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Volume 4 - Opinions of Counsel SBEA No. 5

Opinions of Counsel index

Bankruptcy (cancellation or compromise of unpaid taxes) - Real Property Tax Law, Article 10:

In the area of bankruptcy, the Federal Courts have jurisdiction to order a compromise that is binding on state and local governments; thus, a village may legally accept a settlement on unpaid real property taxes.

An opinion has been requested as to whether a village may “legally accept” a settlement pursuant to amended Order No. 202 of the U.S. District Court for the District of Massachusetts, on unpaid real property taxes presently owed by the Boston & Maine Railroad Corporation. The bankruptcy court order authorizes the Boston & Maine Corporation to settle all unpaid taxes “owed by the debtor assessed on real and personal property before and after the institution of these reorganization proceedings through December 31, 1974, by the payment of not more than 66 2/3 per cent of the tax assessments due (with interest and penalties thereon waived).”

Under ordinary circumstances, a municipality in the State of New York may not compromise unpaid real property taxes or the interest and penalties which have accrued thereon (see, Real Property Tax Law, Article 10). However, in the area of bankruptcy (U.S. Code, Title 11), the Federal Courts have constitutional jurisdiction to order a compromise that is binding on state and local governments. It is our opinion, therefore, that nothing stands in the way of a settlement with the Boston & Maine trustees.

In New York, claims should be made by all affected cities and villages and by counties which have reimbursed town governments and school districts for unpaid real property taxes of the Boston & Maine.

October 28, 1974