11 U.S.C. Section 1195 - Transfers

What Is Section 1195?

Section 1195 provides that "[n]otwithstanding section 1146(a) of this title, any transfer of property of the estate may not be made under a plan confirmed under section 1191(b)" until the property is no longer property of the estate, except that the transfer-tax exemption of Section 1146(a) applies to transfers under a Subchapter V plan confirmed under either Section 1191(a) or 1191(b).

In effect, Section 1195 extends the stamp-tax and transfer-tax exemption of Section 1146(a) to transfers occurring in connection with confirmed Subchapter V plans. Without Section 1195, the application of Section 1146(a) to Subchapter V transfers would be uncertain because Section 1146(a) by its terms refers to transfers "under a plan confirmed under section 1129."

Section 1146(a) Tax Exemption

Section 1146(a) provides that "[t]he 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." The exemption applies to state and local stamp taxes, real-estate transfer taxes, mortgage-recording taxes, and similar levies. It does not exempt the transfer from federal income tax, sales tax, or other taxes not characterized as stamp or transfer taxes.

The Supreme Court interpreted the timing requirement in Florida Department of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33 (2008), holding that the exemption applies only to transfers made after plan confirmation, not to pre-confirmation sales conducted under Section 363. The Piccadilly rule applies with equal force in Subchapter V through the Section 1195 cross-reference.

Practical Application

The Section 1195 exemption can produce meaningful savings in Subchapter V cases involving real-estate transfers. Common applications include:

• Transfer of real property from the debtor to a buyer pursuant to a confirmed plan of sale.
• Transfer of operating assets to a newly formed entity as part of a reorganization restructuring.
• Recording of mortgages or deeds of trust securing exit financing made under the plan.
• Transfer of equity interests in a reorganized debtor to existing or new equity holders pursuant to plan terms.

Counsel must be careful to structure transfers so that they qualify as "under" the plan rather than as pre-confirmation Section 363 sales, which Piccadilly excludes. Documentation should reflect that the transfer is contemplated by, and effected pursuant to, the confirmed plan.

Coordination with Title and Recording Offices

State and local recording offices vary in their handling of Section 1146(a) and 1195 exemption claims. Counsel typically presents the recorder with a certified copy of the confirmation order, a copy of the plan section authorizing the transfer, and an affidavit asserting the exemption. Some jurisdictions require pre-clearance with the state's department of revenue or attorney general.

Where a recording office refuses to honor the exemption, the debtor or reorganized debtor may seek an order from the bankruptcy court directing compliance, or may pay the contested tax under protest and then sue for refund in state court. The federal supremacy of Section 1146(a) and 1195 generally prevails, but the procedural mechanics of enforcement vary by jurisdiction.

Scope Limitations

The exemption does not extend to:

• Recording fees that compensate the recorder for services rendered (rather than acting as a tax on the transfer).
• Property taxes assessed on real property, regardless of the transfer event.
• Income taxes on the gain or loss from the transfer.
• Sales or use taxes on tangible personal property unrelated to the real-estate transfer.

Counsel should perform a transfer-tax inventory at the planning stage of any significant Subchapter V transaction to identify which taxes Section 1195 reaches and which it does not.

Related Bankruptcy Code Sections

This section operates in concert with several other provisions of the Bankruptcy Code:

• Section 1191 - Plan confirmation standards
• Section 1194 - Payments under Subchapter V plans
• Section 363 - Pre-confirmation sales not eligible for the exemption
• Section 541 - Property of the estate subject to transfer

Understanding how these sections interact is important for debtors, creditors, trustees, and counsel navigating a bankruptcy case.