Rudolf Sienega v. State of California Ftb ( 2021 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE RUDOLF P. SIENEGA, No. 20-60047
Debtor,
BAP No.
19-1334
RUDOLF P. SIENEGA,
Appellant,
OPINION
v.
STATE OF CALIFORNIA FRANCHISE
TAX BOARD,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Faris, Lafferty III, and Spraker, Bankruptcy Judges,
Presiding
Argued and Submitted November 17, 2021
San Francisco, California
Filed December 6, 2021
2 IN RE SIENEGA
Before: Sidney R. Thomas and M. Margaret McKeown,
Circuit Judges, and Donald W. Molloy,* District Judge.
Opinion by Judge Thomas
SUMMARY**
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.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
IN RE SIENEGA 3
COUNSEL
Robert L. Goldstein, Law Offices of Robert L. Goldstein, San
Francisco, California, for Appellant.
Donny P. Le, Deputy Attorney General; Lisa W. Chao,
Supervising Deputy Attorney General; Tamar Pachter, Senior
Assistant Attorney General; Rob Bonta, Attorney General;
Attorney General’s Office, California Department of Justice,
Los Angeles, California; for Appellee.
OPINION
THOMAS, Circuit Judge:
This appeal presents the question of whether a Chapter 7
debtor’s tax debts were non-dischargeable because the debtor
notified the California Franchise Tax Board (“FTB”) of a
federal tax adjustment, but did not pay state taxes. We
conclude that the state tax debt was non-dischargeable. We
have jurisdiction pursuant to 28 U.S.C. § 158(d)(1), and we
affirm the judgment of the Bankruptcy Appellate Panel
(“BAP”).1
I
Sienega failed to file required California state income tax
returns in the 1990, 1991, 1992, and 1996 tax years. Around
2007, the IRS made upward adjustments in Sienega’s federal
1
We address Sienega’s arguments on the merits despite their
divergence from those presented to the BAP. See In re Mercury
Interactive Corp. Sec. Litig., 618 F.3d 988, 992 (9th Cir. 2010).
4 IN RE SIENEGA
tax liability for those four years, and in January 2009, the
U.S. Tax Court ruled that Sienega was also liable for
accuracy-related penalties of approximately $9,688.
Following the Tax Court decision, Sienega’s counsel notified
the FTB of the adjustments via fax. For each of the four tax
years, counsel faxed a cover sheet and an IRS form (Form
4549-A) that listed the adjustments to Sienega’s income, the
corrected taxable income and tax liability, interest and
penalties, and the total balance due. Each cover sheet stated:
Pursuant to California State law, Mr. and
Mrs. Sienega hereby notify the Franchise Tax
Board that the Internal Revenue Service has
made recent adjustments to their [year]
federal tax return, which they concede.
Following please find a copy of the IRS’
adjustments, including a computation of how
the changes were made.
In response to these faxes, the FTB issued a notice of
proposed assessment to Sienega for each of the four tax years.
Each notice stated that the FTB had “no record of receiving
[Sienega’s] personal income tax return for the year listed
above.” The notices proposed to assess state taxes for each
year “based upon the federal audit report submitted by the
taxpayer or representative.” The notices also specified that if
Sienega disagreed with any of the calculations of state tax
liability contained therein, he would need to submit a formal
protest to the FTB, lest the assessments become final.
Sienega did not file any belated formal tax returns or protest
any of the assessments, and the assessments therefore became
final by operation of law in October 2009.
IN RE SIENEGA 5
In November 2014, Sienega filed a voluntary Chapter 13
bankruptcy petition, which he later converted into a Chapter 7
petition. In November 2018, the FTB filed a timely 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
within the meaning of 11 U.S.C. § 523(a) by faxing
information about the adjustments to the FTB and was thus
entitled to discharge. The bankruptcy court granted summary
judgment to the FTB and declared the tax debt non-
dischargeable. The BAP affirmed. This timely appeal
followed.
