Opinion
C063450
08-10-2011
ELS EDUCATIONAL SERVICES, INC., Plaintiff and Respondent, v. FRANCHISE TAX BOARD, Defendant and Appellant.
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Super. Ct. No. 07AS03070)
This case involves the capital gains treatment of a sale of one corporation to another. In particular, it tenders the question whether Revenue and Taxation Code, section 23806, subdivision (a), has "modified" Internal Revenue Code section 338 (26 U.S.C. § 338).
Further undesignated statutory references are to the Revenue and Taxation Code.
Plaintiff/respondent ELS Educational Services, Inc. (ELS), a subchapter S corporation (under which the income of the corporation is passed through to its stockholders), was acquired by Berlitz Languages, Inc. (Berlitz) on August 28, 1997. The state imposed capital gains taxes on its stockholders as of that date, the taxes were paid, and the stockholders filed suit for a refund. The trial court ruled in their favor and ordered a refund. This appeal followed.
ELS and Berlitz made a joint federal election under Internal Revenue Code section 338(h)(10), to treat the sale of ELS's stock to Berlitz as a sale of its assets at fair market value on the date of the sale. At the time of the sale, California Law--namely, Revenue and Taxation Code section 23806--provided that an election under section 338 "for federal purposes shall be treated as an election for purposes of [California law]."
Defendant/appellant Franchise Tax Board (the Board) reads the plain language of this section to require application of the federal rule. As a consequence, the ELS stockholders' capital gains were taxed by the Board as of the date of the sale of ELS to Berlitz.
ELS seeks to avoid the plain meaning of section 23806 by resort to the section's Legislative history. However, legislative history applies only to resolve a statutory ambiguity, and here there is none. Further, the stockholders' subsequent attempt to file a noncomforming election under California law so as to deem the asset sale not to have occurred was filed too late. We shall reverse.
DEFINITIONS AND DESCRIPTIONS
I
C and S corporations
"For federal income tax purposes, there are two kinds of corporations: 'C corporations' (so named because their governing provisions are found in subch. C, ch. 1, subtit. A of the Int[ernal] Revenue Code) and 'S corporations' (governed by subch. S of the same chapter). A C corporation is a separate entity which pays corporate income taxes 'according to or measured by its net income.' (§ 23151, subd. (a).)" (Heller v. Franchise Tax Bd. (1994) 21 Cal.App.4th 1730, 1733 (Heller).)
"[A]n S corporation . . . files only an informational return reporting for the taxable year its gross income (or loss) and deductions, its shareholders, and the shareholders' pro rata shares of each item. (26 U.S.C. § 6037(a).) The items are then 'passed through' on a pro rata basis to the shareholders, who report them on their personal income tax returns. [Citations.] 'The S corporation is, in effect, a Code-created hybrid combining traits of both corporations and partnerships.' [Citation.]" (Heller, supra, 21 Cal.App.4th at p. 1733.)
"Until 1987, California did not distinguish between C corporations and S corporations for state tax purposes, instead treating all corporations as C corporations. [Citation.] Beginning in 1987, California modified its position so that 'Subchapter S of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to the tax treatment of "S corporations" and their shareholders, shall apply, except as otherwise provided in this chapter.' (§ 23800, subd. (a).) . . . [U]nder federal law, . . . , S corporations [generally] do not pay federal income tax. (26 U.S.C. § 1363(a); 26 C.F.R. § 1.1363-1 (1993).) However, California imposes a state tax upon the S corporation's net income. (§ 23802, subd. (b)(1).)" (Heller, supra, 21 Cal.App.4th at pp. 1733-1734.)
"C corporations are taxed upon their income as separate entities, and [their] distributions of earnings and profits . . . to their shareholders generally are taxable to the shareholders as dividends. [Citation.] In contrast, S corporation shareholders are taxed on their share of the S corporation's income. . . . [Citation.]" (Heller, supra, 21 Cal.App.4th at p. 1734.)
II
Federal Tax Election Upon Acquisition--Section 388 Federal tax law provides that, except as otherwise specified, the rules governing C corporations (Int. Rev. Code, §§ 301 et seq.) apply to S corporations and their shareholders. (Id., § 1371(a).) One such rule states that when one corporation acquires another, the parties may elect to treat the stock purchases involved in the transaction as asset acquisitions. (Id., § 338.)
