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Senate Bill 3545 Would Ease Capital Gains Tax on Farmers in Chapter 12 Bankruptcy

Senators from agricultural states have introduced SB 3545 to help family farmers avoid a harsh capital gains tax when selling farm assets in chapter 12. The “Family Farmer Bankruptcy Tax Clarification Act” would overturn the U.S. Supreme Court ruling in Hall v. United States. In Hall, the Court ruled that farmers must pay capital gains tax on the appreciated value of farm assets sold to pay debts.  But most family farmers have their money tied up in land.  This often makes it untenable for farmers to sell a portion of the farm to pay debtors, or to pass the farm on to the next generation.  The bill provides that any unsecured claim owed to a “governmental unit” by a farmer debtor, or the bankruptcy estate that arises as a result of the sale, transfer, exchange or other disposition of any farm asset used in the debtor’s farming operation, qualifies as an unsecured claim under chapter 12 that may be discharged in a chapter 12 bankruptcy. This provision applies without regard to whether the disposition of the farm assets occurred before or after the farmer filed a petition for bankruptcy.