RYAN, Bankruptcy Judge:
Julie Elaine Jerauld ("Debtor") filed a complaint against the State of California, Franchise Tax Board ("FTB"), to have certain tax claims for 1982 and 1989 discharged. The FTB did not oppose the discharge of the 1989 tax claim but did contest the dischargeability of the 1982 claim (the "Claim"). At the trial on stipulated facts, the bankruptcy court held that the Claim was discharged and enjoined the FTB from instituting or continuing any action to collect on the Claim. The FTB appealed. We
In April 1983, Debtor and her former husband filed joint tax returns for the year 1982 with both the Internal Revenue Service ("IRS") and the FTB. On March 23, 1993, the IRS reassessed Debtor's taxes for the 1982 tax year in the amount of $14,166 (the "Reassessment") and notified the FTB of the Reassessment on April 29, 1993. Under § 18622 of the California Revenue and Taxation Code (the "CRTC"),
On May 11, 1995, Debtor filed a bankruptcy petition under chapter 7. The FTB was scheduled as a creditor with a claim for 1982, 1989, 1990, 1991, and 1992 income taxes in the aggregate amount of $14,926.81. Debtor received her discharge on September 16, 1995.
After the discharge, in response to an alleged wage garnishment to collect approximately $10,938 in 1982 taxes, Debtor filed a complaint to determine that the 1982 and 1989 taxes were discharged and to enjoin future collection efforts (the "Complaint"). The FTB is not seeking to collect any taxes for the 1989 tax year; therefore, only the Claim is currently in dispute between the parties.
The parties stipulated to these facts and agreed that the sole issue to be tried was whether, under the provisions of § 523(a)(1)(B)(i) of the Bankruptcy Code (the "Code"),
The trial on these stipulated facts was held on August 1, 1996. On August 15, 1996, an order discharging the Claim and enjoining any action to collect on the Claim was entered by the bankruptcy court. On August 22, 1996, the FTB filed its notice of appeal.
II. ISSUE ON APPEAL
The sole issue on appeal is whether Debtor's failure to notify the FTB of the Reassessment constituted a failure to file a tax return under § 523(a)(1)(B)(i).
III. STANDARD OF REVIEW
We review the bankruptcy court's findings of fact for clear error and the court's conclusions of law de novo. Neben & Starrett v. Chartwell Fin. Corp. (In re Park-Helena Corp.), 63 F.3d 877, 880 (9th Cir.1995), cert. denied, ___ U.S. ___, 116 S.Ct. 712, 133 L.Ed.2d 667 (1996) (citing Sousa v. Miguel (In re United States Trustee), 32 F.3d 1370, 1372 (9th Cir.1994)). Because the parties agreed to stipulated facts in the trial before the bankruptcy court, the issues on appeal are legal issues which we review de novo. See Western Farm Credit Bank v. Auza (In re Auza), 181 B.R. 63, 66 (9th Cir. BAP 1995); Wood v. Godfrey (In re Godfrey), 102 B.R. 769, 770 (9th Cir. BAP 1989).
Code § 523(a)(1)
For the FTB to establish that the Claim is nondischargeable under § 523(a)(1), in addition to satisfying § 507(a)(8), the FTB must show that Debtor did not file a required return. See 11 U.S.C. § 523(a)(1)(B)(i) (1994). The FTB argues that Debtor failed to report the Reassessment as required by former CRTC § 18451. Former CRTC § 18451 provided, in relevant part:
Cal. Rev. & Tax Code § 18451 (West 1993) (repealed 1994); see Cal. Rev. & Tax Code § 18622 (West 1996).
Former CRTC § 18451 specifically places the burden on the taxpayer to report any changes or corrections from his federal tax return to the FTB. In Vitaliano v. Franchise Tax Board (In re Vitaliano), 178 B.R. 205, 207-08 (9th Cir. BAP 1995), we held that the submission of Revenue Agent's Reports
However, the FTB further contends that this failure is the equivalent of failing to file a required tax return under § 523(a)(1)(B)(i). In support of this contention, the FTB relies on Blutter v. Unites States Dep't of I.R.S. (In re Blutter), 177 B.R. 209, 210 (Bankr. S.D.N.Y.1995).
In Blutter, the IRS assessed a tax deficiency against the debtor. Id. The New York statute provided that the debtor shall report the change to the state. Id. In holding the state tax claim nondischargeable, the court held that the failure by the debtor to comply with the reporting requirement was the
In response, Debtor cites Blackwell v. Virginia Dep't of Taxation (In re Blackwell), 115 B.R. 86, 89 (Bankr.W.D.Va.1990), where the court held that the statutory requirement to file a report regarding a federal tax change was not the same as a requirement to file an amended return. Id. at 89. The Virginia Department of Taxation relied on two Illinois cases, Haywood III v. Illinois Dep't of Revenue (In re Haywood. III), 62 B.R. 482, 485 (Bankr.N.D.Ill.1986), and Cohn v. Illinois Dep't of Revenue (In re Cohn), 96 B.R. 827, 828 (Bankr.N.D.Ill.1988), for support of its contention that the debtor was required to file an amended return. Blackwell, 115 B.R. at 88. The Blackwell court distinguished these two cases in that, unlike the Virginia statute, the Illinois statute specifically provided for the filing of an amended return. It also emphasized that exceptions to discharge are to be construed narrowly, that is strictly against the objecting creditor and liberally in favor of the debtor. Id. Additionally, the court stated that the purpose behind § 523(a)(1)(B)(i) was to "except from discharge taxes to which a debtor willfully attempted to evade or defeat by not filing a return." Id. at 89. The court found no evidence that the debtor willfully attempted to evade or defeat the adjusted state tax. Id.