II
Section 523(a)(1)(B) of the Bankruptcy Code bars the
discharge of tax debts for which the debtor did not file a
“return.” Sienega contends that his faxes constituted a return
within the meaning of the “hanging paragraph” in § 523(a),
which was added to that subsection in 2005 as part of the
Bankruptcy Abuse Prevention and Consumer Protection Act
(“BAPCPA”):
For purposes of this subsection, the term
“return” means a return that satisfies the
requirements of applicable nonbankruptcy law
(including applicable filing requirements).
Such term includes a return prepared pursuant
to section 6020(a) of the Internal Revenue
Code of 1986, or similar State or local law, or
a written stipulation to a judgment or a final
6 IN RE SIENEGA
order entered by a nonbankruptcy tribunal, but
does not include a return made pursuant to
section 6020(b) of the Internal Revenue Code
of 1986, or a similar State or local law.
11 U.S.C. § 523(a) (flush language).
The relevant provisions of 26 U.S.C. § 6020 state:
(a) Preparation of return by Secretary. If
any person shall fail to make a return required
by this title or by regulations prescribed
thereunder, but shall consent to disclose all
information necessary for the preparation
thereof, then, and in that case, the Secretary
may prepare such return, which, being signed
by such person, may be received by the
Secretary as the return of such person.
(b)(1) Authority of Secretary to execute
return. If any person fails to make any return
required by any internal revenue law or
regulation made thereunder at the time
prescribed therefor, or makes, willfully or
otherwise, a false or fraudulent return, the
Secretary shall make such return from his own
knowledge and from such information as he
can obtain through testimony or otherwise.
26 U.S.C. § 6020.
Before the BAP, Sienega argued that he had complied
with a California state law process “similar” to 26 U.S.C.
§ 6020(a) by faxing the FTB notice of his federal tax
IN RE SIENEGA 7
adjustments pursuant to California Revenue and Taxation
Code (“RTC”) section 18622. That California statutory
provision provides in relevant part:
If 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 competent authority, . . . that taxpayer
shall report each change or correction . . .
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.
Cal. Rev. & Tax. Code § 18622(a).
Section 18622(a) is not “similar” to 26 U.S.C. § 6020(a).
It does not authorize the FTB to prepare or execute a return.
Therefore, under the plain words of the relevant statutes, the
return exception contained in § 523(a)’s hanging paragraph
does not apply. And it is undisputed that the FTB did not
prepare or execute returns for Sienega. Rather, it issued
notices of proposed assessment and advised that it had no
record of any returns being filed for the relevant years.
Sienega now contends that the phrase “similar state or
local law” in § 523(a)’s hanging paragraph cannot be limited
to statutes, but must include processes, and that his faxes
constituted the functional equivalent of a state tax return. He
argues that the faxes provided the requisite tax information
8 IN RE SIENEGA
which was sufficient for the FTB to prepare “the required
legal form”; that by submitting the information, he subjected
himself to criminal liability if it were false; and that the
information was sufficient for the taxing authority to prepare
an assessment. Thus, he reasons that the faxes constituted
filing tax returns under state law within the meaning of
§ 523(a)’s hanging paragraph.
In this Circuit, we have adopted the Tax Court’s test for
what constitutes a “return,” articulated in Beard v.
Commissioner, 82 T.C. 766 (T.C. 1984). See In re Hatton,
220 F.3d 1057, 1060–61 (9th Cir. 2000) (adopting Beard);
see also In re Smith, 828 F.3d 1094, 1096 (9th Cir. 2016)
(stating this Court still applies the Beard test post-BAPCPA).
Under Beard, a “return” is a document that (1) “purport[s] to
be a return”; (2) is executed under penalty of perjury;
(3) contains enough data to allow computation of the tax; and
(4) represents an “honest and reasonable attempt to satisfy the
requirements of the tax law.” See Hatton, 220 F.3d
at 1060–61. California adheres to an almost identical
definition. See In re Appeals of R. & Sonja J. Tonsberg, 1985
WL 15812, at *2 (Cal. St. Bd. Eq. Apr. 9, 1985).
