Unpublished Disposition, 905 F.2d 1540 (9th Cir. 1984)

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US Court of Appeals for the Ninth Circuit - 905 F.2d 1540 (9th Cir. 1984)

In re Bobby W. GEORGE, In re Ariel D. George, Debtors.Bobby W. GEORGE and Ariel D. George, Appellants,v.CALIFORNIA STATE BOARD OF EQUALIZATION, Appellee.

No. 89-15436.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 19, 1990.Decided June 22, 1990.



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.



The Honorable Pierce Lively, Senior Circuit Judge of the Sixth Circuit, sitting by designation


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Circuit Rule 36-3


Section 6051 states in pertinent part: "For the privilege of selling tangible personal property at retail a tax is hereby imposed upon all retailers at the rate of 2 1/2 percent of the gross receipts of any retailer from the sale of all tangible personal property sold at retail in this state."


Section 6829 provides in pertinent part: (a) Upon termination, dissolution, or abandonment of a corporate business, any officer or other person having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax, or who is under a duty to act for the corporation in complying with any requirement of this part, shall be personally liable for any unpaid taxes and interest and penalties on those taxes, if such officer or other person willfully fails to pay or to cause to be paid any taxes due from the corporation pursuant to this part."


Section 523 states in pertinent part:

(a) A discharge under section 727, 1141, 1228(a), or 1328(b) of this title does not discharge an individual debtor from any debt--

(1) for a tax or customs duty--

(A) of the kind and for the periods specified in section 507(a) (2) or 507(a) (7) of this title, whether or not a claim for such tax was filed or allowed.


Section 507 states in pertinent part:

(a) The following expenses and claims have priority in the following order:

* * *

(7) Seventh, allowed unsecured claims of government units, only to the extent that such claims are for--

* * *

(C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity;

* * *

(E) an excise tax on--

(i) a transaction occurring before the date of the filing of the petition for which a return, if required, is last due, under applicable law or under any extension, after three years before the date of the filing of the petition; or

(ii) if a return is not required, a transaction occurring during the three years immediately preceding the date of the filing of the petition.

11 U.S.C. § 507(a) (emphasis added).


In their opening brief, the Georges also argue that the tax under section 6829 is unconstitutional because it unfairly singles out individuals in a particular class to be taxed in violation of the equal protection clause. See Hillsborough Township v. Cromwell, 326 U.S. 620 (1946). The Georges assert, " [t]he corporate-officer liability statute is not a tax uniformly imposed upon members of a class, but is specially imposed on specific individuals and then only when the state board determines that special circumstances invoking it have occurred." Appellants' Opening Brief at 9. Appellants do not state any facts nor cite any case to support this proposition, and we have been unable to find anything to support it. Moreover, we find that the state's policy holding individuals in charge who have willfully failed to pay corporate taxes due to be personally liable upon dissolution of the corporate business is rationally related to a legitimate governmental interest. Ernzen, et al. v. United States, 875 F.2d 228, 230 (9th Cir. 1989)