Fahey v. Massachusetts Department of Revenue

United States Court of Appeals
For the First Circuit
No. 14-1328
IN RE: BRIAN S. FAHEY,
Debtor
BRIAN S. FAHEY,
Appellant,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE,
Appellee.
No. 14-1350
IN RE: TIMOTHY P. PERKINS,
Debtor
TIMOTHY P. PERKINS,
Appellant,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE,
Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
No. 14-9002
IN RE: ANTHONY M. GONZALEZ,
Debtor
ANTHONY M. GONZALEZ,
Appellee,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE,
Appellant.
No. 14-9003
IN RE: JOHN T. BROWN,
Debtor
JOHN T. BROWN,
Appellee,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE,
Appellant.
APPEALS FROM THE BANKRUPTCY APPELLATE PANEL
FOR THE FIRST CIRCUIT
Before
Torruella, Thompson, and Kayatta,
Circuit Judges.
Celine E. Jackson, Counsel to the Commissioner, Massachusetts
Department of Revenue, with whom Jeffrey S. Ogilvie, Counsel to the
Commissioner, Amy A. Pittner, Commissioner, Massachusetts
Department of Revenue, Martha A. Coakley, Massachusetts Attorney
General, Daniel J. Hammond, Assistant Attorney General, Kevin W.
Brown, Special Assistant Attorney General, were on brief, for
Massachusetts Department of Revenue.
Andrew L. Barrett for appellant Brian S. Fahey.
Carl D. Aframe, with whom Aframe & Barnhill, PA, was on brief,
for appellant Timothy P. Perkins.
Marques C. Lipton, with whom Law Office of Nicholas F. Ortiz,
P.C., was on brief, for appellees Anthony M. Gonzalez and John T.
Brown.
Tara Twomey, National Consumer Bankruptcy Rights Center,
Joanne Mulder Nagjee, Joel Peter-Fransen, Shane Mulrooney, and
Kirkland & Ellis LLP, on brief for National Association of Consumer
Bankruptcy Attorneys, amicus curiae in support of appellants Brian
S. Fahey and Timothy P. Perkins.
February 18, 2015
KAYATTA, Circuit Judge. The four bankruptcy appeals
before us pose a single question of statutory interpretation:
whether a Massachusetts state income tax return filed after the
date by which Massachusetts requires such returns to be filed
constitutes a "return" under 11 U.S.C. § 523(a) such that unpaid
taxes due under the return can be discharged in bankruptcy. For
the reasons set forth below, we conclude that it does not.
I. Background
The facts in each of the four cases now on appeal are
undisputed. John Brown, Brian Fahey, Anthony Gonzalez, and Timothy
Perkins (the "debtors") all failed to timely file their
Massachusetts income tax returns for multiple years in a row. This
failure would not be a problem for them in these bankruptcy
proceedings, but for the fact that they also failed to pay (either
timely or otherwise) their taxes to the Massachusetts Department of
Revenue. Eventually, each debtor filed his late tax returns, but
still failed to pay all taxes, interest, and penalties that were
due. More than two years later, they filed for Chapter 7
bankruptcy. The debtors seek a ruling that their obligation to pay
the taxes they failed to pay is dischargeable.1 The Department
argues for the opposite result; it contends unpaid taxes for which
no return was timely filed by the Commonwealth's statutory deadline
1
Although the debtors did not each make identical arguments
in their briefs or at oral argument, we attribute their contentions
to "the debtors" collectively.
-2-
fit within an exception to discharge under 11 U.S.C.
§ 523(a)(1)(B)(i).
The procedural postures of these four cases are described
in detail in the Bankruptcy Appellate Panel ("BAP") and district
court opinions that gave rise to these appeals. Perkins v. Mass.
Dep't of Revenue, 507 B.R. 45, 46-47 (D. Mass. 2014); In re
Gonzalez, 506 B.R. 317, 318-23 (B.A.P. 1st Cir. 2014); In re Brown,
B.A.P. No. MW 13-027, 2014 WL 1815393, at *1-5 (B.A.P. 1st Cir.
Apr. 3, 2014). In brief, the bankruptcy courts below split three
to one in favor of the debtors, the BAP sided with the debtors in
the two cases appealed to the BAP, and the district court granted
summary judgment to the Department in the two cases appealed to the
district court.
II. Discussion
A. Standard of Review
Since no material facts are disputed and the issue before
us turns entirely upon an interpretation of law, our review is
plenary. Pasquina v. Cunningham (In re Cunningham), 513 F.3d 318,
323 (1st Cir. 2008); Brandt v. Repco Printers & Lithographics, Inc.
(In re Healthco Int'l, Inc.), 132 F.3d 104, 107 (1st Cir. 1997).
B. Legal Background
Section 727 of the Bankruptcy Code instructs the court to
grant a debtor a discharge from his debts in a Chapter 7 bankruptcy
proceeding. See 11 U.S.C. § 727. This rule is subject to several
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exceptions. In particular, 11 U.S.C. § 523(a)(1) controls whether
unpaid taxes are dischargeable in bankruptcy. It provides, in
relevant part:
(a) A discharge under section 727 . . . of this
title does not discharge an individual debtor from any
debt--
(1) for a tax or a customs duty--
. . .
(B) with respect to which a return, or
equivalent report or notice, if required--
(i) was not filed or given; or
(ii) was filed or given after the date on
which such return, report, or notice was
last due, under applicable law or under any
extension, and after two years before the
date of the filing of the petition[.]
11 U.S.C. § 523(a)(1)(B)(i)-(ii). In other words, a tax is not
dischargeable if the debtor failed to file a return, or if--perhaps
anticipating bankruptcy--he filed the return late and within two
years of his bankruptcy petition.
Looking solely at the foregoing language, and using a
common notion of what a "return" is, one could easily conclude that
any return filed after the due date but more than two years before
a bankruptcy filing would place the tax due under that return
outside the section 523(a)(1) exception, and thus within the broad
category of dischargeable debts. Prior to 2005, courts
nevertheless attempted to fashion a definition of "return" that
prevented debtors from relying on "bad faith" returns, or returns
filed only after the taxing authority actually issued an assessment
for taxes due in the absence of a tax return. See generally
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Moroney v. United States (In re Moroney), 352 F.3d 902, 905-06 (4th
Cir. 2003) (providing examples of courts that determined late tax
returns "filed after an involuntary assessment do not serve the
purposes of the tax system, and thus rarely, if ever, qualify as
honest and reasonable attempts to comply with the tax laws").
In 2005, Congress decided to define "return" on its own
when it passed the Bankruptcy Abuse Prevention and Consumer
Protection Act ("BAPCPA"), making numerous revisions to
section 523. Pub. L. No. 109-8, 119 Stat. 23 (2005). Among the
BAPCPA's changes was the insertion of a "hanging paragraph,"
denoted as section 523(a)(*), at the end of section 523(a). It
provides:
For purposes of this subsection, the term
"return" means a return that satisfies the
requirements of applicable nonbankruptcy law
(including applicable filing requirements).
