(Slip Opinion) OCTOBER TERM, 2011 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
HALL ET UX. v. UNITED STATES
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
No. 10–875. Argued November 29, 2011—Decided May 14, 2012
Chapter 12 of the Bankruptcy Code allows farmer debtors with regular
annual income to adjust their debts subject to a reorganization plan.
The plan must provide for full payment of priority claims. 11 U. S. C.
§1222(a)(2). Under §1222(a)(2)(A), however, certain governmental
claims arising from the disposition of farm assets are stripped of priority status and downgraded to general, unsecured claims that are
dischargeable after less than full payment. That exception applies
only to claims “entitled to priority under [11 U. S. C. §507]” in the
first place. As relevant here, §507(a)(2) covers “administrative expenses allowed under §503(b),” which includes “any tax . . . incurred
by the estate.” §503(b)(B)(i).
Petitioners filed for Chapter 12 bankruptcy and then sold their
farm. They proposed a plan under which they would pay off outstanding liabilities with proceeds from the sale. The Internal Revenue Service (IRS) objected, asserting a tax on the capital gains from
the sale. Petitioners then proposed treating the tax as an unsecured
claim to be paid to the extent funds were available, with the unpaid
balance being discharged. The Bankruptcy Court sustained an IRS
objection, the District Court reversed, and the Ninth Circuit reversed
the District Court. The Ninth Circuit held that because a Chapter 12
estate is not a separate taxable entity under the Internal Revenue
Code (IRC), 26 U. S. C. §§1398, 1399, it does not “incur” postpetition
federal income taxes. The Ninth Circuit concluded that because the
tax was not “incurred by the estate” under §503(b), it was not a priority claim eligible for the §1222(a)(2)(A) exception.
Held: The federal income tax liability resulting from petitioners’ postpetition farm sale is not “incurred by the estate” under §503(b) of the
Bankruptcy Code and thus is neither collectible nor dischargeable in
2 HALL v. UNITED STATES
Syllabus
the Chapter 12 plan. Pp. 4−17.
(a) The phrase “incurred by the estate” bears a plain and natural
reading. A tax “incurred by the estate” is a tax for which the estate
itself is liable. Only certain estates are liable for federal income taxes. IRC §§1398 and 1399 define the division of responsibilities for the
payment of taxes between the estate and the debtor on a chapter-bychapter basis. Under those provisions, a Chapter 12 estate is not a
separately taxable entity. The debtor—not the trustee—is generally
liable for taxes and files the only tax return. The postpetition income
taxes are thus not “incurred by the estate.” Pp. 4−5.
(b) Section 346 of the Bankruptcy Code and its longstanding interplay with IRC §§1398 and 1399 reinforce that whether an estate “incurs” taxes turns on Congress’ chapter-specific guidance on which estates are separately taxable. The original §346 established that state
or local income taxes could be imposed only on the estate in an individual-debtor Chapter 7 or 11 bankruptcy, and only on the debtor in
a Chapter 13 bankruptcy. Congress applied the framework of §346 to
federal taxes two years later: IRC §1398 and 1399 established that
the estate is separately taxable in individual-debtor Chapter 7 or 11
cases, and not separately taxable in Chapter 13 (and now Chapter
12) cases. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 subsequently amended §346, expressly aligning its
assignment of state or local taxes with the IRC separate taxable entity rules for federal taxes. This Court assumes that Congress is
aware of existing law when it passes legislation, and the existing law
at the enactment of §1222(a)(2)(A) indicated that an estate’s liability
for taxes turned on separate taxable entity rules. Pp. 6−9.
(c) Chapter 13, on which Chapter 12 was modeled, further bolsters
this Court’s holding. Established understandings hold that postpetition income taxes are not “incurred by the [Chapter 13] estate” under
§503(b) because they are the liability of the Chapter 13 debtor alone.
The Government has also long hewed to this position. Section
1305(a)(1), which gives holders of postpetition claims the option of
collecting postpetition taxes within the bankruptcy case, would be
superfluous if postpetition tax liabilities were automatically collectible inside the bankruptcy. It is thus clear that postpetition income
taxes are not automatically collectible in a Chapter 13 plan and are
not administrative expenses under §503(b). To hold otherwise in
Chapter 12 would disrupt settled practices in Chapter 13 cases.
Pp. 9−12.
(d) None of the contrary arguments by petitioners and the dissent
overcomes the statute’s plain language, context, and structure.
There is no textual basis for giving “incurred by the estate” a temporal meaning, such that it refers to all taxes “incurred postpetition.” Cite as: 566 U. S. ____ (2012) 3
Syllabus
Nor does the text support deeming a tax “incurred by the estate”
whenever it is paid by the debtor out of property of the estate. Section 503’s legislative history is not inconsistent with this Court’s
holding, and the Court has cautioned against allowing ambiguous
legislative history to muddy clear statutory language. See Milner v.
Department of Navy, 562 U. S. ___, ___. Meanwhile, any cases suggesting that postpetition taxes were treated as administrative expenses are inapposite because they involve corporate debtors, which
Congress has singled out for responsibilities paralleling those borne
by a separate taxable entity’s trustee. Finally, petitioners contend
that the purpose of §1222(a)(2)(A) was to provide debtors with robust
relief from tax debts. There may be compelling policy reasons for
treating postpetition income tax liabilities as dischargeable. But if
Congress intended petitioners’ result, it did not so provide in the
statute. Pp. 12−17.
617 F. 3d 1161, affirmed.
SOTOMAYOR, J., delivered the opinion of the Court, in which ROBERTS,
C. J., and SCALIA, THOMAS, and ALITO, JJ., joined. BREYER, J., filed a
dissenting opinion, in which KENNEDY, GINSBURG, and KAGAN, JJ.,
joined.
_________________
_________________
Cite as: 566 U. S. ____ (2012) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
No. 10–875
LYNWOOD D. HALL, ET UX., PETITIONERS v.
UNITED STATES
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[May 14, 2012]
JUSTICE SOTOMAYOR delivered the opinion of the Court.
Under Chapter 12 of the Bankruptcy Code, farmer
debtors may treat certain claims owed to a governmental
unit resulting from the disposition of farm assets as dis
chargeable, unsecured liabilities. 11 U. S. C. §1222(a)
(2)(A). One such claim is for “any tax . . . incurred by the
estate.” §503(b)(B)(i). The question presented is whether
a federal income tax liability resulting from individual
debtors’ sale of a farm during the pendency of a Chapter
12 bankruptcy is “incurred by the estate” and thus dis
chargeable. We hold that it is not.
I
A
In 1986, Congress enacted Chapter 12 of the Bankruptcy
Code, §1201 et seq., to allow farmer debtors with regu
lar annual income to adjust their debts. Chapter 12 was
modeled on Chapter 13, §1301 et seq., which permits
individual debtors with regular annual income to preserve
existing assets subject to a “court-approved plan under
which they pay creditors out of their future income.”
Hamilton v. Lanning, 560 U. S. ___, ___ (2010) (slip op., at 1).
2 HALL v. UNITED STATES
Opinion of the Court
Chapter 12 debtors similarly file a plan of reorganization.
§1221. To be confirmed, the plan must provide for the full
payment of priority claims. §1222(a)(2).
In the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (BAPCPA), §1003, 119 Stat. 186,
Congress created an exception to that requirement:
“Contents of plan
“(a) The plan shall—
. . . . .
“(2) provide for the full payment, in deferred cash
payments, of all claims entitled to priority under sec
tion 507, unless—
“(A) the claim is a claim owed to a governmental
unit that arises as a result of the sale, transfer, ex
change, or other disposition of any farm asset used
in the debtor’s farming operation, in which case the
claim shall be treated as an unsecured claim that is
not entitled to priority under section 507, but the debt
shall be treated in such manner only if the debtor re
ceives a discharge.” 11 U. S. C. §1222.
Under §1222(a)(2)(A), certain governmental claims result
ing from the disposition of farm assets are downgraded to
general, unsecured claims that are dischargeable after less
than full payment. See §1228(a). The claims are stripped
of their priority status.
That exception, however, applies only to claims in the
plan that are “entitled to priority under section 507” in the
first place. Section 507 lists 10 categories of such claims.
