Were real-property transfers, debt assumptions, substitute notes, and mortgages under a confirmed Chapter 11 plan subject to Florida stamp or intangible taxes?

Subject

Notes, Mortgages and Transfers of Real Property under a Confirmed Bankruptcy Plan

Plain-English summary

No Florida documentary stamp or intangible tax was due on the transfers, assumptions, substitute notes, or joint-venture mortgage contemplated by the settlement and confirmed Chapter 11 plan. The debtor's affiliates would transfer encumbered Florida property to the company, which would substitute its own notes and mortgages, and the company would also acquire a lender affiliate's joint-venture interest or distributed real-property interest.

The Department applied the federal bankruptcy provision barring stamp or similar taxes on securities and instruments of transfer under a confirmed Chapter 11 plan. It relied on the court-approved settlement's role in resolving claims essential to confirmation and on cases treating plan-required or confirmation-essential transfers as exempt.

What this means for you

The exemption depended on the transactions being part of, or necessary to, the specific confirmed bankruptcy plan. This ruling supplemented TAA 92M-003 and applied the federal and Florida statutes cited in 1993.

Common questions

Q: Were the Florida real-property transfers subject to documentary stamp tax? No.

Q: Were the substitute notes and mortgages subject to stamp or intangible tax? No, under the described plan and settlement.

Q: Did the ruling cover transactions outside the bankruptcy arrangement? No. Its conclusion was tied to the agreement and confirmed plan.

Citations and references

• 11 U.S.C. §§ 1129 and 1146(c) — confirmed plans and stamp-tax exemption, as cited in the ruling
• Fla. Stat. §§ 201.02, 201.08, and 201.09 — documentary stamp tax
• Fla. Stat. §§ 199.032, 199.133, and 199.143 — intangible taxes on obligations and credit lines
• Fla. Admin. Code r. 12B-4.051(1), (2) — notes and mortgages
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93M-008

Original ruling text

Nov 15, 1993

Re: Technical Assistance Advisement No. 93(M)-008
Documentary Stamp and Intangible Taxes - Bankruptcy
Sections 201.02, 201.08, and 199.133, Florida Statutes
Notes, Mortgages and Transfers of Real Property under a
Confirmed Bankruptcy Plan Supplemental to 92(M)-003
XXX (hereinafter Company)
XXX (hereinafter Receiver)
XXX (hereinafter Lenders)

Dear :

You have petitioned for a Supplemental Technical Assistance
Advisement supplementing Technical Assistance Advisement No.
92(M)-003, issued by the Department to Company on April 6, 1992.

Background

During a period from early XXX, through the latter part of
XXX, Lenders made loans to certain affiliates of Company. The
loans were secured by mortgages that were recorded in several
Florida counties. Receiver, in its corporate capacity, as
receiver for Lenders, now owns these loans which were made by
Company's affiliates to Lenders. These loans are identified as
numbers XXX.

On XXX, Company and Receiver executed a XXX settlement
agreement (the Agreement) effective XXX. On XXX, the Bankruptcy
Court signed the "Order Authorizing and Approving Proposed
Compromise and Settlement Between XXX [Company] and [Receiver]"
stating in part that: "Resolution of [Receiver's] secured and
unsecured claims against [Company] and its subsidiaries and
affiliates which are described herein is essential to
confirmation of the [Company's] Debtors' first Amended
Consolidated `Plan of Reorganization' dated as of XXX filed by
[Company] and certain of its subsidiaries and affiliates in this
Court."

On XXX, the Court entered an Order approving the final form
of the Agreement.

The Agreement provides in part that Company's affiliates
will transfer all encumbered property owned by each affiliate to
Company. Company will then execute in favor of Receiver
restructured promissory notes in substitution of each of the
affiliate's notes and secure the Promissory Notes by Mortgages
in favor of Receiver.

Additionally, the Agreement provides that where an
affiliate of Company and an affiliate of Lenders were partners
in a joint venture which owned Florida real property (the "Joint
Venture Property") Company or another Company's affiliate will
acquire the Lender's affiliate's joint venture interest in the
venture, or if the joint venture is first dissolved or
terminated and its assets are distributed to the joint ventures,
Company or Company's affiliate will acquire the Lender's
affiliate's interest in joint venture assets distributed to such
Lender's affiliate. The Agreement provides that Company shall
pay $1 million to Receiver as an offset against the obligations
of Lender's affiliate to Receiver. Company shall pay Receiver
20 percent in cash and the balance represented by a promissory
note secured by a mortgage (the "Joint Venture Mortgage") on the
Florida property that was owned by the joint venture.