Such term includes a return prepared pursuant
to section 6020(a) of the Internal Revenue
Code of 1986, or similar State or local law,
or a written stipulation to a judgment or a
final order entered by a nonbankruptcy
tribunal, but does not include a return made
pursuant to section 6020(b) of the Internal
Revenue Code of 1986, or a similar State or
local law.
11 U.S.C. § 523(a)(*).2
2
Section 6020(a) returns are allowed only at the I.R.S.'s
request and require the taxpayer's cooperation, while returns filed
under section 6020(b) do not involve assistance by the taxpayer and
may involve willful fraud. Compare 26 U.S.C. § 6020(a) with 26
U.S.C. § 6020(b).
-5-
So the question now presented is a question of statutory
interpretation: Is a Massachusetts tax return filed after the due
date for such returns a "return" as defined in section 523(a)(*) so
that the tax due under that return remains dischargeable?3
C. Analysis
Read together, the hanging paragraph's definitional
language and the "applicable" Massachusetts law control our
decision. Under the hanging paragraph, for a document, whatever it
may be called, to be a "return," it must "satisf[y] the
requirements of applicable nonbankruptcy law (including applicable
filing requirements)." So the question is whether timely filing is
a "filing requirement" under Massachusetts law. The answer is
plainly yes.
As the Massachusetts Supreme Judicial Court has held for
state tax law purposes, "[t]he general rule of construction is that
where the language of the statute is plain, it must be interpreted
in accordance with the usual and natural meaning of the words."
Comm'r of Revenue v. AMIWoodbroke, Inc., 634 N.E.2d 114, 115 (Mass.
1994) (citing O'Sullivan v. Sec'y of Human Servs., 521 N.E.2d 997,
1000 (Mass. 1998)). Mass. Gen. Laws ch. 62C, § 6(c) ("section
3
At oral argument, the attorney for Gonzalez and Brown raised
the point that even if a late filed return is not a return, it may
qualify as an "equivalent report or notice" under section
523(a)(1)(B). Since this argument was not preserved in the record
by any of the four debtors or briefed on appeal to this Court, we
do not consider it here. See United States v. Zannino, 895 F.2d 1,
17 (1st Cir. 1990).
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6(c)") states that "[e]xcept as otherwise provided, [income tax
returns] shall be made on or before the fifteenth day of the fourth
month following the close of each taxable year." None of the
exceptions that "otherwise provide[]" are applicable here.4 This
command that returns "shall" be made by the due date certainly
seems like a "filing requirement." See Black's Law Dictionary
(10th ed. 2014) (defining "shall" as "a duty; more broadly, is
required to[;] the mandatory sense that drafters typically intend
and that courts typically uphold"). And another section of the
Massachusetts tax code makes plain that it is so viewed. See Mass.
Gen. Laws 62C, § 32(a) ("section 32(a)") ("Taxes shall be due and
payable at the time when the tax return is required to be filed.").
Accordingly, under this straightforward reading of Massachusetts
law, a return filed after the due date is a return not filed as
required, i.e., a return that does not satisfy "applicable filing
requirements."
The two other circuits to have decided this issue, albeit
construing other jurisdictions' "applicable" filing deadlines,
4
The Department points us to two statutory provisions that
give meaning to the phrase "[e]xcept as otherwise provided." Mass.
Gen. Laws ch. 30, § 24 (as amended 2013) authorizes acts that must
be performed on a Saturday, Sunday, or legal holiday to be
performed on the next business day. And Mass. Gen. Laws ch. 62C,
§ 19 (as amended 1985) allows the tax commissioner to "grant a
reasonable extension of time for filing any return, provided that
the taxpayer . . . files a tentative return . . . and pays
therewith the amount of tax reasonably estimated to be due." The
debtors do not argue that these provisions, or any other law or
regulation, "otherwise provided" a due date for their filings.
-7-
reached the same conclusion. The Tenth Circuit recently found
returns filed late under the Internal Revenue Code ("I.R.C.") not
to be returns within the meaning of the hanging paragraph. Mallo
v. Internal Revenue Service (In re Mallo), Nos. 13-1464, 13-1488,
2014 WL 7360130, at *6 (10th Cir. Dec. 29, 2014) (explaining, in
reference to the I.R.C.'s deadline for income tax returns, that
"the phrase 'shall be filed on or before' a particular date is a
classic example of something that must be done with respect to
filing a tax return and therefore, is an 'applicable filing
requirement'"). Similarly, the Fifth Circuit determined that a
debtor's failure to comply with a Mississippi law stating that
returns "shall be filed on or before April 15th" meant that the
returns did not satisfy applicable filing requirements under the
hanging paragraph's definition. McCoy v. Miss. State Tax Comm'n
(In re McCoy), 666 F.3d 924, 928, 932 (5th Cir. 2012). And at
least one other circuit court judge, in dictum, predicted such a
result. In re Payne, 431 F.3d 1055, 1060 (7th Cir. 2005)
(Easterbrook, J., dissenting) ("After the 2005 legislation, an
untimely return can not lead to a discharge--recall that the new
language refers to 'applicable nonbankruptcy law (including
applicable filing requirements).'").
The debtors nevertheless argue that the hanging
paragraph's language is not quite so clear as to dictate our
holding. Perhaps the term "applicable filing requirement" may
-8-
acquire vagueness at the outer boundaries of its possible
application. See Antonin Scalia & Bryan A. Garner, Reading Law:
The Interpretation of Legal Texts 31-32 (2012) (explaining that
vagueness is present when a phrase's "unquestionable meaning has
uncertain application to various factual situations"). For
example, is an instruction on an official form that the filer not
staple the return together, or staple the check to the return, an
"applicable filing requirement"? However one might answer that
question, we do not see how there is any room for reasonable
argument that, as a matter of plain language, a Massachusetts law
setting the date when a tax return "is required to be filed" is
somehow not a "filing requirement."
In nevertheless describing the statute as materially
ambiguous and our reading of it contrived, the dissent relies on
the premise that when a statute states that the universe of X
"includes" Y, one normally presumes that Y is merely an example of
what is in X, and that X includes more than Y. Slip Op. at 30.
The dissent errs, though, in claiming that our interpretation fails
to satisfy this premise. The dissent makes this error by presuming
that the universe defined by the statute is "late-filed returns
that count as returns," Slip Op. at 30, and that section 6020(a)
returns (and "similar" state or local law returns) are therefore
simply examples of a wider array of permitted late filed returns.
The statute neither says nor implies any such thing. Rather, the
-9-
statute provides that a "return" includes a "return prepared
pursuant to section 6020(a) . . . or similar State or local law."
So one presumes only that a "return" includes more than these few
types of returns. And it plainly does: it includes all sorts of
returns (such as Form 1040s) that satisfy their respectively
applicable filing requirements.
Similarly, the dissent errs in claiming that our reading
of the statute "means that conversely, a section 6020(b) return
would be the only type of return that is not a return." Slip Op.
at 31. This is plainly not so--any type of return not filed in
accord with applicable filing requirements is not a "return" under
our reading of the statute. The returns at issue in this case are
a notable demonstration that section 6020(b) returns are not the
only ones that are not returns under the statute.
