Flaw in Tax Provision of Chapter 12 Fixed
President Trump delivered significant relief to beleaguered family farmers who need to sell farm assets to “right-size” their farm and incur taxes when he signed the Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2017 on October 26, 2017. Tucked in the last six pages of the twenty-six-page bill is the Family Farmer Bankruptcy Clarification Act of 2017. This section was introduced by Senators Chuck Grassley (R, IA) and Al Franken (D, MN) on May 25, 2017 with the stated purpose of reversing the Supreme Court ruling in Hall v. United States. Four hours after the Supreme Court issued its 5 – 4 ruling in Hall on May 14, 2012, Joseph Peiffer, founder of Ag & Business Legal Strategies, delivered draft corrective Chapter 12 legislation to Senator Grassley’s Senate Judiciary aide.
Senator Grassley tenaciously pursued the reversal of Hall by introducing legislation in each of the four Congresses after Hall was issued. The first three introductions stalled in the Senate Judiciary Committee.
This legislation clarifies the inarticulate language chosen by Congress in the Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA) enacted on April 20, 2005 to remedy tax problems of family farmers needing to “right-size” their farms. The idea to de-prioritize the claims of governments was suggested to Senator Grassley in December of 1998 by Joe Peiffer.
Given the inarticulate language choice of Congress, after Hall was decided, family farmers were forced to do their “right-sizing” or asset liquidation in the tax year before filing their Chapter 12 bankruptcies. For farmers to get the BAPCPA tax relief in Chapter 12, they needed to “right-size” their operations by selling the assets before the end of the year, then filing their Chapter 12 in the following year. If the farmer decided to sell the assets late in the year, it was often difficult to arrange for the sales to close by the end of the year, so Chapter 12 tax relief was available. If the farmer learned of the need to sell assets early in the year, they needed to sell the assets and avoid their creditors until the next tax year.
Under the new provisions, family farmers will be able to file their Chapter 12 bankruptcies to get creditors off their back, and plan which assets they need to sell to “right-size” their operations, file their plan of reorganization and have the income taxes discharged in their bankruptcy. This new law should provide the tax relief needed by beleaguered family farmers intended by Congress when BAPCPA was passed in 2005.
Joe Peiffer currently has four pending Chapter 12 cases and plans to be a leader in litigating the meaning of the new language fashioned by Congress. Since the statute is new, it is likely that many of the questions previously litigated regarding its predecessor will have to be re-litigated as Congress has not clarified other ambiguous provisions of the statute.
A hearty “thank you” to Senators Grassley and Franken for their unwavering efforts to provide relief for family farmers. Without support from you, this legislative solution to allow beleaguered family farmers to have a viable chance to reorganize would never have been enacted.
Read the full text of the bill here: https://www.congress.gov/bill/115th-congress/house-bill/2266/text