Brendon Hansen (J.D. 2011, UC-Davis) has published Note, All that Glitters Isn’t Gold: Deciphering In re Knudsen’s Tax Allocation Methods Under 11 U.S.C. § 1222(a)(2)(A) for Chapter 12 Debtors, 44 UC Davis L. Rev. 651 (2010). Here is the Conclusion:

Buck Johnson realized a significant gain by treating the tax liability from the sale of his land and corn stock as a nonpriority claim. Section 1222(a)(2)(A) reduced the IRS’s veto power over his bankruptcy plan, which made his plan more feasible and, therefore, more confirmable. However, under § 1222(a)(2)(A), the proportional tax allocation method is more appropriate when compared to the marginal method. The use of the proportional method will have the effect of reducing Buck’s tax liability subject to § 1222(a)(2)(A) and increasing the IRS’s priority claim. Therefore, Buck’s total tax liability will also increase.

The Knudsen court incorrectly held that the marginal tax allocation method is proper under § 1222(a)(2)(A) by misconstruing the statute’s relevant legislative history. Moreover, because § 1222(a)(2)(A) is primarily a tax statute, the Knudsen court also improperly confined its analysis to the Bankruptcy Code. Further, the proportional method reflects both the Internal Revenue Code’s and the Bankruptcy Code’s preference for debtor and creditor equality. Therefore, the Supreme Court should adopt the proportional tax allocation method for claims arising under § 1222(a)(2)(A). Buck still recognizes a significant gain by treating certain IRS claims as nonpriority claims. However, the adoption of the proportional method will moderate that benefit by reducing the amount of IRS claims subject to § 1222(a)(2)(A), and reducing the amount of tax discharged.