Widening the scope slightly, debtors point to the
language of section 523(a)(1)(B)(ii) ("the two-year provision"),
which clearly implies that there can be a "return" that is filed
within two years "after the date on which such return . . . was
last due."5 So the hanging paragraph cannot be read as entirely
excluding the possibility that a late return can also be a
"return." Grasping onto this point, the debtors contend (and the
5
The purpose of the two-year provision is apparently to
prevent debtors from utilizing bankruptcy filings as a way of
avoiding their overdue tax obligations. In re Payne, 431 F.3d at
1059.
-10-
BAP agreed) that our interpretation would "vitiat[e] in its
entirety" the two-year provision, rendering it "superfluous." See
TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) ("It is a cardinal
principle of statutory construction that a statute ought, upon the
whole, to be so construed that, if it can be prevented, no clause,
sentence, or word shall be superfluous, void, or insignificant."
(citation and internal quotation marks omitted)); Nat'l Org. for
Marriage v. McKee, 649 F.3d 34, 66 (1st Cir. 2011) (quoting TRW
Inc. for the same proposition).
The defect in this argument is that the hanging paragraph
itself carves out an exception from its general rule, deeming one
type of late return to be a return. It specifies that "a return
prepared pursuant to section 6020(a) . . . or similar State or
local law" qualifies as a "return," while those prepared pursuant
to section 6020(b) do not. 11 U.S.C. § 523(a)(*). Section 6020(a)
and (b) can both be invoked when a taxpayer "fails to make" a
proper return, including situations where the taxpayer is late in
filing a return to the I.R.S. See McCoy, 666 F.3d at 928-29.
Therefore, a late tax return, if prepared in compliance with
section 6020(a) and filed within two years of the bankruptcy
petition, is still a return (and the tax due thus dischargeable),
notwithstanding its failure to meet the otherwise "applicable
filing requirement" of a mandatory deadline. While section 6020(a)
may only apply in a small minority of cases, the fact that a late
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filed section 6020(a) return can still qualify as a "return" for
section 523(a) purposes means that the two-year provision still has
a role to play if the hanging paragraph's plain meaning controls.
The I.R.S.'s Chief Counsel has referred to the number of
section 6020(a) returns as "minute" and in 2010 took the position
that the safe harbor created by it was "illusory" because taxpayers
have no right to demand a return under the provision. I.R.S. Chief
Couns. Notice CC-2010-016 at 2-3 (Sept. 2, 2010). We accept the
claim that such returns are rare, and are allowed only at the
I.R.S.'s behest. It hardly follows, though, that the safe harbor
expressly created for such returns is illusory. In fact, this
"narrow safe harbor," hypothetically described by the district
court below in the Perkins case, was utilized by a debtor in a
recent bankruptcy case where the bankruptcy court was bound by the
reading of section 523(a)(*) that the Department urges here. See
In re Kemendo, 516 B.R. 434, 438 (Bankr. S.D. Tex. 2014). In that
case, the I.R.S. had prepared a tax return with information
provided by the taxpayer, in accordance with section 6020(a). Id.
at 438. More than two years later, the taxpayer filed for
bankruptcy. Id. at 438-39. The bankruptcy court found that the
taxpayer's delinquent tax debt had been properly discharged. Id.
In short, reading the hanging paragraph as generally excluding
returns filed after the date when applicable law requires them to
be filed does not conflict with the implication of section
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523(a)(1)(B)(ii) that there can be a late return, either notionally
or in practice.
The dissent takes a different tack, deeming it "absurd"
to think that Congress would allow a discharge of taxes due under
a section 6020(a) return prepared years after the due date, but not
under a Massachusetts return that is one day late. We see no
absurdity. Section 6020(a) is a tool for the I.R.S., invoked
solely at its discretion, when it decides obtaining help from the
late filing taxpayer is to the I.R.S.'s advantage. That Congress
left the I.R.S. a carrot to offer a taxpayer in such infrequent
cases does not mean that it was absurd for Congress not to extend
this carrot categorically to large numbers of other late filers.
But, say the debtors, our reading of the hanging
paragraph still renders unnecessary its last clause, stating that
the term "return" does not include "a return made pursuant to
[section 6020(b)] or a similar State or local law." The debtors
are correct on this point. Nevertheless, we do not see this as the
type of redundancy that invokes any effective application of the
doctrine that we try to read statutes so that no section is
superfluous. Here, in context, it simply appears that in creating
an exception for section 6020(a), the drafters made clear (desiring
a belt and suspenders) that they were not including its companion
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section 6020(b).6 Whatever one thinks of this redundancy, it
offers too little to parry the force of the observation that a
requirement to file on time is a filing requirement. See In re
McCoy, 666 F.3d at 931.
Moreover, were we to adopt the debtors' position that a
law requiring compliance with a filing deadline is not a filing
requirement, we would be left without any textual basis for
distinguishing those filing requirements that count from those that
do not. Instead--and debtors and the dissent are frank about this-
-we would be back to tinkering with subjective and conflicting
judge-made rules. In that respect, we would render the principal
thrust of the hanging paragraph to be largely of no effect. Of
course, the debtors say that this is what Congress wanted, simply
seeking to "confirm" pre-existing case law. But, as we discuss in
greater detail later in this opinion, there was no such uniform
rule in the case law to which the language in the hanging paragraph
could be read as referring. Cf. In re Mallo, 2014 WL 7360130, at
*10 ("If Congress intended to define a return through application
of the Beard test or some other substantial compliance doctrine,
rather than by a taxpayer's compliance with the applicable filing
6
The distinction makes sense when we consider the basic
difference between sections 6020(a) and (b) because the latter is
prepared without the taxpayer's assistance and sometimes as a
result of the taxpayer's willful fraud.
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requirements contained in the Tax Code, Congress [would not have
added] the phrase 'including applicable filing requirements.'").
The debtors also seek support in the Massachusetts laws
and regulations bearing on the meaning of "return." They point out
that in Massachusetts, a pre-assessment delinquent return is
treated the same as any other return.7 This is not exactly so,
however, as Massachusetts imposes a penalty on any taxpayer who
does not file his return by the date required. See Mass. Gen. Laws
ch. 62C, § 33 ("Late returns; penalty; abatement").8
Relatedly, the debtors contend that the Commonwealth's
own definition of "return" lacks a timeliness element. This, too,
is not exactly so. The Massachusetts Code of Regulations defines
a return as "a taxpayer's signed declaration of the tax due, if
any, properly completed by the taxpayer or the taxpayer's
representative on a form prescribed by the Commissioner and duly
filed with the Commissioner." 830 C.M.R. 62C.26.1(2) (emphasis
supplied). Webster's Third New International Dictionary gives as
its first definition "in a due manner, time, or degree." Webster's
Third New International Dictionary 700 (3d ed. 2002). Courts
7
The Department did not issue assessments against any of the
debtors.
8
Nor need we address in this case whether a return is
required to be filed by the due date if Massachusetts should deem
the failure to be excused, and thus of no effect under Mass. Gen.