Section 338 provides in part (italics added):
"(a) General rule. For purposes of this subtitle, if a purchasing corporation makes an election under this section . . . , then, in the case of any qualified stock purchase, the target corporation -- [¶] (1) shall be treated as having sold all of its assets at the close of the acquisition date at fair market value in a single transaction, and [¶] (2) shall be treated as a new corporation which purchased all of the assets referred to in paragraph (1) as of the beginning of the day after the acquisition date.
"[¶] . . [¶]
"(d) Purchasing corporation; target corporation; qualified stock purchase. For purposes of this section -- [¶] (1) [] The term 'purchasing corporation' means any corporation which makes a qualified stock purchase of another corporation. [¶] (2) [] The term 'target corporation' means any corporation the stock of which is acquired by another corporation in a qualified stock purchase. [¶] (3) [] The term 'qualified stock purchase' means any transaction or series of transactions in which stock . . . of [one] corporation is acquired by another corporation by purchase[.]
"[¶] . . [¶]
"(g) Election. (1) When made. . . . An election under this section shall be made not later than the 15th day of the 9th month beginning after the month in which the acquisition date occurs. . . .
"(h) Definitions and special rules. For purposes of this section . . . . [¶] (10) Elective recognition of gain or loss by target corporation . . . . (A) In general. Under regulations prescribed by the Secretary, an election may be made under which if -- [¶] (i) the target corporation was, before the transaction, a member of the selling consolidated group, and [¶] (ii) the target corporation recognizes gain or loss with respect to the transaction as if it sold all of its assets in a single transaction, [¶] then the target corporation shall be treated as a member of the selling consolidated group with respect to such sale, and . . . no gain or loss will be recognized on stock sold or exchanged in the transaction by members of the selling consolidated group." (Int. Rev. Code, § 338.)
Although Internal Revenue Code section 338(h)(10) on its face applies only when a corporation acquires a "selling consolidated group [of corporations]" (Int. Rev. Code, § 338(h)(10)(A), (B)), a federal Treasury regulation adopted in 1994 states: "A section 388(h)(10) election may be made for T [the target corporation] if P [the purchaser] acquires stock meeting the requirements of section 1504(a)(2) from a selling consolidated group, a selling affiliate, or the S corporation shareholders in a qualified stock purchase." (26 C.F.R. § 1.338(h)(10)-1(c)(1) (1994); italics added.)
III
California Law Prohibiting Separate Election--Section 23806
In 1987, the Legislature enacted section 23800 et seq., titled "Tax Treatment of S Corporations and Their Shareholders" (Stats. 1987, ch. 1139, § 55), which conformed California tax law to federal tax law by treating S corporations and their shareholders in the manner prescribed by subchapter S of the Internal Revenue Code, except as otherwise provided. (§ 23800.) Section 23806 at the time stated only: "Section 1371(d) of the Internal Revenue Code shall not be applicable."
This provision, titled "Coordination with investment credit recapture," is irrelevant to this case.
In 1997, the Legislature amended section 23806 by inserting the following provision (italics added):
The original section 23806 was retained and renumbered as subdivision (b).
"(a) Section 1371(a) of the Internal Revenue Code, relating to application of Subchapter C rules, is modified to provide that, notwithstanding subdivisions (a) and (e) of Section 23051.5, an election under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, for federal purposes shall be treated as an election for purposes of this part and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 shall not be allowed." (Stats. 1997, ch. 611, § 75.)
Section 23051.5, subdivision (e), then provided in part: "Whenever this part allows a taxpayer to make an election, the following rules shall apply: . . . . [¶] (3) To obtain treatment other than that elected for federal purposes, a separate election shall be filed with the Franchise Tax Board at the time and in the manner which may be required by the Franchise Tax Board." (Stats. 1996, ch. 952, § 32.) Subsequent amendments did not materially change this language.
FACTUAL AND PROCEDURAL HISTORY
I
Stipulated Facts
The case came before the trial court on the following stipulated facts:
"1. ELS began doing business in California in 1968.
"2. ELS elected S corporation status for both California and Federal income tax purposes beginning with the income year ending December 31, 1996.
"3. On or about August 28, 1997, Berlitz [] purchased 100 percent of ELS'[s] stock from its shareholders.
"4. ELS'[s] tax year for the year in which stock of ELS was acquired began on January 1, 1997, and ended on August 28, 1997.
