Dennis Berkovich v. California Franchise Tax Board
15f4th997
| 9th Cir. | 2021Background
- Debtor Dennis Berkovich timely filed California state returns for 2003–2005 but did not notify the California Franchise Tax Board (FTB) of increased federal assessments the IRS made in 2008 as required by Cal. Rev. & Tax. Code § 18622(a).
- The IRS forwarded its adjustments to the FTB, which assessed additional California income tax, penalties, and interest; Berkovich did not challenge or pay those assessments.
- Berkovich filed Chapter 13 in 2012, completed plan payments, and received a § 1328(a) discharge; the FTB later sued to except the state tax liabilities from discharge under 11 U.S.C. § 523(a)(1)(B).
- The bankruptcy court granted summary judgment for the FTB, ruling the § 18622(a) report requirement is an “equivalent report or notice” under § 523(a)(1)(B) and therefore the state tax debt is nondischargeable.
- The Ninth Circuit (adopting the BAP opinion) affirmed, holding a taxpayer’s duty under § 18622(a) qualifies as an “equivalent report or notice” and that the IRS’s transmission to the state does not satisfy the taxpayer’s reporting duty.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a § 18622(a) report is a “return, or equivalent report or notice” under 11 U.S.C. § 523(a)(1)(B) | Berkovich: §18622(a) reports are not “returns” and therefore do not trigger §523(a)(1)(B) | FTB: §523(a)(1)(B) expressly covers an “equivalent report or notice,” and §18622(a) requires taxpayer reporting of federal changes | Held: §18622(a) reports are “equivalent reports” under §523(a)(1)(B); failure to file renders the tax nondischargeable |
| Whether “equivalent report or notice” must satisfy the traditional four-part test for a return | Berkovich: Congress intended only documents meeting the definition of a “return” to qualify | FTB: 2005 amendments added “equivalent report or notice” to capture state reporting duties that are not formal returns | Held: The phrase covers non-return reports like §18622(a) notifications; reading it to require a return would make the phrase superfluous |
| Whether the IRS’s sending its adjustment to the FTB satisfies the taxpayer’s §18622(a) duty | Berkovich: IRS notice to FTB should suffice as the state received the information | FTB: §18622(a) and implementing regs require the taxpayer to report and either concede or contest the adjustment | Held: IRS forwarding does not discharge the taxpayer’s statutory reporting obligation; taxpayer must report and respond under §18622(a) |
Key Cases Cited
- Maryland v. Ciotti, 638 F.3d 276 (4th Cir. 2011) (state report of federal adjustment qualifies as an “equivalent report” under §523(a)(1)(B))
- Moroney v. United States (In re Moroney), 352 F.3d 902 (4th Cir. 2003) (articulating four-part test for whether a document constitutes a tax “return”)
- TRW Inc. v. Andrews, 534 U.S. 19 (2001) (statutory construction canon against rendering language superfluous)
- Boyajian v. New Falls Corp. (In re Boyajian), 564 F.3d 1088 (9th Cir. 2009) (de novo review of bankruptcy summary judgment)
- California Franchise Tax Bd. v. Jerauld (In re Jerauld), 189 F.3d 473 (9th Cir. 1999) (pre-2005 decision treating §18622 reports differently; superseded in part by the 2005 amendment)