Laws ch. 62C, § 33(f) (waiving any penalty on a showing of good
cause).
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consistently include a timeliness element when interpreting "duly"
in other contexts. See, e.g., McAdams v. United States, No. 07-
164T, 2008 WL 654271, at *3 (Fed. Cl. Feb. 1, 2008) (in order for
a claim to be duly filed under 26 U.S.C. § 7422, it must comply
with the statutorily prescribed timeliness requirement in 26 U.S.C.
§ 6511(a)); O'Connell v. United States, No. 02-10399-RBC, 2004 WL
1006485, at *3 (D. Mass. Mar. 22, 2004) (same); Mobil Corp. v.
United States, 52 Fed. Cl. 327, 331, 337 (Fed. Cl. 2002) (I.R.C.
regulation prohibiting suit to recover wrongfully assessed taxes
"until a claim for refund . . . has been duly filed" includes
timeliness requirement). In sum, the debtors' invocation of
Massachusetts laws and regulations does not change the result.9
Sensibly anticipating weak support in the statutory and
regulatory language, the debtors rely with much emphasis on three
other rules of statutory construction.
First, they (and the amicus curiae) implore us to find
instructive the notion that exceptions to discharge should be
narrowly construed in the debtor's favor, Gleason v. Thaw, 236 U.S.
558, 562 (1915); Rutanen v. Baylis (In re Baylis), 313 F.3d 9, 17
(1st Cir. 2002), and that the Bankruptcy Code should be read in
light of its purpose to provide a fresh start to the "honest but
unfortunate debtor." Local Loan Co. v. Hunt, 292 U.S. 234, 244
9
We express no opinion on whether other jurisdictions' laws
and regulations bearing on a tax return's timeliness qualify as
"applicable filing requirements" under section 523(a)(*).
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(1934) ("One of the primary purposes of the Bankruptcy Act is to
relieve the honest debtor from the weight of oppressive
indebtedness, and permit him to start afresh free from the
obligations and responsibilities consequent upon business
misfortunes." (internal quotation marks omitted)).
Second, the debtors attempt to frame our interpretation--
particularly with respect to the limitations it imposes on the two-
year provision's applicability--as representing a significant
change to the pre-2005 Bankruptcy Code. The debtors and the
bankruptcy court below for the Brown and Gonzalez cases quote the
Supreme Court in urging us to be "reluctant to accept arguments
that would interpret the Code, however vague the particular
language under consideration might be, to effect a major change in
pre-Code practice that is not the subject of at least some
discussion in the legislative history." Dewsnup v. Timm, 502 U.S.
410, 419 (1992).
Third, the debtors and amicus curiae call the result we
reach here--that all late filed returns in Massachusetts are not
subject to discharge in bankruptcy--"unfathomable" and its
consequences "draconian" and "absurd."
Our response to the debtors' reliance on these rules of
statutory construction is fourfold.
First, and most importantly, where the question is
whether a Massachusetts law setting a date by which a tax return
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"is required to be filed" is a "filing requirement" under
Massachusetts law, we find little need--or justification--for
turning to secondary principles of statutory construction. Cf.
United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989)
("The language before us expresses Congress' intent . . . with
sufficient precision so that reference to legislative history and
to pre-Code practice is hardly necessary.").
Second, while the result we reach may be unfavorable
towards delinquent taxpayers who are also bankrupt, there is hardly
anything "unfathomable," "draconian," or "absurd" in the notion
that Congress might disfavor debtors who both fail to pay their
taxes and also fail to timely file the returns that would alert the
taxing authority to the failure to pay. Cf. id. at 242 ("The 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 intention of its drafters.'"
(quoting Griffin v. Oceanic Contractors, Inc., 485 U.S. 564, 571
(1982))).
Third, application of secondary principles of statutory
construction hardly cuts just one way, or as forcefully as the
debtors claim. We note in particular that the hanging paragraph,
adding to the statute the key language at issue, was part of an
enactment whose motivating factors were: the "recent escalation of
consumer bankruptcy filings"; the "significant losses asserted to
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be associated with bankruptcy filings"; to close the loopholes that
"allow and--sometimes--even encourage opportunistic personal
filings and abuse"; and "the fact that some bankruptcy debtors are
able to repay a significant portion of their debts." H. Comm. on
the Judiciary, Bankruptcy Abuse Prevention and Consumer Protection
Act of 2005, H.R. Rep. No. 109-31(I), at 3-5 (2005), reprinted in
2005 U.S.C.C.A.N. 88, 90-92.10 None of these enumerated purposes
align with the debtors' fall-back stance of helping the "honest but
unfortunate debtor" achieve a "fresh start."11 And as the Supreme
Court has already stated, "[t]he statutory provisions regarding
nondischargeability reflect a congressional decision to exclude
from the general policy of discharge certain categories of debts--
such as . . . taxes[.] Congress evidently concluded that the
creditors' interest in recovering full payment of debts . . .
outweighed the debtors' interest in a complete fresh start."
Grogan v. Garner, 498 U.S. 279, 287 (1991).
10
There were no published committee reports explaining the
hanging paragraph's purpose, and it remains true that even when a
statute effectuates a change to prior law, "where the language is
unambiguous, silence in the legislative history cannot be
controlling." Dewsnup, 502 U.S. at 419-20.
11
The debtor unfriendly thrust of the BAPCPA was also manifest
in its rewriting of section 523(a)(1)(B) to make it applicable "not
only to the failure to file a required return, but also to the
failure to file or give an 'equivalent' required 'report or
notice'" corresponding to the debt. See Maryland v. Ciotti (In re
Ciotti), 638 F.3d 276, 279-80 (4th Cir. 2011).
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Finally, we acknowledge that straightforward application
of Congress's language changes presumed practice in some bankruptcy
courts (including those that ruled for three of the debtors below).
That being said, the judge-made law surrounding the meaning of a
"return" in section 523(a) was far from settled. Prior to the
BAPCPA, and in the absence of any limiting definition of the term
"return," courts used a four-part test first articulated by the
United States Tax Court in Beard v. Comm'r, 82 T.C. 766, 777-78
(1984), aff'd, 793 F.2d 139 (6th Cir. 1986), in order to determine
whether a document purporting to be a return was a return for
purposes of section 523(a). Courts considered a return's
timeliness under the Beard test's fourth prong: whether the
submitted document "represent[ed] an honest and reasonable attempt
to satisfy the requirements of tax law." United States v.
Hindenlang (In re Hindenlang), 164 F.3d 1029, 1033-34 (6th Cir.
1999) (emphasis supplied); see also Colsen v. United States (In re
Colsen), 446 F.3d 836, 839 (8th Cir. 2006); In re Payne, 431 F.3d
at 1057; In re Moroney, 352 F.3d at 905; United States v. Hatton
(In re Hatton), 220 F.3d 1057, 1060-61 (9th Cir. 2000). These
cases dealt only with federal tax returns, and even within that
limited context, failed to reach a consensus on the issue. The
Fourth, Sixth, Seventh, and Ninth Circuits all determined that
debtors who submitted their tax returns late for multiple
consecutive years and then filed for bankruptcy had not satisfied
-20-
the test's fourth prong, but the bases for that conclusion varied.