Two pertain to taxes: One category, §507(a)(8), covers
prepetition taxes, and is inapplicable in this case. The
other, §507(a)(2), covers “administrative expenses allowed
under section 503(b),” which in turn includes “any tax . . .
incurred by the estate.” §503(b)(B)(i). Thus, for postpeti
tion taxes to be entitled to priority under §507 and eligible
for the §1222(a)(2)(A) exception, the taxes must be “in
Cite as: 566 U. S. ____ (2012) 3
Opinion of the Court
curred by the estate.”
B
Petitioners Lynwood and Brenda Hall petitioned for
bankruptcy under Chapter 12 and sold their farm shortly
thereafter. Petitioners initially proposed a plan of reor
ganization under which they would pay off outstanding
liabilities with proceeds from the sale. The Internal Reve
nue Service (IRS) objected, asserting a federal income tax
of $29,000 on the capital gains from the farm sale.
Petitioners amended their proposal to treat the income
tax as a general, unsecured claim to be paid to the extent
funds were available, with the unpaid balance discharged.
Again the IRS objected. Taxes on income from a postpeti
tion farm sale, the IRS argued, remain the debtors’ inde
pendent responsibility because they are neither collectible
nor dischargeable in bankruptcy.
The Bankruptcy Court sustained the objection. The
court reasoned that because a Chapter 12 estate is not a
separate taxable entity under the Internal Revenue Code
(IRC), see 26 U. S. C. §§1398, 1399, it cannot “incur” taxes
for purposes of 11 U. S. C. §503(b).
The District Court reversed, expressing doubt that IRC
provisions are relevant to interpreting §503(b). Based on
its reading of legislative history, the District Court deter
mined that Congress intended §1222(a)(2)(A) to extend to
petitioners’ postpetition taxes.
The Court of Appeals for the Ninth Circuit reversed.
617 F. 3d 1161 (2010). The Court of Appeals held that the
Chapter 12 estate does not “incur” the postpetition federal
income taxes for purposes of §503(b) because it is not a
separate taxable entity under the IRC, and noted that
Congress repeatedly has indicated the relevance of the
IRC’s taxable entity provisions to the Bankruptcy Code.
Although “sympathetic” to the view that the postpetition
tax liabilities should be dischargeable, the Court of Ap
4 HALL v. UNITED STATES
Opinion of the Court
peals held that “the operative language simply failed to
make its way into the statute.” Id., at 1167. The Court of
Appeals concluded that because the taxes do not qualify
under §503(b), they are not priority claims in the plan
eligible for the §1222(a)(2)(A) exception.
Judge Paez dissented, siding with a sister Circuit
that had concluded that Congress intended §1222(a)(2)(A)
to extend to such postpetition federal income taxes. We
granted certiorari to resolve the split of authority.1
564
U. S. ___ (2011).
II
A
Our resolution of this case turns on the meaning of a
phrase in §503(b) of the Bankruptcy Code: “incurred by
the estate.” The parties agree that §1222(a)(2)(A) applies
only to priority claims collectible in the bankruptcy plan
and that postpetition federal income taxes so qualify only
if they constitute a “tax . . . incurred by the estate.”
§503(b)(B)(i).
The phrase “incurred by the estate” bears a plain and
natural reading. See FCC v. AT&T Inc., 562 U. S. ___, ___
(2011) (slip op., at 5) (“When a statute does not define a
term, we typically ‘give the phrase its ordinary meaning’”).
To “incur,” one must “suffer or bring on oneself (a liability
or expense).” Black’s Law Dictionary 836 (9th ed. 2009);
see also Webster’s Third New International Dictionary
1146 (1976) (“to . . . become liable or subject to: bring down
upon oneself ”); Random House Dictionary 722 (1966) (“to
become liable or subject to through one’s own action; bring
upon oneself ”). A tax “incurred by the estate” is a tax for
which the estate itself is liable.
——————
1
Compare In re Dawes, 652 F. 3d 1236 (CA10 2011), and 617 F. 3d
1161 (CA9 2010) (case below), with Knudsen v. IRS, 581 F. 3d 696 (CA8
2009) (postpetition federal taxes are eligible for the §1222(a)(2)(A)
exception and thus dischargeable).
Cite as: 566 U. S. ____ (2012) 5
Opinion of the Court
As the IRC makes clear, only certain estates are liable
for federal income taxes. Title 26 U. S. C. §§1398 and
1399 address taxation in bankruptcy and define the divi
sion of responsibilities for the payment of taxes between
the estate and the debtor on a chapter-by-chapter basis.
Section 1398 provides that when an individual debtor files
for Chapter 7 or 11 bankruptcy, the estate shall be liable
for taxes. In such cases, the trustee files a separate re
turn on the estate’s behalf and “[t]he tax” on “the taxable
income of the estate . . . shall be paid by the trustee.”
§1398(c)(1); see also §6012(b)(4) (“Returns of . . . an estate
of an individual under chapter 7 or 11 . . . shall be made
by the fiduciary thereof ”). Section 1399 provides that
“[e]xcept in any case to which section 1398 applies, no
separate taxable entity shall result from the commence
ment of a [bankruptcy] case.” In Chapter 12 and 13 cases,
then, there is no separately taxable estate. The debtor—
not the trustee—is generally liable for taxes and files the
only tax return. See In re Lindsey, 142 B. R. 447, 448
(Bkrtcy. Ct. WD Okla. 1992) (“It is clear that, pursuant
to 26 U. S. C. §1398 and 1399, the standing Chapter 12
trustee neither files a return nor pays federal income
tax”); cf. infra, at 15 (discussing special trustee duties in
corporate-debtor cases).
These provisions suffice to resolve this case: Chapter 12
estates are not taxable entities. Petitioners, not the estate
itself, are required to file the tax return and are liable for
the taxes resulting from their postpetition farm sale. The
postpetition federal income tax liability is not “incurred by
the estate” and thus is neither collectible nor discharge
able in the Chapter 12 plan.2
——————
2
Because we hold that the postpetition federal income taxes at issue
are not collectible in the plan because they are not “incurred by the
estate,” we need not address the Government’s broader alternative
argument that Chapter 12 plans are exclusively limited to prepetition
claims.
6 HALL v. UNITED STATES
Opinion of the Court
B
Our reading of “incurred by the estate” as informed by
the IRC’s separate taxable entity rules draws support
from a related provision of the Bankruptcy Code, 11
U. S. C. §346, and its longstanding interplay with 26
U. S. C. §§1398 and 1399. That relationship illustrates
that from the inception of the current Bankruptcy Code,
Congress has specified on a chapter-by-chapter basis
which estates are separately taxable and therefore liable
for taxes. That relationship also refutes the dissent’s
suggestion that applying such rules is an incongruous
importation of “tax law” unconnected to “bankruptcy
principles (as Congress understood them).” Post, at 8–9
(opinion of BREYER, J.). And it reinforces the reasonableness of our view that whether an estate “incurs”
taxes under §503(b) turns on such chapter-by-chapter
distinctions.
In the original Bankruptcy Code, Congress included a
provision, §346, that set out a chapter-specific division of
tax liabilities between the estate and the debtor. Bank
ruptcy Reform Act of 1978, 92 Stat. 2565. Section
346(b)(1) provided that in an individual-debtor Chapter 7
or 11 bankruptcy, “any income of the estate may be taxed
under a State or local law imposing a tax . . . only to the
estate, and may not be taxed to such individual.” 92 Stat.
2565 (emphasis added); see also 11 Collier on Bankruptcy
¶TX12.03[5][b][i], p. TX12–21 (16th ed. 2011) (hereinafter
Collier) (§346(b) “provided that in a case under chapter 7
[or] 11 . . . the estate of an individual is a taxable entity”).
Section 346(d) provided, meanwhile, that in a Chapter 13
bankruptcy, “any income of the estate or the debtor may
be taxed under a State or local law imposing a tax . . . only
to the debtor, and may not be taxed to the estate.” 92 Stat.
