Court Opinion

ID: 8984801
Source: CourtListenerOpinion
Date Created: 2022-11-27 11:40:19.56106+00
Date Added: 2024-06-11T17:10:45.464685
License: Public Domain

WEBB, District Judge,
dissenting.
I respectfully dissent.
A bankruptcy trustee is given the authority to use, sell or lease the property of the estate with the ultimate purpose of garnering the highest return on the dollar for the bankrupt’s creditors. See 11 U.S.C. § 363(b)(1). The Bankruptcy Code specifically permits the trustee to abandon estate property that is determined to be of little benefit to the estate. See 11 U.S.C. § 554(b). The effect of abandonment is that property is viewed as having been continuously in the debtor’s possession as if no bankruptcy had been filed. Mason, 646 F.2d 1309. The act of liquidating the grain was legally deemed to have been carried out by the debtor.
The Internal Revenue Code provides that, in terms of bankruptcy, the gross income of the estate includes the gross income of the debtor to which it is “entitled.” See 26 U.S.C. § 1398(e)(1). The Internal Revenue Code also provides that when a taxable event occurs resulting in a gain or loss, that gain or loss must be recognized for tax purposes. See 26 U.S.C. § 1001. The trustee was not “entitled” to the proceeds when the order of abandonment was issued. The effect of the abandonment was to revest the debtor with all interests in the property or proceeds. The taxable event (the corn sale) should be attributed to the debtor.
The majority opinion which approves separation of the debtor’s revested property ownership from tax responsibility seems to me to be illogical. The estate has not received or retained any income of the property or proceeds which were abandoned. Attributing tax liability to the trustee is inconsistent with abandonment of property to the debtor. The property entitlement and the income taxability follow one another as consequentially related concepts.
I dissent from the panel opinion because it is my feeling that the tax law as written and applied ignores the bankruptcy concept of abandonment. Abandonment is a crucial estate management tool for the bankruptcy trustee. Income entitlement and consequential taxation dictated by the above statutes are general tax law principles which should yield to the specific bankruptcy law relating to abandonment. I believe the bankruptcy law revests the debtor with the income entitlement along with the property upon abandonment. Before general principles of tax law are applied to the specialized field of bankruptcy consideration should be given to the interplay of the various laws. It is my view that such consideration must originate in a legislative setting and not a judicial one.
I believe the debtor in this case should be responsible for any tax consequence of the disposition of property which was abandoned to him by the trustee.