Thacher Proffitt: Supreme Court rules that pre-confirmation asset sales subject to stamp tax

By Caroline Salls

Pittsburgh, July 24 - Thacher Proffitt & Wood LLP said the Supreme Court ruled for the first time on June 16 that asset sales made before the confirmation of a Chapter 11 bankruptcy plan will not be exempt from stamp taxes.

According to Thacher Proffitt's report "Florida Department of Revenue v. Piccadilly Cafeterias, Inc.: The Supreme Court Rules that Asset Sales Made Before Confirmation of a Bankruptcy Plan are not Exempt from Stamp Taxes," from now on, parties that want to sell their assets through a bankruptcy case before the confirmation of a plan will have to pay local stamp taxes.

If the taxes are an important consideration in the asset sale, Thacher Proffitt said the sale must be done subsequent to the confirmation of a Chapter 11 plan to preserve a stamp tax exemption.

Thacher Proffitt said the Supreme Court case stemmed from a Florida Department of Revenue challenge of an asset sale made before a Chapter 11 plan confirmation. The Florida Department of Revenue argued that the sale in question fell outside of the stamp tax exemption.

"This is the first instance in which the Supreme Court has held that asset sales made before the confirmation of a Chapter 11 bankruptcy plan are not exempt from stamp taxes, which resolves a circuit split," Thacher Proffitt Distressed Assets Group co-chair Hugh McDonald said in the release.

"Going forward, bankruptcy asset sales that implicate stamp taxes may need to be delayed until confirmation of a plan. Such delays may impact the strategy and timing of bankruptcy cases."

Thacher Proffitt is a law firm with offices in New York, Washington, D.C., White Plains, N.Y., and Summit, N.J.

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