Thirty-Three Years of Asking, "Are We There Yet?" 1

ADJUDICATION, ROUND 1 The first BFFs to utilize 1222(a)(2)(A) were the Knudsens, in the Northern District of Iowa.9 The questions surrounding 1222(a)(2)(A) were daunting. Since neither debtors' counsel nor the IRS' counsel had faced litigating a new statute, they collaborated to identify potential issues. In July of 2006 Judge Edmonds held a three-day confirmation hearing in Knudsen and denied confirmation of the plan.10 Judge Edmonds held that the debtors could only use 1222(a)(2)(A) for capital gains taxes owing on the disposition of capital assets of the farm, not market hogs; the tax claims subject to 1222(a)(2)(A) would be discharged upon completion of the payments under the plan; and the debtors could sell assets post-petition and have the taxes qualify for treatment under 1222(a)(2)(A). District Court Judge Bennett heard the three-and-a-half hour appellate argument and reversed the bankruptcy court's ruling denying plan confirmation.11 Judge Bennett held among other things that the portion of the federal tax debt to be paid in full as a priority tax claim and the portion to be treated as a mere unsecured claim was to be determined utilizing the "marginal method" of allocation; post-petition sales of farm assets qualified for treatment as an unsecured claim; and taxes on income earned by the debtors during their Chapter 12 case were taxes "incurred by the estate," even though the Chapter 12 estate was not a separate taxable entity. Conclusion While continued farm size growth at rates exceeding inflation may necessitate future debt limit increases and other issues may arise from court decisions or changed farm circumstances, at least for now the answer for BFFs asking, "Are we there yet?" with a workable bankruptcy solution to save their farms is, "Yes." ?