{"id":1081,"date":"2020-10-25T00:08:35","date_gmt":"2020-10-25T00:08:35","guid":{"rendered":"http:\/\/www.fremont-bankruptcy-attorney.com\/blog\/?p=1081"},"modified":"2020-10-25T00:08:35","modified_gmt":"2020-10-25T00:08:35","slug":"any-change-in-internal-revenue-service-tax-liability-should-be-reported-to-the-california-franchise-tax-board","status":"publish","type":"post","link":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/2020\/any-change-in-internal-revenue-service-tax-liability-should-be-reported-to-the-california-franchise-tax-board\/","title":{"rendered":"Any Change In Internal Revenue Service Tax Liability Should Be Reported To The California Franchise Tax Board"},"content":{"rendered":"\n

By Ryan C. Wood<\/a><\/p>\n\n\n\n

What is this madness?\u00a0 No, this is not madness.\u00a0 It is just the layer upon layer of law that exists.\u00a0 Let me begin by informing you that filing for bankruptcy protection and owing the Internal Revenue Service or the California Franchise Tax Board unpaid taxes, fees or penalties is treacherous.\u00a0 Taxes can be discharged when filing for bankruptcy protection under certain circumstances, or better put, the taxes owed fulfill the requirements to be discharged.\u00a0 There are so many rules and layers upon layers of Tax Code versus Bankruptcy Code versus California State Law that it is treacherous.\u00a0 One little obscure overlooked, previously not enforced or not known rule could result in the tax obligation not being discharged when filing for bankruptcy protection.\u00a0 Or some rule not previously defined a certain way could be used to seek a different result not previously known.\u00a0\u00a0 That could be what happened to two bankruptcy filers in California and the subject of two recently published opinions by the Ninth Circuit Bankruptcy Appellate Panel.\u00a0 The opinions were published given this issue had not yet been addressed at the appellate level.\u00a0 That seems hard to believe so something must have changed.\u00a0 The various laws below did not change so it must be how they are being enforced or used.\u00a0 I think that change was the California Franchise Tax Board choosing to define or try and enforce California Revenue Tax Code Section 18622(a)(2) differently.\u00a0 Unfortunately the lower Bankruptcy Court judges and then the Ninth Circuit Bankruptcy Appellate Panel agreed with the California Franchise Tax Board.\u00a0 They are going to broadly defined \u201creport\u201d and \u201cchange\u201d so that people seeking bankruptcy protection and a discharge pursuant to the Federal Bankruptcy Code cannot discharge unpaid taxes.\u00a0 Another way to look at it is if you have not fulfilled your obligations to the taxing authorities then taxes owed should not be discharged when filing for bankruptcy protection. \u00a0\u00a0Bankruptcy attorneys<\/a> everywhere have an entire new set of questions to ask regarding unpaid taxes.\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/p>\n\n\n\n

See: In re: RUDOLF P. SIENEGA, BAP No. EC-19-1334-FLS<\/strong><\/p>\n\n\n\n

The Sienega bankruptcy case was originally filed in the\nEaster District of California and heard by Judge Christopher D. Jaime.  This case is distinguishable from the\nVoloshin case listed below.  In this case\nthe bankruptcy filer notified the California Franchise Tax Board of the\nincreased IRS assessments but admittedly he did not actually file \u201creturns\u201d\nwith the California Franchise Tax Board for the same years he was seeking to\ndischarge his tax liability.  See In re\nHatton, 220 F.3d 1070 (9th Cir. 2000) regarding what is a \u201creturn.\u201d  This case is a good example of arguably the\nproper application of RTC Section 18622(a) and Section 523(a)(1)(B) of the\nBankruptcy Code.  You have to at least\nfile a \u201creturn\u201d to have a shot at discharge. \n See In re Hatton, 220 F.3d 1070\n(9th Cir. 2000).  How to you define what\nis \u201can honest and reasonable attempt to satisfy the requirements of the tax\nlaw?\u201d<\/p>\n\n\n\n

See: In re IDENNIS BERKOVICH and MARINA VOLOSHIN, BAP No. CC-20-1025-FLS<\/strong><\/p>\n\n\n\n

The Berkovich bankruptcy case was originally heard in the Central District of California and heard by Judge Maureen A. Tighe.\u00a0 Now this case is far different.\u00a0 The bankruptcy filers in this case had an increase in tax assessment by the IRS of $145,000 for a tax year but did not report to the California Franchise Tax Board of the change.\u00a0 Eventually the California Franchise Tax Board did learn of the IRS change of assessment and increased the bankruptcy filers\u2019 taxes owed by $45,000 for that tax year.\u00a0 The taxes owed to the California Franchise Tax Board remained unpaid at the time the bankruptcy case was filed and the taxes met the requirements to be discharged notwithstanding RTC Section 18622(a) and Section 523(a)(1)(B) of the Bankruptcy Code. Unfortunately no [report] of the [change] was made. <\/p>\n\n\n\n