See In re Payne, 431 F.3d at 1057-59 (expressing concern that a
chronically delinquent taxpayer was making belated filings to "set
the stage" for a discharge in bankruptcy); In re Moroney, 352 F.3d
at 905-06 (same); In re Hatton, 220 F.3d at 1061 (debtor "made
every attempt to avoid paying his taxes until the IRS left him with
no other choice"); In re Hindenlang, 164 F.3d at 1034 (post-
assessment returns lack utility for the I.R.S.). But see In re
Colsen, 446 F.3d at 839-41 (document's contents, not timeliness,
determined what constitutes a "return" for discharge purposes).
Against this background, it is more plausible that
Congress intended to settle the dispute over late filed tax returns
against the debtor (who both fails to pay taxes and fails to file
a return as required by law) than it is that Congress sought to
preserve some version of the unsettled four-pronged Beard test by
using language that has no reference to that case law and that
certainly suggests no four-pronged definition. Particularly
noteworthy is the fact that Congress's chosen test called for
satisfying the filing requirements of applicable law, not merely
making an "honest attempt" to do so.12
12
This is not to reject the possibility that pre-amendment
case law, such as Beard, might remain viable in deciding whether a
document not purporting to be a return is an "equivalent report or
notice" under section 523(a)(1)(B). See In re Ciotti, 638 F.3d at
280-81.
-21-
III. Conclusion
For the foregoing reasons, we affirm the district court's
judgment in favor of the Department in the cases of Fahey and
Perkins, and we reverse the BAP's grant of judgment for Brown and
Gonzalez. Summary judgment shall be entered in favor of the
Department for the tax years at issue because the debtors' tax
liabilities were not discharged in bankruptcy as a matter of law.
So ordered.
- Dissenting Opinion Follows -
-22-
THOMPSON, Circuit Judge, dissenting. Our nation's
bankruptcy system was built on the principle that sometimes, honest
people fall on hard times. While the bankruptcy code has naturally
gone through revisions and updates since its inception, that
foundational philosophy has always laid at its root.
In my view, the majority is unfairly dismissive of the
debtors' logical interpretation of the statutory provisions at
issue. It simultaneously takes too academic and literal of an
approach to its reading of one of the code's definitional
provisions, leading to a result that defies common sense, while also
conveniently ignoring the plain meaning of other words in the very
same paragraph, in order to reach a certain outcome. It ignores the
mandates of statutory construction we are obligated to follow, years
of lines of caselaw upon which debtors had been relying, and the
clearly stated policy reasons for Congress's imposing these
statutory provisions in the first place.
Needless to say, I dissent.
The Canons of Construction
In our de novo review, the rules we follow to interpret
a statute -- including bankruptcy statutes -- are well established.
First, we "look [] to the specific language at issue." In re
Rudler, 576 F.3d 37, 44 (1st Cir. 2009). "If the statute's language
is plain, the sole function of the courts . . . is to enforce it
according to its terms." Id. at 44-45 (citations and quotations
-23-
omitted). In so doing, however, we only apply plain meaning if the
statutory language is not ambiguous and would not "lead to absurd
results." Id. (citations and quotations omitted). Thus, in this
case we must initially decide whether we can enforce 11 U.S.C. §
523(a)(1)(B)(ii)13 -- the specific statutory provision at issue --
"according to its terms," based on an assessment that the
"disposition required by the text is not absurd," id. at 44
(citations and quotations omitted), and that the statute cannot be
"read in more than one way," In re Thinking Machines Corp., 67 F.3d
1021, 1025 (1st Cir. 1995) (quoting United States v. Gibbens, 25
F.3d 28, 34 (1st Cir. 1994)) ("A statute is ambiguous if it can be
read in more than one way.").
The majority concludes that the hanging paragraph, which
Congress added to the bankruptcy statute in order to define what a
"tax return" is for purposes of Subsection (ii),14 unambiguously
dictates that "a return filed after the due date is a return not
filed as required," and thus, that debtors who file their
Massachusetts taxes late can never benefit from Subsection (ii).
As I will explain, I disagree that the hanging paragraph -- when
read in concert with Subsection (ii) -- unequivocally demands that
conclusion. To the contrary, the majority's interpretation of the
13
From now on, I'll refer to 11 U.S.C. § 523(a)(1)(B)(ii) as
"Subsection (ii)."
14
The hanging paragraph's definition of "return" applies to
the entire 11 U.S.C. § 523(a). See 11 U.S.C. § 523(a)(*).
-24-
hanging paragraph leads to an absurd result that cannot be
reconciled simply with a strictly literal reading of the statute.
Plain Meaning
The statute at issue provides that a debtor may not
discharge a tax debt if "a return . . . if required -- (i) was not
filed or given; or (ii) was filed or given after the date on which
such return . . . was last due, under applicable law or under any
extension, and after two years before the date of the filing of the
[bankruptcy] petition[.]"15 11 U.S.C. § 523(a)(1)(B)(i)-(ii).
In 2005, Congress enacted the Bankruptcy Abuse Prevention
and Consumer Protection Act, making numerous and significant changes
to the bankruptcy code. As part of those 2005 amendments, Congress
added the "hanging paragraph" to the end of 11 U.S.C. § 523(a),
clarifying that for purposes of that subsection, a "'return' means
a return that satisfies the requirements of applicable nonbankruptcy
law (including applicable filing requirements)." Significant to
this appeal, Congress did not change Subsection (ii) during the 2005
amendments.
The majority hones in on the hanging paragraph's added
clarification that returns must comply with a state's "applicable
15
The majority makes much ado about the fact that the debtors
in this case never paid their back taxes. It seems obvious to me
that when Congress drafted the bankruptcy statute, it anticipated
that someone seeking to discharge a debt in bankruptcy never
actually paid the money. Otherwise, he wouldn't have any debt to
discharge.
-25-
filing requirements" to be dischargeable. The majority concludes
that the text of the hanging paragraph unambiguously states that if
a return does not comply with all the state law tax return filing
requirements (including the filing deadline),16 then the taxes
cannot be discharged.
The majority's logic suffers from several flaws, which I
address in turn.
First, it is not obvious to me that under Massachusetts
tax law, filing a return late necessarily means that a debtor did
not comply with "applicable filing requirements," such that his
return would not "satisf[y] the requirements of applicable
nonbankruptcy law." As the majority concedes, a tardy return will
still be accepted by the state, and the debtor's tax liability will
still be assessed. See Mass. Gen. L. c. 62C, § 26(a) ("Taxes shall
be deemed to be assessed at the amount shown as the tax due upon any
return filed under the provisions of this chapter and on any
amendment, correction or supplement thereof, or at the amount
properly due, whichever is less, and at the time when the return is
16
Confusingly, the majority admits that even under its
interpretation of the statute, "the term 'applicable filing
requirement' may acquire vagueness at the outer boundaries of its
possible application." As an example, the majority suggests that
it is unclear whether a failure to properly staple documents, even
though technically an "applicable filing requirement," would render
the taxes deriving therefrom non-dischargeable. The majority goes
on, however, to answer its own hypothetical by later concluding
that "any type of return not filed in accord with applicable filing
requirements in not a 'return' under our reading of the statute."
