In Re: Roger E. Mantz and Sandra J. Mantz, Roger E. Mantz Sandra J. Mantz v. California State Board of Equalization

Roger and Sandra Mantz filed for Chapter 11 bankruptcy on May 23, 2000. The California State Board of Equalization (“SBE”) filed a proof of claim for over $1 million in taxes, interest, and penalties. The Mantzs objected to the SBE’s proof of claim. The bankruptcy court found that it lacked subject matter jurisdiction under 11 U.S.C. § 505 (a)(2)(A) to consider the Mantzs’ objection because the amount of state tax liability had already been adjudicated. Alternatively, it found that res ju-dicata barred relitigation of the state tax liability. The district court affirmed the bankruptcy court’s jurisdictional holding.

We hold that because there was no final administrative determination of the Mantzs’ tax liability prior to the commencement of the bankruptcy proceedings, the bankruptcy court had jurisdiction. We further hold that res judicata does not prevent the bankruptcy court from redetermining the Mantzs’ tax liability. We reverse and remand for further proceedings.

I. Background

The Mantzs owned two vacuum cleaner businesses in California — a used vacuum cleaner store in Livermore and a door-to-door sales business. On November 15, 1996, after conducting a sales tax audit on…