Issues

1. Whether Company is required under Sections 201.01,
   201.02, 201.08, and 201.09, Florida Statutes, to pay
   documentary stamp tax on:
   (a) The transfers of Florida real property to
   Company, including the "Joint Venture Property"
   (Transfers);
   (b) The release of obligors and the assumptions by
   Company of the obligations described above, which
   are secured by mortgages on Florida real property
   (the Assumptions);
   (c) The Joint Venture Mortgage.
2. Whether Company is required to pay nonrecurring tax
   under Sections 199.032, 199.133, and 199.143, Florida

Statutes, on documents referred in 1. (b)(c) above.

Discussion And Law

Under the provision of Chapter 11, Section 114(c), United
States Code, the issuance, transfer, exchange of a security, or
the making or delivery of an instrument of transfer under a plan
confirmed under Chapter 11, Section 1129, United States Code,
may not be taxed under any law imposing a stamp tax or similar
tax. A security under Chapter 11, United States Code, is
defined to include a note, bond or debenture.

Section 201.08(1), Florida Statutes, levies a tax on
promissory notes and other written obligations to pay money that
are signed or delivered in Florida, and on mortgages that are
filed or recorded in Florida. When there is both a promissory
note and mortgage, the tax is to be paid on the mortgage and a
notation made on the promissory note that tax was paid and
affixed to the mortgage. Section 201.08(1), Florida Statutes;
Fla. Admin. Code Rule 12B-4.051(1),(2).

In 1987, the legislature amended Section 201, Fla. Stat.,
to provide that if the United States, the state, or any
political subdivision is a party to a document taxable under
Chapter 201, Florida Statutes, any nonexempt party to the
document must pay the tax, unless the document is exempt under
Section 201.24, Florida Statutes, or unless the document itself
is exempt under a state or federal code. Chapter 87-102,
Section 6, Laws of Florida.

Section 199.032, Florida Statutes, imposes a tax of 2 mills
upon obligations for the payment of money which are not secured
by real property. Section 199.133, Florida Statutes, imposes a
nonrecurring tax of 2 mills upon obligations for the payment of
money which are secured by a lien on real property located in
this state. Section 199.143, Florida Statutes, provides that
revolving lines of credit which are secured by a mortgage on
Florida real property are subject to the nonrecurring intangible
tax on each advance made.

Various courts have held that the tax exemption provided in

Title 11, Section 1146(c), United States Code, applies prior to
confirmation of a plan of reorganization. In the case of
Jacoby-Bender, Inc., v. City of New York, 758 F. 2d 840 (2d Cir.
1985) the Court ruled that while the confirmed reorganization
plan did not empower the debtor to make a specific sale or a
specific deed, the debtor's delivery of a deed occurred under
the plan of reorganization confirmed under Chapter 11, United
States Code, and thus was exempt from New York Property Transfer
Tax.

In the case of Smoss Enterprises v. City of New York, 54
B.R. 950 (E.D.N.Y. 1985) the court held that the transfer of the
debtor's property was essential to confirmation of a plan of
reorganization under Chapter 11 Bankruptcy Code and exempt from
tax as a transfer under a confirmed plan.

In the case of Permar Provisions, Inc., 79 B.R. 530
(Bankruptcy E.D.N.Y. 1987) the Court, during pendency of the
debtor's case, after notice to creditors and parties in interest
and after a hearing, auctioned the debtor's property to the
highest bidder. In accordance with the bankruptcy court's order
confirming the sale, the debtor executed and delivered a deed to
the purchaser at closing. The deed was recorded without payment
of the applicable New York City tax. Subsequently, a plan of
liquidation was proposed and ultimately consummated. The City
of New York argued that the sale of the property was subject to
New York City transfer tax because the sale was not under a
confirmed plan. The Court held, based on the Code and
applicable case law, that the sale was necessary to the
confirmation of the plan, and absent the sale of the property
the plan could not have been confirmed.

Department's Position

Based upon cases cited no documentary stamp tax or
intangible tax would be due on the transfers, the assumptions,
promissory notes or the joint venture mortgage, as contemplated
by the Agreement and the Company Plan.

This response constitutes a Technical Assistance Advisement
under Section 213.22, Florida Statutes, which is binding on the

Department only under the facts and circumstances described in
the request for this advice as specified in Section 213.22,
Florida Statutes. Our response is predicated on those facts and
the specific situation summarized above. You are advised that
subsequent statutory or administrative rule changes or judicial
interpretations of the statutes or rules upon which this advice
is based may subject similar future transactions to a different
treatment than expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, Florida Statutes, which
are subject to disclosure to the public under the conditions of
Section 213.22, Florida Statutes. Your name, address, and any
other details which might lead to identification of the taxpayer
must be deleted by the Department before disclosure. In an
effort to protect the confidentiality of such information, we
request you notify the undersigned in writing within 15 days of
any deletions you wish made to the request or the response.

Sincerely,

W.E. Webb
Tax Law Specialist
Technical Assistance

J.V. Parramore, Jr.
Tax Law Specialist
Technical Assistance

WEW/JVP/mh