Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2013
 

Sales and Use Tax Annotations


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C

170.0000 COLLECTION OF TAX BY BOARD

Annotation 170.0001.151

(a) IN GENERAL

170.0001.151 Bankruptcy Automatic Stay. In 1991, a person sold an aircraft to Corporation A. On June 30, 1995, the Board mailed a tax return to the Corporation A, but it was never filed. On October 31, 1995, Corporation B filed Chapter 11 bankruptcy. On November 22, 1995, the Board issued a Notice of Determination to Corporation A. On February 20, 1996, the Board requested that liens be filed in San Diego County and with the FAA. On April 22, 1996, an attorney for Corporation B's bankruptcy trustee advised the Board that Corporation B was the true owner of the aircraft and that Corporation A does not exist. On May 8, 1996, the FAA recorded the Board's lien against the aircraft. On June 8, 1996, the bankruptcy court found that Corporation A is an unfiled d.b.a. of Corporation B, that the aircraft, although FAA-registered in the name of Corporation A, was in fact property of Corporation B, and that upon commencement of Corporation A's bankruptcy case, the aircraft became property of the debtor's bankruptcy estate. The bankruptcy court authorized the trustee to sell the aircraft and authorized the payment of the Board's lien on the aircraft "with a full reservation of rights for refund of amounts paid." On or about June 14, 1996, the payment of the tax liability was made. The bankruptcy trustee filed a claim for refund on two grounds: (1) Corporation B purchased the aircraft for resale and (2) the lien that the Board filed violated the bankruptcy automatic stay.

When the Board requested that a lien be recorded with the FAA, the automatic stay was in effect. The bankruptcy court has found that at the time that Corporation B filed bankruptcy, the aircraft became the property of the bankruptcy estate. Therefore, the filing of the FAA lien by the Board violated the bankruptcy automatic stay even though the Board had no opportunity to discover that the true owner of the aircraft had filed for bankruptcy protection.

The bankruptcy trustee paid the tax due on the aircraft so that the lien on the aircraft would be released and the aircraft could be sold to a third party. Section 6901 provides that a refund be granted for any amount "illegally collected." Thus, the Board should grant the refund on that basis. Also, it should issue a Notice of Determination to Corporation B for the tax, interest, and penalty due on its purchase of the aircraft and file a proof of claim for that amount in the bankruptcy proceeding. 10/31/96.