Did a corporate officer's 1989 Chapter 7 case discharge a California tax assessment issued to him in 1992 and omitted from his schedules?

Plain-English summary

California legal staff concluded that a corporate officer's 1989 Chapter 7 case did not discharge any part of a tax liability the Board determined against him in 1992 for corporate operations during suspension.

The officer argued that the liability was an excise tax for older periods and therefore dischargeable under former section 507(a)(7)(E). Staff responded that the assessment was omitted from the bankruptcy schedules and that a liability arising when the Board issued its 1992 notice could not have been discharged in the earlier 1989 case.

The memorandum also rejected the officer's reading of In re Beezley and In re George. It said George expressly declined to decide whether California sales tax was an excise tax, while In re Raiman classified California sales tax as a tax on or measured by gross receipts.

Common questions

Was the 1992 assessment listed in the 1989 bankruptcy?

No.

Did In re George decide that California sales tax was an excise tax?

No, according to the memorandum; the court declined to decide that issue.

What was staff's final conclusion?

No portion of the officer liability was discharged.

Citations and references

• 11 U.S.C. section 523(a)(3) — omitted-debt discharge rule discussed
• Former 11 U.S.C. section 507(a)(7) — priority-tax categories debated in the source
• In re Beezley (9th Cir. 1992) 944 F.2d 1433 — omitted debt in a no-asset case distinguished
• In re George (B.A.P. 9th Cir. 1989) 95 B.R. 718 — sales-tax classification discussion quoted
• In re Raiman (Bankr. 9th Cir. 1994) 172 B.R. 933 — California sales tax classified as measured by gross receipts

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/170-1262.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

170.1262

Memorandum
To:

William D. Dunn
Assistant Principal Tax Auditor (MIC:49)

From:

Thomas J. Cooke
Staff Counsel

Subject:

REDACTED TEXT

Date:

July 31, 1995

Gary Jugum has requested that I respond to your memorandum to him dated June 7, 1995 concerning the above taxpayer. In your memorandum, you state that the taxpayer’s attorney has written to the Board contending that the liability against his client has been discharged in a bankruptcy action. You state that the taxpayer as a corporate officer is held liable during the corporate suspension of REDACTED TEXT for the period of April 1, 1984 through June 15, 1987. The taxpayer’s attorney argues that the liability in question is an excise tax and that pursuant to 11 U.S.C.
§507(a)(7)(E) his client is discharged of any liability for the period April 1, 1984 through June 30, 1986, since returns were filed by the corporation during that period and the liability arose more than three years prior to the filing of the bankruptcy petition. You ask whether all or any portion of this liability is discharged. We have examined the taxpayer’s letter and have concluded that no portion of the liability has been discharged by the taxpayer’s bankruptcy. The taxpayer’s attorney admits that “the proposed assessment by the Board was not listed in that [the taxpayer’s bankruptcy] Petition.” 11 U.S.C. §523(a) provides that a bankruptcy discharge “does not discharge an individual debtor from any debt -(3) neither listed nor scheduled under section 521(1) of this title, with the name, if known to the debtor, of the creditor to whom such debt is owed, in time to permit –” a claim to be filed. A liability which arose in 1992 when the Board issued a Notice of Determination to the taxpayer cannot be discharged in a Chapter 7 bankruptcy that the taxpayer filed in 1989. We have examined the case cited by the taxpayer’s attorney for his contention that a “sales tax claim . . . not listed in the prior Chapter 7 is . . . irrelevant,” In re Beezley, 944 F.2d 1433 (9th Cir. 1992). In that case, the court affirmed a decision not to reopen a bankruptcy case. The debtor sought to reopen the bankruptcy case to add an omitted debt to his schedules. The court stated that in a no-asset Chapter 7 case, reopening the case would have been a pointless

William D. Dunn

-2-

July 31, 1995
170.1262

exercise. The court held that if the omitted debt “is of a type covered by 11 U.S.C.
§523(a)(3)(A), it has already been discharged pursuant to 11 U.S.C. §727. If the debt is of a type covered by 11 U.S.C. §523(a)(3)(B), it has not been discharged, and is non-dischargeable.” 11 U.S.C. §523(a)(3)(B) excepts from discharge a claim not listed or scheduled in time to permit a timely filing of a claim and a timely request for a determination of dischargeability. The case cited by the taxpayer’s attorney has no relevance to the taxpayer’s situation. The taxpayer’s attorney states in his letter that, in the case of In re George, 95 B.R. 718 (1989), the “Appellate Panel held that the sales tax is an excise tax under (former) Section 507(a)(7)(E)” and the “Appellate Panel upheld the Trial Court, that the sales taxes proposed against a responsible officer of the corporation are characterized as excise taxes, under Section 507(a)(7)(E).” These statements are not true. The court in George stated: “There may be a question as to whether the bankruptcy court correctly determined that the ‘sales tax’ in this case should be considered an ‘excise tax’ under §507(a)(7)(E) rather than a “trust fund tax” under
§507(a)(7)(C) or a tax on or measured by gross receipts under
§507(a)(7)(A) . . . . This distinction, however, is not crucial to the instant case since the obligation arose within three years of the petition filing and thus the ‘statement’ exception to nondischargeability under §523(a)(1)(A) and §507(a)(7)(E) is not at issue.” The court declined to rule on whether California sales taxes are “excise taxes” within the meaning of 11 U.S.C. §507(a)(7)(E). The case of In re Raiman, 172 B.R. 933 (1994) held that California sales taxes are taxes “on or measured by gross receipts” within the meaning of 11 U.S.C. §507(a)(7)(A). It is our opinion that the taxpayer’s bankruptcy filed in 1989 did not discharge any portion of the taxes determined in 1992. TJC/cmm