11 U.S.C. § 505 — Determination of tax liability

Page 112 TITLE 11—BANKRUPTCY § 504 Subsec. (b)(6). Pub. L. 99–554, § 283(g)(3), substituted a period for ‘‘; and’’. 1984—Subsec. (b). Pub. L. 98–353, § 446(1), struck out the comma after ‘‘be allowed’’ in provisions preceding par. (1). Subsec. (b)(1)(C). Pub. L. 98–353, § 446(2), struck out the comma after ‘‘credit’’. Subsec. (b)(2). Pub. L. 98–353, § 446(3), inserted ‘‘(a)’’ after ‘‘330’’. Subsec. (b)(3). Pub. L. 98–353, § 446(4), inserted a comma after ‘‘paragraph (4) of this subsection’’. Subsec. (b)(3)(C). Pub. L. 98–353, § 446(5), struck out the comma after ‘‘case’’. Subsec. (b)(5). Pub. L. 98–353, § 446(6), struck out ‘‘and’’ after ‘‘title;’’. Subsec. (b)(6). Pub. L. 98–353, § 446(7), substituted ‘‘; and’’ for period at end. Statutory Notes and Related Subsidiaries EFFECTIVE AND TERMINATION DATES OF 2020 AMENDMENT Amendment by section 320(b) of div. N of Pub. L. 116–260 effective on the date on which the Adminis- trator of the Small Business Administration submits to the Director of the Executive Office for United States Trustees a written determination relating to loan eligi- bility under pars. (36) and (37) of section 636(a) of Title 15, Commerce and Trade, and applicable to any case pending on or commenced on or after such date, and amendment by section 320(f)(2)(A)(ii) of div. N of Pub. L. 116–260, relating to repeal of such amendment if it became effective, effective two years after Dec. 27, 2020, see section 320(f) of Pub. L. 116–260, set out as a note under section 364 of this title. [Pursuant to 15 U.S.C. 636(a)(36)(A)(iii), the ‘‘cov- ered period’’ for loans under the Paycheck Protection Program ended on June 30, 2021.] EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99–554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 504. Sharing of compensation (a) Except as provided in subsection (b) of this section, a person receiving compensation or re- imbursement under section 503(b)(2) or 503(b)(4) of this title may not share or agree to share— (1) any such compensation or reimbursement with another person; or (2) any compensation or reimbursement re- ceived by another person under such sections. (b)(1) A member, partner, or regular associate in a professional association, corporation, or partnership may share compensation or reim- bursement received under section 503(b)(2) or 503(b)(4) of this title with another member, part- ner, or regular associate in such association, corporation, or partnership, and may share in any compensation or reimbursement received under such sections by another member, part- ner, or regular associate in such association, corporation, or partnership. (2) An attorney for a creditor that files a peti- tion under section 303 of this title may share compensation and reimbursement received under section 503(b)(4) of this title with any other attorney contributing to the services ren- dered or expenses incurred by such creditor’s at- torney. (c) This section shall not apply with respect to sharing, or agreeing to share, compensation with a bona fide public service attorney referral program that operates in accordance with non- Federal law regulating attorney referral serv- ices and with rules of professional responsibility applicable to attorney acceptance of referrals. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2582; Pub. L. 109–8, title III, § 326, Apr. 20, 2005, 119 Stat. 99.) HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95–989 Section 504 prohibits the sharing of compensation, or fee splitting, among attorneys, other professionals, or trustees. The section provides only two exceptions: partners or associates in the same professional associa- tion, partnership, or corporation may share compensa- tion inter se; and attorneys for petitioning creditors that join in a petition commencing an involuntary case may share compensation. Editorial Notes AMENDMENTS 2005—Subsec. (c). Pub. L. 109–8 added subsec. (c). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. § 505. Determination of tax liability (a)(1) Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any tax, any fine or pen- alty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction. (2) The court may not so determine— (A) the amount or legality of a tax, fine, penalty, or addition to tax if such amount or legality was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction before the commence- ment of the case under this title; (B) any right of the estate to a tax refund, before the earlier of— (i) 120 days after the trustee properly re- quests such refund from the governmental unit from which such refund is claimed; or Page 113 TITLE 11—BANKRUPTCY § 505 (ii) a