"5. On or about May 15, 1998, B[erlitz] and the selling ELS shareholders timely and properly made a joint federal election under Internal Revenue Code section 338(h)(10) to treat the August 28, 1997 sale of the stock as a sale of the assets of ELS.
"6. The impact of this federal election, commonly known as a deemed asset sale election, was:
"A. ELS was deemed to have sold all of its assets at the close of the acquisition date at fair market value.
"B. Since ELS was an S corporation, gain from the deemed asset sale passed through to the ELS shareholders.
"C. Because ELS had only recently elected S corporation status, the built-in gain (i.e., the gain which would have been recognized if ELS had sold its assets at fair market value as of the effective date of the S election) was triggered and became subject to C corporation tax.
"D. The actual stock sale by the ELS shareholders was disregarded for income tax purposes.
"E. ELS was deemed to have acquired all of the assets as of the beginning of the day after the acquisition date.
"F. ELS'[s] deemed acquisition of assets at fair market value included an acquisition of intangibles, valued at $99,132,651, which were eligible to be amortized for federal tax purposes over 15 years. This resulted in an annual tax deduction for amortization equal to $550,736.91 per month until fully amortized (for twelve calendar months, this would equal $6,608,843).
"7. B[erlitz] and the selling shareholders agreed to make a nonconforming election so that the federal section 338(h)(10) election would not be applied for California tax purposes.
"8. On or about May 22, 1998, ELS timely filed its California income tax return for the tax year ending August 28, 1997.
"9. ELS included with its California income tax return for the tax year ending August 28, 1997, nonconforming elections to avoid having the federal section 338(h)(10) election apply for California income tax purposes.
"10. With its California income tax return, ELS included statements from each of the former ELS shareholders stating that they elected to avoid the application of their Internal Revenue Code section 338(h)(10) election for purposes of ELS'[s] California tax return. For purposes of this case, the Board does not dispute that a similar statement from B[erlitz] was included with ELS'[s] California income tax return.
"11. If allowed and effective, the impact of a nonconforming election for California purposes would be:
"A. The deemed asset sale would not be deemed to have occurred; and, thus, ELS would not recognize gain on the deemed sale of assets.
"B. ELS would not have recognition of built-in gain. "C. The shareholders of ELS would not report the gain from the deemed sale of assets by ELS, but would have gain from the sale of their ELS shares.
"D. ELS would not have been deemed to have acquired intangible assets and would not be entitled to the additional tax deduction for amortization of goodwill.
"12. On July 22, 2002, the Board issued a Notice of Proposed Assessment ('NPA') stating that ELS owed $630,615.97. The NPA was based on the ground that ELS filed its nonconforming election after May 15, 1998, which the Board contends was the statutory deadline for such an election to be made.
"13. Pursuant to Internal Revenue Code section 19041, ELS timely filed an administrative protest of the proposed deficiency included in the NPA.
"14. Following a protest hearing, in addition to sustaining the NPA based on the late filing of the nonconforming election, the Board determined that California law for the year at issue did not allow ELS to file a nonconforming election.
"15. On March 24, 2005, in accordance with the requirements of the Board's Amnesty Program, ELS paid the allegedly owed $630,615.97, plus interest of $429,880.29, for a total payment of $1,060,496.26.
"16. ELS has paid in full all alleged income taxes and interest for the tax year at issue. ELS has not paid any penalties for that tax year, because none were assessed.
"17. ELS has timely and properly exhausted all administrative remedies, including filing a protest, appealing the denial of that protest to the California State Board of Equalization, obtaining a rejection of that appeal, filing a claim for refund with the Franchise Tax Board, and having the claim for refund denied.
"18. If the Board's position regarding the NPA is ultimately upheld, the federal section 338(h)(10) election would be applied for California purposes, and therefore:
"A. ELS would be considered to have sold all of its assets on August 28, 1997, and would have realized taxable gains on the sale of those assets. Because California imposes a regular corporation tax on an S corporation at a 1.5 percent rate, the gain on ELS'[s] deemed asset sale would result in $301,397 of additional corporation tax due from ELS.
"B. In addition, the built-in gain attributable to California would be subject to California corporate tax at a rate of 8.84 percent and would result in additional tax of $339,019 due from ELS.
"C. ELS would also be considered to have re-acquired its assets at fair market value, including an intangible asset valued at $99,132,651 that could be amortized over a period of 15 years, creating additional tax deductions for ELS for California tax purposes.
