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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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IN RE: 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

REBECCA ANN ROBERTS, ) 

.. PILED 

Uoued St~ <::;I.nm:<,{ Apptn1is 

'! emh Circuit 

JU' 1

()1 () 17 I tJf'lo 

' r; ' l~?! 

ROBERT L. ROECKER 

Clerk 

formerly known as Rebecca Banks, ) 

ANTHONY JEROME ROBERTS, ) 

REBECCA 

ANTHONY 

v. 

UNITED 

) 

Debtors. ) 

) 

) 

) 

ANN ROBERTS; ) 

JEROME ROBERTS, ) 

) 

Appellees, ) No. 89-5145 

) 

) 

) 

STATES OF AMERICA, ) 

) 

Appellant. ) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF OKLAHOMA 

(D.C. NO. 89-C-46-B) 

Scott Hamilton, Legal Services of Eastern Oklahoma, Inc., Tulsa, 

Oklahoma, for Appellees. 

Kevin M. Brown, Assistant Attorney General, Tax Division, 

Department of Justice, Washington, D. C. (Shirley D. Peterson, 

Assistant Attorney General, and Gary R. Allen and Gary D. Gray, 

Attorneys, Tax Division, Department of Justice, Washington, D. C., 

with him on the briefs), for Defendant-Appellant. 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 1 
Before McKAY, ANDERSON, Circuit Judges, and BROWN,* District 

Judge. 

ANDERSON, Circuit Judge. 

The sole issue before us on appeal is whether a discharge in 

bankruptcy also discharges tax penalties related to 

nondischargeable tax liabilities incurred more than three years 

before the filing of the bankruptcy petition. The government 

appeals the district court's order affirming the bankruptcy 

court's ruling that such tax penalties are dischargeable pursuant 

to section 523(a)(7)(B) of the Bankruptcy Code. 11 u.s.c. § 

523(a)(7)(B). We hold that these penalties are dischargeable, and 

affirm the judgment of the district court. 

The debtors, Rebecca and Anthony Roberts, failed to file 

federal income tax returns for 1982 and 1983, and the IRS assessed 

taxes, penalties, and interest for those years. On June 10, 1988, 

the debtors filed a voluntary petition for relief under ,chapter 7 

of the Bankruptcy Code, 11 u.s.c. §§ 101-1103. On July 20, 1988 

they filed a complaint in the bankruptcy court seeking a 

determination of the dischargeability of the penalty portion of 

the tax liability. The bankruptcy court ruled that the tax 

penalties were not excepted from discharge under the statutory 

language of section 523(a)(7) because they related to events that 

* Honorable Wesley E. Brown, United States District Court for the 

District of Kansas, sitting by designation. 

2 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 2 
occurred more than three years prior to the filing of the 

bankruptcy petition. In re Roberts, 94 Bankr. 707 (Bankr. N.D. 

Okla. 1989). On the government's appeal, the district court 

affirmed. 

Section 523(a)(7) proscribes 

governmental fine 1 or penalty: 

other than a tax penalty --

the discharge of 

(A) relating to a tax [which is itself dischargeable]; 

or 

(B) imposed with respect to a transaction or event that 

occurred before three years before the date of the 

filing of the petition •..• 

any 

Courts and commentators have disagreed as to whether or not the 

language of subsections (A) and (B) should be read literally in 

the disjunctive so as to allow the discharge of any tax penalty 

for taxable periods more than three years before the bankruptcy 

petition even if the underlying tax liability is not 

dischargeable. Compare In re Burns, 887 F.2d 1541, 1543-52 (11th 

Cir. 1989) with Cassidy v. Commissioner, 814 F.2d 477, 480-81 (7th 

Cir. 1987); In re Hartman, 110 Bankr. 951 (D. Kan. 1990); In re 

Ferrara, 103 Bankr. 807, 872-73 (Bankr. N.D. Ohio 1989); In re 

Harris, 59 Bankr. 545, 549 (Bankr. W.D. Va. 1986); In re Gerulius, 

56 Bankr. 283, 286 (Bankr. D. Minn. 1985); In re Carlton, 19 

Bankr. 73 (D. N.M. 1982); 3 Collier on Bankruptcy, ~ 523.06 [11) 

(15th ed. 1989). 

1 Section 523(a)(7) does not apply to penalties or forfeitures 

which are "compensation for actual pecuniary loss •.. " and 

therefore does not conflict with with the overall statutory scheme 

providing for discharge of certain tax liabilities. 11 u.s.c. § 

523(a)(7); see,~, 11 U.S.C. § 523(a)(l) (and sections cited 

therein). 

