Opinion ID: 1266472
Heading Depth: 2
Heading Rank: 2

Heading: Schilke

Text: Schilke filed a voluntary bankruptcy petition under Chapter 12 of the Bankruptcy Code. Thereafter, he submitted his Chapter 12 plan to the bankruptcy court. The proposed plan provided, inter alia, that Schilke would sell certain farm assets real estate and breeding livestock. Schilke estimated that his taxable income for tax year 2007 from the sale of these assets would be $175,000 and that his estimated capital gains taxes would be $33,108. The proposed plan treated the capital gains taxes as follows: CLASS V: INTERNAL REVENUE SERVICE and NEBRASKA DEPARTMENT OF REVENUE: Any income tax resulting from the sale of real estate and livestock as provided in this Plan or any amendments or modifications shall be treated as an unsecured debt without priority under 11 USC § 507 as provided in 11 USC § 1222[(a)](2)(A). The government objected to this provision of the proposed plan, asserting that Schilke's post-petition tax liabilities, whether pre-confirmation or post-confirmation, are not, and cannot be, administrative expenses of the bankruptcy estate, should not be included in Debtor's Plan, and cannot be discharged. In its supporting brief, the government argued that the benefits of § 1222(a)(2)(A) applied only to priority claims under 11 U.S.C. § 507 and that, in Schilke's case, the taxes could only receive priority under that section if they constituted administrative expenses pursuant to 11 U.S.C. § 503(b); under § 503(b)(1)(B)(i), a tax must be incurred by the estate to be an administrative expense. According to the government, the taxes at issue did not meet this requirement because a Chapter 12 bankruptcy estate is not a separate taxable entity. The bankruptcy court overruled the government's objection, holding that even though a Chapter 12 bankruptcy estate is not a separate taxable entity, the estate does exist nonetheless. The estate consists of all property of the debtor on the date of filing, all property that the debtor acquires after commencement of the case, and all earnings from services performed by the debtor after commencement of the case. 11 U.S.C § 1207(a). Debtor filed a motion to sell real estate and personal property free and clear of liens (Fil.# 12), which was granted (Fil.# 14). The taxes at issue are created by the sale of property of the estate by Debtor. I do not believe that the language of § 503(b)(1)(B) regarding any tax incurred by the estate was intended to apply only to those situations where the estate itself is a separate taxable entity. In fact, incurred by the estate has been interpreted to simply mean incurred post-petition. [ Mo. Dep't of Revenue v. ] L.J. O'Neill Shoe Co., 64 F.3d [1146,] 1149 [(8th Cir.1995)] (stating [t]he bankruptcy court and the district court both held that while the entire corporate tax was `incurred by the estate'(i.e.incurred post-petition). . . .). Here, there clearly is an estate, the tax is the result of a sale of property of the estate, and Debtor happens to be liable for that tax. In re Schilke, 379 B.R. 899, 902 (Bankr. D.Neb.2007). The government appealed to the district court, challenging the bankruptcy court's confirmation of Schilke's Chapter 12 plan. The district court affirmed the bankruptcy court's determination that taxes arising from the postpetition sale of real estate and livestock may be attributed to the estate and not to the debtor, meaning that the resulting claim is an unsecured claim under § 1222(a)(2)(A).