"D. Accordingly, ELS would not be entitled to a refund of the tax and interest paid.
"19. If, however, ELS establishes that it validly elected out of its federal section 338(h)(10) election for California purposes, ELS would be entitled to a tax refund of $630,615.97, plus statutory interest accruing from November 15, 1997."
II
The Parties' Legal Positions
ELS's trial brief is summarized in pertinent part as follows:
1. Because the Board had previously interpreted section 23806 otherwise than it did now, the statute was ambiguous and could not be construed without resort to legislative history.
2. The legislative history of section 23806's 1997 amendment showed it was intended to bar separate elections only by S corporations that acquired subsidiaries, not by S corporations acquired by other corporations.
3. Further amendments to section 23806 in 1998 (not in effect when ELS made its election) materially changed the statute, so that it now did bar all separate elections by S corporations--thus further proving the Legislature had not meant to do so in 1997.
We quote and discuss the statute as amended in 1998 in part III of the Discussion.
4. ELS's election, though filed after May 15, 1998 (the normal deadline for an election based on events occurring in a tax year that ended in 1997), was timely according to the Board's own guidelines (Cal. Code Regs., tit. 18, § 24519 [hereafter regulation 24519]), which advised a corporation seeking to avoid the application of an Internal Revenue Code section 338(h)(10) election for California tax purposes to file its separate election together with its timely filed tax return.
As we will explain, ELS's reliance on regulation 24519 was misplaced. However, we conclude that the timeliness issue is moot in any event because section 23806 barred ELS's inconsistent election regardless of when it was filed.
The Board's trial brief is summarized in pertinent part as follows:
1. Section 23806 as amended in 1997 unambiguously prohibited S corporations and their shareholders (whether the corporation was acquiring or being acquired by another corporation) from opting out of any Internal Revenue Code section 338 election for California tax purposes.
2. Because the statute was clear and unambiguous, resort to legislative history was unnecessary. In any event, the legislative history cited by ELS did not support its position. Neither did a Board publication also cited by ELS, which was consistent with the Board's present view of the statute.
3. The 1998 amendments to section 23806 did not change it materially, but merely clarified it by making explicit what was already necessarily implied. The Board's statement on the effect of the amendments, cited by ELS, was not to the contrary.
4. Even assuming ELS could lawfully file a separate election on or before May 15, 1998, its election was untimely because it was filed after that date. Regulation 24519 did not extend the deadline: it applied only to elections by acquiring corporations, not to elections by corporations being acquired.
III
The Trial Court's Decision
The trial court heard oral argument on July 1, 2009, and took the matter under submission. On July 6, 2009, the court issued a tentative ruling in favor of ELS and directed the preparation of a proposed statement of decision.
Over the Board's objections, on September 9, 2009, the trial court adopted the proposed statement of decision as its statement of decision. The statement of decision reads as follows:
"After considering the facts and the law cited by the parties, both in their briefs and at oral argument, the Court finds that Revenue and Taxation Code section 23806(a), as amended and effective January 1, 1997, did not prohibit nonconforming Internal Revenue Code Section 338 elections by an S corporation or its shareholders upon the acquisition of such S corporation's stock by a C corporation, since:
"1. The modification of Internal Revenue Code section 1371(a) referenced in the prefatory language of Revenue and Taxation Code [s]ection 23806(a), which applies C corporation rules to an S corporation, only impacts the acquisition by an S corporation of stock of another corporation, for example a so-called 'qualified S corporation subsidiary,' and does not affect the acquisition by a C corporation of stock in an S corporation;
"2. The version of Revenue and Taxation Code section 23806(a), amended in 1997 in chapter 75 of S[enate] B[ill] 455, appears to be conformational to Federal Tax laws and rules as they existed in 1996, modifying and prohibiting, however, only the right of an S corporation purchaser acquiring the stock of a subsidiary to make a nonconforming election (none of which is presented by this case, as ELS was not an acquiring corporation); and
"3. Both the legislative history of the 1997 amendment to Revenue and Taxation Code section 23086(a) adopted both by SB 455 and by SB 5, and commentaries and Notices of and by the Franchise Tax Board, indicate that such amended section applied to situations where an S corporation had acquired the stock of a qualified S corporation subsidiary, which acquisition was contemplated and authorized by federal tax law in 1996. Specifically, in describing the purpose of this provision, the Senate Revenue and Taxation Committee and several Senate Floor Analyses stated the following:
'This bill would generally conform California Corporation Tax Law with the new subchapter S provisions, with the following exceptions: Qualified S corporation subsidiaries would be required to make the same taxpayer elections at the state level as at the federal level. This would apply
in particular to the transfer of asset or sale of stock election when a parent S corporation acquires a subsidiary corporation.' [California Committee Analysis, Statement, Senate Revenue and Taxation Committee, February 5, 1997; Senate Floor Analyses, June 2, 1997, September 12, 13, 17, 1997 and November 14, 1997.] (Emphasis added by the Court.)