-26-
filed or required to be filed, whichever occurs later."). While
late-filed returns are subject to a one-percent penalty, Mass. Gen.
L. c. 62C, § 33(a),17 even the fine is waivable on a showing of good
faith:
If it is shown that any failure to file a
return or to pay a tax in a timely manner is
due to reasonable cause and not due to willful
neglect, any penalty or addition to tax under
this section may be waived by the
commissioner, or if such penalty or addition
to tax has been assessed, it may be abated by
the commissioner, in whole or in part.
Mass. Gen. L. c. 62C, § 33(f). I do not see how we can conclude
that a late-filed return never satisfies the requirements of
Massachusetts tax law if the Commonwealth not only accepts the
return, but is even willing to waive the already relatively
conservative penalty for filing it late.
More importantly though, even if we assume, as the
majority does, that timely filing is generally a necessary component
of a "return" under Massachusetts tax law, we still cannot draw the
majority's ultimate conclusion that late filers can never discharge
17
Mass. Gen. L. c. 62C, § 33(a) provides:
If any return is not filed with the
commissioner on or before its due date or
within any extension of time granted by him,
there shall be added to and become a part of
the tax, as an additional tax, a penalty of
one per cent of the amount required to be
shown as the tax on such return for each month
or fraction thereof during which such failure
continues, not exceeding, in the aggregate,
twenty-five per cent of said amount.
-27-
their Massachusetts tax debts under 11 U.S.C. § 523(a). Subsection
(ii) -- which Congress chose not to alter during its 2005 amendments
-- continues to provide a discharge exception for people who filed
their taxes late, so long as those debtors did not file within the
two years just prior to filing for bankruptcy. See In re Weinstein,
272 F.3d 39, 43 (1st Cir. 2001) (noting that when two statutory
provisions are "meant to work in concert," to discern the plain
meaning of the provision at issue, we must analyze both, as one
statutory provision cannot be read in isolation). As the debtors
appropriately urge, there would be no point in leaving in Subsection
(ii) -- the specific exception that deals with late filers -- if
Congress meant for the hanging paragraph to penalize everyone who
misses filing deadlines. As the majority concedes, we should not,
when we can avoid it, construe statutes in a way that allows a
"clause, sentence, or word" to be "superfluous, void, or
insignificant." TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001); see
also Kawaauhau v. Geiger, 523 U.S. 57, 62 (1998) ("[W]e are hesitant
to adopt an interpretation of a congressional enactment which
renders superfluous another portion of that same law.") (citation
and quotations omitted).
So how do we reconcile this discrepancy (i.e., ambiguity)
that arises within the statute? The correct answer is to assess
what the legislature likely meant when it wrote the statute -- a
step the majority incorrectly assumes it can skip, based on its
-28-
half-reading of the statutory provisions it was required to
consider. See In re Weinstein, 272 F.3d at 44 (noting that a
"conflict between two provisions of [a] statute -- a conflict with
which neither provision deals expressly . . . provides a reason to
move beyond the text and to examine a statute's legislative history
and apparent purpose"). Instead of taking on its required task, the
majority, in an attempt to resolve this matter solely on the plain
text, glosses over the ambiguity by concluding that Subsection (ii)
is not a superfluous clause because one type of person would still
benefit from it -- the people who filed a return pursuant to 26
U.S.C. § 6020(a) (or a comparable state or local law).18
As the majority notes, the hanging paragraph provides:
["Return"] includes a return prepared pursuant
to section 6020(a) of the Internal Revenue
Code of 1986, or similar State or local law,
. . . but does not include a return made
pursuant to section 6020(b) of the Internal
Revenue Code of 1986, or a similar State or
local law.
18
Section 6020(a) allows the IRS to prepare a federal return
for someone who fails to do so on his own, but still consents to
providing the IRS with the information it needs to prepare the
return itself. It provides:
If any person shall fail to make a return
required by this title or by regulations
prescribed thereunder, but shall consent to
disclose all information necessary for the
preparation thereof, then, and in that case,
the Secretary may prepare such return, which,
being signed by such person, may be received
by the Secretary as the return of such person.
26 U.S.C. § 6020(a).
-29-
11 U.S.C. § 523(a)(*). So, the majority concludes, Subsection (ii)
retains some usefulness because § 6020(a) returns (even if they are
filed late), can still be discharged under Subsection (ii).
The majority's logic on this point is off for a number of
reasons, two of which relate to plain language interpretation.
For one, the text of the hanging paragraph does not, as
the majority concludes, dictate that § 6020(a) returns are the only
type of late-filed returns that count as "returns." The hanging
paragraph provides that a return "includes a return prepared
pursuant to section 6020(a)." (Emphasis added). The majority asks
us to assume that Congress, in its use of the word "includes,"
intended for the exception to apply only to § 6020(a)-type returns.
I am perplexed as to how the majority reaches this
contrived extrapolation. Congress's use of the word "includes"
connotes that § 6020(a) returns and their state or local law
equivalents are mere examples of returns that would still comply
with "applicable filing requirements," despite the fact that the
taxpayer did not meet the filing deadline.19 If Congress intended
the outcome espoused by the majority, it would have used different
language (e.g., "is limited to") -- not the word "includes."20
19
While § 6020(a) does not specifically discuss filing
deadlines, I think it fair to presume that if a person failed to
file a return on his own, he missed the filing deadline.
20
In its attempt to refute my interpretation of the word
"includes," the majority concludes that in addition to § 6020(a)
returns, "all sorts of returns (such as Form 1040s) that satisfy
-30-
In a similar vein, the hanging paragraph also denotes
that a "return" "does not include a return made pursuant to section
6020(b) of the Internal Revenue Code . . . or a similar State or
local law."21 Applying the majority's (incorrect) definition of the
word "includes," then, means that conversely, a § 6020(b) return,
(or its state or local law equivalent) would be the only type of
return that is not a return. But as the bankruptcy court below put
it, "[i]f all late-filed returns except § 6020(a) returns are not
returns[,] there is no need to state that § 6020(b) returns are not
returns." The majority cursorily writes off this curiosity as a
mere "redundancy" in the statute, failing to substantively address
their respectively applicable filing requirements" count as
"returns." This logic is circular. Of course a return that
satisfies "applicable filing requirements" satisfies "applicable
filing requirements." The majority's response still fails to
address why we should read into the statutory language that late-
filed returns, generally, are not considered "returns," even though
Congress wrote into the statute an example of a specific type of
late-filed return that qualifies.
21
Section 6020(b) permits the IRS to execute a return for
someone who either failed to file, or filed a "false or fraudulent
return," even if that person did not cooperate and/or did not sign
the return the IRS prepared. It provides:
If any person fails to make any return
required by any internal revenue law or
regulation made thereunder at the time
prescribed therefor, or makes, willfully or
otherwise, a false or fraudulent return, the
Secretary shall make such return from his own
knowledge and from such information as he can
obtain through testimony or otherwise.
