After a confirmed Chapter 11 plan discharged all nonexcepted debts and paid California's allowed priority claim, should the Board continue a tax petition?

Plain-English summary

California legal staff concluded that the taxpayer's remaining petitioned liability had been discharged in Chapter 11 and recommended that the Board take no further action on the redetermination petition.

The Board and taxpayer had resolved objections to the Board's proofs of claim by treating part of the older audit taxes and interest, plus all of the later audit taxes and petition-date interest, as priority. The allowed prepetition priority claim was $239,157.16 and was paid in full with interest. Other amounts, including postpetition interest through May 31, 1995, were allowed as a $140,165.11 general unsecured claim.

The order confirming the amended plan stated that confirmation constituted a finding of discharge under Bankruptcy Code section 1141 and that no existing debts were excepted. Staff therefore treated the petitioned liability as discharged and recommended closing the administrative petition without further action.

The official source visibly dates the memorandum January 9, 1996 but says it responds to a December 27, 1996 memorandum. CDTFA's annotation metadata uses January 9, 1997. This page uses the source document's printed date and leaves the conflict disclosed rather than inventing a correction.

Common questions

Was California's allowed priority claim paid?

Yes. The source says it was paid in full with interest through the bankruptcy distribution.

Did the confirmation order except any debts from discharge?

No, according to the quoted order language.

What did staff recommend for the pending tax petition?

No further action.

Citations and references

• 11 U.S.C. section 1141 — Chapter 11 discharge provision quoted in the confirmation order

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/170-0007-050.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum

To :

Mr. Vic Anderson
Supervisor, Petitions Section

From :

Thomas J. Cooke
Tax Counsel

Subject:

S---, Inc. fka N---, Inc.
Permit No. SC OH XX-XXXXXX-010

170.0007.050

Date:

January 9, 1996

Telephone:

(916) 445-6496
CalNet 485-6496

Gary Jugum has requested that I respond to the memorandum of the Audit Program Manager to him dated December 27, 1996 concerning the above taxpayer. In that memorandum, it states that a Notice of Determination was issued to the taxpayer for the period 10-01-86 to 12-31-89 on April 24, 1991. A timely petition for redetermination was filed shortly thereafter. On August 27, 1993, the taxpayer filed Chapter 11 bankruptcy. The matter was referred to the Attorney General’s office when the taxpayer objected to the claim that the Board filed in the bankruptcy action. A plan of reorganization was confirmed by the bankruptcy court on April 5, 1994. The Legal Section is asked for guidance on action to be taken on the taxpayer’s petition for redetermination and the impact the amended plan of reorganization has on the liability. Our review of the files indicates that the Board filed proofs of claim in the taxpayer’s bankruptcy action for audit liabilities for the period 10-01-86 to 12-31-89 and for 1-01-90 to 930-92. The taxpayer objected to these claims on the grounds that certain portions of the claim were barred by the statute of limitations and that a substantial portion of the claim did not constitute a priority claim under bankruptcy law. An agreement was reached between the Board and the taxpayer in which 50 percent of the taxes due for the period 10-01-86 to 12-31-89 were to be considered a priority claim in the bankruptcy action (along with 50 percent of the interest due to the petition date, August 27, 1993), plus 100 percent of the taxes due for the period 1-0190 to 9-30-92 (plus interest on those taxes through the petition date). All other amounts, including post-petition interest through May 31, 1995, were allowed as a general (non-priority) unsecured claim. The amount of the pre-petition priority claim allowed was $239,157.16, and the amount of the general (non-priority) claim was $140,165.11. The Board was paid the full amount of the allowed priority claim plus interest in the bankruptcy distribution.

Mr. Vic Anderson

-2-

January 9, 1996
170.0007.050

In the Order Confirming Amended Plan of Reorganization entered on August 8, 1994, it states: “7. The entry of this Order shall constitute a finding that the Debtor is entitled to a discharge under Section 1141 of the Bankruptcy Code and further, that no debts which exist are excepted from discharge.” It is our opinion that the petitioned liability has been discharged in the taxpayer’s bankruptcy and it is our recommendation that the Board take no further action on the taxpayer’s petition for redetermination. TJC/cmm cc:

Mr. Bruce Henline
Out-of-State District Administrator (OH)