The law in this area can be summarized as follows: (1) where the statute requires a debtor to notify it of a federal tax change by filing an amended return, a failure to file will cause the tax to be nondischargeable under § 523(a)(1)(B)(i);
Under former CRTC § 18451, California required a taxpayer to report to the FTB any federal tax change within 90 days after the IRS determination became final. See Cal. Rev. & Tax Code § 18451 (West 1993) (repealed 1994); see also Cal. Rev. & Tax Code
California law provides that when a statute is unambiguous on its face, we must take the statute as we find it and not try to embark on a journey to discover legislative intent. Wells Fargo Bank v. Bank of America, 32 Cal.App.4th 424, 38 Cal.Rptr.2d 521, 526 (1995); DaFonte v. Up-Right. Inc., 2 Cal.4th 593, 7 Cal.Rptr.2d 238, 242, 828 P.2d 140, 144 (1992). In order to determine what a statute means, "we first consult the words themselves, giving them their usual and ordinary meaning." Smith v. Fair Employment & Hous. Comm'n, 12 Cal.4th 1143, 51 Cal.Rptr.2d 700, 705, 913 P.2d 909, 914 (1996). Accordingly, when the language of the statute is clear and unambiguous, there is no need for construction. DaFonte, 7 Cal. Rptr.2d at 242-43, 828 P.2d at 144-43. Applying these principles of California law to the applicable language of former CRTC § 18451, California did not require that a taxpayer file an amended return unless the taxpayer filed an amended return with the IRS.
Section 523 (a)(1)(B)(i) reads "with respect to which a return, if required . . . was not filed." The requirement for the filing of a tax return is set by the taxing entity that assesses the applicable tax. Because California did not require the filing of an amended return under former CRTC § 18451 unless the same was filed with the IRS, Debtor did not have to file an amended return to notify the FTB of the Reassessment.
Citing Blutter, the FTB argues that even if Debtor did not have to file an amended return under former CRTC § 18451, her failure to file the required report was the equivalent of not filing a required return under § 523(a)(1)(B)(i). We are unwilling to follow the Blutter court's holding on this issue.
Congress specifically excepted from discharge under § 523(a)(1)(B)(i) tax claims where a debtor failed to file a required return. The language used to describe the exception is clear and unambiguous. Where the statutory language is plain, the inquiry ends and the sole function of the court is to enforce the statute according to its terms. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 1030, 103 L.Ed.2d 290 (1989). In Ron Pair, the Supreme Court stated that "[t]he plain meaning of legislation should be conclusive, except in the `rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.'" Id. at 242, 109 S.Ct. at 1031 (citing Griffin v. Oceanic Contractors. Inc., 458 U.S. 564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)).
The plain meaning of the word "return" should be conclusive, as it has a very specific meaning in the world of taxation. Certainly, taxpayers know what it means to have to file a tax return; they do it each year.
The legislative history of § 523(a)(1)(B)(i) also leaves no doubt that the word "return" is used technically to mean a tax return that is required by taxing authorities for taxpayers to set forth their tax liabilities.
Here, Debtor filed her return for the 1982 tax year. Nothing in the facts show that Debtor filed a false return or sought to evade her tax obligations. Later, the IRS reassessed her income taxes for 1982, and Debtor failed to notify the FTB. Again, the facts do not indicate that Debtor's failure to comply with the former CRTC § 18451 was motivated by an attempt to evade the paying of any additional state tax. Moreover, the FTB does not allege any fraud or wrongdoing on the part of Debtor in connection with her 1982 taxes. Its sole basis for asserting the nondischargeability of its claim is Debtor's failure to file a report of the Reassessment as required by former CRTC § 18451. Because we hold that the failure to file a report is not the same as a failure to file a required tax return, the claim of the FTB is not excepted from discharge under § 523(a)(1)(B)(i)
Former CRTC § 18451 required Debtor to file a report of the Reassessment. This notice requirement is not the equivalent of requiring Debtor to file an amended tax return. Section 523(a)(1)(B)(i) excepts from discharge a debt if the debtor fails to file a required tax return. Because former CRTC § 18451 did not require Debtor to file an amended return, § 523(a)(1)(B)(i) does not apply, and the bankruptcy court correctly held that the FTB claim was discharged. Accordingly, we
11 U.S.C. § 523(a)(1) (1994).
11 U.S.C. § 507(a)(8)(A) (1994).
124 Cong. Rec. H11, 113-114 (Sept. 28, 1978); S. 17,430-1 (Oct. 6, 1978) (emphasis added).