"Because Revenue and Taxation Code section 23806(a) does not apply to the facts of this case, as the S corporation ELS was the target, the stock of which was being sold by its shareholders, the Court finds that ELS was entitled to rely on the filing instructions and deadline contained in the Board's Regulation 24519(b) for the filing of a nonconforming [Internal Revenue Code] section 338 election for California state tax purposes. Said Regulation was in force in 1997, it not having been repealed until August 2000. (Even though Revenue and Taxation Code section 24519 was repealed in 1991, sufficient statutory authority remained for Regulation 24519(b) in Revenue and Taxation Code sections 26422 and 23051.5.)" (Italics in original.)
The trial court entered judgment for ELS in the amount of $1,060,984.76, including $630,615.97 in tax, $429,880.29 in interest accrued through March 24, 2005 (plus further statutory interest accruing after that date), and costs of $488.50.
DISCUSSION
I
A. Standard of Review
Because this case was tried on stipulated facts and the appeal raises only questions of law, we review de novo. (J.H. McKnight Ranch, Inc. v. Franchise Tax Bd. (2003) 110 Cal.App.4th 978, 983.)
B. Rules of Statutory Construction
"The applicable principles of statutory construction are well settled. 'In construing statutes, we must determine and effectuate legislative intent.' [Citation.] 'To ascertain intent, we look first to the words of the statutes' [citation], 'giving them their usual and ordinary meaning' [citation]. If there is no ambiguity in the language of the statute, 'then the Legislature is presumed to have meant what it said, and the plain meaning of the language governs.' [Citation.] 'Where the statute is clear, courts will not "interpret away clear language in favor of an ambiguity that does not exist." [Citation.]' [Citation.]" (Lennane v. Franchise Tax Bd. (1994) 9 Cal.4th 263, 268.)
"'The meaning of a statute may not be determined from a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible. . . . An interpretation that renders related provisions nugatory must be avoided [citation]; each sentence must be read not in isolation but in the light of the statutory scheme [citation].' [Citation.]" (Building Profit Corp. v. Mortgage & Realty Trust (1995) 36 Cal.App.4th 683, 688 (Building Profit Corp.).)
"'[W]hatever is necessarily implied in a statute is as much part of it as that which is expressed.' [Citations.]" (Welfare Rights Organization v. Crisan (1983) 33 Cal.3d 766, 771 (Crisan).)
"A court may not rewrite a statute to conform to a presumed intent that is not expressed. [Citation.]" (People v. Statum (2002) 28 Cal.4th 682, 692 (Statum).)
C. The Rules' Application to This Case
Applying these well-settled rules of statutory construction, we conclude that section 23806, as it read in 1997, clearly and unambiguously prohibited S corporations from electing to treat the sale of 100 percent of their stock differently under California tax law than under federal tax law. As we will explain, the trial court's contrary interpretation of the statute was in error.
All further references to section 23806 in part I of the Discussion are to the 1997 version.
Section 23806, subdivision (a), as amended in 1997, stated: "Section 1371(a) of the Internal Revenue Code, relating to application of Subchapter C rules, is modified to provide that, notwithstanding subdivisions (a) and (e) of Section 23051.5, an election under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, for federal purposes shall be treated as an election for purposes of this part and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 shall not be allowed."
Because Internal Revenue Code section 1371(a) makes subchapter C rules generally applicable "to an S corporation and its shareholders," what follows necessarily applies to all such corporations and shareholders unless the statute expressly states otherwise. (Cf. Crisan, supra, 33 Cal.3d at p. 771.) Nothing that follows in section 23806(a) expressly exempts any S corporation or shareholders thereof.
Section 23806, subdivision (a) next speaks to "an election under Section 338 of the Internal Revenue Code"--i.e., any and all such elections, since none are excluded--"relating to certain stock purchases treated as asset acquisitions." This necessarily includes elections under Internal Revenue Code section 338(h)(10), the statute employed in this case.
