What is California revenue and tax code section 6829?

Asked about 2 years ago - San Francisco, CA

I filed bankruptcy Chapter 7 on my SCorp and also Chapter 7 personal. My personal case was discharged. My Corporate case was active until recently. I got a letter in the mail saying I owe $10,000 in sales tax and my bankruptcy for the business was terminated without my knowledge.
I did not have anywhere near enough sales in my last quarter to account for $10,000 in sales tax. What do I do?

Attorney answers (3)

  1. Dana Whitney Atchley

    Contributor Level 14

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    Answered . First you need to talk to your bankruptcy attorney to find out what's going on and what the status of your cases (personal and corporate) are.

    Second you will need to retain a tax attorney or a competent CPA to work with you and your bankruptcy attorney to figure out exactly what periods the sales taxes are for and how/why they were assessed against you personally.

    Given that you had an s-corporation, I will assume that your sales were made by the corporation. When that happens, the liability for sales tax is initially just with the corporation; however, if the corporation doesn't pay those taxes, most states have a provision similar to California's RT&C Code sec. 6829 under which the unpaid sales tax liabilities of the corporation can be assessed against the corporation's shareholders, directors, officers, and anyone else who was a so-called "responsible person" for the corporation - basically anyone who had some sort of authority or responsibility for collecting the sales tax on behalf of the corporation and seeing to it that the collected taxes were paid over to the state.

    Responsible person assessments are frequently made a long time after the time the corporation first owed the tax to the state, and the assessments will often lump several calendar quarters together into one assessment (as a general matter; California's practice may be different and a California-licensed attorney could answer that particular detail for you). Because of that, you shouldn't assume that this $10k assessment is just for the final quarter of the business; it could be for several quarters (assuming the corporation was delinquent on its sales taxes for several calendar quarters).

    Further, even if the assessment is just for the final quarter, unless the corporation filed its final sales tax return for that quarter - in which case the assessment would most likely have been based on the tax shown as owing on that return - the sales tax liability would have been estimated by California using some sort of methodology. Unfortunately, sales tax auditors frequently have almost unlimited discretion in practice in estimating taxable sales and thus the amount of sales tax due if the business in question doesn't have adequate records. I have represented several businesses and individuals in sales tax audits in New York and I can tell you from personal experience that the auditors can arrive at flagrantly over-estimated amounts of additional tax and the NYS caselaw is replete with case after case after case where the NY courts have upheld those assessments more or less because "it was the taxpayer's fault for not keeping adequate books and records."

    The bottom line on that score is that it would be worthwhile consulting with a tax attorney licensed to practice in California who has experience contesting sales tax audits to get advise on whether or not it would be worth trying to get the amount of the assessment reduced based on actual sales records or other evidence indicating the amount of your taxable sales.

    Finally, as to the bankruptcy aspects of this assessment; generally speaking, responsible person liabilities assessed for the unpaid sales tax liabilities of a business are generally not dischargeable in bankruptcy. That means that you should be prepared to figure out how you're going to pay that assessment off.

  2. Ronald Jay Drescher

    Pro

    Contributor Level 12

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    Answered . It's good that you got your personal case discharged. Based upon your question that was probably the most important item. But the tax issue is troubling. Unfortunately, the question is not a bankruptcy question but a tax question. If you have an accountant (and you should if you had a business) I would start by asking the accountant about the sales tax issue, and probably ask either your accountant or your bankruptcy lawyer for a referral to a tax attorney. If it doesn't make any sense to you there's a good chance that the taxes may be subject to reduction.

    I am happy to answer general questions about my practice areas on this website. . However as I'm sure you... more
  3. Curtis Lamar Harrington Jr

    Contributor Level 20

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    Answered . Show your bankruptcy-tax attorney the Ilko case linked below.

    10k isn't much, but you may have personal liability under 6829 if the entity doesn't pay it.

    "I got a letter in the mail saying I owe $10,000 in sales tax and my bankruptcy for the business was terminated without my knowledge. "

    What does this mean?

    Are your bankruptcy and you not talking?

    Was it an 11 or 7?

    Was it a 7 that was continuing to operate?

    Your attorney should know instantly what is up and even moreso after reading Ilko.

    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal... more

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