26 U.S.C. § 6020(b)(1).
-31-
why the absurd conclusion we must draw from its reading of the
statute does not require consideration of what Congress actually
meant when it added the § 6020 language to the statute.
Second, allowing § 6020(a) returns, but not other late-
filed returns, to be dischargeable leads to another preposterous
result. Section 6020(a) returns result from a taxpayer's failure
to file a federal tax return. Under the majority's formulation,
then, the scofflaw who sits on his hands at tax time, doesn't bother
to file a return, and then, after getting caught, cooperates with
the authorities and lets the government file the substitute return
for him, would be the only late filer who would be allowed to
discharge his tax debt. The person who files his return one day
late -- which the state then accepts -- would not be permitted to
discharge, regardless of the reason for the tardiness.
The majority responds that § 6020(a) "is a tool for the
IRS, invoked solely at its discretion, when it decides obtaining
help from the late filing taxpayer is to the IRS's advantage." And
so, the majority contends, "[t]hat Congress left the IRS a carrot
to offer a taxpayer in such infrequent cases does not mean that it
was absurd for Congress not to extend this carrot categorically to
large numbers of late filers." But the Massachusetts taxing
authority, like the IRS, also has the discretion to accept late-
filed materials from a taxpayer (without imposing a penalty),
presumably because it, too, would prefer not to start from scratch.
-32-
Further, the majority offers no authority to support its assumption
that Congress was concerned about a rash of people running to the
courthouse to discharge their tax debts. A theme I harp on
throughout this dissent, we cannot put words in Congress's mouth.
Finally, if Congress did provide some indication that it was seeking
to prevent "large numbers" of late filers from attempting to
discharge, the relevant statistic to look at would be how many late
filers -- of the § 6020(a) variety or otherwise -- would actually
seek relief from Subsection (ii), were it available to them, as
opposed to how many people, theoretically, file their taxes late.
Given the absurdity of the majority's outcome, and the
other textual ambiguities I described above, I disagree with my
colleagues that we can avoid delving into legislative intent. I
tackle that analysis next.
Legislative Intent
In dicta, the majority rejects the debtors' arguments
regarding the legislative intent behind Subsection (ii) and the
hanging paragraph. I disagree with this portion of the majority's
analysis, as well as its ultimate disposition.
The Caselaw
In trying to discern legislative intent, we look to the
historical context of the statute (i.e., prior caselaw), the
legislative history of the statutory provision, and the policy
underlying the statute. In re Weinstein, 272 F.3d at 44-46. So
-33-
first, we must "consider . . . the context of the statute in
bankruptcy caselaw." Id. This task requires a brief recap of the
history of Subsection (ii) and the addition of the hanging
paragraph.
Prior to 2005, the bankruptcy code did not define
"return" for purposes of Subsection (ii). Many courts, left to
their own devices to figure out what constituted a "return," ended
up adopting what's been coined as the "Beard test," a four-part
standard formulated by the Tax Court for determining whether a
document filed with the IRS qualified as a federal tax return.
Under the Beard inquiry, a document qualified as a tax return if:
(1) it purported to be a return; (2) was signed under penalty of
perjury; (3) contained information sufficient to determine tax
liability; and (4) was an honest and reasonable attempt to satisfy
the tax law requirements. Beard v. Commissioner, 82 T.C. 766
(1984), aff'd per curiam, 793 F.2d 139 (6th Cir. 1986). See also
In re Colsen, 446 F.3d 836, 839 (8th Cir. 2006); In re Payne, 431
F.3d 1055, 1057 (7th Cir. 2005); In re Moroney, 352 F.3d 902, 905
(4th Cir. 2003); In re Hatton, 220 F.3d 1057, 1060-61 (9th Cir.
2000); In re Hindenlang, 164 F.3d 1029, 1033-34 (6th Cir. 1999) (all
adopting Beard test).22
22
We do not appear to have ever formally adopted Beard, but
prior to 2005, courts in our province applied or considered it to
try to figure out what constituted a "return" for purposes of 11
U.S.C. § 523(a). See, e.g., In re Mulcahy, 260 B.R. 612, 615-16
(Bankr. D. Mass. 2001); In re Pendergast, 510 B.R. 1, 9 (B.A.P. 1st
-34-
Many courts ended up grappling with the fourth prong.
Some tried to figure out whether filing a return late counted as an
"honest and reasonable attempt" to satisfy tax requirements. See,
e.g., In re Payne, 431 F.3d at 1059; In re Hindenlang, 164 F.3d at
1034. Those decisions often turned on whether a return made after
the government had already assessed tax liability defeated the main
purpose of the filing deadline, which one court described as
"spar[ing] the tax authorities the burden of trying to reconstruct
a taxpayer's income and income-tax liability without any help from
him." In re Payne, 431 F.3d at 1057. See also In re Moroney, 352
F.3d at 906 (holding that the belated acceptance of responsibility
for tax liability does not constitute an honest and reasonable
attempt to comply with tax laws, and that whether the eventual
effort had an effect on tax liability was irrelevant); In re Hatton,
220 F.3d at 1061 (finding that belated cooperation with IRS to
settle tax liabilities was not an honest and reasonable attempt to
comply with tax law, and tax liability was therefore not excepted
from discharge under § 523); In re Hindenlang, 164 F.3d at 1034
(applying the fourth prong of Beard, holding that a "Form 1040 is
not a return if it no longer serves any tax purpose or has any
effect under the Internal Revenue Code"). Other courts instead
struggled with whether the "honest and reasonable" inquiry was
Cir. 2014) (reiterating its previous holding that "§ 523(a)(*)
replaces the Beard test").
-35-
limited to an examination of whether, as a factual matter, the tax
forms themselves -- regardless of when they were eventually filed --
were filled out in good faith and with accurate information. See,
e.g., In re Colsen, 446 F.3d at 840-41.
Presumably aware of this confusion that was ensuing in
the courts, in 2005, Congress added the hanging paragraph,
clarifying specifically that substitute returns -- even though they
were not prepared at the hand of the taxpayer and were filed late --
could qualify as dischargeable under 11 U.S.C. § 523(a), so long as
the taxpayer cooperated with the government in preparing the return,
and did not file a false or fraudulent one. While Congress also
injected the language requiring returns to meet "applicable filing
requirements," despite the discord among the courts, it did not
specifically address whether late-filed returns in particular should
be considered "returns" under the revised statutory scheme.