Here, ELS and Berlitz jointly elected under Internal Revenue Code section 338(h)(10) to treat Berlitz's purchase of 100 percent of ELS's stock as an asset acquisition by Berlitz, and the federal tax benefits of this joint election accrued to ELS's shareholders as well as to Berlitz. Thus, because the transaction between ELS and Berlitz "relat[ed] to" a "stock purchase" and was "treated as an asset acquisition," Revenue and Taxation Code section 23806, subdivision (a) plainly and unambiguously covered that transaction as to both parties and precluded either from making a separate election under section 23051.5, subdivision (e).
Internal Revenue Code section 1371(a) states the general rule that S corporations are to be treated like C corporations. Revenue and Taxation Code section 23806, subdivision (a) on its face "modifies" that provision by exempting any election under Internal Revenue Code section 338 "relating to certain stock purchases treated as asset acquisitions[.]"
It appears that the trial court derived the limiting construction of section 23806, subdivision (a) expressed in its statement of decision not from the statute on its face, but from "the legislative history of the 1997 amendment to [] section 23806, subdivision (a) . . . and commentaries and Notices of and by the Franchise Tax Board[.]" The second part of this premise is unsupported, as the court does not quote the Board's "commentaries and Notices" or explain how they could outweigh the statute's plain language. (See Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 10-11 [agency's interpretations of statutes not entitled to judicial deference].)
Likewise, the resort to legislative history was inappropriate given the fact that the statute is not ambiguous. Nothing in section 23806, subdivision (a) purports to limit its application only to the corporation on one side of such a transaction. If the Legislature had intended the statute to cover only acquiring corporations, it could easily have said so. By reading this qualification into the statute, the trial court in effect added terms to the statute, which is impermissible. (Statum, supra, 28 Cal.4th at p. 692.)
Although ELS purports to argue the statute's ambiguity in its briefing, ELS does not set out the statute and offer two equally plausible candidate readings, which is the sine qua non for proving its point. Instead, ELS merely asserts: (1) the Board has interpreted the 1997 statute differently than it does now "at least four times"; (2) an enrolled bill report by the Department of Finance dated August 14, 1998 (the bill is not identified) is also somehow inconsistent with the Board's present interpretation of the 1997 statute; and (3) these alleged facts prove the statute reasonably susceptible to differing constructions. ELS also argues that by referencing "'implied' meanings for the 1997 statute," the Board has conceded the statute is ambiguous, because "[t]here is no need to imply meanings for unambiguous statutes."
To support its claims about the Board's and the Department's statements, ELS cites to the record or to documents contained in its request for judicial notice of legislative history, but does not quote or summarize what the Board and the Department supposedly said on these occasions.
First, ELS's assertion that a statute is ambiguous if any part of its meaning must be "implied" is incorrect. As the Board points out in its reply brief, this assertion ignores the "necessary implication" rule of statutory construction, already venerable when restated in Crisan, supra, 33 Cal.3d at page 771. Second, ELS's hit-and-run method of citation to Board and Finance Department statements is improper. A party's duty to offer argument on appeal includes the duty, when citing evidence, to show how the evidence supports the argument. Instead, ELS presents mere string citations, on the apparent premise that if we track down and analyze these cites, we will find they support ELS's position. We are not, however, obliged to make arguments for parties or to fill in the gaps from string citations offered in lieu of argument (In re S.C. (2006) 138
Cal.App.4th 396, 411), and we decline to do so.
It is of no moment that ELS also discusses these citations later in its brief under the rubric of "legislative history." As already noted, it is inappropriate to resort to legislative history to construe a statute unless the party invoking legislative history has first shown the statute's ambiguity. ELS did not (and cannot, as we have explained), make that showing. (See Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2005) 133 Cal.App.4th 26, 29 (Kaufman & Broad).)
ELS's argument regarding ambiguity is constructed from bare assertions unsupported by reasoning or authority. An appellate argument so conducted is forfeited. (People v. Turner (1994) 8 Cal.4th 137, 214, fn. 19; Troensegaard v. Silvercrest Industries, Inc. (1985) 175 Cal.App.3d 218, 228.)
