II. Evolution of Tax Claims in the Courts
A. Pre-2005 Court
I. Haas
The case of In re Haas, clearly demonstrates the discrepancy that existed between secured tax claims and priority tax claims.[1]In this case, the taxpayer had both types of claims, a claim for income taxes amounting to $617,000, and a claim for employment taxes amounting to $68,000.[2]Both claims were secured by previously filed liens; however, the employment taxes were also considered priority claims under § 507(a)(8)(C).[3]The liens were only secured by collateral worth $259,000.[4]
The plan treated both the income tax and employment tax claims as secured claims.[5]The plan called for payment of employment tax claim in full.[6]However, since this claim was classified as a secured claim, it reduced the amount of collateral available to pay the income tax claim.[7]If the employment tax claim had been classified as a priority claim, it would have been paid in full, and left the full collateral for use against the income tax claim. The court would ultimately find that the plan unconfirmable, noting that if this approach was adopted, it would be the equivalent of ruling that “when a creditor taxes a lien to secure debt which Congress has classified as priority, the credit has forfeited the protection Congress has specifically assigned to that debt.”[8]
II. Perdido Motel
In Perdido Motel, the court found the unsecure tax claims were not a class for the purposed of § 1129(a).[9]In this case, the debtor is a corporation organized to build and operate a motel.[10]During the bankruptcy proceedings, the corporation filed a plan in which it would transfer the sole asset to a new corporation for a promise to perform the obligations of the plan.[11]Florida National Bank, as the primary creditor, voted against the plan, resulting in more than one-third of the claims voting against the plan.[12]Despite this, the debtor requested that the court confirm the plan under § 1129(b), [13]which requires the plan to treat each class of impaired claims fair and equitably.[14]During its analysis, the court had to determine if the unsecured tax claims that the plan assigned to Class III actually deserved the status of a class.[15]
The court’s analysis revolved around an integrated reading of § 1129, § 1123, and § 507.[16]According to the court, the “purpose of classification is to state the treatment by the terms of the plan of a particular claim or association of claims.”[17]Therefore, there is no need to classify tax claims—tax claims’ treatment is already set forth by statute.[18]If the court or the statute required classification of tax claims, the classification would make § 507 “so lukewarm as to be no requirement at all.”[19]Rather than determining that § 507 was a useless remnant of the bankruptcy code, the court determined that if a claim was governed by § 507, it did not need the protection of § 1123.[20]
While the court dealt with the issue of an unsecured tax claim, the reasoning used by the court—if § 507 governs the claim, then by necessity it is not a class—would be used again by bankruptcy and district courts alike.
[1] See In re Haas, 162 F.3d 1087 (11th Cir. 1998).
[2] Id. at 1089.
[3] *Id.*
[4] *Id.*
[5] *Id.*
[6] *Id.*
[7] Haas 162 F.3d at 1089.
[8] Id. at 1090.
[9] In re Mangia Pizza, 480 B.R. 669, 677 (W.D. Tex. 2012).
[10] In re Perdido Motel, 101 B.R. 289, 291 (N.D. Ala 2011).
[11] Id. at 291.
[12] Id.
[13] *Id.*
[14] 11 USC § 1129(b)(1) (2012).
[15] Perdido Motel, 101 B.R. at 292–93. While the court does not explicitly state the claims are unsecured in this opinion, they are noted as being unsecured in the Mangia opinion, Mangia Pizza, 480 at 4, and the Perdido court states that the claims are governed by 507(a)(8). Perdido Motel, 101 B.R. at 292.
[16] Perdido Motel, 101 B.R. at 293–94.
[17] Id. at 294.
[18] *Id.*
[19] *Id.*
[20] *Id.*