2566 (emphasis added). Congress thus established that
the estate in an individual-debtor Chapter 7 or 11 bank
ruptcy is a separate taxable entity; the estate in a Chapter
Cite as: 566 U. S. ____ (2012) 7
Opinion of the Court
13 bankruptcy is not.3
Although §346 concerned state or local taxes,4
Congress
applied its framework to federal taxes two years later. In
the Bankruptcy Tax Act of 1980, 94 Stat. 3397, Congress
enacted 26 U. S. C. §§1398 and 1399. Section 1398 of the
IRC, much like §346(b) in the Bankruptcy Code, estab
lished that the estate is separately taxable in individual
debtor Chapter 7 or 11 cases. Section 1399 of the IRC,
much like §346(d) in the Bankruptcy Code, clarified that
——————
3
For those of us for whom it is relevant, the legislative history
confirms that Congress viewed §346 as defining which estates were
separate taxable entities. See H. R. Rep. No. 95–595, p. 275 (1977) (here
inafter H. R. Rep.) (“A threshold issue to be considered when a debtor
files a petition under title 11 is whether the estate created . . . should
be treated as a separate taxable entity”); id., at 334 (“Subsection (d)
indicates that the estate in a chapter 13 case is not a separate taxable
entity”); accord, S. Rep. No. 95–989, p. 45 (1978) (hereinafter S. Rep.);
H. R. Rep., at 335 (noting “the creation of the estate of an individual
under chapters 7 or 11 of title 11 as a separate taxable entity”); accord,
S. Rep., at 46.
The Reports also tie separate taxable entity status to the responsibil
ity to file returns and pay taxes. See H. R. Rep., at 277 (“If the estate
is a separate taxable entity, then the representative of the estate is
responsible for filing any income tax returns and paying any taxes due
by the estate”); id., at 278 (“When the estate is not a separate taxable
entity, then taxation of the debtor should be conducted on the same
basis as if no petition were filed”).
4
A dispute over Committee jurisdiction led to the insertion of “State
or local” before each mention of “law imposing a tax.” Compare H. R.
8200, 95th Cong., 1st Sess., §346 (1977), with §346, 92 Stat. 2565.
Nonetheless, the House Report underscored that the policy behind §346
applied equally to federal taxes:
“[T]here is a strong bankruptcy policy that these provisions apply
equally to Federal, State, and local taxes. However, in order to avoid
any possible jurisdictional conflict with the Ways and Means Commit
tee over the applicability of these provisions to Federal taxes, H. R.
8200 has been amended to make the sections inapplicable to Federal
taxes. The amendment . . . will obviate the need for a sequential
referral of the bill to Ways and Means, which will be considering these
provisions and other bankruptcy-related tax law later in this Con
gress.” H. R. Rep., at 275.
8 HALL v. UNITED STATES
Opinion of the Court
the estate is not separately taxable in Chapter 13 (and
now Chapter 12) cases.
In 2005, Congress in BAPCPA amended §346 and crys
tallized the connection between the Bankruptcy Code and
the IRC. Section 346 now expressly aligns its assignment
of state or local taxes with the rules for federal taxes,
providing in relevant part:
“(a) Whenever the Internal Revenue Code of 1986
provides that a separate taxable estate or entity is
created in a case concerning a debtor under this title,
and the income . . . of such estate shall be taxed to or
claimed by the estate, a separate taxable estate is also
created for purposes of any State and local law impos
ing a tax on or measured by income and such income
. . . shall be taxed to or claimed by the estate and may
not be taxed to or claimed by the debtor.
“(b) Whenever the Internal Revenue Code of 1986
provides that no separate taxable estate shall be cre
ated in a case concerning a debtor under this title,
and the income . . . of an estate shall be taxed to or
claimed by the debtor, such income . . . shall be taxed
to or claimed by the debtor under a State or local law
imposing a tax on or measured by income and may not
be taxed to or claimed by the estate.” (Emphasis added.)
Thus, whenever the estate is separately taxable under
federal income tax law, that “is also” the case under state
or local income tax law, §346(a), and vice versa, §346(b).
And given that the Bankruptcy Code instructs that the as
signment of state or local tax liabilities shall turn on the
IRC’s separate taxable entity rules, there is parity in
turning to such rules in assigning federal tax liabilities.
In the same Act, Congress added §1222(a)(2)(A). Section
1222(a)(2)(A) carves out an exception to the ordinary
priority classification scheme. But §1222(a)(2)(A) did not
purport to redefine which claims are otherwise entitled to Cite as: 566 U. S. ____ (2012) 9
Opinion of the Court
priority, much less alter the underlying division of tax
liability between the estate and the debtor in Chapter 12
cases. “We assume that Congress is aware of existing law
when it passes legislation,” Miles v. Apex Marine Corp.,
498 U. S. 19, 32 (1990), and the existing law at the enact
ment of §1222(a)(2)(A) indicated that an estate’s liability
for taxes turned on chapter-by-chapter separate taxable
entity rules.
C
The statutory structure further reinforces our holding
that petitioners’ postpetition income taxes are not “in
curred by the estate.” As a leading bankruptcy treatise
and lower courts recognize, “[b]ecause chapter 12 was
modeled on chapter 13, and because so many of the provi
sions are identical, chapter 13 cases construing provisions
corresponding to chapter 12 provisions may be relied on as
authority in chapter 12 cases.” 8 Collier ¶1200.01[5], at
1200–10; In re Lopez, 372 B. R. 40, 45, n. 13 (Bkrtcy. App.
Panel CA9 2007); Justice v. Valley Nat. Bank, 849 F. 2d
1078, 1083 (CA8 1988). We agree. Section 1322(a)(2), like
§1222(a)(2), requires full payment of “all claims entitled to
priority under section 507” under the plan. Both provi
sions cross-reference the same section of the Code, §507,
and in turn, the same subsection, §503(b). Both are treat
ed alike by IRC §§1398 and 1399. Whether postpetition
taxes qualify under §503(b) in Chapter 13 thus sheds light
on whether they so qualify in petitioners’ Chapter 12 case.
Bankruptcy courts and commentators have reasoned
that postpetition income taxes are not “incurred by the
estate” under §503(b) because “a tax on postpetition in
come of the debtor or of the chapter 13 estate is not a
liability of the chapter 13 estate; it is a liability of the
debtor alone.” 8 Collier ¶1305.02[1], at 1305–5 and 1305–
10 HALL v. UNITED STATES
Opinion of the Court
6.5
For over a decade, the Government has likewise hewed
to the position that “since post-petition tax liabilities are,
in Chapter 13 cases, incurred by the debtor, rather than
the bankruptcy estate, characterizing such liabilities as
administrative expenses is inconsistent with section 503.”
IRS Chief Counsel Advice No. 200113027, p. 6 (Mar. 30,
2001), 2001 WL 307746, *4; see also Internal Revenue
Manual §5.9.10.9.2(3) (2006) (hereinafter IRM); IRS Liti
gation Guideline Memorandum GL–26, p. 9 (Dec. 16,
1996), 1996 WL 33107107, *6. We see no reason to depart
from those established understandings. To “‘hold the
Chapter 13 estate liable for [a] tax when it does not exist
as a taxable entity defies common sense as well as Con
gress’ intent.’” In re Whall, 391 B. R. 1, 4 (Bkrtcy. Ct.
Mass. 2008). The same holds true for a Chapter 12 estate.
A provision in Chapter 13 confirms that postpetition
income taxes fall outside §503(b). Section 1305(a)(1) pro
vides that “[a] proof of claim may be filed by any entity
that holds a claim against the debtor . . . for taxes that
become payable to a governmental unit while the case is
pending.” (Emphasis added.) That provision gives holders
of postpetition claims the option of collecting postpetition
taxes within the bankruptcy case—an option that the
Government would never need to invoke if postpetition tax
liabilities were already collectible inside the bankruptcy.
Accordingly, lest we render §1305 “‘inoperative or super
fluous,’” Hibbs v. Winn, 542 U. S. 88, 101 (2004), it is clear
that postpetition income taxes are not automatically col
lectible in a Chapter 13 plan and, a fortiori, are not admin
istrative expenses under §503(b).
It follows that postpetition income taxes are not auto
——————
5
See, e.g., In re Maxfield, No. 04–60355, 2009 WL 2105953, *5–*6
(Bkrtcy. Ct. ND Ind. 2009); In re Jagours, 236 B. R. 616, 620 (Bkrtcy.
Ct. ED Tex. 1999); In re Whall, 391 B. R. 1, 5–6 (Bkrtcy. Ct. Mass.
2008); In re Brown, No. 05–41071, 2006 WL 3370867, *3 (Bkrtcy. Ct.
Mass. 2006); In re Gyulafia, 65 B. R. 913, 916 (Bkrtcy. Ct. Kan. 1986).
