Did a 1990 Chapter 7 discharge eliminate California's later-billed priority tax claims against two corporate officers?

Plain-English summary

California legal staff concluded that two corporate officers' personal Chapter 7 discharge did not eliminate the Board's later-billed tax claims if those claims qualified for priority under 11 U.S.C. section 507(a)(8).

The corporation filed Chapter 11 in 1989, later converted to Chapter 7, and paid a $74,396 dividend on the Board's claim. The two individuals filed a joint no-asset Chapter 7 case in May 1990 and were discharged in December 1990. Dual determinations for a 1989 period were not billed until December 1995.

Staff cautioned that it had not seen the individuals' bankruptcy petition or the court notices sent to a branch office. Even with that limitation, the memorandum reasoned that section 523(a)(1)(A) excepted priority tax claims from discharge whether or not a claim was filed or allowed.

Common questions

Had California filed a claim in the individuals' bankruptcy?

The source did not establish that it had. Staff said priority status would make the tax nondischargeable either way.

Did staff have the complete bankruptcy record?

No. The memorandum expressly said it had not been given the petition or documents showing the nature of the court notices.

What remained after the corporation's bankruptcy payment?

The memorandum said the remaining corporate liability consisted of penalties and accrued interest, while the later dual determinations addressed the individuals' liability.

Citations and references

• 11 U.S.C. section 507(a)(8) — priority status for the tax claim discussed
• 11 U.S.C. section 523(a)(1)(A) — discharge exception quoted
• 11 U.S.C. section 727 — Chapter 7 discharge provision referenced in the quotation

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/170-0007-035.pdf

Original ruling text

State of California

Memorandum

To :

Mr. Rod Kelleher
Special Procedures

From :

Thomas J. Cooke
Staff Counsel

Subject:

F--- R---, Inc.
Dualees: B--- T. and S--- M. G--Account No. SR --- XX-XXXXXX (-1 and -2)

Board of Equalization
Legal Division-MIC: 82

170.0007.035

Date

April 18, 1996

Ronald Dick has requested that I respond to your memorandum to him dated April 17, 1996 concerning the above taxpayers. In your memorandum, you state that the San Francisco District Office has asked if the liability of the above dualees has been discharged by their bankruptcy action filed in 1990. F--- R---, Inc. filed Chapter 11 bankruptcy on November 14, 1989 and the case was converted to Chapter 7 on February 21, 1991. The business was sold and a $74,396 dividend was paid on the Board’s claim. The remaining liability is for penalties and accrued interest. Dual determinations were billed on December 26, 1995 for the period January 1, 1989 to November 13, 1989 based on corporate suspension. On May 15, 1990, B--- and S--- G--- filed a joint personal Chapter 7 bankruptcy action. Court notices were mailed to the San Mateo branch office but the debtors could not be identified as corporate officers of F--- R---, Inc. The no-asset case was closed and debtors were discharged on December 14, 1990. The final decree was issued on May 8, 1991. We hesitate to render an opinion when we have not been presented with documents indicating the nature of the “court notices” sent to the San Mateo branch office and have not seen the bankruptcy petition filed by the G---s. We note that the liability accrued in 1989, that the

Mr. Rod Kelleher

-2-

April 18, 1996
170.0007.035

corporation filed bankruptcy six months prior to the bankruptcy filing by the dualees and that the Board received a distribution in the corporate bankruptcy action. 11 U.S.C. section 523(a) states: “A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt “(1)

for a tax or a custom duty -

“(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed; . . . .” It is our opinion that if the Board had filed a claim in the G---s’ bankruptcy action, the claim would have been entitled to priority status pursuant to 11 U.S.C. section 507(a)(8). Since 11 U.S.C. section 523(a) denies discharge to tax claims entitled to priority status whether or not a claim was filed, we conclude that the discharge entered in the G---s’ bankruptcy did not discharge the Board’s claim for taxes owed by them.

TJC/cmm
cc:

San Mateo District Administrator (BHA)