Ag Policy Blog

Congress Tweaks Bankruptcy Code to Protect Farmers from Taxes

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Not that this is a situation any farmer wants to find themselves in, but Congress on Tuesday gave final approval to a change in bankruptcy law to help farmers deal with the Internal Revenue Service.

The Family Farmer Bankruptcy Clarification Act, sponsored by Sens. Charles Grassley, R-Iowa, and Al Franken, D-Minn., was attached to an appropriations package that breezed through the U.S. Senate on a 82-17 vote.

The bill corrects a 2012 U.S. Supreme Court ruling on an earlier bankruptcy law. The law will clarify congressional intent to allow a family farm to reorganize in bankruptcy court while restricting the IRS's ability to "veto" the farmer's decision. Essentially, farmers in bankruptcy that are forced to sell farm assets would be allowed to treat the capital-gains taxes as a general unsecured claim.

Generally, Chapter 12 bankruptcy had allowed farmers to reorganize and sell parts of their farm without having capital gains from those sales jeopardizing the reorganization. But a 2012 Supreme Court case, Hall v. U.S., ruled that language in a 2005 bankruptcy law did not specifically allow farmers to treat those capital-gains taxes as an unsecured claim.

The 2012 case put farmers between a rock and a hard place because taxes owed to the IRS have to be paid in full unless the IRS agrees otherwise. This creates problems for the farmer who needs cash to pay creditors and reorganize. Since the IRS has the ability to require full payment, it essentially holds veto power over the confirmation of a family farmer’s chapter 12 plan. In many instances, the effect is that a family farmer will not be able to have a plan confirmed. The Grassley-Franken fix alleviates this problem.

As Sen. Grassley noted, “Family farmers face obstacles that others don’t when dealing with bankruptcy. Their assets are largely tied up in farmland, which creates significant challenges for these family operations when reorganizing debt. Years ago Congress took specific steps to address these disadvantages, but the Supreme Court failed to recognize Congress’ intent when evaluating the law. Thankfully, Congress has now approved a fix for this problem and family farmers facing hard times can breathe a sigh of relief. I look forward to the president signing this bill into law.”

Sen. Franken added, "Our bipartisan bill is a commonsense fix to ensure that the law functions as intended and protects family farmers in Minnesota and across the country. I’m glad this bill is set to become law and will help ensure farmers going through bankruptcy get a fair shake and are able to repay the debts they owe without sacrificing their families’ futures.”

The bill now goes to President Trump and he is expected to sign the supplemental appropriations that would enact the bankruptcy change.

Chris Clayton can be reached at

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