Cite as: 566 U. S. ____ (2012) 11
Opinion of the Court
matically collectible in petitioners’ Chapter 12 plan.6
Because both chapters cross-reference §503(b) in an iden
tical manner, see §§1222(a)(2), 1322(a)(2), we are cogni
zant that any conflicting reading of §503(b) here could
disrupt settled Chapter 13 practices. See Cohen v. de la
Cruz, 523 U. S. 213, 221 (1998) (the Court “‘will not read
the Bankruptcy Code to erode past bankruptcy practice
absent a clear indication that Congress intended such a
departure’”). Chapter 13 filings outnumber Chapter 12
filings six-hundred-fold. See U. S. Bankruptcy Courts—
Cases Commenced During the 12-Month Period Ending
September 30, 2011 (Table F–2), http://www.uscourts.gov/
Statistics/BankruptcyStatistics.aspx (estimating 676 and
——————
6
The dissent suggests that Chapter 12 can be distinguished from
Chapter 13 because Chapter 12 bankruptcies tend to be longer, such
that the treatment of taxes is more “important.” Post, at 13. As
a practical matter, it is not clear that Chapter 12 bankruptcies are
substantially longer. Compare Brief for Neil E. Harl. et al. as Amici
Curiae 33 (median Chapter 12 case duration is under 8 months) with
Tr. of Oral Arg. 49 (“on average we’re talking about 4 months in a
chapter 13 case”). In any event, there is no indication that Congress
intended any difference in duration—if it anticipated a difference at
all—to flip the characterization of postpetition income taxes from one
chapter to the other. Nor does the absence of a §1305 equivalent in
Chapter 12 justify shoehorning postpetition taxes into §503(b), as the
dissent argues. That Chapter 12 lacks a provision allowing such taxes
to be brought inside the plan only clarifies that such taxes fall outside
of the plan.
The dissent alternatively suggests that it “do[es] not see the serious
harm in treating the relevant taxes as ‘administrative expenses’ in both
Chapter 12 and Chapter 13 cases.” Post, at 13–14. The “harm” is to
settled understandings in Chapter 13 to the contrary. The “harm” is
also to §1305; to avoid rendering §1305 a nullity, the dissent recasts the
provision as applicable not to all “taxes that become payable . . . while
the case is pending,” but only those payable “after the Chapter 13 Plan
is confirmed.” Post, at 14. The dissent does not claim, however, that
this was Congress’ intent for §1305, as Congress’ choice of words would
be exceedingly overbroad if it were. And the dissent’s novel reading
contravenes ample Chapter 13 authority recognizing no such limitation
on §1305’s scope. E.g., 8 Collier ¶1305.02 (citing cases).
12 HALL v. UNITED STATES
Opinion of the Court
417,503 annual Chapter 12 and 13 filings, respectively)
(as visited May 14, 2012, and available in Clerk of Court’s
case file). Yet adopting petitioners’ reading of §503(b)
would mean that, in every Chapter 13 case, the Govern
ment could ignore §1305 and expect priority payment of
postpetition income taxes in every plan.
At bottom, “identical words and phrases within the
same statute should normally be given the same mean
ing.” Powerex Corp. v. Reliant Energy Services, Inc., 551
U. S. 224, 232 (2007). Absent any indication that Con
gress intended a conflict between two closely related chap
ters, we decline to create one.7
III
Petitioners and the dissent advance several arguments
for why the postpetition income taxes at issue should be
considered “incurred by the estate,” notwithstanding the
IRC’s separate taxable entity rules. But none provides
sufficient reason to overcome the statute’s plain language,
context, and structure.
Petitioners primarily argue that “incurred by the estate”
has a temporal meaning. Petitioners emphasize that the
estate only comes into existence after a bankruptcy peti
tion is filed. Thus, they reason, taxes “incurred by the
estate” refers to all taxes “incurred postpetition,” regard
less of whether the estate is liable for the tax and regard
less of the chapter under which a case is filed. Although
all taxes “incurred by the estate” are necessarily incurred
——————
7
IRS manuals dating back to 1998 indicate that the Government did
not view postpetition federal income taxes as collectible in an individ-
ual debtor’s Chapter 12 plan, even when that view was adverse to its
interests. See IRM §25.17.12.9.3 (2004); id., §25.17.12.9.3(1) (2002);
id., §5.9, ch. 10.8(4) (1999); id., §5.9, ch. 10.8(4) (1998). Until the en
actment of 11 U. S. C. §1222(a)(2)(A), treating such taxes as priority
claims in the plan would have assured the Government of full payment
before or at the time of the plan. Cite as: 566 U. S. ____ (2012) 13
Opinion of the Court
postpetition, not all taxes incurred postpetition are “in
curred by the estate.” That an estate cannot incur liability
until it exists does not mean that every liability that
arises after that point automatically becomes the estate’s
liability. And there is no textual basis to focus on when
the liability is incurred, as opposed to whether the liability
is incurred “by the estate.”
Alternately, petitioners contend that a tax should be
considered “incurred by the estate” so long as it is payable
out of estate assets. Income from postpetition sales of
farm assets is considered property of the estate. See
§1207(a). Petitioners argue that even if the debtor—and
not the estate—is liable for a tax, the tax is still “incurred
by the estate” because the funds the debtor uses to pay the
tax are property of the estate. But that too strains the
text beyond what it can bear. To concede that someone
other than the estate is liable for filing the return and
paying the tax, and yet maintain that the estate is the one
that has “incurred” the tax, defies the ordinary meaning of
“incur” as bringing a liability upon oneself.
The dissent, echoing both of these points, urges that
we “simply . . . consider the debtor and estate as merged.”
Post, at 11. “The English language,” the dissent reasons,
“permits this reading” and “do[es] not require” our read
ing. Post, at 8–9. But any reading of “tax . . . incurred by
the estate” that is contingent on merging the debtor and
estate—despite Congress’ longstanding efforts to distinguish between when tax liabilities are borne by the debtor
or borne by the estate—is not a natural construction of the
statute as written.
Moreover, these alternative readings create a conflict
between §503(b) and §346(b). Petitioners consider postpe
tition state or local income taxes, like federal income
taxes, to be “incurred by the estate” under §503(b). See
Tr. of Oral Arg. 4–5. But §346(b) requires that such taxes
be borne by the Chapter 12 debtor, not the estate. It is
14 HALL v. UNITED STATES
Opinion of the Court
implausible to maintain that taxes are “incurred by the
estate” when §346(b) specifically prohibits such taxes from
being “taxed to or claimed by the estate.”
To buttress their counterintuitive readings of the text,
petitioners and the dissent suggest that there is a long
history of treating postpetition taxes as administrative
expenses entitled to priority. Both point to two legislative
Reports accompanying the 1978 enactment of §503. But
neither snippet from which they quote is inconsistent with
today’s holding,8
and we have cautioned against “allowing
ambiguous legislative history to muddy clear statutory
language.” Milner v. Department of Navy, 562 U. S. ___,
___ (2011) (slip op., at 9).
Petitioners also point to cases suggesting that postpeti
tion taxes were treated as administrative expenses. E.g.,
United States v. Noland, 517 U. S. 535, 543 (1996) (cor
porate Chapter 11 debtor); Nicholas v. United States,
384 U. S. 678, 687–688 (1966) (corporate Chapter XI case
under predecessor Bankruptcy Act). But those cases
involve corporate debtors and are therefore inapposite.
Among estates that are not separately taxable, those
involving corporate debtors have long been singled out by
——————
8
The House Report stated—after noting that, in addition to prepeti
tion taxes, “certain other taxes are entitled to priority”—that “[t]axes
arising from the operation of the estate after bankruptcy are entitled to
priority as administrative expenses.” H. R. Rep., at 193. That is still
true. Many taxes arising after bankruptcy, as in individual-debtor
Chapter 7 or 11 cases, remain entitled to priority as administrative
expenses. The Senate Report, meanwhile, stated: “In general, adminis
trative expenses include taxes which the trustee incurs in administer
ing the debtor’s estate, including taxes on capital gains from sales of
property by the trustee and taxes on income earned by the estate during
the case.” S. Rep., at 66 (emphasis added). That likewise remains true.
Administrative expenses still include income taxes that “the trustee,”
as opposed to the debtor, has incurred—again, as in individual-debtor
Chapter 7 or 11 cases. Cite as: 566 U. S. ____ (2012) 15
Opinion of the Court
Congress for special responsibilities.9
See H. R. Rep., at
277 (even “[i]f the estate is not a separate taxable entity,”
administrative responsibility can “var[y] according to the
nature of the debtor”). Although estates of corporate
debtors are not separate taxable entities under 26 U. S. C.
