Unpublished Disposition, 905 F.2d 1540 (9th Cir. 1984)

MEMORANDUM^** 

At issue in this appeal is whether personal liability imposed pursuant to Cal.Rev. & Tax.Code Sec. 6829 constitutes a "tax" nondischargeable in bankruptcy. We hold that it does and therefore affirm the decision of the Bankruptcy Appellate Panel.

Debtors Bobby and Ariel George were the sole shareholders and officers of Edgemark, Inc. (Edgemark). Beginning on July 1, 1984, and continuing every quarter thereafter, Edgemark reported but did not pay a tax owed under Cal.Rev. & Tax.Code Sec. 6051.¹  The Georges voluntarily transferred all of the corporate assets of Edgemark to their primary lender, Feather River State Bank, and then jointly filed for bankruptcy as individuals pursuant to Chapter 7 of the Bankruptcy Code. The California State Board of Equalization (the "Board") assessed a personal liability claim in the amount of $10,935.28 against the Georges pursuant to Cal.Rev. & Tax.Code Sec. 6829.² 

The Georges filed a complaint against the Board, seeking a determination that the Board's claim was dischargeable in their individual bankruptcy because it was not one of the exceptions to discharge listed in 11 U.S.C. § 523(a) (1) (A).³  The bankruptcy court determined that the liability imposed by the Board is for an excise tax under section 507(a) (7) (E) ("subsection (E)"), and is therefore nondischargeable under section 523(a) (1) (A).⁴  The Bankruptcy Appellate Panel affirmed.

The Georges maintain that their personal obligation under section 6829 is not a "tax" for the purposes of dischargeability. We disagree. The Georges' argument that their personal liability under section 6829 is dischargeable is precluded by the Supreme Court's decision in United States v. Sotelo, 436 U.S. 268 (1978). Sotelo involved the roughly simultaneous bankruptcies of Naomi and Onofre J. Sotelo and their corporation. Prior to filing their petitions, the Sotelos as corporate officers withheld federal taxes from their employees' wages, but did not turn them over to the government. Id. at 275. Under 26 U.S.C. § 6672, the officer charged with the duty of collecting these taxes could be held personally responsible for taxes withheld and not turned over by the corporation. The Supreme Court held that the fact that the personal liability was conditioned on the corporation's failure to pay did not render that tax liability dischargeable under section 17(a) (1) (e), the predecessor to sections 523(a) and 507(a) (7) (C). Thus, the Court held that liability under section 6672 is a tax, and that it created a nondischargeable tax obligation upon the responsible individual who files for bankruptcy.

In substance, there is little difference between section 6829 of the California Revenue and Taxation Code, and section 6672 of the Internal Revenue Code. Both provide for personal liability for responsible corporate officers when the corporation fails to pay its taxes. Consistent with Sotelo, therefore, section 6829 is a "tax" for the purposes of dischargeability, and is nondischargeable in bankruptcy.⁵ 

This conclusion is also consistent with the plain language of section 523. Under that section an individual debtor is not discharged from any debt for a tax owed under section 507(a) (7). The Georges owe a debt to the State of California for excise taxes that their corporation failed to pay. Since that debt is derived from an excise tax that falls within the scope of section 507(a) (7) (E), it is nondischargeable under section 523 with respect to the Georges' individual filings in bankruptcy.

AFFIRMED.