Could California extend a pre-bankruptcy tax lien after the underlying tax was discharged?

Plain-English summary

California legal staff concluded that a tax lien recorded before bankruptcy could survive discharge on property it had already attached to, but could not reach after-acquired property once the underlying tax was discharged.

The memorandum said a self-assessed tax liability generally could be dischargeable when it had been due and payable more than three years before the bankruptcy petition. Even then, In re Carlson supported survival of a pre-petition lien on property the taxpayer owned before filing.

If the tax itself was not discharged, staff said California could extend the lien as though no bankruptcy had occurred. If the tax was discharged, an extension was limited to pre-petition property still owned by the taxpayer when the lien was extended. The lien could not attach to property acquired after discharge.

Common questions

Did discharge automatically erase a pre-petition tax lien?

No, not from qualifying property to which it had already attached.

Could the lien reach property acquired later?

No, after discharge of the underlying tax, according to the memorandum.

What if the tax debt itself was not discharged?

Staff said the Board could extend the lien under the cited state statute as if no bankruptcy petition had been filed.

Citations and references

• 11 U.S.C. sections 523(a)(1)(A) and 507(a)(8)(A) — three-year dischargeability discussion
• California Government Code section 7172(c) — lien-extension authority cited in the source
• In re Carlson (1968) 292 F. Supp. 778 — survival of a pre-petition lien cited
• California State Board of Equalization v. Carlson (9th Cir. 1970) 423 F.2d 715 — no attachment to after-acquired property after discharge cited

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/170-0002-075.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

Memorandum
To

:

R. A. Slater
Supervisor of Collections (MIC:55)

From :

Thomas J. Cooke
Staff Counsel

Subject:

Notice of State Tax Lien

170.0002.075
Date:

August 29, 1995

Gary Jugum has requested that I respond to your memorandum to him dated August 10, 1995, concerning the above subject. In your memorandum, you state that the case of In re Carlson, 292 F.Supp. 778 (1968) held that a lien recorded pre-petition attaches to pre-petition property and thus survives the debtor's discharge. You ask if the Board may extend a pre-petition lien for an additional 10 year period as provided by Government Code Section 7172(c). Generally, a self-assessed tax liability will be "dischargeable" in a taxpayer’s bankruptcy if it becomes "due and payable" more than three years prior to the filing of the taxpayer's bankruptcy petition. 11 U.S.C. §§ 523(a)(1)(A); 507(a)(8)(A). However, even if a tax liability becomes dischargeable, a tax lien filed pre-petition survives a taxpayer's discharge if the lien attaches pre-petition to property owned by the taxpayer. In re Carlson, 292 F.Supp. 778 (1968). If a tax liability is not dischargeable in a taxpayer's bankruptcy proceeding, it is our opinion that the Board may extend a lien pursuant to Government Code section 7172(c) as if no bankruptcy petition had been filed. If a tax liability has been discharged in a taxpayer's bankruptcy proceeding, it is our opinion that the Board may extend a pre-petition lien pursuant to Government Code section 7172(c) only if the original lien attached pre-petition to property owned by the taxpayer, the taxpayer continues to own the pre-petition property at the time that the lien is to be extended and the extension of the lien is restricted to the pre-petition property owned by the taxpayer. A prepetition lien does not attach to after-acquired property when the taxpayer has received a discharge of the tax liability. California State Board of Equalization v. Carlson, (1970) 423 F.2d 715.

TJC/cmm