3 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 3 
"When statutory language is not ambiguous, it is conclusive 

'absent a clearly expressed legislative intent to the contrary. 111 

Miller v. Commissioner, 836 F.2d 1274, 1283 (10th Cir. 1988) 

(quoting Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 

U.S. 102, 108 (1980)). Such an expression of contrary legislative 

intent must appear on the face of the statute, read in its 

entirety; beyond the statute itself, "legislative history should 

be used to resolve ambiguity, not create it. 11 Miller, 836 F.2d at 

1283 (citing United States v. Missouri Pa. R.R., 278 U.S. 269, 278 

(1929); United States v. Rone, 598 F.2d 564, 569 (9th Cir. 1979), 

cert. denied, 445 U.S. 946 (1980)); see also United States v. 

Brian N., 900 F.2d 218, 221 (10th Cir. 1990) (refusing to fully 

analyze legislative history because statutory language was 

unambiguous). Applying these principles, we find no provision in 

the Bankruptcy Code which indicates that the words of section 

523(a)(7)(B) do not mean what they say. Because the tax penalties 

were assessed for the tax years 1982 and 1983, the penalties were 

"imposed with respect to a transaction or event that occurred 

before three years before the date of the filing of the petition" 

and are dischargeable. 

The government's arguments are premised entirely on its 

reading of the legislative history of this provision. The most 

conclusive example of legislative history cited by the government 

is a Joint Statement (hereinafter "Joint Statement") issued by the 

managers of the legislation in lieu of a conference committee 

report. 2 The Joint Statement reads: 

2 We agree with the Eleventh Circuit's analysis 

4 

of the various 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 4 
[T)ax penalties which are basically punitive in nature 

are to be nondischargeable only if the penalty is 

computed by reference to a related tax liability which 

is nondischargeable or, if the amount of the penalty is 

not computed by reference to a tax liability, the 

transaction or event giving rise to the penalty occurred 

during the three-year period ending on the date of the 

petition. 

Statement of Sen. DeConcini, reprinted in 1978 U.S. Code Cong. & 

Admin. News 6505, 6569. 

The government urges first that the two subsections, 11 

U.S.C. § 523(a)(7)(A) and (B), must be read in the conjunctive 

rather than the disjunctive. It suggests that the drafters' use 

of the disjunctive ''or" in the statutory language is an anomaly 

and so insignificant that it should be ignored in favor of the 

legislative history. However, the legislative history, whatever 

its weight, does not support the government's first position. If 

the two subsections were read in the conjunctive, a tax penalty, 

to be dischargeable would have to be both: (l) computed by 

reference to a·dischargeable tax, and (2) related to a taxable 

year or other taxable event occurring more than three years prior 

to the bankruptcy petition. Under the government's proposed 

conjunctive interpretation, penalties assessed on dischargeable 

tax liabilities arising less than three years before bankruptcy 

[ .•. footnote continued] 

evolutions which section 523(a)(7) underwent during the 

legislative process prior to its adoption. In re Burns, 887 F.2d 

at 1545-51. Because the provision was significantly altered in 

the Senate and again in the informal reconciliation process 

between the legislation's managers, the reports of the various 

senate committees regarding the unamended versions are of varying 

significance. We view the Joint Statement as the most 

authoritative source of legislative history concerning the 

statutory language in question. See Burns, 887 F.2d at 1548-49 

n.8 (detailing the weight traditionally afforded conference 

[footnote continued ••. ] 

5 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 5 
could not be discharged. Such an approach is inconsistent with 

the viewpoint voiced by the legislation's managers as well as the 

express language of the statute. 

The government's next position, and the one deserving more 

attention, is that the language of subsection (B), when read 

together with subsection (A), is sufficiently ambiguous to warrant 

looking beyond the statute to the legislative history. Although 

this argument has some initial appeal, it does not withstand close 

scrutiny. 

First, the language of subsection (A) and subsection (B) ·is 

neither ambiguous nor difficult to understand. Subsection (A) 

provides that a tax penalty is dischargeable if it is related to a 

nondischargeable tax liability. Subsection (B) creates an 

arbitrary cutoff of three years, after which all uncollected tax 

penalties may be discharged in bankruptcy. Although this time 

limit is an innovation on pre-Code law, see In re Burns, 887 F.2d 

at 1544, it is nevertheless clear and understandable. 3 The only 

confusion created is the result of the government's insistence 

that such a blanket discharge after three years is not what 

Congress intended. That the statutory enactment differs from 

[ ... footnote continued] 

committee reports); 4 Norton 

n.l (1989-90 ed.). 

