24 Sep Saving Family Farm from Harsh Tax in Chapter 12 Bankruptcy Goal of Bill
Farm state senators will try, try again to help family farmers avoid a harsh capital gains tax when selling farm assets in chapter 12 bankruptcy in a bill introduced in the U.S. Senate.
The proposal by farm state senators, Chuck Grassley (R- Iowa) and Al Franken (D – Minn), S.3545 — Family Farmer Bankruptcy Tax Clarification Act of 2012, is intendedto overturn the U.S. Supreme Court ruling in Hall v. United States. The Court ruled the farmers had to pay capital gains tax on appreciated value of farm assets they sold to pay debts. The tax burden crushed the hopes for saving the farm in chapter 12 bankruptcy.
Family farms often have their money tied up in land that has gone up in value over long periods of time. The law that taxes the gain in value when property is sold makes it unaffordable to sell a portion of farm ground to pay debts or to pass down the ownership to the next generation. Congress tried to resolve that problem with changes to the chapter 12 bankruptcy law for family farmers in 2005. The Supreme Court ruled 5 to 4 that the tax on the gain is not dischargeable in bankruptcy even though Congress intended it to be.
The bill is intended to make the law clear and overturn the Hall decision according toNational Sustainable Agriculture Coalition (NSAC):
“The Farmer Bankruptcy Tax Clarification Act of 2012 includes strongly worded, clear language,” according to NSAC. “It provides that any unsecured claim owed to a “governmental unit†by the farmer debtor or the bankruptcy estate that arises as a result of the sale, transfer, exchange, or other disposition of any farm asset used in the debtor’s farming operation qualifies as an unsecured claim under Chapter 12 that may be discharged in a Chapter 12 bankruptcy. This provision applies without regard to whether the disposition of the farm assets occurred before or after the farmer filed a petition for bankruptcy. The Act also specifies a process for governmental units to a file a post petition claim for taxes and other governmental claims under Chapter 12.”
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