determination by such governmental unit of such request; or (C) the amount or legality of any amount arising in connection with an ad valorem tax on real or personal property of the estate, if the applicable period for contesting or redeter- mining that amount under applicable non- bankruptcy law has expired. (b)(1)(A) The clerk shall maintain a list under which a Federal, State, or local governmental unit responsible for the collection of taxes with- in the district may— (i) designate an address for service of re- quests under this subsection; and (ii) describe where further information con- cerning additional requirements for filing such requests may be found. (B) If such governmental unit does not des- ignate an address and provide such address to the clerk under subparagraph (A), any request made under this subsection may be served at the address for the filing of a tax return or protest with the appropriate taxing authority of such governmental unit. (2) A trustee may request a determination of any unpaid liability of the estate for any tax in- curred during the administration of the case by submitting a tax return for such tax and a re- quest for such a determination to the govern- mental unit charged with responsibility for col- lection or determination of such tax at the ad- dress and in the manner designated in paragraph (1). Unless such return is fraudulent, or contains a material misrepresentation, the estate, the trustee, the debtor, and any successor to the debtor are discharged from any liability for such tax— (A) upon payment of the tax shown on such return, if— (i) such governmental unit does not notify the trustee, within 60 days after such re- quest, that such return has been selected for examination; or (ii) such governmental unit does not com- plete such an examination and notify the trustee of any tax due, within 180 days after such request or within such additional time as the court, for cause, permits; (B) upon payment of the tax determined by the court, after notice and a hearing, after completion by such governmental unit of such examination; or (C) upon payment of the tax determined by such governmental unit to be due. (c) Notwithstanding section 362 of this title, after determination by the court of a tax under this section, the governmental unit charged with responsibility for collection of such tax may assess such tax against the estate, the debt- or, or a successor to the debtor, as the case may be, subject to any otherwise applicable law. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2582; Pub. L. 98–353, title III, § 447, July 10, 1984, 98 Stat. 374; Pub. L. 109–8, title VII, §§ 701(b), 703, 715, Apr. 20, 2005, 119 Stat. 124, 125, 129; Pub. L. 111–327, § 2(a)(14), Dec. 22, 2010, 124 Stat. 3559.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 505 of the House amendment adopts a com- promise position with respect to the determination of tax liability from the position taken in H.R. 8200 as passed by the House and in the Senate amendment. Determinations of tax liability: Authority of bank- ruptcy court to rule on merits of tax claims.—The House amendment authorizes the bankruptcy court to rule on the merits of any tax claim involving an unpaid tax, fine, or penalty relating to a tax, or any addition to a tax, of the debtor or the estate. This authority ap- plies, in general, whether or not the tax, penalty, fine, or addition to tax had been previously assessed or paid. However, the bankruptcy court will not have jurisdic- tion to rule on the merits of any tax claim which has been previously adjudicated, in a contested proceeding, before a court of competent jurisdiction. For this pur- pose, a proceeding in the U.S. Tax Court is to be consid- ered ‘‘contested’’ if the debtor filed a petition in the Tax Court by the commencement of the case and the Internal Revenue Service had filed an answer to the pe- tition. Therefore, if a petition and answer were filed in the Tax Court before the title II petition was filed, and if the debtor later defaults in the Tax Court, then, under res judicata principles, the bankruptcy court could not then rule on the debtor’s or the estate’s li- ability for the same taxes. The House amendment adopts the rule of the Senate bill that the bankruptcy court can, under certain con- ditions, determine the amount of tax refund claim by the trustee. Under the House amendment, if the refund results from an offset or counterclaim to a claim or re- quest for payment by the Internal Revenue Service, or other tax authority, the trustee would not first have to file an administrative claim for refund with the tax au- thority. However, if the trustee requests a refund in other sit- uations, he