§ 136.3     Taxes after BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 136.3, at ¶ ____, LundinOnChapter13.com (last visited __________).

BAPCPA was obsessed with taxes. BAPCPA amended § 521 to impose many new duties on Chapter 13 debtors to file and provide tax returns.1 BAPCPA added a new § 1308 mandating that Chapter 13 debtors file four years of required federal, state and local tax returns before one day before the § 341 meeting of creditors.2 The Chapter 13 trustee is authorized to hold open the meeting of creditors for a period of 120 days and beyond to allow the debtor to file required tax returns.3 BAPCPA amended § 502(b)(9) to allow a governmental unit 60 days to file a timely proof of claim after the debtor files a required tax return under § 1308.4 Section 716(e) of BAPCPA contained a sense of Congress that the Judicial Conference of the United States should amend the Bankruptcy Rules to permit a timely objection to confirmation of a Chapter 13 plan by a governmental unit until 60 days after the debtor files a tax return required by § 1308 and to prohibit the filing of objections to any claim for a tax with respect to which a return is required by § 1308 until after such return has been filed.5 BAPCPA amended § 503(b)(1)(D) to allow an administrative expense for a tax incurred by a Chapter 13 estate even when the governmental unit does not file a timely request for payment.6

[2]

BAPCPA made many other substantive changes to the Bankruptcy Code with respect to taxes, many of which could affect Chapter 13 cases. Because most claims for taxes are entitled to priority and full payment in a Chapter 13 case under § 1322(a)(2),7 Chapter 13 practitioners need at least passing familiarity with these other changes.

[3]

Administrative expenses allowed under § 503 of the Code have a second priority under § 507(a)(2) and must be paid in full to accomplish confirmation of a Chapter 13 plan under § 1322(a)(2).8 BAPCPA amended § 503(b)(1)(B) to include as administrative expenses taxes incurred by a bankruptcy estate “whether secured or unsecured, including property taxes for which liability is in rem, in personam, or both.”9 It is common for Chapter 13 debtors to own property that generates property taxes during the Chapter 13 case. Sometimes those taxes are in rem, sometimes in personam and sometimes both. In all such circumstances, property taxes incurred by a Chapter 13 estate are administrative expenses entitled to second priority and full payment through the Chapter 13 plan.

[4]

BAPCPA then amended § 503(b)(1)(D) to provide that a governmental unit “shall not be required to file a request for the payment of an expense described in [§ 503(b)(1)(B)] as a condition of its being an allowed administrative expense.”10 It is not obvious how a governmental unit with an administrative expense for a tax incurred by a Chapter 13 estate will get paid during the Chapter 13 case if the governmental unit does not file a request for payment consistent with § 503(a). Nonetheless, as amended by BAPCPA, § 503(b)(1)(D) allows an administrative expense for a postpetition tax incurred by a Chapter 13 estate even when the taxing authority does not file a request for payment.

[5]

Section 503(a) was amended in 1994 to add the requirement that a “timely” request for payment of an administrative expense must be filed except that the bankruptcy court, for cause, can allow a tardily filed request for payment of an administrative expense.11 BAPCPA absolves governmental units of not just the timeliness condition added by the 1994 amendment but of any requirement to file a request for payment of an administrative expense tax incurred by a Chapter 13 estate.

[6]

It is not clear that this relief will be good for governmental units holding tax claims that would be entitled to administrative expense status in a Chapter 13 case. Unless and until a governmental unit files a request for payment, the Chapter 13 trustee is not likely to be aware of any administrative expense for taxes and certainly won’t be paying that claim.

[7]

BAPCPA amended § 507(a)(8) in several ways to enlarge the claims of governmental units that are entitled to priority. The priority for taxes assessed within 240 days of the petition under § 507(a)(8)(A)(ii) was amended to exclude from the counting period “any time during which a stay of proceedings against collections was in effect in a prior case under this title during that 240-day period, plus 90 days.”12 Perhaps redundantly, BAPCPA added this additional suspension period as a dangling run-on sentence at the end of § 507(a)(8):

An otherwise applicable time period specified in this paragraph shall be suspended for any period during which a governmental unit is prohibited under applicable non-bankruptcy law from collecting a tax as a result of a request by the debtor for a hearing and an appeal of any collection action taken or proposed against the debtor, plus 90 days; plus any time during which the stay of proceedings was in effect in a prior case under this title or during which collection was precluded by the existence of 1 or more confirmed plans under this title, plus 90 days.13
[8]

BAPCPA added an entirely new § 511 to the Bankruptcy Code addressing the interest rate on tax claims:

(a) If any provision of this title requires the payment of interest on a tax claim or on an administrative expense tax, or the payment of interest to enable a creditor to receive the present value of the allowed amount of a tax claim, the rate of interest shall be the rate determined under applicable nonbankruptcy law.
(b) In the case of taxes paid under a confirmed plan under this title, the rate of interest shall be determined as of the calendar month in which the plan is confirmed.14
[9]

