619 B.R. 397
9th Cir. BAP2020Background
- Debtor Dennis Berkovich timely filed California state returns for 2003–2005, but in 2008 the IRS assessed substantial additional federal tax for those years.
- California law (Cal. Rev. & Tax. Code § 18622(a)) requires taxpayers to report federal changes to the Franchise Tax Board (FTB); Berkovich did not make that report.
- The IRS forwarded its adjustments to the FTB, which assessed additional state tax, penalties, and interest; Berkovich did not pay or contest those assessments.
- Berkovich filed chapter 13 in 2012, completed plan payments, and received a § 1328(a) discharge; the FTB received only a small distribution under the plan.
- The FTB later sued to except the state tax liabilities from discharge under 11 U.S.C. § 523(a)(1)(B), arguing Berkovich failed to file the required § 18622 report. The bankruptcy court granted summary judgment for the FTB.
- On appeal the Panel affirmed: the § 18622(a) report is an “equivalent report or notice” under § 523(a)(1)(B), so the state tax debts are nondischargeable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to file the § 18622(a) report makes the state tax nondischargeable under § 523(a)(1)(B) | Berkovich: §18622 report is not a “return” or equivalent, so debt is dischargeable | FTB: §18622 report is an “equivalent report or notice” required by nonbankruptcy law; failure to file renders tax nondischargeable | Affirmed: §18622 report is an equivalent report; taxes excepted from discharge |
| Whether alternative arguments (IRS notice suffices; grammatical/customs-duty reading; §18622(b) limits duty) change result | Berkovich: IRS’s forwarding satisfied duty; phrase targets customs duties; subsection (b) shows limited duty | FTB: statute requires taxpayer to report regardless; “equivalent report” is broader; (b) does not negate (a) | Rejected: IRS notice did not absolve taxpayer; other arguments unavailing |
Key Cases Cited
- Maryland v. Ciotti (In re Ciotti), 638 F.3d 276 (4th Cir. 2011) (state report of federal adjustment is an "equivalent report" under §523(a)(1)(B))
- Moroney v. United States (In re Moroney), 352 F.3d 902 (4th Cir. 2003) (four-part test for what constitutes a tax "return")
- TRW Inc. v. Andrews, 534 U.S. 19 (2001) (statutory-construction canon against superfluity)
- Satterfield v. Simon & Schuster, 569 F.3d 946 (9th Cir. 2009) (textualist presumption: interpret statute by its plain text)
- California Franchise Tax Bd. v. Jerauld (In re Jerauld), 189 F.3d 473 (9th Cir. 1999) (pre-2005 decision holding §18622 report was not a "return")