470 B.R. 535
9th Cir. BAP2012Background
- EDD seeks nondischargeability of a UI tax arising from an Onvoi payroll tax adjustment after Birdcage Travel's 0.9% rate was assumed.
- Onvoi entities, including Hansen, settled with EDD under a March 2009 Settlement Agreement approving an 11-month payment plan and penalties/interest.
- Hansen made six payments totaling roughly $1.0 million but defaulted on the remaining balance, triggering EDD collection rights.
- EDD notified Hansen of default and potential acceleration to recover the original assessment, with possible second-default consequences.
- Bankruptcy court initially held Hansen liable as a dischargeable contractual obligation, then revised to find the UI tax dischargeable, and the court entered judgment for the Debtors.
- EDD appealed, contending the UI tax was a priority tax under §507(a)(8)(C), nondischargeable under §523(a)(1)(A).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the UI Tax is a 'tax required to be collected'. | EDD argues UI Tax fits §507(a)(8)(C) as a tax to be collected by the debtor. | Hansen contends UI Tax is not a 'tax required to be collected' because it is employer-paid, not collected from third parties. | UI Tax is not a tax required to be collected under §507(a)(8)(C). |
Key Cases Cited
- United States v. Sotelo, 436 U.S. 268 (1978) (nondischargeability for certain tax-related obligations)
- In re Shank, 792 F.2d 829 (9th Cir. 1986) (trust fund and third-party collection concepts in §507(a)(6)(C) context)
- In re Vitaliano, 178 B.R. 205 (9th Cir. BAP 1995) (priority tax treatment and nondischargeability under §523(a)(1)(A))
- In re Raiman, 172 B.R. 933 (9th Cir. BAP 1994) (California sales tax as priority under §507(a)(7)(A))
- In re George, 95 B.R. 718 (9th Cir. BAP 1989) (California tax liability as excise tax under §507(a)(7)(E))
- In re Friedman, 466 B.R. 471 (9th Cir. BAP 2012) (statutory interpretation in tax priority context)
- In re AB Liquidating Corp., 416 F.3d 961 (9th Cir. 2005) (interpretation of priority provisions)
- In re Shank, 792 F.2d 829 (9th Cir. 1986) (trust fund taxes and collection from third parties under §507(a)(6)(C))