Bankruptcy Law and Practice, xxiii 

3 Although the Bankruptcy Code should not be read to "erode past 

bankruptcy practice absent a clear indication that Congress 

intended such a departure," Pennsylvania Dept. of Public Welfare 

v. Davenport, 58 U.S.L.W. 4610, 4613 (May 29, 1990) (citing Kelley 

v. Robinson, 479 U.S. 36, 47 (1986)), subsection (B), no matter 

how it is interpreted, is a departure from pre-Code practice and 

was clearly intended to be such. See Rev. Rul. 68-574, 1968-2 

C.B. 595, 597 (no provision in pre-Code practice for three-year 

cutoff). 

6 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 6 
widely held expectations does not necessarily demonstrate ambiguity in its language. 4 

Reading subsection (B) to allow the discharge of tax 

penalties dating back more than three years does not render 

subsection (A) meaningless. Obviously, tax penalties relating to 

events less than three years before bankruptcy may still be 

dischargeable under subsection (A) if the underlying tax liability 

is dischargeable. Contrary to the government's position at oral 

argument, the bankruptcy court'~ interpretation does not nullify 

the language of subsection (A). 

The government mischaracterizes its appeal to the legislative 

history as an effort to demonstrate the true meaning of the 

statutory language. That would be true if the statute could be 

reasonably read to effectuate the scheme urged by the government. 

In order to give the language such a meaning however, the 

operative language of subsection (B) relating to a tax penalty 

"imposed with respect to a transaction or event'' must be limited 

so as to apply only to "those [tax penalties] that are not 

computed by reference to a tax liability." Government's Brief at 

13. Subsection (A) must then be read to apply only to penalties 

4 As the Eleventh Circuit has noted, "[i]f we err ••• we do so 

with the knowledge that Congress is capable of crafting 

appropriate relief." In re Burns, 887 F.2d at 1545. It is not 

illogical or absurd in this regard for Congress to choose to treat 

tax penalties, which serve to induce obedience to the tax law, 

differently than the underlying tax liability. Whereas Congress 

might have wished to prevent bankruptcies intended solely to 

escape outstanding tax debts, it could have concluded that no such 

precaution was necessary with respect to unpaid penalties. A 

taxpayer discharged of burdensome tax penalties may prove better 

capable of generating new income from which to satisfy outstanding 

tax debts as well as producing new tax revenues, thus furthering 

the goals of both the Bankruptcy Code and the Revenue laws. 

7 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 7 
which are so computed, thus making the two subsections mutually 

exclusive. 

The actual language simply does not stretch that far. 

Subsection (A) refers, not to penalties "computed by reference'' to 

a dischargeable tax, but rather to any penalty "relating to'' such 

a tax. 5 The statutory language refers to the nature of the 

penalty rather then the method of computing it. Likewise, the 

language of subsection (B) does not lend itself to the limitation 

which the government seeks to impose on its application. Many tax 

penalties are ''imposed with respect to a transaction or event" and 

are nevertheless computed by reference to a tax liability. 6 

5 In fact, o,ne Senate version of the bankruptcy bill incorporated 

the language "computed by reference to. the amount of a tax 

liability of the debtor" in its provision which tracks what became 

subsection (A). S. 2266, 95th Cong., 2d Sess. § 523(a)(7)(A) 

(1978) (as amended and reported by Senate Finance Committee); see 

In re Burns, 887 F.2d at 1547. That language is noticeably 

absent, however, from the statute as enacted. 

6 A penalty might "relate to" a tax liability even if the amount 

of the penalty is not ascertained by means of an arithmetical 

formula incorporating the amount of the tax. Examples of such 

"related to'' penalties which can be computed without reference to 

the related tax liability include the statutory minimum $100 for 

failure to file an income tax return, 26 u.s.c. § 665l(a); failure 

to pay or underpayment of estimated income tax, 26 u.s.c. § 6654, 

6655 (specified percentage of underpayment frequently computed by 

reference to previous year's tax liability); failure to file a 

return by a DISC or FSC, 26 u.s.c. § 6686 ($1,000 per failure); 

failure to file a partnership return, 26 u.s.c. § 6698 ($50 per 

partner per month); and filing a frivolous return, 26 u.s.c. § 

6702 ($500 per return). On the other hand, almost every penalty 

computed by reference to a tax liability is nevertheless "imposed 

with respect to a transaction or event." See,~, 26 u.s.c. § 

665l(a)(l) (failure to file returns relating to distilled spirits, 

wines, beer, tobacco, cigars, cigarettes, machine guns, etc.); 26 

U.S.C. § 6662 (understatement of tax liability, valuation 

overstatement, overstatement of pension liabilities, estate or 

gift tax valuation understatement). 

8 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 8 
The government's proposed scheme, which treats tax penalties 

differently depending on whether the penalty is arithmetically 

computed by reference to a tax liability, is not a reasonable 

interpretation of the language in subsections (A) and (B); it is a 

different scheme altogether. However one might choose to view the 

relative merits of the two schemes, Congress enacted the scheme 

outlined by the statutory language. Under the statutory scheme, a 

penalty related to a dischargeable tax liability is immediately 

dischargeable; every other penalty becomes dischargeable after 

three years. 