When Must This [Report} of the [Change] Take Place?<\/strong><\/p>\n\n\n\n

California RTC Section 18622(a) provides within six months after the date of each final federal determination of the change or correction or renegotiation, or as required by the Franchise Tax Board, and shall concede the accuracy of the determination or state wherein it is erroneous.<\/p>\n\n\n\n

Wow, what a mess this temporal or time requirement will hopefully turn into for the sake of bankruptcy filers. When was the federal determination of the [change] final? Can it issue be reopened to as to not be final? <\/p>\n\n\n\n

California Revenue and Tax Code Section 18622(a)<\/strong><\/p>\n\n\n\n

This section provides: \u201crequires a taxpayer to make a [report] to the California Franchise Tax Board FTB if the Internal Revenue Service [changes] the taxpayer\u2019s federal income tax liability.<\/p>\n\n\n\n

There is actually no language that says increase or decrease. I suppose if there was a decrease in any tax liability that in theory would never create a larger tax liability with the California Franchise Tax Board so who cares. Section 18622(a) is about encompasses increases of tax liability with the IRS and then increasing the California Franchise Tax Board liability accordingly. What if the [change] that is supposed to be [reported] decreased the federal income tax liability of the filer and the bankruptcy filer failed to [report] this decrease to the California Franchise Tax Board? Would this result in some tax not being discharged as well? What if it is only a penny change?  Or a one hundred dollar change?  A tiny change that was not reported?  Would it still be equitable to not allow the discharge of $100,000 in unpaid taxes due to not [reporting] a $0.01 change of assessment by the IRS? It is never so simple and defining terms then applying them to real world circumstances becomes even more difficult.   <\/p>\n\n\n\n

Bankruptcy Code\nSection 523(a)(1)(B)<\/strong><\/p>\n\n\n\n

Section 523(a)(1)(B)1 of the Bankruptcy Code provides that\nif a taxpayer fails to file a required \u201creturn, or equivalent report or\nnotice,\u201d the relevant tax debt is not discharged.  So without knowing more this is about filing\na tax return or an equivalent tax return report or notice.  It has nothing to do with informing the\nCalifornia Franchise Tax Board of a \u201cchange\u201d in tax liability by the Internal\nRevenue Service.  Is the \u201cchange\u201d an\nincrease or decrease by the way?  <\/p>\n\n\n\n

So Is This \u201cReport\u201d\nRequired By California Revenue Tax Code Section 18622(a) What Section\n523(a)(1)(B) of the Bankruptcy Code Encompasses?<\/strong><\/p>\n\n\n\n

Sadly the answer was yes in both of the published opinions\nreferenced above.  <\/p>\n\n\n\n

The Ninth Circuit Bankruptcy Appellate Panel held that the \u201creport\u201d\nrequired under RTC section 18622(a) is an \u201cequivalent report\u201d within the\nmeaning of \u00a7 523(a)(1)(B).   So otherwise\ndischargeable taxes owed to the California Franchise Tax Board are not\ndischargeable unless a \u201creport\u201d of a change in the taxpayers\u2019 federal income\ntax liability. <\/p>\n\n\n\n

What qualified as fulfilling this obligation to report?  Can you call up the FTB and verbally \u201creport\u201d\na change in federal income tax liability? \nAn email?  A facsimile?  What will fulfill the obligation of RTC\nSection 18662(a) be?   This is what will come next and how it\nworks.  First a term is broadly defined\nto encompass something or create a circumstance that was never intended by the\nlegislature then good faith compliance with the new interpretation is deemed\nnot sufficient.  Someone will in fact\n\u201creport\u201d their change in federal income tax liability and how they chose to\n\u201creport\u201d will be deemed not a \u201creport.\u201d \nThis is how it works.  Oh by the\nway, RTC Section 18622(a) does not make the distinction between an increase in\ntax liability or decrease in tax liability. \nIt just says you need to \u201creport\u201d a change in federal income tax\nliability.  As the plain language of\nthese words provides that is any change. \nSo you are telling me that a bankruptcy filers federal tax liability\ncould be reduced by hundreds of thousands of dollars but fail to \u201creport\u201d this\ndecrease or change to the California Franchise Tax Board and as it stands right\nnow that failure to \u201creport\u201d would make a tax liability owed to the California\nFranchise Tax Board not dischargeable when seeking bankruptcy protection?  Is this not absurd?  When the language of a statute is plain,\ncourts must enforce the statute according to its terms unless doing so would\nproduce absurd results.  See Lamie v.\nU.S. Tr., 540 U.S. 526, 534 (2004).  How\nis an absurd result defined as not absurd? \nThe court just says the result is not absurd.  <\/p>\n\n\n\n

