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Renovizor's, Inc. , In re … (2002)

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Standard of Proof of Tax Fraud Is Clear and Convincing Evidence

A bankruptcy court upheld the Board's claim for civil tax fraud against a debtor, based on a preponderance of the evidence. The bankruptcy court held that the California Supreme Court decision in Liodas v. Sahadi (1977) 19 Cal.3d 278, established that standard of proof in civil fraud cases. A U.S. district court affirmed the bankruptcy court.

On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed the bankruptcy court. The court predicted that the California standard of proof for civil tax fraud would be clear and convincing evidence. The court based its decision on Marchica v. State Board of Equalization (1951) 107 Cal.4th 501, and Board administrative decisions in franchise and income tax appeals. Although Marchica was an earlier decision by a court of appeal, and Liodas was a later decision by the California Supreme Court, the Liodas decision did not overrule or mention Marchica, and dealt with civil fraud generally, not civil tax fraud specifically. In re Renovizor's, Inc. (9th Cir. 2002) 282 F.3d 1233.