Shu-Yi Oei


This paper argues that the current approach that bankruptcy courts have taken in circumscribing the reach of § 505 over liabilities that may arise after the plan has been confirmed and discharged is unsatisfactory. Instead of turning to jurisdictional and constitutional sources external to § 505, the reach of § 505(a) should be determined through imposing a bright line limitation internal to § 505 itself. It is the contention of this paper that based on the location of § 505 in the Bankruptcy Code, the overall structure of the Code, and the legislative history of the provision, the authority contained in § 505 should be limited to determinations of pre-petition and post-petition-pre-confirmation tax matters, designations that will be elaborated later. Such an approach simplifies and clarifies the relationship of § 505 to the statutory and constitutional provisions surrounding it and takes some of the burden of circumscribing jurisdiction off of these provisions. It is also consistent with the overall structure of the United States Bankruptcy Code and bankruptcy system as a whole. In addition, this approach should not significantly compromise important bankruptcy policy goals inherent in the bankruptcy system.

Part II of this paper delineates the categories of tax issues that are under consideration and briefly describes how they have been treated in bankruptcy court analyses. Part III examines the issues at stake in the decision regarding how to limit § 505. Formulating a clear answer to this question will illuminate the policy consequences of the model proposed in this paper. Part IV summarizes the ways in which bankruptcy courts currently employ constitutional and statutory limitations external to § 505 in addressing questions pertaining to their jurisdiction over tax matters in a variety of cases and points out inconsistencies and irregularities in these analyses. It also explores the policy rationales for this type of approach to limiting § 505. Part V proposes a reading of § 505 that suggests a principle internal to that provision that limits its reach. It argues that in the light of the overall structure of the Bankruptcy Code and the legislative history of § 505, § 505 is most appropriately applied only to tax liabilities that arise for time periods prior to the filing of the bankruptcy petition and during the administration of the estate, or "gap." Finally, Part VI considers the policy implications of the proposed approach to understanding § 505 and argues that, despite the increased simplicity gained using this model, there are few significant adverse public policy consequences that are implicated.

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