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3 Am. Bankr. Inst. L. Rev. 153 (1995)
Rethinking Bankruptcy and Tax Policy

handle is hein.journals/abilr3 and id is 159 raw text is: RETHINKING BANKRUPTCY AND TAX POLICY JACK F. WILLIAMS What is it that causes many toilers in the fertile fields and vineyards of bankruptcy law to steer clear of recurring tax issues? Why can one go to countless bankruptcy seminars and never hear the word tax mentioned? Unfortunately, like the snake, tax issues in bankruptcy strike at the heel of the toiler, who unsuspect- ingly thinks she has traversed its path without incident. This Article is motivated in part by the need for a comprehensive analysis of how bankruptcy law and tax law under the Bankruptcy Reform Act of 19781 and the Bankruptcy Tax Act of 19802 have been woven together. One goal of this Article is to lay out the story of bankruptcy and tax in a way that relates the two bodies of law and dispels some common myths on the subject. In truth, there is a more compelling goal. The events of the past will have a significant impact on what the Bankruptcy Review Commission will do in the future. Tax just does not occupy a grand position in the world of bankruptcy thought until, of course, a perceived absurd result has been reached by some court. While eliminating the old to make room for the new is a time-honored function of government, it is necessary to tread lightly in the interrelationship between bankruptcy and tax. To be sure, there are serious problems in the area. However, things are generally better than they are worse. Nonetheless, there is a dire need to rethink and reunify bankruptcy and tax policy. For fear of being lured into the abyss of two technical and unforgiving bodies of law, we must remain cognizant of what exactly the law attempts to accomplish in a particular instance. Asking the wrong question makes it doubly difficult to reach even an almost right answer. This Article seeks to develop a number of recurring themes in the bankruptcy and tax context with an eye toward analyzing tax issues within the tradition of bankruptcy law in general. Part I analyzes some of the more obvious conflicts between bankruptcy and tax policy. In particular, Part I addresses the concept of cancellation of indebtedness (COD) income,3 and the tension between bankruptcy and tax policy in how COD income is treated. It is a major contention of this Article that the governmental treatment of COD income and transfers of property in satisfaction of debt has an impact on the types and numbers of bankruptcies filed in this country. For example, individuals concerned with the ambiguous and not well constructed insolvency exclusion to the recognition of COD income4 will seek the certainty of debt discharge in a title 11 case. The present treatment by the Associate Professor of Law, Georgia State University College of Law. Pub. L. No. 95-598, 92 Stat. 2549 (codified as amended at 11 U.S.C. §§ 101-1330). 2 Pub. L. No. 96-589, 94 Stat. 3389 (codified as amended in scattered sections of 26 U.S.C.). 3 I.R.C. § 61(a)(12) (1988). 4 Id. § 108(a)(1)(B) (Supp. V 1993).

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