§§1398 and 1399, the IRC requires a trustee that “has
possession of or holds title to all or substantially all the
property or business of a corporation” to “make the return
of income for such corporation.” §6012(b)(3). In effect,
Congress provided that the trustee in a corporate-debtor
case may shoulder responsibility that parallels that borne
by the trustee of a separate taxable entity. In any event,
petitioners do not deny that neither the separate taxable
entity provisions nor the special provisions for corporate
debtors apply to them.
Finally, petitioners and the dissent contend that the
purpose of 11 U. S. C. §1222(a)(2)(A) was to provide debt
ors with robust relief from tax debts, relying on state
ments by a single Senator on unenacted bills introduced in
years preceding the enactment. See Brief for Petitioners
23–36. They argue that deeming §1222(a)(2)(A) inapplica
ble to their postpetition income taxes would undermine
that purpose and confine the exception to prepetition
taxes. But we need not resolve here what other claims, if
any, are covered by §1222(a)(2)(A).10
Whatever the 2005
——————
9
The original §346 established that the estate of a corporate debtor
is not a separate taxable entity, but nonetheless provided that “the
trustee shall make any [State or local] tax return otherwise required
. . . to be filed by or on behalf of such . . . corporation.” §§346(c)(1)–(2),
92 Stat. 2565, 2566. The current §346 similarly states, in the same
provision deeming the debtor taxable when there is no separate taxable
estate, that “[t]he trustee shall make such tax returns of income of
corporations . . . . The estate shall be liable for any [State or local] tax
imposed on such corporation.” §346(b).
10
The dissent opines that employment taxes must be administrative
expenses “incurred by the estate” because, in its view, they “do not
fit easily” within the category of administrative expenses under
16 HALL v. UNITED STATES
Opinion of the Court
Congress’ intent with respect to §1222(a)(2)(A), that provi
sion merely carved out an exception to the pre-existing
priority classification scheme. The exception could only
apply to claims “entitled to priority under section 507” in
the first place. That pre-existing scheme was in turn
premised on antecedent, decades-old understandings
about the scope of §503(b) and the division of tax liabilities
between estates and debtors. See Dewsnup v. Timm, 502
U. S. 410, 419 (1992) (“When Congress amends the bank
ruptcy laws, it does not write ‘on a clean slate’”). If Con
gress wished to alter these background norms, it needed to
enact a provision to enable postpetition income taxes to be
collected in the Chapter 12 plan in the first place.
The dissent concludes otherwise by an inverted analysis.
Rather than demonstrate that such claims were treated as
§507 priority claims in the first place, the dissent begins
with the single Senator’s stated purpose for the exception
to that priority scheme. Post, at 7. It then reasons back
wards from there, and in the process upsets background
norms in both Chapters 12 and 13.
Certainly, there may be compelling policy reasons for
treating postpetition income tax liabilities as discharge-
able. But if Congress intended that result, it did not so
provide in the statute. Given the statute’s plain language,
context, and structure, it is not for us to rewrite the stat
ute, particularly in this complex terrain of interconnected
provisions and exceptions enacted over nearly three dec
ades. Petitioners’ position threatens ripple effects beyond
this individual case for debtors in Chapter 13 and the
broader bankruptcy scheme that we need not invite. As
the Court of Appeals noted, “Congress is entirely free to
change the law by amending the text.” 617 F. 3d, at 1167.
——————
§503(b)(1)(A)(i), notwithstanding the Government’s contrary represen
tations on both points. Post, at 12. Because employment taxes are not
at issue in this case, we offer no opinion on either question.
Cite as: 566 U. S. ____ (2012) 17
Opinion of the Court
* * *
We hold that the federal income tax liability resulting
from petitioners’ postpetition farm sale is not “incurred by
the estate” under §503(b) and thus is neither collectible
nor dischargeable in the Chapter 12 plan. We therefore
affirm the judgment of the Court of Appeals for the Ninth
Circuit.
It is so ordered. _________________
_________________
Cite as: 566 U. S. ____ (2012) 1
BREYER, J., dissenting
SUPREME COURT OF THE UNITED STATES
No. 10–875
LYNWOOD D. HALL, ET UX., PETITIONERS v.
UNITED STATES
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[May 14, 2012]
JUSTICE BREYER, with whom JUSTICE KENNEDY,
JUSTICE GINSBURG, and JUSTICE KAGAN join, dissenting.
Chapter 12 of the Bankruptcy Code helps family farmers in economic difficulty reorganize their debts without
losing their farms. Consistent with the chapter’s purposes, Congress amended §1222(a) of the Code to enable the
debtor to treat certain capital gains tax claims as ordinary
unsecured claims. 11 U. S. C. §1222(a)(2)(A). The Court’s
holding prevents the Amendment from carrying out this
basic objective. I would read the statute differently, interpreting it in a way that, in my view, both is consistent
with its language and allows the Amendment better to
achieve its purposes.
I
A
Chapter 12 of the Bankruptcy Code helps indebted
family farmers (and fishermen) keep their farms by making commitments to pay those debts (in part) out of future
income. An eligible farmer whose debts exceed his assets
may enter Chapter 12 bankruptcy, at which point he must
develop a detailed Plan setting forth how he will pay his
debts. That Plan must satisfy certain statutory criteria.
§§1221, 1222, 1225.
A brief overview of these requirements helps to illumi-
2 HALL v. UNITED STATES
BREYER, J., dissenting
nate what is at stake in this case. Roughly speaking, the
chapter requires that a holder of a secured claim receive
the full amount of that claim up to the value of the collateral securing the loan. The claim may be paid over an
extended period. If the claim exceeds the value of the
collateral, the creditor is given an unsecured claim in the
remainder. §§506(a), 1225(a)(5).
The holder of a §507 priority claim (a category that
includes, among other things, domestic support obligations, debts for taxes incurred before filing the bankruptcy
petition, and administrative expenses) must receive the
full amount of the priority claim in deferred cash payments paid over the life of the Plan. §1222(a)(2).
The holder of an ordinary unsecured claim—i.e., an
unsecured claim of a kind not listed in §507—may receive
at least a partial payment from the amount left over after
the payment of the secured and §507 priority claims. This
amount may well be more than zero, for the Plan must
provide that the farmer will devote all “disposable income”
(as defined by §1225(b)(2)) or property of equivalent value
to the repayment of his debts over the next three years
(sometimes extended to five years). §§1222(c), 1225(b)(1).
And that amount must prove sufficient to provide the un-
secured creditor with no less than that creditor would re-
ceive in a Chapter 7 liquidation. §1225(a)(4).
Once the farmer completes his Plan payments, he will
receive a discharge even if his payments did not fully
satisfy all unsecured claims. The Code does not, however,
permit all debts to be discharged. There are categories
of nondischargeable debts (including, for example, secured
claims), which creditors can pursue after bankruptcy.
§1228(a).
For present purposes, it is important to understand that
if the debtor owes too much money to his §507 priority
creditors, he may not have sufficient assets or future
income to pay all his secured creditors and his §507 prior-
Cite as: 566 U. S. ____ (2012) 3
BREYER, J., dissenting
ity creditors while leaving enough funds over to guarantee
unsecured creditors the minimum amounts that Chapter
12 requires. If so, the farmer may not be able to proceed
under Chapter 12. See §§1225(a)(1), (6) (bankruptcy court
will not confirm Plan unless it satisfies statutory criteria
and debtor will be able to make good on his commitments
under the Plan).
It is also important to understand that the same kind of
insufficient-assets-and-income problem might occur where
the debtor owes the Government a large post-petition tax
debt. In general, postpetition claims are not part of the
bankruptcy proceedings. See 7 Norton Bankruptcy Law
and Practice §135:14 (3d ed. 2011) (hereinafter Norton).
Unless the Government’s debt falls within an exception to
this general rule, bankruptcy law would leave the Government to collect its postpetition claim outside of bankruptcy as best it could. Again, the result will be to leave
the farmer with fewer assets and income to devote to his
Chapter 12 Plan—perhaps to the point where he cannot
proceed under Chapter 12 at all.
B
With this general summary in mind, it is easier to understand the significance of the question this case presents. The question arises out of an amendment to a
Chapter 12 provision. The provision as amended says:
“Contents of plan
“(a) The plan shall—
. . . . .
