Did a no-asset Chapter 7 discharge eliminate a California sales-tax determination that remained under a timely petition for redetermination?

Plain-English summary

California legal staff concluded that the taxpayer's petitioned sales-tax liability was not discharged in a no-asset Chapter 7 case.

The Board had issued a determination for the fourth quarter of 1986, and the taxpayer filed a timely petition for redetermination. While that petition was still pending, the taxpayer filed bankruptcy on December 16, 1994. The no-asset case was discharged on March 24, 1995 and later closed.

The memorandum said the timely petition kept the liability from becoming “due and payable” under the cited California provisions. It also treated a California tax as federally “assessed” when it becomes final. Because the petition remained unresolved, staff considered the determined liability nonfinal and concluded that the Chapter 7 discharge had not eliminated it.

Common questions

Had the California tax determination become final before bankruptcy?

No. The timely redetermination petition was still pending.

Did the closed no-asset case discharge the liability?

No, according to the memorandum.

Did this memorandum resolve the underlying tax petition?

No. It addressed discharge only.

Citations and references

• California Revenue and Taxation Code sections 6564 and 6757(b)(4) — cited on when the petitioned liability became due and payable
• 11 U.S.C. sections 507(a)(7)(A)(ii) and 523(a)(1)(A) — historical federal priority and nondischargeability provisions cited
• In re King (9th Cir. 1992) 961 F.2d 1423 — cited for California tax assessment finality in bankruptcy

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0000-400.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum
170.0000.400
To :

Mr. Steve Adams
Supervising Tax Auditor, Petitions Section

From :

Thomas J. Cooke
Tax Counsel

Subject :

N--- H--- dba A--- M--- P--Permit No. SN -- XX-XXXXXX-010

Date:

Telephone:

April 7, 1997

(916) 445-6496
CalNet 485-6496

Your memorandum dated March 26, 1997 and addressed to Gary Jugum has been forwarded to me for response. In your memorandum, you state that a Notice of Determination was issued to the taxpayer for the period 10-01-86 to 12-31-86, with a timely petition for redetermination filed shortly thereafter. On December 16, 1994, the taxpayer filed Chapter 7 bankruptcy. The Fresno District Office has informed us that the no asset case was discharged on March 24, 1995 and is now closed. You request an opinion on whether or not the liability is subject to discharge. The taxpayer’s liability has not become “due and payable” within the meaning of Revenue and Taxation Code section 6564 and 6757(b)(4) because the taxpayer filed a timely petition for redetermination and then filed bankruptcy while the petition for redetermination was pending. Taxes measured by income or gross receipts that are “assessed” with 240 days of the filing of a bankruptcy petition are non-dischargeable in bankruptcy. 11 U.S.C. sections 507(a)(7)(ii), 523(a)(1)(A). In California, for purposes of section 507(a)(7)(A)(ii), a tax is “assessed” when the tax becomes “final.” (See In re King, 961 F.2d 1423 (9th Cir. 1992).) It is our opinion that the taxpayer’s determined liability was not discharged in the Chapter 7 bankruptcy action. TJC/cmm cc:

San Jose District Administrator (GH)