The Supreme Court found that debtors could not have their income tax liability resulting from the post-petition sale of their farm treated as a non-priority, dischargeable debt in their chapter 12 bankruptcy case. Hall v. United States, No. 10-875, 182 L. Ed. 2d 840, ___ U.S. ___ (May 14, 2012). The debtor relied on section 1222(a)(2)(A) which permits certain tax liabilities, which would otherwise be priority debts under section 1222(a)(2), to be treated as non-priority, unsecured debts, if they are “incurred by the estate,” under section 503(b). Justice Sotomayor, joined by Justices Roberts, Thomas, Alito, and Scalia, found that post-petition income tax liability adheres to the debtors rather than the estate and the debtors, therefore, could not avail themselves of the benefit of section 1222(a)(2)(A).
While this case forecloses a potential avenue of relief for the chapter 12 debtor, it is likely to have little effect in the realm of chapter 13 bankruptcy. In chapter 13 taxes incurred post-petition are not incurred by the estate. 11 TX2 Collier on Bankruptcy ¶ TX2.03[2][a][ii] (16th ed.). However, under section 1305, the taxing authority in chapter 13 may file of proof of claim for post-petition tax liability if it so chooses. Read More