“(2) provide for the full payment, in deferred cash
payments, of all claims entitled to priority under section 507, unless—
“(A) the claim is a claim 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, in which case the
4 HALL v. UNITED STATES
BREYER, J., dissenting
claim shall be treated as an unsecured claim that is
not entitled to priority under section 507, but the debt
shall be treated in such manner only if the debtor receives a discharge; or
“(B) the holder of a particular claim agrees to a different treatment of that claim.” §1222(a) (emphasis
added).
The Amendment consists of subparagraph (A).
At first blush, the Amendment seems to relegate the
capital gains tax collector to the status of an ordinary
unsecured creditor. See ibid. (exception applies to claims
“owed to a governmental unit that arises as a result of the
sale . . . of any farm asset”). If, as petitioners claim, that
is so, then it is unlikely that such a debt could stop a
farmer from proceeding under Chapter 12, since its treatment as an ordinary unsecured claim means that the
farmer will not necessarily have to pay the debt in full.
But if the Government and the majority are right, then
the capital gains tax falls outside the category of §507
priority claims—and therefore falls outside the scope of
the Amendment; in fact, it falls outside the bankruptcy
proceeding altogether. And the Government then might
well be able to collect the debt in full outside the bankruptcy proceeding—even if doing so would reduce the
farmer’s assets and future income to the point where the
farmer would not be able to proceed under Chapter 12.
The question before us is whether we must interpret the
Amendment in a way that could bring about this result.
C
1
Congress did not intend this result. In a significant
number of instances a Chapter 12 farmer, in order to
have enough money to pay his creditors, might have to sell
farmland or other farm assets at a price that would give
rise to considerable capital gains taxes (particularly if the
Cite as: 566 U. S. ____ (2012) 5
BREYER, J., dissenting
family has held the land or assets for many years). If the
resulting tax debt were treated as a §507 priority claim,
then it might well absorb much of the money raised to the
point where (depending upon the size of his other debts)
the farmer might be unable to proceed under Chapter 12.
The Amendment accordingly seeks to place the tax authorities farther back in the creditor queue, requiring them,
like ordinary unsecured creditors, to seek payment from
the funds that remain after the §507 priority creditors
(and secured claim holders) have been paid.
The Amendment’s chief legislative sponsor, Senator
Charles Grassley, explained this well when he told the
Senate:
“Under current law, farmers often face a crushing tax
liability if they need to sell livestock or land in order
to reorganize their business affairs. . . . [H]igh taxes
have caused farmers to lose their farms. Under the
bankruptcy code, the I. R. S. must be paid in full for
any tax liabilities generated during a bankruptcy reorganization. If the farmer can’t pay the I. R. S. in
full, then he can’t keep his farm. This isn’t sound policy. Why should the I. R. S. be allowed to veto a
farmer’s reorganization plan? [The Amendment]
takes this power away from the I. R. S. by reducing
the priority of taxes during proceedings. This will free
up capital for investment in the farm, and help farmers stay in the business of farming.” 145 Cong. Rec.
1113 (1999).
See also 14A J. Mertens, Law of Federal Income Taxation
§54:61, p. 11 (Oct. 2011 Supp.) (“This provision attempts
to mitigate the tax expense often incurred by farmers who
have significant taxable capital gains or depreciation re-
capture when their low basis farm assets are foreclosed,
sold, or otherwise disposed of by their creditors”).
6 HALL v. UNITED STATES
BREYER, J., dissenting
2
The majority, following the Government’s suggestion,
interprets the relevant language in a way that denies the
Amendment its intended effect. It holds that the only
income tax claims to which §507 accords priority are
claims for taxes due for years prior to the taxable year in
which the farmer filed for bankruptcy. (We shall call
these “prepetition tax claims.”) In the majority’s view,
§507 does not cover income tax liabilities that arise during
the year of filing or during the Chapter 12 proceedings.
(We shall call these “postpetition tax claims.”) Ante, at 4–
5; see Brief for United States 8 (the Amendment “provides
farmers relief from [only] those tax claims that are otherwise entitled to priority under 11 U. S. C. 507(a)(8), namely
pre-petition claims arising from the sale of farm as-
sets”); Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, §705(1)(A), 119 Stat. 126 (amending
§507(a)(8) to clarify that it only covers income tax claims
for taxable years that end on or before the date of the
filing of the bankruptcy petition).
The majority then observes that the Amendment creates
an exception only in respect to §507 priority claims.
§1222(a) (“The plan shall . . . provide for the full payment
. . . of all claims entitled to priority under section 507,
unless . . . .” (Emphasis added.)). Ante, at 2. Thus, if
(without the Amendment) §507 would not cover postpetition capital gains taxes in the first place, the Amendment
(creating only a §507 exception) cannot affect postpeti-
tion tax claims. An exception from nothing amounts to
nothing.
Consequently, the majority concludes that postpetition
tax claims fall outside the bankruptcy proceeding entirely;
the tax authorities can collect them as if they were ordinary tax debts; and the Government’s efforts to collect
them can lead to the very results (blocking the use of
Chapter 12) that the Amendment sought to avoid. Cite as: 566 U. S. ____ (2012) 7
BREYER, J., dissenting
Therein lies the problem. These results are the very
opposite of what Congress intended. Congress did not
want to relegate to ordinary-unsecured-claim status only
prepetition tax claims, i.e., tax claims that accrued well
before the Chapter 12 proceedings began. Rather, Congress was concerned about the effect on the farmer of
collecting capital gains tax debts that arose during (and
were connected with) the Chapter 12 proceedings themselves. See 145 Cong. Rec. 1113 (the Amendment will
have the effect of “reducing the priority of taxes during
proceedings” (emphasis added) (statement of Sen. Grassley
during a failed attempt to enact the Amendment)); Hearing on the Bankruptcy Reform Act of 2001 before the
Senate Committee on the Judiciary, 107th Cong., 1st
Sess., 121 (statement of Sen. Grassley) (“[The Amendment] also reduces the priority of capital gains tax liabilities for farm assets sold as a part of a reorganization plan”
(emphasis added)). The majority does not deny the importance of Congress’ objective. Rather, it feels compelled
to hold that Congress put the Amendment in the wrong
place.
II
Unlike the majority, I believe the relevant Bankruptcy
Code language can be and is better interpreted in a way
that would give full effect to the Amendment. In particular, the relevant language is better interpreted so that in
the absence of the Amendment §507 would cover these
postpetition tax claims. Hence the Amendment creates an
exception from what otherwise would amount to a §507
priority claim. And it can take effect as written.
It is common ground that subsection (a)(2) of §507 cov-
ers, and gives §507 priority to, “administrative expenses
allowed under section 503(b).” §507(a)(2) (2006 ed., Supp.
IV). It is also common ground that the relevant definitional section, namely §503(b), defines allowed “adminis-
8 HALL v. UNITED STATES
BREYER, J., dissenting
trative expenses” as “including . . . any tax . . . incurred by
the estate.” §503(b)(1)(B)(i) (2006 ed.). But after this
point, we part company.
The majority believes that the words any tax “incurred by the estate” cannot include postpetition taxes. It
emphasizes that tax law does not treat a Chapter 12
bankruptcy estate as a “separate taxable entity,” i.e., as
separate from the farmer-debtor for federal income tax
purposes. 26 U. S. C. §§1398, 1399. This means that
there is just one entity—the debtor—for these purposes.
And §346 of the Bankruptcy Code makes clear that any
state and local income tax liabilities incurred by a Chapter
12 estate must also be taxed to the debtor. The majority
says that these provisions mean that only the debtor, and
not the estate, can “‘incu[r]’” taxes within the meaning of
11 U. S. C. §503(b)(1)(B)(i). Ante, at 4–5.
In my view, however, these tax law circumstances do
not require the majority’s narrow reading of this Bankruptcy Code provision. That is to say, the phrase tax
“incurred by the [bankruptcy] estate” can include a tax
incurred by the farmer while managing his estate in the
midst of his bankruptcy proceedings, i.e., between the time
the farmer files for Chapter 12 bankruptcy and the time
the bankruptcy court confirms the farmer’s Chapter 12
Plan.
The bankruptcy estate is in existence during this time.
Cf. §1227(b) (property of the estate vests in the debtor
at confirmation unless the Plan provides otherwise). The
bankruptcy court has jurisdiction over the farmer’s assets
during this time. See §§541, 1207; 4 Norton §61:1, at 61–2
(§541’s “broad definition of estate property . . . centralizes
all of the estate’s assets under the jurisdiction of the bankruptcy court”). And, as a matter of both the English language and bankruptcy principles, one can consider a tax
liability that the farmer incurs during this period (such as
a capital gains tax arising from a sale of a portion of his Cite as: 566 U. S. ____ (2012) 9
BREYER, J., dissenting
farm assets to raise funds for creditors) as a liability that,
in a bankruptcy sense, the estate incurs.
