O'Carroll, In re

Decision Date20 January 1998
Docket NumberNo. 87646,87646
Citation1998 OK 6,952 P.2d 45
PartiesIn re O'CARROLL, James, Debtor. James O'CARROLL, Appellant, v. The STATE of Oklahoma, ex rel. OKLAHOMA TAX COMMISSION, Appellee.
CourtOklahoma Supreme Court

Scott W. Bradshaw, Tulsa, for appellant.

Gregory K. Frizzell, General Counsel, Robert B. Struble, Deputy General Counsel, J.I.M. Caldwell, Assistant General Counsel, Oklahoma Tax Commission, Oklahoma City, for appellee.

ALMA WILSON, Justice:

¶1 Pursuant to the Uniform Certification of Questions of Law Act, 20 O.S.1991, §§ 1601, et seq., the United States District Court for the Northern District of Oklahoma certified the following question of state law to this Court:

Is the requirement to file an amended Oklahoma income tax return under Okla.Stat. Tit. 68, § 2375(H)(2) (1991), after adjustment of a taxpayer's federal income tax liability, dependent upon Okla.Stat. Tit. 68, § 2375(H)(1) (1991) to the extent that the requirement arises only if the taxpayer executed an agreement with the Internal Revenue Service extending the statute of limitations for assessment of additional tax within the Oklahoma three year statute of limitation period specified in Okla.Stat. Tit. 68, § 233; or does Okla.Stat. Tit. 68, § 2375(H)(2) operate as an independent requirement to file an amended Oklahoma return anytime a taxpayer's income is adjusted by the Internal Revenue Service?

¶2 We answer that § 2375(H)(2) of Title 68 of the Oklahoma Statutes imposes a duty upon Oklahoma tax reporters to notify the Oklahoma Tax Commission, by amended state income tax report or by letter, of any adjustment or correction in the returned federal net income or taxable income within one year after the federal adjustment or correction has been finally determined; and, the filing duty arises anytime a taxpayer's income is adjusted by the Internal Revenue Service, whether the adjustment or correction has been made pursuant to an agreement to extend the federal assessment period or pursuant to a procedure initiated within the applicable federal limitation period.

¶3 The federal district court submitted the following Statement of Pertinent Facts:

1. Appellant, James O'Carroll ("O'Carroll"), is the debtor in the underlying bankruptcy case commenced under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Oklahoma on January 24, 1995. Appellee, State of Oklahoma, ex rel., Oklahoma Tax Commission ("OTC"), is a state agency.

2. In conjunction with his bankruptcy case, O'Carroll filed the adversary proceeding now on appeal to the United States District Court for the Northern District of Oklahoma seeking a determination of the dischargeability of certain Oklahoma income taxes, interest, and penalties owed to OTC for the tax years 1984, 1987, 1989, 1990, and 1992.

3. The dischargeability of all years other than 1984 and 1987 were disposed of by stipulation.

4. O'Carroll owes the OTC income tax, interest, and penalty for 1984 and 1987 as follows:

1984: $11,251.78

1987: $33,400.49

5. O'Carroll filed an original Oklahoma income tax return for the tax year 1984 on July 1, 1985.

6. O'Carroll filed an original Oklahoma income tax return for the tax year 1987 on December 8, 1988.

7. O'Carroll's 1984 and 1987 original Oklahoma income tax returns were not false or fraudulent.

8. On January 15, 1992, additional Oklahoma income tax was assessed by OTC against O'Carroll, without protest, for the tax year 1984 following OTC's receipt of an Internal Revenue Service, Revenue Agent's Report showing additional federal income tax assessed against O'Carroll for the 1984 tax year.

9. On March 31, 1993, additional Oklahoma income tax was assessed by OTC against O'Carroll, without protest, for the tax year 1987 following OTC's receipt of an Internal Revenue Service, Revenue Agent's Report showing additional federal income tax assessed against O'Carroll for the 1987 tax year.

10. The additional tax assessed by the Internal Revenue Service ("IRS") against O'Carroll for 1984 and 1987 was lawfully assessed pursuant to the Internal Revenue Code. 1

11. O'Carroll did not execute a written consent with either the IRS or the OTC extending the time that an assessment of tax could be made within three years of the filing of the returns for the years in question.

12. O'Carroll never filed amended Oklahoma income tax returns reporting additional income tax as a result of additional federal assessments for either tax year 1984 or 1987, nor did O'Carroll notify OTC by letter that the information was available.