Section 523(a) Full Text<\/strong><\/p>\n\n\n\n

(a)<\/strong>A discharge under section\u00a0727,\u00a01141,\u00a01192\u202f[1]\u00a01228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt\u2014<\/p>\n\n\n\n

(1)<\/strong>for a tax or a customs\nduty\u2014<\/p>\n\n\n\n

(A)<\/strong> of the kind and for the periods specified in section\u00a0507(a)(3)\u00a0or\u00a0507(a)(8)\u00a0of this title, whether or not a claim for such tax was filed or allowed;<\/p>\n\n\n\n

(B)<\/strong>with respect to which a\u00a0return, or equivalent report or notice, if required\u2014<\/p>\n\n\n\n

(i)<\/strong> was not filed or given;\nor<\/p>\n\n\n\n

(ii)<\/strong> was filed or given after the date on which such\u00a0return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or<\/p>\n\n\n\n

(C)<\/strong> with respect to which the debtor made a fraudulent\u00a0return\u00a0or willfully attempted in any manner to evade or defeat such tax;<\/p>\n\n\n\n

California\nRevenue and Tax Code RTC \u00a7 18622<\/strong><\/p>\n\n\n\n

(a)\u2002If any item required to be shown on a federal tax return, including any gross income, deduction, penalty, credit, or tax for any year of any taxpayer is changed or corrected by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, or where a renegotiation of a contract or subcontract with the United States results in a change in gross income or deductions, that taxpayer shall report each change or correction, or the results of the renegotiation, within six months after the date of each final federal determination of the change or correction or renegotiation, or as required by the Franchise Tax Board, and shall concede the accuracy of the determination or state wherein it is erroneous. \u2002For any individual subject to tax under Part 10 (commencing with Section 17001 ), changes or corrections need not be reported unless they increase the amount of tax payable under Part 10 (commencing with Section 17001 ) for any year.<\/p>\n\n\n\n

(b)\u2002Any taxpayer filing an amended return with the Commissioner of Internal Revenue shall also file within six months thereafter an amended return with the Franchise Tax Board which shall contain any information as it shall require. \u2002For any individual subject to tax under Part 10 (commencing with Section 17001 ), an amended return need not be filed unless the change therein would increase the amount of tax payable under Part 10 (commencing with Section 17001 ) for any year.<\/p>\n\n\n\n

(c)\u2002Notification of a change or correction by the Commissioner of Internal Revenue or other officer of the United States or other competent authority, or renegotiation of a contract or subcontract with the United States that results in a change in any item or the filing of an amended return must be sufficiently detailed to allow computation of the resulting California tax change and shall be reported in the form and manner as prescribed by the Franchise Tax Board.<\/p>\n\n\n\n

(d)\u2002For purposes of this part, the date of each final federal determination shall be the date on which each adjustment or resolution resulting from an Internal Revenue Service examination is assessed pursuant to Section 6203 of the Internal Revenue Code .\u2009 <\/p>\n\n\n\n

The real absurdity or tragedy is that bankruptcy attorneys<\/a> that know such distinctions and actually properly represent their clients rarely get paid properly for this knowledge and expertise.\u00a0 The lowest common denominator effect and advertising have ruined the market.\u00a0 Any attorney can put up a website then use pay-per-click and have fake reviews placed on the internet and sadly it works.\u00a0 Honest attorneys receive reviews organically over a period of time. Dishonest attorneys have a bunch of reviews with few words in a short period of time on one online platform and it is not organic. A ten out of ten rating on some online website is bought and paid for regardless of experience and knowledge. How can certain entities take money to recommend attorneys with absolutely ZERO knowledge of that attorney? Nothing is being done about this by any organization. Hopefully you read this article and my other articles to know what I am about and how I represent my clients. If you dare try and make things better you will be the nail that sticks out you will get hammered by all those on board with “the system.”<\/p>\n","protected":false},"excerpt":{"rendered":"

By Ryan C. Wood What is this madness?\u00a0 No, this is not madness.\u00a0 It is just the layer upon layer of law that exists.\u00a0 Let me begin by informing you that filing for bankruptcy protection and owing the Internal Revenue Service or the California Franchise Tax Board unpaid taxes, fees or penalties is treacherous.\u00a0 Taxes […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[72],"tags":[20],"_links":{"self":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1081"}],"collection":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/comments?post=1081"}],"version-history":[{"count":4,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1081\/revisions"}],"predecessor-version":[{"id":1085,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/posts\/1081\/revisions\/1085"}],"wp:attachment":[{"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/media?parent=1081"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/categories?post=1081"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fremont-bankruptcy-attorney.com\/blog\/wp-json\/wp\/v2\/tags?post=1081"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}