The Eleventh Circuit distinguished as inapposite pre-existing decisions limiting the scope of
section 1146(c) to transactions involving the debtor. In each of these cases, the Court explained,
the transaction involved was not necessary to consummation of the debtor's chapter 11 plan.
With T.H. Orlando, the Eleventh Circuit became the fourth appellate court at the circuit level to
address the scope of section 1146(c). The Eleventh Circuit's reasoning undeniably comports
with the underlying purpose of section 1146(c) to facilitate asset transfers and the issuance of
securities as part of a plan of reorganization. However, the ruling may simply add more
uncertainty to this already confused area of the law and may invite the Supreme Court to decide
precisely what types of transactions section 1146(c) was intended to cover.
The Eleventh Circuit refuted the taxing authority's jurisdictional attack on the bankruptcy court's
ability to exempt from taxation the subject transaction by concluding that the adjudication of
substantive entitlements created by the bankruptcy law (in this case, the section 1146(c) tax
exemption) "falls squarely within the core jurisdiction of bankruptcy courts." That may be true.
What the court did not do, however, was challenge (as requested by the taxing authority) the
assumption that the transaction itself qualified for the substantive entitlements at issue. Thus, in
this case, the court ought to have first examined whether the transaction was capable of being
effectuated "under" a plan of reorganization at all, before it considered whether the transaction
was entitled to the section 1146(c) exemption. Instead, the court found this threshold inquiry to
be irrelevant to the question whether the non-debtor transaction was necessary to consummation
of the debtor's plan.