Since 2005, disagreement has continued to persist among
the courts about how to apply the law, at least as it pertains to
late-filed returns. Only two of our sister courts have answered the
specific question before us, and both have reached the same
conclusion as the majority here. See McCoy v. Miss. State Tax
Comm'n (In re McCoy), 666 F.3d 924, 932 (5th Cir. 2012); In re
Mallo, No. 13-1464, 2014 WL 7360130, at *12 (10th Cir. Dec. 29,
2014). But as we have said before, "[t]he numbers favoring a rule
do not necessarily mean that the rule is the best one." In re Atlas
-36-
IT Exp. Corp., 761 F.3d 177, 182 (1st Cir. 2014). Numerous lower
courts -- including two of the courts involved in the instant appeal
-- have applied either a different reasoning or have reached a
different outcome from the one espoused by the majority. See, e.g.,
In re Gonzalez, 506 B.R. 317, 318 (B.A.P. 1st Cir. 2014) (affirming
bankruptcy court's holding that Massachusetts taxes were
dischargeable, even though "corresponding tax returns were filed
late"); In re Martin, 508 B.R. 717, 736 (Bankr. E.D. Cal. 2014)
(holding that "requirements of applicable nonbankruptcy law
(including applicable filing requirements) do not include a temporal
restriction") (quotations omitted). Some courts, including the
lower court in Mallo, have continued to apply various versions of
the Beard test. See, e.g., In re Mallo, 498 B.R. 268, 281 (D. Colo.
2013); In re Rhodes, 498 B.R. 357, 360 (Bankr. N.D. Ga. 2013).
As the Supreme Court has articulated, "[w]hen Congress
amends the bankruptcy laws, it does not write on a clean slate."
Dewsnup v. Timm, 502 U.S. 410, 419 (1992) (quotations omitted).
Therefore, we should be "reluctant to accept arguments that would
interpret the Code, however vague the particular language under
consideration might be, to effect a major change in pre-Code
practice that is not the subject of at least some discussion in the
legislative history." Id. Given the widespread disagreement among
the courts prior to and after 2005, as well as ubiquitous
application of various versions of the Beard test's "honest and
-37-
reasonable attempt" requirement, I do not see how -- absent a clear
congressional mandate -- we can (or should) spring upon debtors the
majority's draconian rule-of-law. This very appeal, which involves
four different debtors and the decisions of four different lower
courts reaching two opposing outcomes, illustrates that the caselaw
is far from settled, and that the courts were not generally applying
a per se restriction like the one the majority has created today.
Policy
Given the lack of legislative history on the hanging
paragraph, it is also appropriate to look to the public policy
behind the bankruptcy code to try to determine Congress's intent.
See In re Weinstein, 272 F.3d at 46 (noting that while we "must not,
of course, impose [our] own views of proper bankruptcy policy in
place of those of the legislature[,] . . . an understanding of the
congressional policies underlying a statute, including the
Bankruptcy Code, can help to reconcile otherwise indeterminate parts
of the statutory text").
The primary purpose of the bankruptcy code has always
been to "relieve the honest debtor from the weight of oppressive
indebtedness, and permit him to start afresh free from the
obligations and responsibilities consequent upon business
misfortunes." Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)
(citation and quotations omitted); Marrama v. Citizens Bank of
Mass., 549 U.S. 365, 367 (2007) ("The principal purpose of the
-38-
Bankruptcy Code is to grant a fresh start to the honest but
unfortunate debtor.") (citations and quotation omitted). As the
Supreme Court reiterated fairly recently (and several years after
the 2005 amendments were passed), a "fresh start" is a "fundamental
bankruptcy concept." Schwab v. Reilly, 560 U.S. 770, 791 (2010)
(citations and quotations omitted). Despite the majority's
contentions, Congress made no indication that the 2005 amendments
were intended to change those goals. Rather, as President George
W. Bush reiterated upon signing the bill, the purpose of our
bankruptcy system is to "give those who cannot pay their debts a
fresh start." Presidential Statement on Signing the Bankruptcy
Abuse Prevention and Consumer Protection Act, 2005 U.S.C.C.A.N. S7,
2005 WL 3693183 (Apr. 20, 2005) ("2005 Presidential Statement").
As I mentioned above, the Massachusetts taxing authority
acknowledges that someone may miss the filing deadline for a
"reasonable cause." Yet under the majority's formulation, even
people who have a good-faith reason for filing late -- and are then
excused by the state taxing authority for doing so -- are mere
"delinquent taxpayers," shunned from receiving a bankruptcy
discharge. While the 2005 reforms certainly sought to avert abuses
that had been occurring in the bankruptcy system, I find it
presumptuous to conclude that well intentioned people who file their
taxes one day late -- with no way to anticipate that bankruptcy
would be coming down the pipeline a whole two years later -- are the
-39-
people trying to "commit fraud" or "game the system." See 2005
Presidential Statement. I am further convinced that Congress's
focus was likely on bad faith, as opposed to mere timing, because
the hanging paragraph expressly allows discharge for § 6020(a)
returns, but not § 6020(b) returns, despite the fact that both are,
by their nature, filed late -- as the majority concedes, "the basic
difference between sections 6020(a) and (b) [is that] the latter is
prepared without the taxpayer's assistance and sometimes as a result
of the taxpayer's willful fraud." It seems to me that in light of
the public policy behind the bankruptcy code and Congress's decision
not to specifically create a per se rule barring late-filed returns
from being dischargeable, we cannot just write one in.
Given the state of the caselaw in 2005, the most sensible
explanation for Congress's addition of the provision was to
elucidate that regardless of who prepared a return -- or when -- if
the document a debtor filed would no longer be considered a "return"
because the state won't accept it as one, the debtor can't just turn
around and file a tax form solely for the purpose of discharging
those taxes during bankruptcy. This interpretation of the law is
further supported by Congress's choice, in 2005, to maintain the
very safeguard that was already built into the statute to help
prevent that kind of problem from arising: "the requirement of a
two-year waiting period after filing a late return but before
seeking discharge prevents a debtor who has ignored the filing
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requirements of the Internal Revenue Code from waiting until the eve
of bankruptcy, filing a delayed but standard tax return form, and
seeking discharge the next day." In re Hindenlang, 164 F.3d at
1032. Considering the purpose of the bankruptcy code, it is beyond
me how -- or why -- the majority would assume, without textual or
other justification, that "it is more plausible that Congress
intended to settle the dispute over late filed tax returns against
the debtor . . . ."
In my view, the most sensible interpretation of
Subsection (ii) and the hanging paragraph, when considered in
concert, is that a return that does not comply with state filing
requirements (and thus will not be accepted by the state as a return
when it is filed) does not count as a "return," and so those taxes
cannot be discharged. In order to prevent people from filing late
returns solely for the purpose of discharging their taxes in
bankruptcy, the debtor may only discharge if he filed for bankruptcy
two years after he filed his late return. This reading aligns with
the plain text (including Congress's choice to retain Subsection
(ii) in its entirety), the historical context of the statute, and
the public policy reasons for enacting the bankruptcy code. The
majority, ignoring blatant textual ambiguities and judicial
precedent, instead opts to create a per se restriction that is
contrary to the goal of our bankruptcy system to provide, as the
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former President put it in 2005, "fairness and compassion" to "those
who need it most."
Ultimately, this continued confusion may be Congress's
problem to fix. In the meantime, debtors who legitimately resort
to bankruptcy when they reach wit's end should not be punished for
the lack of clarity that persists in the very laws enacted to help
them -- or for the majority's implicitly articulated viewpoint that
a financially strapped person who misses a deadline is trying to
work a runaround.
I respectfully dissent.
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