Which deeds and mortgages under a confirmed Chapter 11 plan qualified for the federal bankruptcy transfer-tax exemption?

Subject

Bankruptcy Transfer Tax Exemptions

Plain-English summary

The two deeds were exempt under 11 U.S.C. § 1146(c), but the three mortgages were taxable. The deeds were made under a confirmed Chapter 11 plan and the debtor was a party. The mortgages did not qualify because the debtor was not a party to them.

Florida nevertheless agreed that total liability for the taxable mortgages was $40,000 and that it would make no further documentary-stamp or intangible-tax assessment, including penalty or interest. That limit arose from settlement of the contested Bankruptcy Court matter.

What this means for you

The ruling rejected a blanket exemption for every document contemplated by a confirmed plan. Debtor participation in the instrument was decisive, and the dollar outcome depended on a case-specific settlement.

Common questions

Were documents exempt merely because the confirmation order said so? No. Florida stated that section 1146(c) had to apply to the particular instrument.

Why did the deeds qualify? They were under the confirmed plan and the debtor was a party.

Why was no amount above $40,000 assessed on the mortgages? Because the Department and debtor settled the contested matter on that basis.

Citations and references

• Fla. Stat. §§ 199.133, 201.08, and 213.22
• 11 U.S.C. §§ 1129 and 1146(c)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94M-005

Original ruling text

Mar 30, 1994

Re: Technical Assistance Advisement No. 94(M)-005
Documentary Stamp Tax Chapter 201, F.S.
Intangible Personal Property Tax Chapter 199, F.S.
Bankruptcy Transfer Tax Exemptions under
Title 11, s. 1146(c), U.S.C
XXX (Grantor)
XXX (Grantee)
XXX (Company)

Dear :

This is in response to your December 21, 1993, revised
request for a technical assistance advisement, on behalf of XXX,
a party-in-interest of XXX, a XXX limited partnership (Debtor).

Facts

The Plan of Reorganization called for certain transactions
involving the Debtor and other parties, which generated the
transfer documents described in your request. The Court's Order
Confirming First Amended Plan as Modified operated to exempt all
documents referenced in your request, from any "state or local
sales, use, transfer, documentary, recording, or gains tax."
The Court's apparent intent in this provision of the Order was
to implement the transfer tax exemption of 11 U.S.C. s. 1146(c).
This Department is aware of no other legal authority purporting
to vest the Bankruptcy Court with jurisdiction to enter any such
Order with respect to taxes on transfers of interests in
property. The Department was neither served with any pleading
requesting such Court relief nor with the Order Confirming First
Amended Plan as Modified itself, until receipt of your request.

Requested Advisement

You have specifically requested a technical assistance
advisement confirming that no mortgage/transfer tax is due and
owing on either of the transfers as follows:

1. Debtor's First Amended Plan of Reorganization dated
XXX;

2. Modification to Debtor-in-Possession's First Amended
   Plan of Reorganization, dated XXX;
3. Order Confirming First Amended Plan as Modified;
4. Quit Claim Deed executed by Grantor to Debtor;
5. Special Warranty Deed executed by Debtor to Grantee;
6. Mortgage, Security Agreement, Assignment of Leases and
   Rents and Fixture Filing (first lien);
7. Mortgage, Security Agreement, Assignment of Leases and
   Rents and Fixture Filing (second lien); and
8. Mortgage, Security Agreement, Assignment of Leases and
   Rents and Fixture Filing (third lien).

Discussion and Law

The relevant Florida taxes are not taxes on the
transactions themselves but on the documents arising therefrom.
See s. 199.133, F.S. (non-recurring intangible personal property
tax on just valuation of notes, bonds and other obligations for
the payment of money secured by mortgage, deed of trust or other
lien on Florida real property); and s. 201.08, F.S. (excise tax
on documents [stamp tax] applies to promissory notes and written
obligations to pay money). In the Debtor's case, five documents
were recorded in the official Records of a Florida County as
follows:

1. Quit Claim Deed, Grantor to Debtor.
2. Special Warranty Deed, Debtor to Grantee.
3. Mortgage, Security Agreement, etc. (first lien);
   Grantee to Company.
4. Mortgage, Security Agreement, etc. (second lien);
   Grantee to Company.
5. Mortgage, Security Agreement, etc. (third lien);
   Grantee to Company.

The Bankruptcy Code transfer tax exemption is found at 11
U.S.C. s. 1146(c), and provides that the issuance, transfer or
exchange of a security or the making or delivery of an
instrument of transfer under a plan confirmed under section 1129

of this title, may not be taxed under any law imposing a stamp
or similar tax. This exemption is not blanket authority for a
bankruptcy court to exempt any and all transfer documents from a
stamp or similar tax merely because they are related to, or even
specifically contemplated by, a confirmed Chapter 11 plan. See
Case of Eastmet Corp., 907 F.2d 1487 (4th Cir. 1990), holding
that s. 1146(c), like any other tax exemption, must be strictly
construed against the taxpayer. In fact, under the Eastmet case
and all other bankruptcy decisions considering the issue, the s.
1146(c) exemption does not apply at all to taxation of a
document to which the debtor is not a party.

The two deeds referenced above are clearly exempt from
documentary stamp tax under s. 1146(c), without the necessity of
any court order, as they are under a confirmed Chapter 11 plan
and the Debtor is a party. However, the mortgages do not
qualify for the exemption because the Debtor is not a party to
any of the mortgages, and it would appear that the Bankruptcy
Court exceeded it jurisdiction in determining that no transfer
tax is payable on such documents. Cf. In re Amsterdam Avenue
Development Associates, 103 B.R. 454 (Bkrtcy., S.D.N.Y. 1989);
Case of Eastment Corp., supra (Bankruptcy Court without
jurisdiction to determine or declare tax liability of nondebtors, and no authority in s. 1123 to include non-debtor
transactions in reorganization plan).

In the absence of the presumptively valid final Order
Confirming First Amended Plan as modified, the Department would
simply hold the mortgages taxable under Ch. 199, F.S., and Ch.
201, F.S., and proceed to assess. However, in respect of the
Order, the Department filed a contested Motion for Relief from
the Order Confirming First Amended Plan as Modified, citing the
above law and other cases in support. Among other defenses,
Debtor noted that it held a substantial ownership interest in
Grantee and that the Bankruptcy Court would be requested to deny
the Department's motion, based on both legal and equitable
arguments. The motion was withdrawn subject to a settlement,
under which Debtor agreed to the payment of $40,000.00 upon
receipt of a technical assistance advisement agreeing that no
further assessment or charge for documentary stamp or intangible
personal property taxes would be made with respect to the

transfer documents cited in your request.

Department's Position

Accordingly, this Technical Assistance Advisement
determines that the three mortgages are taxable under ss.
199.133 and 201.08, F.S., but that the total tax liability due
pursuant to settlement is $40,000.00, and there will be no
further assessment of any documentary stamp or intangible
personal property taxes, penalty or interest with respect to
these documents pursuant to settlement of the contested matter
in the Bankruptcy Court.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. 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, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
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,

Nadine C. Posey
Tax Audit Specialist III
Technical Assistance

NCP/mh