–353, § 449(a)(3), inserted “each” after “covered by”.
Subsec. (a)(5). Pub. L. 98–353, § 350(3), added par. (5). Former par. (5) redesignated (6).
Subsec. (a)(6). Pub. L. 98–353, § 350(1), redesignated former par. (5) as (6) and substituted “Sixth” for “Fifth”. Former par. (6) redesignated (7).
Subsec. (a)(7). Pub. L. 98–353, §§ 350(2), 449(a)(4), redesignated former par. (6) as (7), substituted “Seventh” for “Sixth”, and inserted “only” after “units,”.
Subsec. (c). Pub. L. 98–353, § 449(b), substituted “has the same priority” for “shall be treated the same”.
Pub. L. 109–8, title XIV, § 1406,Apr. 20, 2005, 119 Stat. 215, as amended by Pub. L. 111–327, § 3,Dec. 22, 2010, 124 Stat. 3563, provided that:
“(a) Effective Date.—Except as provided in subsection (b), this title [amending this section and sections 523, 548, 1104, and 1114 of this title and enacting provisions set out as a note under section 523 of this title] and the amendments made by this title shall take effect on the date of the enactment of this Act [Apr. 20, 2005].
“(1) In general.—Except as provided in paragraph (2), the amendments made by this title shall apply only with respect to cases commenced under title 11 of the United States Code on or after the date of the enactment of this Act [Apr. 20, 2005].
“(2) Avoidance period.—The amendment made by section 1402(1) [amending section 548 of this title] shall apply only with respect to cases commenced under title 11 of the United States Code more than 1 year after the date of the enactment of this Act.”
Amendment by sections 212, 223, 705, 706, and 1502(a)(1) ofPub. L. 109–8effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 ofPub. L. 109–8, set out as a note under section 101 of this title.
By notice dated Feb. 12, 2013, 78 F.R. 12089, effective Apr. 1, 2013, in subsec. (a)(4), dollar amount “11,725” was adjusted to “12,475”; in subsec. (a)(5), dollar amount “11,725” was adjusted to “12,475”; in subsec. (a)(6), dollar amount “5,775” was adjusted to “6,150”; and, in subsec. (a)(7), dollar amount “2,600” was adjusted to “2,775”. See notice of the Judicial Conference of the United States set out as a note under section 104 of this title.
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