The faxes fail the Beard and Tonsberg tests. First,
Sienega did not file state tax returns that complied with
California law. RTC section 18501(a) provides that “[e]very
individual taxable under Part 10 (commencing with Section
17001) shall make a return to the Franchise Tax Board,
stating specifically the items of the individual’s gross income
from all sources and the deductions and credits allowable, if
the individual” meets certain criteria for the tax year. Cal.
Rev. & Tax. Code § 18501(a). RTC section 18621 sets forth
certain requirements of form and content, namely that:
IN RE SIENEGA 9
any return, declaration, statement, or other
document required to be made under any
provision of Part 10 . . . shall contain, or be
verified by, a written declaration that it is
made under the penalties of perjury. Those
returns, and all other returns, declarations,
statements, or other documents or copies
thereof required, shall be in any form as the
Franchise Tax Board may from time to time
prescribe . . . and shall be filed with the
Franchise Tax Board. The Franchise Tax
Board shall prepare blank forms for the
returns, declarations, statements, or other
documents and shall distribute them
throughout the state and furnish them upon
application. Failure to receive or secure the
form does not relieve any taxpayer from
making any return, declaration, statement, or
other document required.
Cal. Rev. & Tax. Code § 18621. Sienega did not file any
document that complied with these requirements, and the
faxes do not “purport to be a return.” Indeed, in its response,
the FTB communicated to Sienega that he had not filed
returns. Nor did the FTB indicate that it considered the faxes
to be returns.
Second, the faxes were not submitted under penalty of
perjury. In fact, Sienega did not sign them at all; they were
transmitted by his lawyer. Even though Sienega may have
been subject to criminal prosecution if he provided false
information, that is not the same as signing a document under
penalty of perjury.
10 IN RE SIENEGA
Third, although the faxes communicated adjustments to
federal taxes, and the FTB issued preliminary assessments,
the faxes did not contain enough data to allow complete
computation of state tax.
Fourth, nothing in the faxes indicates an “honest and
reasonable attempt to satisfy the requirements of tax law.”
The faxes simply communicate information about the
outcome of a federal proceeding.
In short, one of these things is not like the other. Thus,
the BAP correctly held that the faxes did not constitute state
tax returns under § 523(a)’s hanging paragraph. The BAP’s
conclusion is in accord with our interpretation of the pre-
BAPCPA version of § 523(a)(1)(B). See In re Jackson,
184 F.3d 1046, 1051 (9th Cir. 1999) (holding, before
BAPCPA added the “equivalent report or notice” clause, that
a “report” submitted to the FTB under RTC section
18622(a)’s predecessor statute did not qualify as a “return”
under § 523(a)(1)(B)), superseded by statute, BAPCPA of
2005, Pub. L. No. 109-8 § 714, 119 Stat. 23, 128–29, as
recognized in In re Berkovich, 15 F.4th 997, 998 (9th Cir.
2021).
Berkovich is not to the contrary, as suggested by Sienega.
In Berkovich, the BAP’s decision, which was adopted by this
Court, did not hold that a report submitted pursuant to RTC
section 18622(a) satisfies Beard. Rather, the BAP and this
Court—like the Fourth Circuit in In re Ciotti—held that an
RTC section 18622(a) report is “similar” to a “return” such
that it qualifies as an “equivalent report or notice” under
§ 523(a)(1)(B), but expressly rejected the argument that a
“‘report’ must meet the definition of a ‘return.’” 15 F.4th
at 1004–05 (noting that such a reading would render the “or
IN RE SIENEGA 11
equivalent report” clause surplusage); see also In re Ciotti,
638 F.3d 276, 280–81 (4th Cir. 2011). Similar does not mean
the same.
In sum, the BAP correctly concluded that sending faxes
was not the equivalent of paying taxes. Therefore, it properly
affirmed the holding of the bankruptcy court that the
California state taxes that Sienega owed were non-
dischargeable in bankruptcy.
AFFIRMED.