would first have to submit an administra- tive claim for the refund. Under the House amendment, if the Internal Revenue Service, or other tax authority does not rule on the refund claim within 120 days, then the bankruptcy court may rule on the merits of the re- fund claim. Under the Internal Revenue Code [title 26], a suit for refund of Federal taxes cannot be filed until 6 months after a claim for refund is filed with the Internal Rev- enue Service (sec. 6532(a) [title 26]). Because of the bankruptcy aim to close the estate as expeditiously as possible, the House amendment shortens to 120 days the period for the Internal Revenue Service to decide the refund claim. The House amendment also adopts the substance of the Senate bill rule permitting the bankruptcy court to determine the amount of any penalty, whether punitive or pecuniary in nature, relating to taxes over which it has jurisdiction. Jurisdiction of the tax court in bankruptcy cases: The Senate amendment provided a detailed series of rules concerning the jurisdiction of the U.S. Tax Court, or similar State or local administrative tribunal to de- termine personal tax liabilities of an individual debtor. The House amendment deletes these specific rules and relies on procedures to be derived from broad general powers of the bankruptcy court. Under the House amendment, as under present law, a corporation seeking reorganization under chapter 11 is considered to be personally before the bankruptcy court for purposes of giving that court jurisdiction over the debtor’s personal liability for a nondischargeable tax. The rules are more complex where the debtor is an in- dividual under chapter 7, 11, or 13. An individual debtor or the tax authority can, as under section 17c of the present Bankruptcy Act [section 35(c) of former title 11], file a request that the bankruptcy court determine the debtor’s personal liability for the balance of any nondischargeable tax not satisfied from assets of the estate. The House amendment intends to retain these Page 114 TITLE 11—BANKRUPTCY § 505 procedures and also adds a rule staying commencement or continuation of any proceeding in the Tax Court after the bankruptcy petition is filed, unless and until that stay is lifted by the bankruptcy judge under sec- tion 362(a)(8). The House amendment also stays assess- ment as well as collection of a prepetition claim against the debtor (sec. 362(a)(6)). A tax authority would not, however, be stayed from issuing a deficiency notice during the bankruptcy case (sec. (b)(7)) [sec. 362(b)(8)]. The Senate amendment repealed the existing authority of the Internal Revenue Service to make an immediate assessment of taxes upon bankruptcy (sec. 6871(a) of the code [title 26]. See section 321 of the Sen- ate bill. As indicated, the substance of that provision, also affecting State and local taxes, is contained in sec- tion 362(a)(6) of the House amendment. The statute of limitations is tolled under the House amendment while the bankruptcy case is pending. Where no proceeding in the Tax Court is pending at the commencement of the bankruptcy case, the tax au- thority can, under the House amendment, file a claim against the estate for a prepetition tax liability and may also file a request that the bankruptcy court hear arguments and decide the merits of an individual debt- or’s personal liability for the balance of any non- dischargeable tax liability not satisfied from assets of the estate. Bankruptcy terminology refers to the latter type of request as a creditor’s complaint to determine the dischargeability of a debt. Where such a complaint is filed, the bankruptcy court will have personal juris- diction over an individual debtor, and the debtor him- self would have no access to the Tax Court, or to any other court, to determine his personal liability for non- dischargeable taxes. If a tax authority decides not to file a claim for taxes which would typically occur where there are few, if any, assets in the estate, normally the tax authority would also not request the bankruptcy court to rule on the debtor’s personal liability for a nondischargeable tax. Under the House amendment, the tax authority would then have to follow normal procedures in order to collect a nondischargeable tax. For example, in the case of nondischargeable Federal income taxes, the In- ternal Revenue Service would be required to issue a de- ficiency notice to an individual debtor, and the debtor could then file a petition in the Tax Court—or a refund suit in a district court—as the forum in which to liti- gate his personal liability for a nondischargeable tax. Under the House amendment, as under present law, an individual debtor can also