Could California pursue interest and penalties on a tax debt after the debtor's Chapter XI proceeding closed?

Plain-English summary

An absent September 22, 1964 letter to Board employee W. L. Sandberg concerned California's effort to collect interest and penalties on a redacted corporation's sales-and-use-tax account after its proceeding under former Chapter XI of the Bankruptcy Act closed. The request, its arguments, the account balance and periods, and the corporation's arrangement, confirmation order, discharge, returns, and claims are not reproduced. The Board's October 9 response maintained that collection could continue.

Section 371 discharged unsecured liabilities covered by the arrangement except debts that section 17 made nondischargeable, and the letter said tax debt fell in that exception. It acknowledged that section 57(j) prevented the Board from including penalties in claims filed in ordinary bankruptcies and Chapter XI proceedings, but treated that claims-process limitation as different from collection after the proceeding.

The Board had also demanded payment from the surety that furnished the account bond and said it intended to collect from the surety if the corporation did not pay. The bond, surety demand, payment, collection result, appeal, and later outcome are not supplied.

The live annotation publishes Salsbury Motors at 210 F.2d 171 and Bruning at 11 L.Ed.2d 772, citations the supporting letter does not print. It omits the letter's third named case, California State Board of Equalization v. Coast Radio Products, as well as the correspondence and surety details. Neither source reproduces the cited opinions or resolves the account's outcome.

Common questions

Could the Board include penalties in its bankruptcy claim?

The letter said no under former section 57(j), including in Chapter XI through former section 302.

Did that end collection after the proceeding?

No according to the Board's stated position. It requested payment and planned to pursue the surety.

Citations and references

• Former Bankruptcy Act section 371 — quoted for the effect of confirming a Chapter XI arrangement and its section 17 exception; the arrangement, confirmation order, complete statute, amendments, later history, and current law not supplied
• Former Bankruptcy Act section 17 — described as leaving tax debt unaffected by a bankruptcy discharge; exact text, tax account, discharge, complete statute, amendments, later history, and current law not supplied
• Former Bankruptcy Act section 57(j) — described as barring the Board from claiming penalties in ordinary-bankruptcy and Chapter XI claims; exact text, claims, amounts, rulings, complete statute, amendments, later history, and current law not supplied
• Former Bankruptcy Act section 302 — described as applying the first seven chapters to Chapter XI proceedings when not inconsistent; exact text, complete statute, amendments, later history, and current law not supplied
• Salsbury Motors, Inc. v. United States et al., 210 F.2d 171 — reporter citation supplied by the live annotation; the supporting letter says the case was cited in the absent August 21 Board letter but supplies no court, facts, quotation, exact holding, opinion, or later history
• California State Board of Equalization v. Coast Radio Products — named only in the supporting letter as an authority cited in the absent August 21 Board letter; no citation, court, facts, quotation, exact holding, opinion, or later history supplied, and omitted by the live annotation
• Paul F. Bruning v. United States of America, 11 L.Ed.2d 772 — reporter citation supplied by the live annotation; the supporting letter says the case was cited in the absent August 21 Board letter but supplies no court, facts, quotation, exact holding, opinion, or later history
• September 22, 1964 letter to W. L. Sandberg — request, arguments, proposed disposition, attachments, and sender identity not reproduced
• August 21, 1964 Board letter — referenced as previously supplying statutory and case authorities but not reproduced
• October 9, 1964 Associate Tax Counsel Lloyd Palm letter — no account balance, tax periods, returns, claims, arrangement, confirmation order, discharge, bond, surety demand, payment, collection result, appeal, or later outcome supplied
• Official Annotation 320.0020's collection conclusion, former-act analysis, Salsbury Motors and Bruning citations, and date — omits the request, prior Board letter, Coast Radio Products, surety, demand, missing records, later outcome, and reliance status and supplies no additional case or transaction record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/320-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/320-0020.pdf

Original ruling text

320.0020

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

October 9, 1964

F---, G---, C--- & K--Attorney at Law
P.O. Box XXX
---, Kansas XXXXX

Attention:

XX-XXXXXX
-- - X-XXXXX
D--- Corporation

Mr. G--- H. W---

Gentlemen:
Yours of September 22, 1964, addressed to our Mr. W. L. Sandberg, has been referred to the undersigned for reply. Review of our files on this case discloses that considerable authority has been cited to your firm in support of the board’s position that it may collect interest and penalties after a proceedings under Chapter XI of the Bankruptcy Act is closed. We first call your attention to § 371 of the Bankruptcy Act which provides as follows: “The confirmation of an arrangement shall discharge a debtor from all his unsecured debts and liabilities provided for by the arrangement, except as provided in the arrangement or the order confirming the arrangement, but excluding such debts as, under section 17 of this Act, are not dischargeable.” We have previously informed you of the provisions of § 17 of the Bankruptcy Act which provides that a tax debt is not affected by a discharge in bankruptcy. We find that the cases of Salsbury Motors, Inc. v. United States, et al.; California State Board of Equalization v. Coast Radio Products; and Paul F. Bruning v. United States of America, were cited to you in ours of August 21, 1964. The board is precluded from claiming penalties in claims filed in both ordinary bankruptcies and Chapter XI proceedings because of the prohibitions contained in § 57(j) of the Bankruptcy Act. Although a § 57(j) specifically applied to ordinary bankruptcy proceedings, we must point out that, under § 302 of the Bankruptcy Act relating to Chapter XI proceedings, it is stated that the provisions of the first seven chapters of the Bankruptcy Act apply insofar as Chapter XI proceedings are concerned where such provisions are not inconsistent.

F---, G---, C--- & K--(-- - X-XXXXX)

-2-

October 9, 1964
320.0020

We do note that the board has made demand on the surety that furnished the bond under this account. We intend to collect from the surety if payment is not forthcoming from D--- Corporation. We, accordingly, request that remittance be made so that this matter may be brought to a conclusion. Very truly yours,

Lloyd Palm
Associate Tax Counsel

LP:o’b
cc:

Out-of-State - Compliance