Was a California tax determination discharged in Chapter 7 when the taxpayer filed bankruptcy while a timely redetermination petition kept the liability nonfinal?
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This page answers the general question as of 1997. Ask about yours and see what current California tax law says, with citations.
Plain-English summary
The taxpayer's Chapter 7 case did not discharge the California tax liability because a timely redetermination petition kept the determination from becoming final, due, payable, and collectible before the bankruptcy filing.
The notice issued October 9, 1991, the taxpayer petitioned on October 28, and Chapter 7 was filed March 17, 1992 while the petition remained pending. The memorandum reasoned that federal law gives a tax agency a designated collection period before tax becomes dischargeable, and that period had not begun to run against a nonfinal determination.
The source addressed discharge only. It did not decide the redetermination merits or discuss whether later events changed the tax classification.
Common questions
Was the determination final before bankruptcy?
No.
Did closing the no-asset case discharge it?
No, according to the memorandum.
Did the source decide the tax appeal?
No.
Citations and references
- 11 U.S.C. sections 507(a)(8)(A) and 523(a)(1)(A) — priority and nondischargeability provisions applied
- In re King (9th Cir. 1992) 961 F.2d 1423 — cited regarding the collection period before tax discharge
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/170-0007-185.pdf
Original ruling text
State of California
Board of Equalization
Legal Division-MIC: 82
Memorandum
To :
Mr. Steve Adams
Supervising Tax Auditor
Petitions Section
From :
Thomas J. Cooke
Tax Counsel
Subject:
J--- Industries Ltd.
Permit No. SS --- XX-XXXXXX-010
170.0007.185
Date:
August 4, 1997
Telephone:
(916) 445-6496
CalNet 485-6496
Gary Jugum has requested that I respond to your memorandum to him dated July 23, 1997 concerning the above taxpayer. In your memorandum, you state that a Notice of Determination was issued to the taxpayer on October 9, 1991. A timely petition for redetermination was filed on October 28, 1991. While the taxpayer’s petition was pending, the taxpayer filed Chapter 7 bankruptcy on March 17, 1992. The no asset case was closed on June 4, 1992. You ask if the liability was subject to discharge. Liabilities which do not become “due and payable” prior to a taxpayer’s Chapter 7 bankruptcy filing because the taxpayer avails itself of its statutory right to an administrative review of the liability will not be subject to discharge. The bankruptcy code permits a tax agency a designated period of time to collect a tax liability before the tax liability will be subject to discharge in a taxpayer’s Chapter 7 bankruptcy action (see 11 U.S.C. § 507(a)(8)(A); 11 U.S.C. § 523(a) (1)(A) and In re King 961 F.2d 1423 (9th Cir. 1992)). Since the tax liability did not become “final” (and therefore collectable by the Board) prior to the taxpayer’s bankruptcy filing, the liability was not discharged in the taxpayer’s bankruptcy action. TJC/cmm Attachment cc:
Out-of-State District Administrator (OH)
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