file a complaint to deter- mine dischargeability. Consequently, where the tax au- thority does not file a claim or a request that the bank- ruptcy court determine dischargeability of a specific tax liability, the debtor could file such a request on his own behalf, so that the bankruptcy court would then determine both the validity of the claim against assets in the estate and also the personal liability of the debt- or for any nondischargeable tax. Where a proceeding is pending in the Tax Court at the commencement of the bankruptcy case, the com- mencement of the bankruptcy case automatically stays further action in the Tax Court case unless and until the stay is lifted by the bankruptcy court. The Senate amendment repealed a provision of the Internal Rev- enue case barring a debtor from filing a petition in the Tax Court after commencement of a bankruptcy case (sec. 6871(b) of the code [26 U.S.C. 6871(b)]). See section 321 of the Senate bill. As indicated earlier, the equiva- lent of the code amendment is embodied in section 362(a)(8) of the House amendment, which automatically stays commencement or continuation of any pro- ceeding in the Tax Court until the stay is lifted or the case is terminated. The stay will permit sufficient time for the bankruptcy trustee to determine if he desires to join the Tax Court proceeding on behalf of the estate. Where the trustee chooses to join the Tax Court pro- ceeding, it is expected that he will seek permission to intervene in the Tax Court case and then request that the stay on the Tax Court proceeding be lifted. In such a case, the merits of the tax liability will be deter- mined by the Tax Court, and its decision will bind both the individual debtor as to any taxes which are non- dischargeable and the trustee as to the tax claim against the estate. Where the trustee does not want to intervene in the Tax Court, but an individual debtor wants to have the Tax Court determine the amount of his personal liabil- ity for nondischargeable taxes, the debtor can request the bankruptcy court to lift the automatic stay on ex- isting Tax Court proceedings. If the stay is lifted and the Tax Court reaches its decision before the bank- ruptcy court’s decision on the tax claim against the es- tate, the decision of the Tax Court would bind the bankruptcy court under principles of res judicata be- cause the decision of the Tax Court affected the per- sonal liability of the debtor. If the trustee does not wish to subject the estate to the decision of the Tax Court if the latter court decides the issues before the bankruptcy court rules, the trustee could resist the lifting of the stay on the existing Tax Court pro- ceeding. If the Internal Revenue Service had issued a deficiency notice to the debtor before the bankruptcy case began, but as of the filing of the bankruptcy peti- tion the 90-day period for filing in the Tax Court was still running, the debtor would be automatically stayed from filing a petition in the Tax Court. If either the debtor or the Internal Revenue Service then files a complaint to determine dischargeability in the bank- ruptcy court, the decision of the bankruptcy court would bind both the debtor and the Internal Revenue Service. The bankruptcy judge could, however, lift the stay on the debtor to allow him to petition the Tax Court, while reserving the right to rule on the tax authority’s claim against assets of the estate. The bankruptcy court could also, upon request by the trustee, authorize the trustee to intervene in the Tax Court for purposes of having the estate also governed by the decision of the Tax Court. In essence, under the House amendment, the bank- ruptcy judge will have authority to determine which court will determine the merits of the tax claim both as to claims against the estate and claims against the debtor concerning his personal liability for non- dischargeable taxes. Thus, if the Internal Revenue Service, or a State or local tax authority, files a peti- tion to determine dischargeability, the bankruptcy judge can either rule on the merits of the claim and continue the stay on any pending Tax Court proceeding or lift the stay on the Tax Court and hold the dischargeability complaint in abeyance. If he rules on the merits of the complaint before the decision of the Tax Court is reached, the bankruptcy court’s decision would bind the debtor as to nondischargeable taxes and the Tax Court would be governed by that decision under principles of res judicata. If the bankruptcy judge does not rule on the merits of the complaint be- fore the decision of the Tax Court is reached, the bank- ruptcy court will be bound by the decision of the Tax Court as it affects the amount of