Statements on Introduced Bills and Joint Resolutions

Floor Speech

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Mr. GRASSLEY. Mr. President, I rise today to introduce, along with
Senator Franken, the Family Farmer Bankruptcy Clarification Act of
2015. I thank Senator Franken for his work on this bill and for his
support. We introduced identical legislation in the 113th Congress and
similar legislation in the 112 Congress. Unfortunately, the Senate has
never had the opportunity to consider these bills and the problem we
seek to correct.

This bipartisan bill addresses the 2012 United States Supreme Court
case Hall v. United States. In a 5-4 decision, the Supreme Court ruled
that a provision I inserted into the 2005 Bankruptcy Abuse Prevention
and Consumer Protection Act didn't accomplish what we in Congress
intended. The Family Farmer Bankruptcy Clarification Act of 2015
corrects this and clarifies 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. This bill will remove the
Internal Revenue Service's veto power over a bankruptcy reorganization
plan's confirmation, giving the family farmer a chance to reorganize
successfully.

In 1986 Congress enacted Chapter 12 of the Bankruptcy Code to provide
a specialized bankruptcy process for family farmers. In 2005 Chapter 12
was made permanent. Between 1986 and 2005 we learned what aspects
worked and didn't work for family farmers reorganizing in bankruptcy.
One problematic area was where a family farmer needed to sell assets in
order to generate cash for the reorganization. Specifically, a family
farmer would have to sell portions of the farm to generate cash to fund
a reorganization plan so that the creditors could receive payment.
Unfortunately, in situations like this, the family farmer is selling
land that has been owned for a very long time, with a very low cost
basis. Thus, when the land is sold, the family farmer is hit with a
substantial capital gains tax, which is owed to the Internal Revenue
Service.

Under the Bankruptcy Code, taxes owed to the Internal Revenue Service
receive priority treatment. Holders of priority claims must receive
payment in full, unless the claim holder agrees to be treated
differently. This creates problems for the family farmer who needs the
cash to pay creditors to reorganize. However, since the Internal
Revenue Service has the ability to require full payment, they hold veto
power over a plan's confirmation, which means in many instances the
plan will not be confirmed. This does not make sense if the goal is to
give the family farmer a fresh start. Thus, in 2005 Congress said that
in these limited situations, the taxes owed to the Internal Revenue
Service would be stripped of their priority and treated as general unsecured debt. This
removed the government's veto power over plan confirmation and paved
the way for family farmers to reorganize.

Unfortunately, in Hall v. United States, the Supreme Court ruled that
despite Congress's express goal of helping family farmers, the language
inserted into the Bankruptcy Code in 2005 conflicted with the Tax Code.
The Hall case was one of statutory interpretation. There is no question
what Congress was trying to do; rather, did Congress use the correct
language? My goal, along with others at the time, was to relieve family
farmers from having their reorganization plans fail because of huge tax
liabilities to the Federal Government. Justice Breyer noted this in the
dissent: ``Congress was concerned about the effect on the farmer of
collecting capital gains tax debts that arose during (and were
connected with) the Chapter 12 proceedings themselves. . . . The
majority does not deny the importance of Congress' objective. Rather,
it feels compelled to hold that Congress put the Amendment in the wrong
place.'' Hall v. United States, 132 S.Ct. 1882, 1897, 2012.

As a result of the Hall case, family farmers facing bankruptcy now
find themselves caught in a tough spot. The rules have now been changed
and must be corrected in order to provide certainty and clarity in the
law. The Family Farmer Bankruptcy Clarification Act of 2015 will
provide the clarity needed to help family farmers.

This bill adds a new section 1232 to title 11 of the United States
Code. This new section, along with other conforming changes to the
Bankruptcy Code, gives guidance and certainty to debtors,
practitioners, and courts as to how these claims are to be treated
during bankruptcy. I am pleased that the bill we are introducing today
will help family farmers who are facing hard times. The Family Farmer
Bankruptcy Clarification Act of 2015 ensures that what Congress sought
to do in 2005 actually occurs. In the wake of the Hall decision, this
bill is needed in order to help family farmers reorganize successfully.

Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.

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