state documentary transfer taxes, such as New York’s real property transfer tax, which imposes a
tax on deeds of $2 for every $500 of consideration or value and must be paid as a prerequisite to
recording a deed.
Bankruptcy Code section 1146(c) serves the dual purpose of providing chapter 11 debtors and
prospective purchasers with some measure of tax relief while concurrently facilitating asset sales
in bankruptcy and enhancing a chapter 11 debtor’s prospects for a successful reorganization.
Several areas of controversy have arisen concerning the scope of the statute’s tax exemption.
First, because the Bankruptcy Code does not define stamp or similar tax, bankruptcy courts are
frequently called upon to decide what types of taxes qualify for the exemption. Another focus of
debate concerns whether, in order to be exempt from taxes, asset transfers must be made
pursuant to a confirmed chapter 11 plan of reorganization, as opposed to in a separate transaction
occurring at some other time during the chapter 11 case (e.g., a stand-alone sale of assets outside
the ordinary course of the debtor's business under section 363(b) of the Bankruptcy Code).
Exactly what types of transactions constitute transfers "under a . . . confirmed" chapter 11 plan
has long been a source of disagreement in the courts, largely because the language of the statute
is ambiguous enough to invite competing interpretations. The Second Circuit recognized in an
opinion 20 years ago that a sale transaction need not be effected at the time of plan confirmation
to qualify for the exemption, so long as the transfer is "necessary to the consummation of the
plan." More recently, the Third Circuit held that "the phrase 'under a plan confirmed' in 11
U.S.C. § 1146(c) was most likely intended to mean 'authorized by a plan confirmed,'" so that real
estate transactions in that case were not exempt from transfer and recording taxes because the