any claim against the debtor’s estate. If the Internal Revenue Service does not file a com- plaint to determine dischargeability and the automatic stay on a pending Tax Court proceeding is not lifted, the bankruptcy court could determine the merits of any tax claim against the estate. That decision will not bind the debtor personally because he would not have been personally before the bankruptcy court unless the debtor himself asks the bankruptcy court to rule on his personal liability. In any such situation where no party filed a dischargeability petition, the debtor would have access to the Tax Court to determine his personal li- ability for a nondischargeable tax debt. While the Tax Court in such a situation could take into account the ruling of the bankruptcy court on claims against the estate in deciding the debtor’s personal liability, the bankruptcy court’s ruling would not bind the Tax Court under principles of res judicata, because the debtor, in that situation, would not have been person- ally before the bankruptcy court. Page 115 TITLE 11—BANKRUPTCY § 505 If neither the debtor nor the Internal Revenue Serv- ice files a claim against the estate or a request to rule on the debtor’s personal liability, any pending tax court proceeding would be stayed until the closing of the bankruptcy case, at which time the stay on the tax court would cease and the tax court case could con- tinue for purposes of deciding the merits of the debtor’s personal liability for nondischargeable taxes. Audit of trustee’s returns: Under both bills, the bank- ruptcy court could determine the amount of any ad- ministrative period taxes. The Senate amendment, however, provided for an expedited audit procedure, which was mandatory in some cases. The House amend- ment (sec. 505(b)), adopts the provision of the House bill allowing the trustee discretion in all cases whether to ask the Internal Revenue Service, or State or local tax authority for a prompt audit of his returns on behalf of the estate. The House amendment, however, adopts the provision of the Senate bill permitting a prompt audit only on the basis of tax returns filed by the trustee for completed taxable periods. Procedures for a prompt audit set forth in the Senate bill are also adopted in modified form. Under the procedure, before the case can be closed, the trustee may request a tax audit by the local, State or Federal tax authority of all tax returns filed by the trustee. The taxing authority would have to notify the trustee and the bankruptcy court within 60 days wheth- er it accepts returns or desires to audit the returns more fully. If an audit is conducted, the taxing author- ity would have to notify the trustee of tax deficiency within 180 days after the original request, subject to ex- tensions of time if the bankruptcy court approves. If the trustee does not agree with the results of the audit, the trustee could ask the bankruptcy court to resolve the dispute. Once the trustee’s tax liability for admin- istration period taxes has thus been determined, the legal effect in a case under chapter 7 or 11 would be to discharge the trustee and any predecessor of the trust- ee, and also the debtor, from any further liability for these taxes. The prompt audit procedure would not be available with respect to any tax liability as to which any return required to be filed on behalf of the estate is not filed with the proper tax authority. The House amendment also specifies that a discharge of the trustee or the debtor which would otherwise occur will not be grant- ed, or will be void if the return filed on behalf of the es- tate reflects fraud or material misrepresentation of facts. For purposes of the above prompt audit procedures, it is intended that the tax authority with which the re- quest for audit is to be filed is, as the Federal taxes, the office of the District Director in the district where the bankruptcy case is pending. Under the House amendment, if the trustee does not request a prompt audit, the debtor would not be dis- charged from possible transferee liability if any assets are returned to the debtor. Assessment after decision: As indicated above, the commencement of a bankruptcy case automatically stays assessment of any tax (sec. 362(a)(6)). However, the House amendment provides (sec. 505(c)) that if the bankruptcy court renders a final judgment with regard to any tax (under the rules discussed above), the tax authority may then make an assessment (if permitted to do so under otherwise applicable tax law) without waiting for termination of the case or confirmation of a reorganization plan. Trustee’s authority to appeal tax cases: The equiva- lent provision in the House bill (sec. 505(b)) and in the Senate bill (sec. 362(h)) authorizing the trustee to pros- ecute an appeal or review of a tax case are deleted as unnecessary. Section 541(a) of the House amendment provides that property of the estate is to include all legal or equitable interests of the debtor. These inter- ests include the debtor’s causes of action, so that the specific provisions of the House and Senate bills are not needed. SENATE REPORT NO. 95–989 Subsections (a) and (b) are derived, with only sty- listic changes, from section 2a(2A) of the Bankruptcy Act [section 11(a)(2A) of former title 11]. They permit determination by the bankruptcy court of any unpaid tax liability of the debtor that has not been contested before or adjudicated by a judicial or administrative tribunal of competent jurisdiction before the bank- ruptcy case, and the prosecution by the trustee of an appeal from an order of such a body if the time for re- view or appeal has not expired before the commence- ment of the bankruptcy case. As under current Bank- ruptcy Act § 2a (2A), Arkansas Corporation Commissioner v. Thompson, 313 U.S. 132 (1941), remains good law to permit abstention where uniformity of assessment is of significant importance. Section (c) deals with procedures for obtaining a prompt audit of tax returns filed by the trustee in a liq- uidation or reorganization case. Under the bill as origi- nally introduced, a trustee who is ‘‘in doubt’’ con- cerning tax liabilities of the estate incurred during a title 11 proceeding could obtain a discharge from per- sonal liability for himself and the debtor (but not for the debtor or the debtor’s successor in a reorganiza- tion), provided that certain administrative procedures were followed. The trustee could request a prompt tax audit by the local, State, or Federal governmental unit. The taxing authority would have to notify the trustee and the court within sixty days whether it ac- cepted the return or desired to audit the returns more fully. If an audit were conducted, the tax office would have to notify the trustee of any tax deficiency within 4 months (subject to an extension of time if the court approved). These procedures would apply only to tax years completed on or before the case was closed and for which the trustee had filed a tax return. The committee bill eliminates the ‘‘in doubt’’ rule and makes mandatory (rather than optional) the trust- ee’s request for a prompt audit of the estate’s tax re- turns. In many cases, the trustee could not be certain that his returns raised no doubt about possible tax issues. In addition, it is desirable not to create a situa- tion where the taxing authority asserts a tax liability against the debtor (as transferee of surplus assets, if any, return to him) after the case is over; in any such situation, the debtor would be called on to defend a tax return which he did not prepare. Under the amendment, all disputes concerning these returns are to be resolved by the bankruptcy court, and both the trustee and the debtor himself do not then face potential post-bank- ruptcy tax liabilities based on these returns. This re- sult would occur as to the debtor, however, only in a liquidation case. In a reorganization in which the debtor or a successor to the debtor continues in existence, the trustee could obtain a discharge from personal liability through the prompt audit procedure, but the Treasury could still claim a deficiency against the debtor (or his successor) for additional taxes due on returns filed during the title 11 proceedings. HOUSE REPORT NO. 95–595 Subsection (c) is new. It codifies in part the referee’s decision in In re Statmaster Corp., 465 F.2d 987 (5th Cir. 1972). Its purpose is to protect the trustee from per- sonal liability for a tax falling on the estate that is not assessed until after the case is closed. If necessary to permit expeditious closing of the case, the court, on re- quest of the trustee, must order the governmental unit charged with the responsibility for collection or deter- mination of the tax to audit the trustee’s return or be barred from attempting later collection. The court will be required to permit sufficient time to perform an audit, if the taxing authority requests it. The final order of the court and the payment of the tax deter- mined in that order discharges the trustee, the debtor, and any successor to the debtor from any further liabil- ity for the tax. See Plumb, The Tax Recommendations of the Commission on the Bankruptcy Laws: Tax Pro- cedures, 88 Harv. L. Rev. 1360, 1423–42 (1975). Page 116 TITLE 11—BANKRUPTCY § 506 Editorial Notes AMENDMENTS 2010—Subsec. (a)(2)(C). Pub. L. 111–327 substituted ‘‘applicable nonbankruptcy law’’ for ‘‘any law (other than a bankruptcy law)’’. 