Grassley Irked by Justice Stance

March 16, 2000

Sen. Charles Grassley (R-IA) says the Clinton Administration's opposition to a bill designed to help farmers reorganize debt is "absurd." The administration opposes the way the legislation treats capital gains under Chapter 12 of the bankruptcy code. In a letter to Grassley, the Justice Department opposed the provision.

Right now, federal taxes must be paid first when a farmer sells assets. Grassley wants to make the government last on the list of creditors. Justice officials opposed that provision. "A farmer might need to sell machinery or other property to meet obligations in Chapter 12," said Grassley. "But when the farmer is hit with the capital gains tax, it eats up all the flexibility that the sale of assets was meant to give in the first place. It's almost pointless to sell the property if much of the proceeds are handed over to the federal government."

In its analysis of the bill, the Justice Department said, "The bankruptcy code tax priority and discharge provisions reflect the societal importance of tax collection, are intended to deter tax evasion and apply uniformly regardless of the status of the taxpayer. It would be undesirable to begin creating exceptions for special interest groups. We oppose this provision."

Another Grassley provision would update the definition of family farmer. Under current law, farmers may file under Chapter 12 if they receive more than half of their prior year's income from agricultural sources, have total debates less than $1.5 million and at least 80% of their debt is farm-related.

Grassley's proposal would extend the protections to farmers who receive more than half their income from the farm in any one of the previous three years, who have total debts of less than $3 million and whose debts are at least 50% from farming operations.

The Senate has approved the bankruptcy reform bill containing Grassley's provisions and now must be reconciled with the bankruptcy reform bill passed by the House.