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Hall v. United States

Summarized by: 

Date Filed: May 14, 2012
Case #: 10-875
Sotomayor, J., delivered the Court's opinion, joined by Roberts, C.J., and Scalia, Thomas and Alito, JJ. Breyer, J., filed a dissenting opinion, which was joined by Kennedy, Ginsburg, and Kagan, JJ.
Full Text Opinion: http://www.supremecourt.gov/opinions/11pdf/10-875.pdf

Bankruptcy Law: Under 11 U.S.C. ยง 1222(a)(2)(A), federal income tax liability resulting from individual debtors' sale of their farm during the course of a Chapter 12 bankruptcy is not "incurred by the estate" and thus not dischargeable.

Petitioners filed for bankruptcy under Chapter 12 and were forced to sell their family farm to help cover the debts stemming from their bankruptcy claim. They incurred taxes of $29,000 on the capital gains from the farm sale. Petitioner claimed that the capital gains taxes were dischargeable as debts “incurred by the estate" under 11 U.S.C. § 1222(a)(2)(A). The IRS objected to petitioners' plan to reorganize their payment plan, claiming that the Petitioners were accountable for all taxes. The U.S. Court of Appeals for the Ninth Circuit found that Petitioners owed federal income tax on the gain from the farm’s sale.

The Supreme Court affirmed and held that the taxes in question were not “incurred by the estate" because no separately taxable estate exists in Chapter 12 bankruptcy proceedings, so that even during the course of a bankruptcy, the debtor is still liable for capital gains taxes. Although the majority sympathized with Petitioners' position, the Court interpreted the statute narrowly and said that its plain language does not favor a ruling for the Petitioner but noted that "Congress is entirely free to change the law by amending the text" if it is unhappy with the result in this case.