Second, the legislative history does not warrant ignoring the 

plain statutory language. In a carefully crafted opinion, the 

Eleventh Circuit discussed at length the extensive series of 

compromises which eventually became the Bankruptcy Code. The 

court cited the need for strict adherence to the statutory 

language in such cases, and therefore refused to look to the 

inconclusive legislative history to defeat the plain effect of 

subsection (B). In re Burns, 887 F.2d at 1544-45. We agree that 

resort to legislative history is inappropriate in this case. As 

we stated in Miller v. Commissioner, 836 F.2d at 1281-82: 

There are several reasons for this general adherence to 

the words of the statute as commonly understood. First, 

our limited function, in deference to the legislative 

process, is to interpret and apply the law, not to make 

it •.•. Second, federal laws are enacted pursuant to 

the United States Constitution, which requires the 

President's consent to enact a law approved by the 

members of Congress unless two-thirds of the House and 

Senate override the President's veto. . .. Committee 

Reports [or joint statements in lieu of such reports] 

are not voted on by the full membership of both Houses, 

not are they submitted to the President for approval. 

Third, Congress and the President enact laws against a 

backdrop of common usage and interpretation (hence, the 

9 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 9 
choice of words used) which should control when words in 

a statute are applied ••.• Congress and the President 

approve or disapprove based upon the language contained 

in the enactment. 

(citations omitted). 

The government, offering no better justification than "the 

inexactness of language," would have us effectively amend the 

statute to correct what it believes to be a poorly drafted 

enactment. We will not do so. West Coast Hotel Co. v. Parrish, 

300 U.S. 379, 404 (1937) ("The judicial function. does not 

include the power of amendment under the guise of 

interpretation."). Indeed, we fail to see why the statute's 

language should be presumed inaccurate given the fact that the 

government's position assumes inaccuracy -in the wording of the 

legislative history contained in the Joint Statement. Although 

the Joint Statement clearly proscribes nondischargeability except 

in limited cases, no limitation on dischargeability is mentioned. 

The government assumes that this language of limitation in the 

Joint Statement is also meant to delineate between penalties that 

are discharged and those that are not. Thus the government would 

have us believe that Congress .is incapable not only of drafting a 

statute which reflects its intent, but that it cannot even express 

its intent with precision. 7 

7 We do not doubt that some support for the government's position 

can be found in various passages of the legislative history 

considered as a whole. However, to conclude from such an exercise 

that Congress clearly intended a scheme different from the one 

enacted would ignore altogether the differences between the two 

bankruptcy bills as they entered the reconciliation process, would 

leave unexplained the absence of the "computation" language once 

present in the Senate version, and would disregard the language in 

the actual statute. We conclude that the intent of the "drafters" 

[ footnote continued . • . ] 

10 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 10 
Finally, we are unpersuaded by the opinions of other courts 

which have interpreted section 523(a)(7) differently. Although 

the Seventh Circuit has interpreted the statute to preclude 

discharge of a tax penalty relating to a nondischargeable 

underlying tax, its opinion does not describe any ambiguity in the 

statute or give any reason for resorting to the legislative 

history. Cassidy v. Commissioner, 814 F.2d 477, 481 (7th Cir. 

1987). Furthermore, Cassidy cites as the sole authority for the 

court's conclusion a Senate report with no analysis or explanation 

of the changes in the statute subsequent to that report. For the 

reasons we have discussed, we join the Eleventh Circuit in 

respectfully disagreeing with the Seventh Circuit's 

interpretation. See In re Burns, 887 F.2d at 1544. 

Because the statutory language is clear and unambiguous and 

does not compel an irrational result, it is not necessa~y to refer 

to the legislative history to interpret its meaning. We therefore 

hold that a tax penalty "imposed with respect to a transaction or 

event that occurred before three years before" the bankruptcy 

petition is dischargeable in bankruptcy. 

district court is 

AFFIRMED. 

[ ••• footnote continued] 

The judgment of the 

is not demonstrably at odds with the strict statutory language. 

See United States v. Ron Pair Enter., Inc., 109 s.ct. 1026, 1031 

(1989) (plain meaning of statute is conclusive "except in the 

'rare cases [in which] the literal application of a statute will 

produce a result demonstrably at odds with the intention of its 

drafters. 111 ) (quoting Griffin v. Oceanic Contractors, Inc., 458 

U.S. 564, 571 (1982)). 

11 

Appellate Case: 89-5145 Document: 01019880464 Date Filed: 06/27/1990 Page: 11