The English language permits this reading of the phrase
tax “incurred by the estate.” When the farmer, in the
midst of Chapter 12 proceedings, sells a portion of his
farm to raise money to help pay his creditors, one can
say, as a matter of English, that the bankruptcy estate has
“incurred” the associated tax, even if it is ultimately taxed
to the farmer, just as one can say that an employee who
makes purchases using a company credit card “incurs
costs” for which his employer is liable.
As a matter of general bankruptcy principles (as Congress understood them), the history of the 1978 Bank-
ruptcy Code revision is replete with statements to the effect
that “[t]axes arising from the operation of the estate after
bankruptcy are entitled to priority as administrative
expenses.” H. R. Rep. No. 95–595, p. 193 (1977) (emphasis
added). See S. Rep. No. 95–1106, p. 13 (1978) (administrative expenses include “[t]axes incurred during the
administration of the estate” (emphasis added)); S. Rep.
No. 95–989, p. 66 (1978) (“In general, administrative
expenses include taxes which the trustee incurs in administering the debtor’s estate, including taxes on capital gains
from sales of property by the trustee and taxes on income
earned by the estate during the case” (emphasis added));
124 Cong. Rec. 32415 (1978) (“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” (emphasis added)); id., at 34014 (Senate version
of the joint floor statement saying exactly the same).
And importantly, as the majority concedes, ante, at 14–
15, bankruptcy law treats taxes incurred by corporate
debtors while they are in bankruptcy proceedings as
“tax[es] incurred by the estate,” even though the Tax Code
does not treat the bankruptcy estate of a corporate debtor
10 HALL v. UNITED STATES
BREYER, J., dissenting
as a “separate taxable entity.” See, e.g., United States v.
Noland, 517 U. S. 535, 543 (1996) (treating Chapter 11
corporate debtor’s postpetition taxes as administrative
expenses); In re Pacific-Atlantic Trading Co., 64 F. 3d
1292, 1298 (CA9 1995) (same); In re L. J. O’Neil Shoe Co.,
64 F. 3d 1146, 1151–1152 (CA8 1995) (same); In re Hillsborough Holdings Corp., 156 B. R. 318, 320 (Bkrtcy. Ct.
MD Fla. 1993) (“[A]dministrative expenses should include
taxes which the trustee, and, in Chapter 11 cases, the
Debtor-in-Possession, incurs in administering the estate,
including taxes based on capital gains from sales of property and taxes on income earned by the estate during the
case post-petition”).
Even though, as the majority says, corporate bankruptcies have some special features (in particular, a trustee in
a corporate bankruptcy is required to file the estate’s
income tax return), it is unclear why these features should
have any bearing on the definition of administrative
expenses. See ante, at 15 (discussing 26 U. S. C.
§6012(b)(3)). Indeed, in many corporate Chapter 11 bankruptcies, there is no trustee, in which case the debtor-inpossession, just like an individual Chapter 12 debtor, must
file the tax return. See 11 U. S. C. §§1104, 1107 (2006 ed.
and Supp. IV); 5 Norton §§91:3, 93:1 (typically, no trustee
is appointed in a Chapter 11 bankruptcy, and the debtorin-possession assumes most of the duties and powers of a
trustee, continuing in possession and managing the business until the court determines, upon request of a party in
interest, that grounds exist for the appointment of a trustee); Holywell Corp. v. Smith, 503 U. S. 47, 54 (1992) (“As
the assignee of ‘all’ or ‘substantially all’ of the property
of the corporate debtors, the trustee must file the returns that the corporate debtors would have filed had the
plan not assigned their property to the trustee” (emphasis
added)).
Consequently, I can find no strong bankruptcy law Cite as: 566 U. S. ____ (2012) 11
BREYER, J., dissenting
reason for treating taxes incurred by a corporate debtor
differently from those incurred by an individual Chapter
12 debtor. To the contrary, since corporations can file
for bankruptcy under Chapter 12, the majority’s argument
implies that the treatment of postpetition taxes in Chapter
12 proceedings turns on whether the debtor happens to be
a corporation. See §101(18)(B) (2006 ed.) (defining “family
farmer” to include certain corporations); §109(f) (“Only
a family farmer or family fisherman with regular annual
income may be a debtor under chapter 12”); Brief for
United States 26, n. 9 (“[T]he estate of a corporate (as
opposed to individual) Chapter 12 debtor . . . could be
viewed as incurring post-petition income taxes . . . collectible as administrative expenses . . . rather than outside the
bankruptcy case as required for an individual Chapter 12
debtor”).
The majority does not point to any adverse consequences
that might arise were bankruptcy law to treat taxes incurred in administering the bankruptcy estate (i.e., taxes
incurred after filing and before Plan confirmation) as
administrative expenses. The effect of doing so would
simply be to consider the debtor and estate as merged for
purposes of determining which taxes fall within the Bankruptcy’s Code’s definition of “administrative expenses,”
i.e., determining for that purpose that the estate may
“incur” tax liabilities on behalf of the whole (with the ul-
timate liability assigned to the debtor), much like a
married couple filing jointly, 26 U. S. C. §6013(a), or an
affiliated group of corporations filing a consolidated tax
return, §1501. Cf. In re Lumara Foods of America, Inc., 50
B. R. 809, 815 (Bkrtcy. Ct. ND Ohio 1985) (describing the
history of §503(b)(1)(B)(i) and concluding that “the elevation [of a tax] to an administrative priority is dependent
upon when the tax accrued”). In fact, the very tax provisions that separate the estate from the individual debtor
in Chapter 7 and Chapter 11 proceedings, §§1398 and
12 HALL v. UNITED STATES
BREYER, J., dissenting
1399, say that the Chapter 12 estate is not separate from
the debtor for tax purposes—a concept consistent, not at
odds, with merging the two for this bankruptcy purpose.
Nor is the majority’s reading free of conceptual problems. If we read the phrase tax “incurred by the estate”
as excluding tax liabilities incurred while the farmer is in
Chapter 12 bankruptcy, we must read it as excluding not
only capital gains taxes but also other kinds of taxes, such
as an employer’s share of Social Security taxes, Medicare
taxes, or other employee taxes. But no one claims that all
of these taxes fall outside the scope of the term “administrative expenses.” See In re Ryan, 228 B. R. 746 (Bkrtcy.
Ct. Ore. 1999) (treating postpetition employment taxes
as administrative expenses in a Chapter 12 proceeding);
IRS Chief Counsel Advice No. 200518002 (May 6, 2005),
2005 WL 1060956 (assuming that some postpetition fed-
eral taxes can be treated as administrative expenses in a
Chapter 12 bankruptcy).
In fact, the Government, realizing it cannot go this far,
concedes that many of these other (e.g., employer) taxes
are “administrative expenses,” but only, it suggests, because they fall within a different part of the “administrative expenses” definition, namely 11 U. S. C. §503(b)(1)(A),
which says that “administrative expenses” include “the
actual, necessary costs and expenses of preserving the
estate including . . . wages, salaries, and commissions for
services rendered after the commencement of the case.”
(Emphasis added.) See Brief for United States 27–28,
n. 11. Employment taxes, however, do not fit easily within
the rubric “wages, salaries, and commissions.” They may
well be “necessary costs and expenses of preserving the
estate.” But then so are the capital gains taxes at issue
here.
Finally, the majority makes what I believe to be its
strongest argument. Ante, at 9–12. Chapter 13, it points
out, allows individuals (typically those who are not farm-
Cite as: 566 U. S. ____ (2012) 13
BREYER, J., dissenting
ers or fishermen) to reorganize their debts in much the
same way as does Chapter 12. And there is authority
holding that taxes on income earned between the time the
Chapter 13 debtor files for bankruptcy and the time the
bankruptcy Plan is confirmed are not “tax[es] incurred
by the estate.” See In re Whall, 391 B. R. 1, 5–6 (Bkrtcy.
Ct. Mass. 2008); In re Brown, No. 05–41071, 2006 WL
3370867, *3 (Bkrtcy. Ct. Mass. 2006); In re Jagours, 236
B. R. 616, 620, n. 4 (Bkrtcy. Ct. ED Tex. 1999); In re
Gyulafia, 65 B. R. 913, 916 (Bkrtcy. Ct. Kan. 1986). Why,
asks the majority, should the law treat Chapter 12 taxes
differently?