Although tax claims entitled to priority and full payment through a Chapter 13 plan can be paid without postpetition interest,15 the provision in new § 511(a) for the payment of interest “to enable a creditor to receive the present value of the allowed amount of a tax claim” might apply in a Chapter 13 case when a tax lien is a secured claim paid with present value interest under § 1325(a)(5).16 New § 511 determines the present value of an allowed tax claim under applicable nonbankruptcy law. This would impose the interest rate provisions of state or other federal law rather than the usual present value or discount rate calculation applicable to secured claims at confirmation in a Chapter 13 case.17

[10]

Section 505 was amended by BAPCPA to limit the authority of the bankruptcy court to determine “the amount or legality of any amount arising in connection with an ad valorem tax on real or personal property of the estate, if the applicable period for contesting or determining that amount under any law (other than a bankruptcy law) has expired.”18 Chapter 13 debtors who fail to contest ad valorem taxes under applicable nonbankruptcy law will find that objections to such claims during a Chapter 13 case are now beyond the statutory authority of the bankruptcy court.

[11]

Discussed in detail elsewhere,19 BAPCPA changed the dischargeability of taxes in Chapter 13 cases in several ways. More kinds of taxes are nondischargeable at the completion of payments under a Chapter 13 plan. The expanded nondischargeability of taxes has the side effect of reducing the advantage under pre-BAPCPA law that Chapter 13 debtors could pay priority taxes without interest through a confirmed Chapter 13 plan.20 After BAPCPA, even if the Chapter 13 debtor pays priority taxes in full through the plan, postpetition interest on any taxes that are nondischargeable will accrue and be nondischargeable at the completion of payments to other creditors under the plan.

[12]

All in all, it has to be said that taxing authorities came out quite well under BAPCPA. There is no good news here for Chapter 13 debtors. More taxes are entitled to priority, more taxes are nondischargeable in a Chapter 13 case, debtors have innumerable new duties to file and provide tax returns and taxing authorities have much enhanced leverage at every stage of a Chapter 13 case after BAPCPA.


 

1  See discussion beginning at § 41.1  Duty to File Statements and Schedules.

 

2  11 U.S.C. § 1308, discussed in § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

3  11 U.S.C. § 1308(b), discussed in §§ 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors and 398.1 [ Holding Open the Meeting of Creditors ] § 43.7  Holding Open the Meeting of Creditors.

 

4  11 U.S.C. § 502(b)(9), discussed in § 508.1 [ New Timing Issues ] § 133.5  Tax Claim Exception after BAPCPA.

 

5  See Pub. L. No. 109-8, § 716(e), 119 Stat. 23 (2005), discussed in §§ 503.1 [ Time for Filing Objections ] § 116.3  Time for Filing Objections after BAPCPA and 512.1 [ Allowance and Objections to Claims ] § 135.2  Allowance and Objections to Claims: Changes by BAPCPA.

 

6  11 U.S.C. § 503(b)(1)(D), discussed in § 508.1 [ New Timing Issues ] § 133.5  Tax Claim Exception after BAPCPA.

 

7  See §§ 291.1 [ Treatment of Priority Claims ] § 136.1  Treatment of Priority Claims and 292.1 [ Taxes ] § 136.2  Taxes before BAPCPA.

 

8  See 11 U.S.C. § 1322(a)(2), discussed in §§ 98.1 [ Plan Must Provide Full Payment ] § 73.1  Plan Must Provide Full Payment, 99.1 [ What Claims Are Priority Claims? ] § 73.2  What Claims Are Priority Claims? and 291.1 [ Treatment of Priority Claims ] § 136.1  Treatment of Priority Claims.

 

9  11 U.S.C. § 503(b)(1)(B)(ii).

 

10  11 U.S.C. § 503(b)(1)(D), discussed in § 508.1 [ New Timing Issues ] § 133.5  Tax Claim Exception after BAPCPA.

 

11  See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 213(c), 108 Stat. 4133 (1994).

 

12  11 U.S.C. § 507(a)(8)(A)(ii)(II).

 

13  11 U.S.C. § 507(a)(8).

 

14  11 U.S.C. § 511.

 

15  See § 100.2 [ Interest Not Required, with Exceptions ] § 73.5  Interest Not Required, with Exceptions.

 

16  See § 100.3 [ Secured Priority Claims? ] § 73.7  Secured Priority Claims?.

 

17  See §§ 111.1 [ “Value, As of the Effective Date of the Plan” Means Interest ] § 77.1  “Value, As of the Effective Date of the Plan” Means Interest112.2 [ Present Value After Till ] § 77.3  Present Value after Till.

 

18  11 U.S.C. § 505(a)(2)(C).

 

19  See § 548.1 [ Taxes ] § 159.1  Taxes.

 

20  See §§ 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA and 548.1 [ Taxes ] § 159.1  Taxes.