II
ELS's Request for Judicial Notice
ELS perfunctorily instructs us that we must resort to legislative history to construe the 1997 version of section 23806, subdivision (a) because it is ambiguous on its face. It then devotes most of its brief to discussion of the legislative history of which it has requested judicial notice. Because we have found the 1997 statute clear and unambiguous, we need not and should not resort to legislative history to construe it. (Kaufman & Broad, supra, 133 Cal.App.4th at p. 29.) Therefore, we deny ELS's request for judicial notice of legislative history and disregard its briefing to the extent that it rests on that history.
III
The Effect of the 1998 Amendments
The trial court did not discuss the 1998 amendments to section 23806. However, ELS cited those amendments below as evidence that the 1997 statute did not bar all separate elections by S corporations, and does so again on appeal. Therefore, we briefly address the point, considering only the language of the 1998 amendments on its face.
As amended in 1998 (Stats. 1998, ch. 322, § 76, eff. Aug. 20, 1998), section 23806, subdivision (a) read (new material underscored):
"(a) Section 1371(a) of the Internal Revenue Code, relating to application of Subchapter C rules, is modified to provide that, notwithstanding subdivisions (a) and (e) of Sections 17024.5 and 23051.5, any election by an 'S corporation' or its shareholders under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, for federal purposes shall be treated as an election for purposes of this part and a separate election under paragraph (3) of subdivision (e) of Section 17024.5 or 23051.5 shall not be allowed."
Section 17024.5, which deals with personal income taxes, sets out the procedure for a separate election in terms parallel to those of section 23051.5, which deals with corporate income taxes. (§§ 17024.5, subd. (3)(e), 23051.5, subd. (3)(e).) Other provisions simultaneously added to section 23806 inserted conditions and timing rules not applicable here. (§ 23806, subds. (b)-(e) (Stats. 1998, ch. 322, § 76).)
Although there is a presumption that the Legislature intends to change the law when it amends a statute, a consideration of the surrounding circumstances may overcome the presumption. (Building Profit Corp., supra, 36 Cal.App.4th at p. 691.) The surrounding circumstances may include "the application of the relevant principles of logic and statutory construction[.]" (Ibid.)
"We assume the Legislature amends a statute for a purpose, but that purpose need not necessarily be to change the law. [Citation.] Our consideration of the surrounding circumstances can indicate that the Legislature made material changes in statutory language in an effort only to clarify a statute's true meaning. [Citations.]" (Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 243.)
We have found that section 23806, subdivision (a) as it read in 1997 already applied to any election by an S corporation or its shareholders, as its placement within a chapter of the Revenue and Taxation Code titled "Tax Treatment of S Corporations and Their Shareholders" necessarily implied. Thus, the insertion of this language did not change the statute's meaning, but merely clarified it.
Similarly, the addition of cross-references to section 17024.5, concerning separate elections as to personal income taxes, did not change the statute's meaning, but merely clarified that S corporation shareholders may not make a separate election as to the transactions specified in section 23806, subdivision (a), whether under corporate or personal income tax law.
In short, we agree with the Board that the 1998 amendments merely made more explicit what was already provided in the 1997 amendments.
IV
Timeliness
Finally, we reject the trial court's finding that ELS's election was timely filed under regulation 24519.
Regulation 24519 provided at the time of ELS's attempted election (italics added):
"(a) Elections under Section 24519 of the Revenue and Taxation Code shall be filed with the Franchise Tax Board on or before either the fifteenth day of the ninth month beginning after the month in which the acquisition date occurs (or May 15, 1998, whichever date is later).
"(b) An acquiring corporation desiring to avoid the application for California purposes of an election made under subsection (g) of Section 338 of the Internal Revenue Code shall file the statement required under paragraph (3) of subdivision (e) of Section 23051.5 of the Revenue and Taxation Code with its timely filed return, or the timely filed return of the acquired corporation, (including extensions of time to file) for the income year which includes the acquisition date or with the timely filed return (including extensions of time to file) for the next subsequent income year."
Thus, regulation 24519, subdivision (a) sets out the normal deadline, which ELS missed. Regulation 24519, subdivision (b), on which the trial court found that ELS properly relied in filing its election after May 15, 1998, is inapposite: unlike section 23806, subdivision (a), regulation 24519, subdivision (b) expressly covers only acquiring corporations. Therefore, ELS's election was time-barred when filed.
DISPOSITION
The judgment is reversed. The Board shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)
DUARTE, J.
We concur:
BLEASE, Acting P. J.
ROBIE, J.