¶4 In the adversary proceeding, the bankruptcy court ruled in favor of the OTC. The federal district court summarized the parties contentions on appeal from the bankruptcy court as follows:

OTC contends that O'Carroll's state income tax liability for tax years 1984 and 1987 should be excepted from discharge in bankruptcy, pursuant to Title 11 U.S.C. § 523(a)(1)(B)(i), because O'Carroll failed to file required amended Oklahoma income tax returns, pursuant to title 68 O.S. § 2375(H)(2), after his federal income was adjusted for the disputed tax years.

O'Carroll contends that he was not required to file an amended Oklahoma return or notify OTC of the federal adjustment for either year because he did not execute any written consent with the IRS to extend the limitation for the assessment of additional federal tax as provided under Title 68 O.S.1991 § 2375(H)(1), or with the OTC as provided under Title 68 O.S.1991 § 233(b).

¶5 We do not address the dischargeability of the state tax assessments. The question posed is whether O'Carroll had a mandatory duty to file amended state tax reports for 1984 and 1987 or notice letters after his federal income was finally determined. Our answer is controlled by § 2375(H) of Title 68 of the Oklahoma Statutes. 2 The 1991 version of § 2375(H) provides:

H. 1. Where, before the expiration of the time prescribed in Section 223 of this title for the assessment of the tax, the taxpayer and the Internal Revenue Service have consented in writing to an extension of time in which the federal income tax may be assessed, the tax imposed under this law may be assessed, or refunded, at any time prior to the expiration of time agreed upon, with such additional time as specified hereinbelow.

2. If the amount of the net income for any year of the taxpayer under this law, and as returned to the United States Treasury Department, is changed or corrected by the Internal Revenue Service, such taxpayer, within one (1) year after final determination of the corrected net income, shall file an amended return reporting the corrected net income, or notify the Tax Commission by letter that the information is available, and the Tax Commission shall make assessment or refund based thereon within two (2) years from the date the return or notice required by this section is filed and not thereafter, unless a waiver is agreed to and signed by the Tax Commission and the taxpayer.

3. In the event of failure by a taxpayer to comply with the provisions of paragraph 2 of this subsection, the statute of limitations shall be tolled for a period of time equal to the time between the date the return or notice under this section is required until such return or notice is actually furnished.

¶6 In the briefs ordered by this Court, O'Carroll contends that § 2375(H) must be read as a narrow exception to 68 O.S.1991, § 223. 3 He urges that § 2375(H) is applicable only when the taxpayer and the IRS have agreed to extend the federal assessment period. Hence, he argues that paragraph (2) does not require the filing of an amended Oklahoma income tax return unless, pursuant paragraph (1), the taxpayer and the IRS have executed a consent to extend the federal assessment period prior to the expiration of the three-year assessment period in 68 O.S.1991, § 223.

¶7 We agree with O'Carroll that § 2375(H) expressly creates an exception to the three-year assessment and refund limitation generally applicable to any state tax. 68 O.S.1991, §§ 223 4 and 227. 5 The exception is obvious from a plain reading 6--state income tax may be assessed or refunded within the time limitations specified in the first three paragraphs in § 2375(H) after the federal income tax liability has been finally determined.

¶8 Paragraph (1) recognizes the federal procedure for extending the assessment time and authorizes assessment or refund of state income tax during the extended time. Paragraph (1) also authorizes assessment or refund of state income tax during the additional time specified in paragraph (2). 7 Paragraph (2) recognizes that the federal income tax returned by a taxpayer may be corrected or adjusted by the IRS and commands 8 a taxpayer to file an amended state return reporting the corrected federal net income or a letter advising that the information is available within one year and further commands 9 assessment or refund based thereon within two years from the date the return or notice required by this section is filed. Although paragraph (2) allows the taxpayer and OTC to waive the two-year assessment or refund period, we find no indication that paragraph (2) is restricted to taxpayers who have extended the federal assessment period. Likewise, paragraph (3), which tolls the two-year assessment or refund time when the taxpayer fails to file the required amended return or notice letter, is not restricted to the situation in paragraph (1).

¶9 In support of his narrow reading, O'Carroll relies on Fort Howard Paper Co. v. State, ex rel. Oklahoma Tax Commission, 10 for the proposition that the individual paragraphs of § 2375(G), 11 now § 2375(H) cannot be split into three separate, unrelated laws. 12 Reading § 2375(H)(1) and (2) so as to include all taxpayers whose federal returns have been lawfully adjusted or corrected by the IRS does not create unrelated fragments. It preserves the uniformity in the levy in the Oklahoma Income Tax Act 13 by...

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