Hall v. United States (10-875)

argument 10-875

Hall v. United States

Supreme Court of the United States 1h 0m 5 speakers 8 chapters transcribed 5 days ago official recording ↗

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What is the central issue the Court is addressing in Hall v. United States?

John G. Roberts 0:01

We'll hear argument first this morning in case ten eight seven five Hall versus United States. Ms. Freeman?

Ms. Freeman 0:10

Oh. Mr Chief Justice, and may it please the court. Bankruptcy estates incur taxes when they generate income. the government's attempt to limit the effect of the farm sales statute, section um twelve twenty two A two A. alters that fundamental principle in corporate chapter eleven cases and in all bankruptcy cases, as it requires this court to construe the administrative section and the priority section of the bankruptcy code that do apply in all of those cases. In a chapter twelve case, the bankruptcy estate consists of more than just the assets that existed as of the date of filing. They also consist of all of the income that is earned thereafter. Um the wages. Um Mrs Hall's wages as a convenience store clerk are part of the bankruptcy estate.

Ms. Freeman 1:00

the uh proceeds from selling crops. Um if does

Unknown 1:03

it include debts incurred after the filing?

Ms. Freeman 1:06

From the period from the petition filing date until the confirmation of the plan, yes it does. Um those debts are incurred in the operation of the state. Yes, Your Honor. So that for example, an operating an estate you would incur a light bill as well as incurring taxes. All of the operating expenses are incurred by the bankruptcy estate. and are payable from the income and from the estate assets during that period from the petition filing date until the confirmation of the plan. Is

Unknown 1:39

that the administrative period. Is that true of state you said taxes, is it is it true of state taxes?

Ms. Freeman 1:45

Yes, Your Honor, it is true of state taxes as well as federal taxes, um uh county taxes, for example.

Unknown 1:51

So in in this in this we're dealing with a capital gains tax on the sale of the farm. Suppose the state had a similar Tax it also taxed the gain on the sale.

Ms. Freeman 2:04

Correct, Your Honor, and it did in this particular case. So there would be state taxes on the capital gains, and those would also be administrative expense priorities, except for the farm sale provision here, which demotes that priority if the debtor is able to earn a discharge. And if so, then those farm sale provisions um taxes are demoted in priority and may be discharged under a plan of reorganization. They would share pro rata with the other prepetition claims of the bankruptcy estate.

Samuel A. Alito 2:36

Who would file the state tax return? Would it be filed by the estate or would it be filed by the the debtor?

Ms. Freeman 2:43

The debtor and the estate are one in a um in a reorganization case and so the taxpayers, Linwood and Brenda Hall, would file the tax return. The the way that it would actually be administered, Your Honor, um, is uh shown by the Knutson case and and basically there would be a um a tax return that includes all of the income, the the wages, the crop sale proceeds and so forth. And then it would compute it with the capital gains tax and there would be a separate pro forma return that does not include the capital gains tax. Those would be sent to the special procedures unit of the IRS so that somebody there would know how to deal with it and would be able to Council.

Elena Kagan 3:25

How do you deal with Section three hundred and forty six?

Ms. Freeman 3:29

Section three forty six, Your Honor, basically makes the state taxes consistent with the federal taxes. When you have a

Elena Kagan 3:36

I read three forty six B To say that unless The estate is a separate tax entity under the code. That the debtor not the estate pays state and local taxes. This is totally contrary to what you're saying, but the language of three hundred forty six B Basically answers the question against you with respect to state and local taxes.

Ms. Freeman 4:07

Justice Sotomayor, I do not think it does in the sense in this sense. The bankruptcy is the the Section three hundred forty six B made the state and local taxes consistent with Federal taxes. And when you have a bankruptcy estate that consists only of assets on the petition filing date, Then you have a separate taxable entity with a separate tax ID number that is set up, but under under the federal bankruptcy under the federal tax code, um under section thirteen ninety nine, whenever the bankruptcy estate had