Was the FDIC as receiver liable for penalty and interest on a closed institution's late sales-tax return?

Plain-English summary

The institution's September 30, 1993 sales-tax return was due October 31. The California Commissioner of Corporations closed the institution and appointed the FDIC receiver on November 5, when the receiver found the unfinished return and source material in a former employee's desk. The FDIC completed the return and paid it from its own account, then sought abatement of $247 in combined penalty and interest. The return, source data, tax amount, filing and payment date, check, split of the $247, and calculations are not supplied.

The institution's seller's permit remained active in its own name, and the FDIC had not requested a permit as receiver, so counsel concluded that the billing and lien in the institution's name could remain. Federal law protected the FDIC from amounts in the nature of penalties or fines, including charges caused by another person's failure to pay tax.

Interest was different because California charged the ordinary compensatory rate for delayed payment rather than using interest as a penalty. Counsel concluded that the FDIC had to pay the interest but was not responsible for the penalty. The source first cites 12 U.S.C. section 1825 but later prints “11 U.S.C. § 1825(b)(3)”; this page does not repair that inconsistency from outside material. No adjusted bill, lien disposition, payment, abatement decision, claim, appeal, or later outcome is supplied.

The live annotation publishes the institution-name billing and interest-versus-penalty conclusion. It omits the $247 amount, return and receivership dates, request, permit-file review, statutory quotations, citation inconsistency, missing records, and final-outcome gap.

Common questions

Why was interest treated differently from the penalty?

The letter treated the interest as compensation for California's delayed use of the tax money, not as punishment.

Did the institution's original billing disappear when the FDIC became receiver?

No. Its seller's permit remained in effect, so counsel found the penalty-and-interest billing in the institution's name proper even though the FDIC itself was protected from the penalty.

Citations and references

• 12 U.S.C. section 1825(b)(1)-(2) — partially quoted for FDIC receiver immunity from specified tax and penalty-like amounts; complete text, exception, definitions, amendments, later history, and current law not supplied
• 12 U.S.C. section 1821(d)(2)(H) — cited for FDIC payment of compensatory interest; complete text, duties, limits, amendments, later history, and current law not supplied
• California Revenue and Taxation Code section 6591 — described for then-current penalty and interest; complete text, rate, conditions, exceptions, amendments, later history, and current law not supplied
• Irving Independent School District v. Packard Properties (1992) 970 F.2d 58, 61-65 — opinion, underlying facts, complete holding, other analysis, and later history not supplied; source later prints the inconsistent “11 U.S.C. § 1825(b)(3)” reference
• Financial Institution Reform, Recovery and Enforcement Act — invoked in the absent request; specific provision beyond section 1825, complete act, amendments, later history, and current law not supplied
• December 30, 1993 request, Board permit-file review, and March 9, 1994 response — no underlying return, source data, employee record, tax and charge calculation, permit, lien, bill, adjustment, payment, claim, appeal, or later outcome supplied
• Official Annotation 320.0129's billing and interest-versus-penalty conclusions and date — omits the figures, dates, provenance, statutory quotations, source inconsistency and defects, missing records, later outcome, and reliance status and supplies no additional receivership 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/320-0129.pdf

Original ruling text

320.0129

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

March 9, 1994

Re: REQUEST FOR ABATEMENT OF INTEREST AND PENALTY
This office has received you letter dated December 30, 1993 in which you requested that the State Board of Equalization abate the penalties and interest totalling
$247.00 billed for the late filing of --- September 30, 1993 sales tax return. In your letter, you state that --- was closed by the California Commissioner of Corporations on November 5, 1993 and the Federal Deposit Insurance Corporation was appointed receiver on that date. You state that --- tax return was filed after the due date of October 31, 1993 as the result of the negligence of one of --- former employees. On the night of closing (November 5, 1993), you state that you discovered the uncompleted form and source data in a desk drawer. You completed and filed the return as soon as possible with payment by a check drawn on FDIC's account. You also state in your letter that the Financial Institution Reform, Recovery and Enforcement Act exempts receivers from all state and local charges in the nature of penalties or fines, including those arising from the failure of a person other than the receiver to pay any tax or fee when due. A review of the Board's file in this case reveals that the seller's permit issued to --in 1984 remains in effect. The Federal Deposit Insurance Corporation has not requested a seller's permit in its own name as receiver of --- The disputed penalty and interest has been billed to ---. 12 U.S.C. § 1825 (b) (1) provides that, when acting as a receiver, the Federal Deposit Insurance Corporation "shall be exempt from all taxation imposed by a State" with an exception not applicable here. 12 U.S.C. § 1825 (b) (2) states that the Federal Deposit Insurance Corporation "shall not be liable for any amounts in the nature of penalties or fines, including those arising from the failure of any person to pay any ... personal property ... tax ... when due." California Revenue and Taxation Code section 6591 provides that any person who fails to pay any tax to the 'state within the time required shall pay a penalty of 10 percent of the tax plus interest from the date on which the tax became due until the date of payment.

In Irving Independent School District v. Packard Properties... (1992) 970 F.2d 58, the court stated that the plain language of 12 U. S. C. § 1825 "means no involuntary lien attaches to property held by' the FDIC when the FDIC is acting as a receiver. The wording of the statute is inherently prospective in scope. It does not exclude liens attached to the property before the FDIC owned it” (970 F.2 at 61). The court also stated that 11 U.S.C. § 1825(b) (3) "prevents local taxing authorities from forcing the FDIC to pay penalties for the failure of previous owners to pay taxes. Nevertheless, Congress chose to leave property acquired by the FDIC in the same condition as the FDIC found it" (970 F.2d at 62). The court also stated that the FDIC will not be responsible for the payment of interest if it can be shown that the interest imposed by the local taxing authority was in the nature of a penalty and was not "to compensate the taxing unit for not having such tax money available to pay its obligations" (970 F.2d at 65). Since the State Board of Equalization collects interest on late payments at the same rate as applicable in other instances of non-payment, the interest charge cannot be deemed to be a penalty. It is our opinion that as long as the seller's permit remains in the name of --- the lien that arose on --- property by operation of law can remain and the billing in --- name for the penalty and interest is proper. It is also our opinion that 12 U.S.C. § 1821 (d) (2) (H) requires the Federal Deposit Insurance Corporation to pay the interest incurred for the late payment of taxes but FDIC is not responsible for the payment of the penalty.

Very truly yours,

Thomas Cooke
Staff Counsel

bc:

Mr. Gordon Adelman MIC: 82
Mr. Tim Raboy
MIC: 35
Mr. Rick Slater
MIC:55