For one thing, the issue is less important in a Chapter
13 case, for the relevant time period—between filing and
Plan confirmation—is typically very short. Compare H. R.
Rep. No. 95–595, at 276 (“most chapter 13 estates will only
remain open for 1 or 2 months until confirmation of the
plan”), with Brief for Neil E. Harl et al. as Amici Curiae
32–33 (survey of Chapter 12 bankruptcies found the average time from filing to confirmation in a district ranged
from nearly five months to over three years). See also 7
Norton §122:14, at 122–27 (“In Chapter 13, the plan must
be filed within 15 days after the filing of the petition,
unless the time is extended for cause. A Chapter 12 Plan
must be filed no later than 90 days after the order for
relief, unless the court finds that an extension is substantially justified” (footnote omitted)).
For another, the issue arises differently in a Chapter 13
case. That chapter, unlike Chapter 12, contains a special
provision that permits the Government to seek §507 priority treatment of all taxes incurred while the bankruptcy
case is pending. §1305 (Government can file proof of claim
to have postpetition taxes treated as if they had arisen
before the petition was filed).
Finally, if uniformity of interpretation between these
two chapters is critical, I do not see the serious harm in
14 HALL v. UNITED STATES
BREYER, J., dissenting
treating the relevant taxes as “administrative expenses”
in both Chapter 12 and Chapter 13 cases rather than in
neither. The majority apparently believes that this would
render §1305 (the provision permitting the Government to
seek §507 priority treatment) superfluous. Ante, at 10–12.
But that is not so. This interpretation would simply limit
the scope of operation of §1305 to the period of time after
the Chapter 13 Plan is confirmed but while the Chapter 13
case is still pending. And that is likely to be a significant
period of time relative to the preconfirmation period. See
H. R. Rep. No. 95–595, at 276 (“[M]ost chapter 13 estates
will only remain open for 1 or 2 months until confirmation
of the plan”); §§1325(b)(1), (4) (debtor must commit all his
projected disposable income over a 3-year period (sometimes extended to five) to the Plan, unless all unsecured
claims can be paid off over a shorter period). The greatest
Chapter 13 harm this interpretation could cause is to re-
quire the Government to pursue those tax liabilities as
§507 priority administrative expense claims (rather than
allow it to choose between §507 priority treatment and
pursuing those claims outside bankruptcy) during the
relatively brief period of time between the filing of a petition and the Plan’s confirmation.
In sum, I would treat a postpetition/preconfirmation tax
liability as a tax “incurred by the estate,” hence as an
“administrative expense,” hence as a “clai[m] entitled to
priority under section 507, unless . . . ,” hence as a claim
falling within the scope of the Amendment. Doing so
would allow the Amendment to take effect as Congress
intended.
III
The Government argues that, even if tax liabilities
arising during the bankruptcy proceedings are “administrative expenses,” they still do not fall within the Amendment’s scope. It says that neither the Amendment nor
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BREYER, J., dissenting
anything else in §1222(a) provides for the payment of
administrative expenses. Rather, that section and its
Amendment provide only for the payment of “claims.”
§1222(a)(2) (“The plan shall . . . provide for the full payment . . . of all claims entitled to priority under section
507, unless . . .” (emphasis added)). And administrative
expenses, the Government says, like all debts that are
incurred postpetition, are not “claims.”
The Government finds support for its view in the fact
that that §1222 deals with the contents of a “plan,” while a
later section, §1227(a), says that the provisions of a “confirmed plan bind the debtor, each creditor, [and certain
others of no relevance here].” (Emphasis added.) This
is because the Code defines “creditor” to include only holders of pre-petition claims, thus excluding holders of
post-petition claims, such as administrative expenses.
§101(10).
The Government points out that a different Code section, namely §1226(b)(1), provides for the payment of
administrative expenses. That section says that “[b]efore
or at the time of each payment to creditors under the plan,
there shall be paid . . . any unpaid claim of the kind
specified in section 507(a)(2),” namely “administrative expenses.” And Congress did not amend §1226(b)(1); it
amended the earlier section, §1222(a).
In short, the Government says, the Plan only covers
those §507 priority “expenses and claims” that are described as “claims” and can be held by “creditors.” Section
1226(b)(1), not §1222, deals with administrative expenses.
The bottom line of the Government’s chain of logic is, once
again, that Congress put the Amendment in the wrong
place.
I concede that there is some text and legislative history
that supports the Government’s view that the word
“claim” in §1222(a) does not include “administrative expenses.” See, e.g., §507(a) (referring to “expenses and
16 HALL v. UNITED STATES
BREYER, J., dissenting
claims” as if they are separate categories); S. Rep. No. 95–
1106, at 20 (“The committee amendments contain several
changes designed to clarify the distinction between a
‘claim’ (which generally relates to a debt incurred before
the bankruptcy petition is filed) and an administrative
expense (which is an expense incurred by the trustee after
the filing of the petition)”).
But the language does not demand the Government’s
reading. For the Code also uses the word “claim” to cover
both prepetition and postpetition claims (such as administrative expenses). E.g., §101(5)(A) (defining a claim as a
“right to payment”); §726(b) (2006 ed., Supp. IV) (referring to “claims” that include administrative expenses). Indeed, the very section that the Government says permits
separate collection of administrative expenses, namely
§1226(b)(1), refers to “any unpaid claim” for administrative expenses. (Emphasis added.) And one can easily read
that section as setting forth when, not whether, administrative expenses will be paid under the Plan (i.e., as specifying that the Plan must provide for the payment of administrative expenses before payments to other creditors
are made). Thus, reading §1222(a)(2)’s reference to
“claims” as including administrative expenses need not
render §1226(b)(1) surplusage.
What about §1227(a), which refers only to “creditor[s]”?
One must read it in conjunction with §1228(a), which
provides that once the debtor has completed all payments
under the Plan, “the court shall grant the debtor a discharge of [1] all debts provided for by the plan[,] [2] allowed under section 503 of this title [which describes ‘administrative expenses’] or [3] disallowed under section 502
of this title . . . .” (Emphasis added.) (The first few words
of §1227(a)—“[e]xcept as provided in section 1228(a)”—
explain why I say “must”; the comma comes from 7 Norton
§137:2, at 137–3, n. 1, which says that its omission was a
typographical error). Thus, by here referring to “adminis-
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BREYER, J., dissenting
trative expenses” (through its reference to §503), Chapter
12 makes clear that at least some postpetition claims are
to be discharged once the debtor has completed his payments under the Plan. That fact, in turn, suggests that
the Plan may provide for their payment and that the
holders of such claims may be bound by the terms of a
confirmed Plan.
The upshot is that the Government’s second argument
presents a plausible, but not the only plausible, interpretation of the Code’s language. And the Government’s
second argument, like the majority’s argument, has a
problem, namely that it reduces Congress’ Amendment to
rubble. For that reason I believe it does not offer the
better interpretation of the relevant language.
IV
In sum the phrase tax “incurred by the estate” in
§503(b) (the “administrative expense” section) and the
word “claim” in §1222(a) are open to different interpretations. Each of the narrower interpretations advanced by
the Government or adopted by the Court would either
exclude postpetition taxes from the phrase taxes “incurred
by the estate” or exclude all postpetition debts, including
administrative expenses, from the word “claim.” In these
ways, these interpretations would, as I have said, prevent
the Amendment from accomplishing its basic purpose.
A broader interpretation of the word “claim” may allow
the Plan to include certain postpetition debts. This, taken
together with a broader interpretation of the phrase tax
“incurred by the estate,” prevents the Government from
collecting postpetition/preconfirmation tax debts outside of
Chapter 12, requiring it to assume a place in the creditor
queue. Together these broader interpretations permit the
Amendment to take effect as intended.
I find this last-mentioned consideration determinative.
It seems to me unlikely that Congress, having worked on
18 HALL v. UNITED STATES
BREYER, J., dissenting
revisions of the Code for many years with the help of
Bankruptcy experts, and having considered the Amendment several times over a period of years, would have
made the drafting mistake that the Government and the
majority necessarily imply that it made. Moreover, I believe it important that courts interpreting statutes make
significant efforts to allow the provisions of congressional
statutes to function in the ways that that the elected
branch of Government likely intended and for which it
can be held democratically accountable.
For these reasons, with respect, I dissent.
