Ilko v. California State Board of Equalization (In re Ilko)

Summarized by Thomas Phinney , Felderstein Fitzgerald Willoughby Pascuzzi & Rios LLP
14 years 8 months ago

Citation:

9th Circuit, June 27, 2011, Docket No. 09-60049

Tag(s):

9th Circuit

Ruling:

Debtor's tax liability as responsible person for his coporation's 1997 sales taxes was not discharged, and was assessable under California law after the 2001 commencement of the Debtor's case as required under § 507 (a) (8) (A) (iii), because responsible person liability does not arise under Tax Code § 6829 until a corporation terminates its business, which occurred in 2003.

Procedural context:

The Ninth Circuit affirmed in full, without a separate opinion, the ruling of the BAP, which reversed a summary judgment entered in favor of the Debtor by the bankruptcy court.

Facts:

Debtor’s corporation Executive Auto Sales, Inc. ("EAS") was assessed sale taxes in 1997, and made partial payments on the liability. In 2001, the Debtor filed a chapter 7 petition and received a discharge in 2003. Also in 2003, EAS ceased operations. More than two years after debtor received his chapter 7 discharge, the Board assessed debtor $105,334.493 as the responsible person for unpaid sales taxes owed by EAS. After exhausting his administrative remedies, debtor reopened his bankruptcy case in June 2008 and filed an adversary complaint seeking a determination that his tax debt was discharged. On cross motions for summary judgment, the bankruptcy court ruled for debtor, finding that the tax debt was discharged, presumably because it did not meet one or more of the requirements for a nondischargeable tax under §§ 523(a) (1) and 507(a) (8) (A) (iii). The Ninth Circuit followed the BAP’s prior decisions in George v. Cal. State Bd. of Equalization (In re George), 95 B.R. 718 (9th Cir. BAP 1989) aff'd 905 F.2d 1540 (9th Cir. 1990) (the debtor's responsible person liability to the Board was a "tax" for purposes of dischargeability under § 523(a)(1)), and Raiman v. State Bd. of Equalization (In re Raiman), 172 B.R. 933 (9th Cir. BAP 1994) (California sales tax was a tax "on or measured by gross receipts" under § 507(a)(8)(A)). The Ninth Circuit also held that debtor's tax liability was not assessed before, but still assessable under California law after the commencement of his case as required under § 507 (a) (8) (A) (iii). The court reasoned that because responsible person liability does not arise under Tax Code § 6829 until a corporation dissolves, terminates or abandons its business, the statute of limitations for issuing a notice of dual determination to a responsible person begins to run when the liability arises. Since debtor was not liable for the taxes until EAS ceased operations in 2003, which was after the 2001 commencement of his bankruptcy case, the taxes at issue were still assessable as of the filing date and were therefore nondischargeable.

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