2005—Subsec. (a)(2)(C). Pub. L. 109–8, § 701(b), added subpar. (C). Subsec. (b). Pub. L. 109–8, § 703, added par. (1), redesig- nated existing provisions of subsec. (b) as par. (2) and inserted ‘‘at the address and in the manner designated in paragraph (1)’’ after ‘‘determination of such tax’’ in introductory provisions, redesignated former pars. (1) to (3) of subsec. (b) as subpars. (A) to (C), respectively, of par. (2), and redesignated former subpars (A) and (B) of par. (1) as cls. (i) and (ii), respectively, of subpar. (A). Subsec. (b)(2). Pub. L. 109–8, § 715, inserted ‘‘the es- tate,’’ after ‘‘misrepresentation,’’ in introductory pro- visions. 1984—Subsec. (a)(2)(B)(i). Pub. L. 98–353 substituted ‘‘or’’ for ‘‘and’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 506. Determination of secured status (a)(1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under sec- tion 553 of this title, is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest. (2) If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the fil- ing of the petition without deduction for costs of sale or marketing. With respect to property acquired for personal, family, or household pur- poses, replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined. (b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any rea- sonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose. (c) The trustee may recover from property se- curing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim, including the payment of all ad valorem property taxes with respect to the property. (d) To the extent that a lien secures a claim against the debtor that is not an allowed se- cured claim, such lien is void, unless— (1) such claim was disallowed only under sec- tion 502(b)(5) or 502(e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2583; Pub. L. 98–353, title III, § 448, July 10, 1984, 98 Stat. 374; Pub. L. 109–8, title III, § 327, title VII, § 712(d), Apr. 20, 2005, 119 Stat. 99, 128.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 506(a) of the House amendment adopts the provision contained in the Senate amendment and re- jects a contrary provision as contained in H.R. 8200 as passed by the House. The provision contained in the Senate amendment and adopted by the House amend- ment recognizes that an amount subject to set-off is sufficient to recognize a secured status in the holder of such right. Additionally a determination of what por- tion of an allowed claim is secured and what portion is unsecured is binding only for the purpose for which the determination is made. Thus determinations for pur- poses of adequate protection is not binding for purposes of ‘‘cram down’’ on confirmation in a case under chap- ter 11. Section 506(b) of the House amendment adopts lan- guage contained in the Senate amendment and rejects language contained in H.R. 8200 as passed by the House. If the security agreement between the parties provides for attorneys’ fees, it will be enforceable under title 11, notwithstanding contrary law, and is recoverable from the collateral after any recovery under section 506(c). Section 506(c) of the House amendment was contained in H.R. 8200 as passed by the House and adopted, ver- batim, in the Senate amendment. Any time the trustee or debtor in possession expends money to provide for the reasonable and necessary cost and expenses of pre- serving or disposing of a secured creditor’s collateral, the trustee or debtor in possession is entitled to re- cover such expenses from the secured party or from the property securing an allowed secured claim held by such party. Section 506(d) of the House amendment is derived from H.R. 8200 as passed by the House and is adopted in lieu of the alternative test provided in section 506(d) of the Senate amendment. For purposes of section 506(d) of the House amendment, the debtor is a party in inter- est. Determination of Secured Status: The House amend- ment deletes section 506(d)(3) of the Senate amend- ment, which insures that a tax lien securing a non- dischargeable tax claim is not voided because a tax au- thority with notice or knowledge of the bankruptcy case fails to file a claim for the liability (as it may elect not to do, if it is clear there are insufficient as- sets to pay the liability). Since the House amendment retains section 506(d) of the House bill that a lien is not voided unless a party in interest has requested that the court determine and allow or disallow the claim, provi- sion of the Senate amendment is not necessary. SENATE REPORT NO. 95–989 Subsection (a) of this section separates an under- secured creditor’s claim into two parts: He has a se-