II.   A Tale of Two Questions

            The disagreement among the courts focuses on two main areas: whether policy allows a secured tax claim to vote, and whether the statutory language permits it. While neither area has a clear answer, the issue becomes even more convoluted by a different weighting each court assigns to the two questions. This section will explore the two questions in more depth. In the next section I will propose how the courts should weigh the two questions.

A.   The Question of Policy

            The court of appeals in Bryson Properties framed the question of policy when it noted that a “priority tax claimants . . . are not an impaired class that can accept a plan and bind other truly impaired creditors to a cram down.”[1]As a secured claim, the tax claimant has protection, or preferential treatment, under § 1129(a)(9)(D).[2]It is this preferential treatment that makes the courts question whether a secured tax claimant should have the ability to vote.[3]By its very nature, the tax claimant is an outsider.[4]If it is considered impaired as well, with the ability to vote, then it has the ability to bind other claimants to a cram down[5]that may not have otherwise happened. And without a danger of receiving less than what the statute allows, there is not much incentive for a tax claimant to oppose a plan.

            Without an incentive to oppose the plan, the claimant shows little difference from a class that normally would be deemed to accept the plan,[6]and not counted for the purposes of a cram down vote.[7]

B.   Statutory Requirements

            Secured tax claims receive preferential treatment under § 1129. Unsecured tax claims receive similar treatment,[8]but are guaranteed a class.[9]It is this distinction that starts the discussion on whether the statutory language allows a secured tax claim the ability to vote. While a secured tax claims receives the amount if its claim “in the same manner and over the same period” as an unsecured tax claim, the statute does not speak to if a secured tax claim is entitled to a class.[10]The subsection, subsection (D), that grants the secured claims preferential treatment,[11]refers to a subsection (C), which grants preferential treatment to unsecured claims. However, it is subsection (B) that gives rise to a class status for the unsecured claims. Subsection (B) grants class status only to those priority claims found in § 507, which by definition does not include secure claims. The Peridido language supports this reading: “the purpose of classification is to state the treatment by the terms of the plan of a particular claim or association of claims.”[12]This removes the need to classify a tax claim. The statute provides the terms by which a tax claim must be treated.

            It could be claimed that the language of subsection (D), granting a secured claim the same preferential treatment as an unsecured claim, also entitles it to the same class status as well—otherwise it would not receive the same treatment, resulting in a half implemented statute. However, there is no language linking subsection (C) and (B). Congress could easily have either linked the two subsections, or crafted (D) in such a way to incorporate both, if it was truly Congress’s intent to grant both preferences to secured claims.

            The best argument for a tax claim to have class status under the statute is that § 1123 sets forth the requirements of the plan, including the creation of classes of claims.[13]This section, however, excludes unsecured tax claims normally covered by § 507(a)(8).[14]By not including secured tax claims in this group of exclusions, a secured tax claim gets normal class treatment.[15]

C.   Impairment

            A secondary issue is found in determining if a secured tax claim can be impaired. While a full analysis of this topic is beyond the scope of this paper, a brief discussion follows.

As a secured claim, the tax claim has to receive at least that which it would have received under a Chapter Seven liquidation. With that minimum guarantee, in addition to the standards set in § 1129, it is difficult for a secured tax claim to truly be impaired. While a few courts have found instances where a claim could be considered impaired, it is only through the tax agency’s confirmation that it occurs. This confirmation, allowed for by the statute, does not allow a claimant to double-dip on its agreement; first agreeing to the reduced treatment, and then agreeing to the plan that sets forth the same treatment.

A secured claim, especially a secured tax claim, has little reason to vote against a plan. This lack of incentive removes the objectiveness of the class that an impaired non-insider would have. Without this objectivity, and related incentive, the statutory language provides little support for allowing a secured tax claimant the ability to vote.

[1]           In re Bryson Properties, XVIII, 961 F.2d 496, 501 n.8 (4th Cir., 1992).

[2]           The statute sets the minimum standard which can be applied to a secured tax claim:

with respect to a secured claim which would otherwise meet the description of an unsecured claim of a governmental unit under section 507(a)(8), but for the secured status of that claim, the holder of that claim will receive on account of that claim, cash payments, in the same manner and over the same period, as prescribed in subparagraph (C).

11 U.S.C. 1129(a)(9)(D) (2012). Subparagraph (C) describes the treatment for an unsecured claim allowing for a maximum payment period of five years, a preference equal to that of the most favored nonpriority unsecured claim, and full payment on the allowed claim. 1129(a)(9)(C).

[3]           Bryson, 961 F.2d at 501 n.8.

[4]           “Insider” is defined in 11 U.S.C. 101(35) for individuals, corporations, and partnership.

[5]           § 1129(b).

[6]           § 1126(f) deems a class as having accepted the plan if it is not impaired.

[7]           § 1129(a)(10) requires at least one impaired class that is not an insider accept the plan before a court can confirm.

[8]           § 1129(a)(9)(C).

[9]           § 1122(b)

[10]          § 1129(a)(9)(D).

[11]          *Id.*

[12]          In re Perdido Motel Group, Inc., 101 B.R. 289, 294 (N.D. Ala. 1989).

[13]          § 1123(a)(1) (2012).

[14]          Id.

[15]          Id. See also In re Greenwood Point, LP, 445 B.R. 885 (S.D. Ind. 2011).