In re Rudolf Sienega

Case Type:
Consumer
Case Status:
Affirmed
Citation:
EC-19-1334-FLS (9th Circuit, Oct 05,2020) Published
Tag(s):
Ruling:
The BAP affirmed the bankruptcy court decision finding that the Debtor's state tax debts were nondischargeable under § 523(a)(1)(B), because notifying the California Franchise Tax Board (FTB) of federal tax adjustments with unsigned faxes was insufficient to constitute formal state tax returns required under California law. The BAP was not persuaded by the new arguments raised by the Debtor for the first time on appeal. This was a matter of first impression for the BAP, because of the interaction between § 523(a)(1)(B), California Revenue and Taxation Code (RTC) and other California laws.
Procedural context:
The Debtor filed Chapter 7 Bankruptcy in November 2014, and he received a discharge in October 2016. In November 2018, the FTB commenced an adversary proceeding to have the state tax debt declared nondischargeable under § 523(a)(1)(B), because the Debtor never filed state income tax returns for the four years in the 1990s. The FTB filed a motion for summary judgment with a statement of facts. The Debtor filed an opposing motion with his own facts, but he did not object to the facts submitted by FTB. No hearing was held. The bankruptcy court granted summary judgment in favor of FTB and denied the Debtor’s motion as moot. The bankruptcy court held that the faxed documents were not returns under the hanging paragraph of § 523(a), and therefore the state tax debt was nondischargeable. The Debtor appealed and presented new arguments to the BAP not previously submitted to the bankruptcy court. These arguments asserted that the faxes constituted informal tax returns or complied with other provisions of the RTC sufficient to qualify as formal state tax returns.
Facts:
Prior to the debtor filing bankruptcy, the Debtor failed to file state tax returns in California for four years in the 1990s. California law requires individuals to file formal tax returns which must include specific information about gross income, deductions, credits, and a signature made under penalty of perjury. The IRS adjusted the Debtor’s federal tax liability in 2007 and assessed penalties in 2009. In 2009, the Debtor notified the FTB of the adjustments via fax and included IRS Form 4549-A, but the Debtor did not sign the faxes, made no representations under penalty of perjury, or produce other documents to the FTB for almost a decade. The FTB sent proposed assessments to the Debtor based on the faxes, and the Debtor did not file any state income tax returns for the years at issue, protests or other objections, allowing the assessments to become final in October 2009.
Judge(s):
The Hons. Faris, Lafferty, and Spraker

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