How did a Chapter 11 automatic stay affect California's ten-year period for filing or recording notice of a state tax lien?

Plain-English summary

When a taxpayer filed bankruptcy before California's ten-year statutory lien period expired, federal law gave the Board the remaining state-law period after the automatic stay lifted, or 30 days after the lift, whichever was longer, to file or record its lien notice.

On the facts, the original ten-year period had not expired when the stay ended, so the memorandum found no additional federal extension beyond that rule. A March 27, 1992 notice was timely for both a pre-petition self-assessed liability and a later post-confirmation liability.

The post-confirmation tax was not dealt with in the reorganization plan, so the memorandum said the Board could pursue the company or another legally responsible party. For the pre-petition tax, it said collection could proceed against a responsible person other than the reorganized company, while noting that Garg might then prevent a guarantor lawsuit.

Common questions

Did bankruptcy automatically restart a new ten-year lien period?

No.

What time remained after the stay lifted?

The unexpired state period or 30 days, whichever was longer.

Were both liabilities treated the same under the plan?

No. The memorandum distinguished the pre-petition and post-confirmation liabilities and the parties from whom collection might proceed.

Citations and references

• California Government Code section 7172(a) — ten-year statutory lien and notice-filing rule applied
• California Revenue and Taxation Code section 6757(b)(1) — due-and-payable date for the pre-petition self-assessed liability
• 11 U.S.C. section 108(c) — post-stay time extension analyzed
• In re Morton (2d Cir. 1989) 866 F.2d 561 — cited for the federal extension rule
• People v. Garg — noted as potentially limiting a guarantor action at that stage

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/170-0001.pdf

Original ruling text

State of California

Board of Equalization
Legal Division

170.0001
Memorandum

To:

Mr. Bill Ragle
Collection Section - MIC:55

From:

Thomas Cooke
Staff Counsel

Subject:

Date:

December 21, 1994

V--- E--- Company
Account Nos. SR – XX-XXXXXX
SR -- XX-XXXXXX
SR -- XX-XXXXXX

This office has received your memorandum dated December 7, 19XX in which you asked how the bankruptcy of V--- E--- Company affects the tolling of the Board's statutes and, specifically, when does the statute run for recording a lien. Government Code section 7172(a) provides that a state tax lien is extinguished unless a Notice of State Tax Lien is filed or recorded within the ten-year period that a statutory state tax lien is in effect. If the ten-year period has not expired when the taxpayer files its bankruptcy petition, once the bankruptcy "automatic stay" is lifted, the Board will have the remainder of the tenyear period, or a 30-day period following the lifting of the stay, whichever is longer, to file or record a Notice of State Tax Lien (see 11 U.S.C. § 108(c); In re Morton [2nd Cir. 1989] 866 F.2d 561.) V--- E--- Company filed Chapter 11 bankruptcy on February XX, 1982 and the debtor's Plan of Reorganization was confirmed on March XX, 1983. A later Plan of Reorganization was confirmed on December XX, 1985. Therefore, since the original ten-year statutory period had not "run" when the automatic stay was "lifted", there is no federal extension of the state limitations period.

Mr. Bill Ragle

-2-

December 21, 1994
170.0001

On March 27, 1992, the Board filed a Notice of State Tax Lien in --- County for two liabilities: A self-assessed pre-petition liability from 1/1/82 to 2/18/82 (when the taxpayer filed bankruptcy) and a post-confirmation liability from 7/1/87 to 7/31/87. It is our opinion that the Notice of State Tax Lien recorded in --- County was timely recorded for the post-confirmation liability, the post-confirmation liability was not "dealt with" in the taxpayer's Plan of Reorganization and the Board may attempt to collect the postconfirmation liability from V--- E--- Company or from any party who is responsible for V--E---'s taxes. It is also our opinion that the pre-petition liability was not "due and payable" until April XX, 1982 (pursuant to Rev. & Tax. Code § 6757(b)(1)), that the Notice of State Tax Lien was timely filed for the pre-petition liability and that the Board may collect the prepetition liability from any person other than V--- E--- Company who is liable for V--- E--Company's taxes. Garg may prevent a lawsuit against a guarantor at this stage.

TJC:plh
---

cc:

Mr. Rick Slater - MIC:55
Mr. Gordon Adelman - MIC:82