Were three deeds issued during a confirmed Chapter 11 reorganization subject to Florida documentary stamp tax?

Plain-English summary

Florida concluded that three deeds recorded during a confirmed Chapter 11 reorganization were not subject to documentary stamp tax.

The partnership's confirmed plan order allowed it to dispose of property and stated that transfers made to consummate the plan would not be taxed under stamp-tax or similar-tax laws. The partnership sold properties to two holding companies, recorded three deeds without paying documentary stamp tax, and used the sale proceeds to satisfy debts identified in the reorganization materials.

Florida's bankruptcy-transfer rule said a sale by a debtor in federal bankruptcy remained taxable unless it was made under a plan confirmed under 11 U.S.C. § 1129, was essential to confirmation, or was necessary to consummate or implement a confirmed plan. Applying that rule and 11 U.S.C. § 1146(c), as then cited, the Department found the deeds exempt.

What this means for you

• A bankruptcy filing alone did not create the exemption; the confirmed plan and its implementation mattered.
• The debtor partnership was a party to the transfers.
• The Department relied on the plan order's transfer-tax language and the use of proceeds to satisfy restructured debts.

Common questions

Q: Was documentary stamp tax due on the three deeds? A: No.

Q: Did the reorganization plan name each property sale specifically? A: The ruling's heading says it did not, but the confirmed order broadly covered transfers made to consummate the plan.

Q: Does every bankruptcy property transfer receive this result? A: No. The cited Florida rule required a qualifying connection to a plan confirmed under section 1129.

Citations and references

• Fla. Stat. § 201.02 — documentary stamp tax on realty conveyances
• Fla. Admin. Code r. 12B-4.014(16) — bankruptcy transfers
• 11 U.S.C. § 1129 — plan confirmation
• 11 U.S.C. § 1146(c) — confirmed-plan transfer exemption, as cited in 1996
• In re Jacoby-Bender, Inc., 758 F.2d 840 (2d Cir. 1985)
• In re Smoss Enterprises Corp., 54 B.R. 950 (E.D.N.Y. 1985)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96B4-008

Original ruling text

May 13, 1996

Re: Technical Assistance Advisement No. 96(B)4-008 Documentary Stamp Tax/Bankruptcy Reorganization Plan did not specifically call for the sale of certain realty XXX (Partnership) XXX (Holding Co. #1) XXX (Holding Co. #2) XXX (Corporation)

Dear :

This is in response to your recent request for a Technical Assistance Advisement in which you ask if the Florida documentary stamp tax imposed by s. 201.02, F.S., is due upon conveyances made by Partnership to Holding Co. #1 and Holding Co. #2 while under a Bankruptcy Order under Section 1129 of the United States Code.

Transaction

Partnership filed a petition on XXX for voluntary relief under Chapter 11 of title 11, of the U.S. Bankruptcy Code. The Court confirmed (XXX) a Third Amended and Restated Plan of Partnership dated XX as amended by the Modification to Third Amended and Restated Plan of Reorganization of Partnership.

A Florida limited partnership, Partnership's managing general partner has a sole shareholder: Corporation. On XX, Partnership entered into a purchase and sale agreement to sell property in one county to Holding Co. #1. The purchase and sale agreement was partially assigned to Holding Co. #2 in another county.

According to the request for the technical assistance advisement, the proceeds of the sale of Partnership properties to Holding Co. #1 and Holding Co. #2 were used to satisfy debts of Partnership.

On the Official Record Books, the Order Confirming Third Amended and Restated Plan of Reorganization of Partnership states that Reorganized Partnership:

... may operate its businesses and use, acquire and dispose of property, including any Post-Petition Cash Collateral (other than as respects such Post-Petition Cash Collateral attributable to Class 1A-10-28 Claims as required by Section 4.04(a)(ii) of the Modified Plan as a result of the Holder's timely election to receive a return of collateral therefor).... (e.s.)

On Official Record Books, the Order Confirming the above named plan of reorganization states that:

pursuant to Section 1146(c) of the Bankruptcy Code, until the Modified Plan has been fully consummated and all Claims... have been paid in full, the issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer,... and/or the sale of any real or person[al] property or..., any transfers hereafter made in consummation of, or heretofore made in anticipation of the confirmation and consummation of, the Modified Plan,... or the transfer of any interest in any real or personal property in satisfaction thereof,... shall not be taxed under any law imposing a stamp tax or similar tax, including but not limited to transfer taxes, mortgage recording taxes and intangible taxes, including, without limitation, Florida documentary stamp taxes .... (e.s.)

According to the technical assistance advisement request letter, on XX, Partnership entered into a purchase and sale agreement with Holding Co. #1 for some properties in one county. Further, the letter states that the agreement was partially assigned to Holding Co. #2 in another county.

Three deeds were recorded shortly after execution in 1995 transferring properties from Partnership (on each deed) to purchasers Holding Co. #1 and Holding Co. #2.

The letter states that the proceeds of the sale of

Partnership's property were used to satisfy debts of Partnership which had been made into restructured mortgage notes, reorganization notes, converted notes, tax notes, etc., specifically referenced in the Order. The deeds representing the sales of real property were recorded without payment of documentary stamp tax because of the exemption in the Order with regard to documentary stamp and other transfer taxes.

Requested Ruling

Petitioner requests issuance of a technical assistance advisement confirming that no documentary stamp tax or surtax was due on recordation of the three deeds without payment of documentary stamp and intangible taxes in connection with the transfers of real property from Partnership to the purchasers occurring during the Chapter 11 Bankruptcy proceedings under Section 1129.

Department's Position

Rule 12B-4.014 (16), F.A.C., states:

Transfer in Bankruptcy: Sale of real property by trustees, debtors or receivers in federal bankruptcy proceedings is subject to tax unless the transfer is made pursuant to a plan confirmed under s. 1129 of the Bankruptcy Code, is a precondition or essential to the confirmation of the plan, or is necessary to consummate or implement a confirmed plan. The debtor must be a party to the transfer. If the bankruptcy court does not ultimately confirm the plan under 11 U.S.C. 1129,the transfer would not be exempt pursuant to 11 U.S.C. 1146(c), and would be subject to tax. (11 U.S.C. 1146(c); In re Jacoby-Bender, Inc. 758 F.2d 840 (2d.Cir. 1985); In re Smoss Enterprises Corp., 54 Bankr. 950 (E.D.N.Y. 1985))....

Section 1146(c) of the United States Bankruptcy Code provides:

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 tax or similar tax.

Therefore, the deeds referenced above are not subject to imposition of documentary stamp tax.

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 treatment different from that 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,

M.E. Clemens, C.P.A.
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

MEC/mh