In re Dawes, (Bkrtcy.D.Kan.)

Plans - Capital gains tax arising from postpetition sale of farm real property may be denied full payment in a Chapter 12 plan.

Under 1222(a)(2)(A) of the Bankruptcy Code, the debtors' Chapter 12 plan could treat the Internal Revenue Service's (IRS') postpetition capital gains tax claim incurred as a result of the IRS' forced sale of the debtors' farm real property as an unsecured claim not entitled to priority, limited by the condition that such treatment was allowed only if the debtors received a discharge, a Kansas bankruptcy court has held, recognizing a split of authority. The capital gains taxes at issue were not priority taxes under 507(a)(8) of the Code, and, even though the estate was not itself a separate taxable entity, the taxes were "incurred by the estate" within the meaning of 503(b)(1)(B)(i), as the tax liability arose after the creation of the debtors' estate.

Date of decision: 2/11/08

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In re Schilke Case No: 056-41813

Under a Code provision added by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), that allows Chapter 12 debtors to pay, as general unsecured debts not included among the priority claims that otherwise must be paid in full, any debt "owed to a governmental unit that arises as a result of the sale, transfer, exchange, or other disposition of any farm asset used in the debtor's farming operation," a Chapter 12 debtor was entitled to pay, as a general unsecured claim not entitled to priority, a capital gains tax that arose in connection with the postpetition sale of real estate and other farm assets to fund the debtor's plan, even though the debtor's Chapter 12 estate was not a separate taxable entity. The bankruptcy estate need not be a separate taxable entity in order for taxes to be "incurred by the estate" and thus entitled to priority under 11 U.S.C.A. 503(b)(1)(B).

Date of decision: 11/28/07

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