Sienega v. State of California Franchise Tax Board, No. 20-60047 (9th Cir. 2021)
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Sienega failed to file required California state income tax returns in the 1990-1992, and 1996 tax years. The IRS made upward adjustments in Sienega’s federal tax liability for those years. For each of the four tax years, Sienega’s counsel faxed to California's Franchise Tax Board (FTB) a cover sheet and IRS Form 4549-A, listing the adjustments to Sienega’s income, the corrected taxable income and tax liability, interest, and penalties. The FTB issued a notice of proposed assessment for each tax year; each stated that the FTB had “no record of receiving [Sienega’s] personal income tax return.” The notices proposed to assess state taxes based upon the federal audit report and specified that if Sienega disagreed with any of the calculations, he would need to submit a formal protest. Sienega did not file any belated tax returns or protests. The assessments became final in 2009. In 2014, Sienega filed a bankruptcy petition. The FTB filed am adversary complaint seeking to have Sienega’s outstanding state tax debts declared nondischargeable under 11 U.S.C. 523(a)(1)(B), based on the fact that he had not filed a formal state tax return in any of the relevant years. Sienega contended that he had filed state tax returns by faxing information about the adjustments.
The bankruptcy court granted the FTB summary judgment. The Bankruptcy Appellate Panel and Ninth Circuit affirmed. The faxes did not constitute a return under the “hanging paragraph” in section 523(a) because the California state law process with which his faxes complied was not “similar” to 26 U.S.C. 6020(a), which authorizes the IRS to prepare a tax return when a taxpayer does not.
Court Description: Bankruptcy. The panel affirmed the Bankruptcy Appellate Panel’s judgment affirming the bankruptcy court’s summary judgment in favor of the California Franchise Tax Board in an adversary proceeding in which the Board sought to have a Chapter 7 debtor’s state tax debts declared nondischargeable under 11 U.S.C. § 523(a)(1)(B). The panel held that the tax debts were nondischargeable under § 523(a)(1)(B) because the debtor notified the Board of a federal tax adjustment by fax, but he did not file state tax returns. The panel held that the debtor’s faxes did not constitute a return within the meaning of the “hanging paragraph” in § 523(a) because the California state law process with which his faxes complied was not “similar” to 26 U.S.C. § 6020(a), which authorizes the Secretary of Internal Revenue to prepare a tax return when a taxpayer does not do so. * The Honorable Donald W. Molloy, United States District Judge for the District of Montana, sitting by designation. IN RE SIENEGA 3
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