Tax News

CCH (cch.taxgroup.com) reports:

  The sale of assets in anticipation of a bankruptcy plan, but prior to approval of the plan, was not exempt from the Florida documentary stamp tax, according to the U.S. Supreme Court. With two justices dissenting, the Court reversed and remanded a decision of the U.S. Court of Appeals that had, in turn, affirmed approval of the exemption by a federal Bankruptcy Court.

  At issue was a Chapter 11, Bankruptcy Code provision granting stamp tax exemption for asset transfers "under a plan confirmed under section 1129." The Court of Appeals had upheld the exemption noting that

  -- the exemption applied to preconfirmation transfers necessary to the consummation of a confirmed Chapter 11 plan, provided there was some nexus between the transfers and the plan;

  -- the exemption provision was ambiguous and should be interpreted consistently with the principle that a remedial statute should be construed liberally; and

  -- this interpretation better accounted for the practicalities of Chapter 11 cases because a debtor could need to transfer assets to induce relevant parties to endorse a proposed plan's confirmation.

  On appeal to the Supreme Court, the state argued that "plan confirmed" denoted a plan confirmed in the past, and that "under" should be read to mean "with the authorization of" or "inferior or subordinate" to its referent, here the confirmed plan. The debtor contended that the provision did not unambiguously impose a temporal requirement; that had Congress intended "plan confirmed" to mean "confirmed plan," it could have used that language; and that "under" was as easily read to mean "in accordance with."