• DIRECT TAXATION LAWS

UNITED STATES COURT OF APPEALS, SECOND CIRCUIT

Scheidelman Vs. Commissioner Internal Revenue (Decided on 15.06.2012)

Deduction - Challenge thereto - Present Appeal filed against the order of the Tax Court wherein it disallowed Taxpayer's deduction for the value of a "facade conservation easement" that she donated to the National Architectural Trust

Held, When a cash contribution (even mandatory in nature) serves to fund the administration of another charitable donation, it was likewise an "unrequited gift." However, the Petitioner received nothing in return for her cash donation and facade conservation easement. It was true the taxpayer hoped to obtain a charitable deduction for her gifts, but this would not come from the recipient of the gift. Further, it would not be a quid pro quo. If the motivation to receive a tax benefit deprived a gift of its charitable nature under Section 170, virtually no charitable gifts would be deductible. Therefore, seeing no benefit to the taxpayer other than facilitation of her contribution of the facade easement and an increased charitable contribution deduction, Court should not deny Petitioners' deduction of the cash payments on the ground that the application required a "donor endowment" to accompany the contribution of facade easement. Hence, Court agreed that the contribution was deductible.

• BANKRUPTCY LAWS

UNITED STATES COURT OF APPEALS, FOURTH CIRCUIT

In Re: Ganess Maharaj; Vena Maharaj (Decided on 14.06.2012)

Applicability - Whether in light of the 2005 amendments to the Bankruptcy Code, 11 U.S.C. § 101 et seq. codified by the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"), the absolute priority rule continues to apply to individual debtors in possession proceeding under Chapter 11.

Held, The absolute priority rule unquestionably applied to individuals from 1978 to 2005 and during that time classes of unsecured creditors were always able to take advantage of the rule to veto confirmation of a plan where a debtor sought to retain property. Faced with statutory silence, Court presumed that Congress was aware of the legal context in which it is legislating. Debtors would have Court hold that Congress decided to address this "harsh" outcome in the most oblique way possible and yet omitted any mention of this remedy from the legislative history. However, Court was not prepared to do the same. Moreover, it remained unconvinced that the doom and gloom scenario presented by Debtors was an accurate picture of the state of bankruptcy law. Debtors assumed that, if the absolute priority rule was left intact, consensual confirmation was virtually impossible. To the contrary, plan acceptance was still very much a possibility, even within the confines of the absolute priority rule. Therefore, Accordingly, the absolute priority rule as it applied to individual debtors in Chapter 11 had not been abrogated by BAPCPA.