WASHINGTON, Aug. 8, 2013 – Sen. Charles Grassley, R-Iowa, and Sen. Al Franken, D-Minn., introduced legislation recently that seeks to reverse a Supreme Court ruling that they claim is making it harder for bankrupt family farmers to reorganize their finances.

In the 2012 Hall v. United States decision, affirmed with a 5-4 vote, the court found that farmers who sell their farm while in bankruptcy have to pay capital gains tax to the Internal Revenue Service before other creditors.

The Family Farmer Bankruptcy Tax Clarification Act aims to clarify that bankrupt family farmers reorganizing their debts are able to treat capital gains taxes owed to a governmental unit, arising from the sale of farm assets during a bankruptcy, as general unsecured claims. It would remove IRS veto power over a bankruptcy reorganization plan’s confirmation.

The senators argue that the congressionally-approved 2005 bankruptcy reform law created a narrow exception through Chapter 12 so that if a family farmer sold land that resulted in a capital gains liability, the IRS claim would not receive priority status.

“Chapter 12 helps the farmer and the banker sit down and work out alternatives for debt repayment so a farmer can keep his land,” Grassley said. “There’s no question what our intent was when we wrote the 2005 law. We simply need to ensure the plain language of the law says and does what we intended.”

Franken said, “Our bill is a commonsense fix to ensure that the law is carried out as it was intended so farmers going through bankruptcy can keep their land and repay the debts they owe in their communities.”

The senators introduced similar legislation last year, which did not advance in the Senate.


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