Perkins v. Mass. Dep't of Revenue, Civil Action Nos. 13–30107–WGY, 13–11875–WGY.

• Decision Date: 07 March 2014
• Docket Number: Civil Action Nos. 13–30107–WGY, 13–11875–WGY.
• Citation: 507 B.R. 45
• Parties: Timothy P. PERKINS, Plaintiff/Appellee, v. MASSACHUSETTS DEPARTMENT OF REVENUE, Defendant/Appellant. Brian S. Fahey, Plaintiff/Appellee, v. Massachusetts Department of Revenue, Defendant/Appellant.
• Court: U.S. District Court — District of Massachusetts

507 B.R. 45

Timothy P. PERKINS, Plaintiff/Appellee,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE, Defendant/Appellant.
Brian S. Fahey, Plaintiff/Appellee,
v.
Massachusetts Department of Revenue, Defendant/Appellant.

Civil Action Nos. 13–30107–WGY, 13–11875–WGY.

United States District Court,
D. Massachusetts.

Signed March 7, 2014.

Celine E. Jackson, Massachusetts Department of Revenue, Jeffrey S. Ogilvie,

[507 B.R. 46]

Litigation Bureau–Mass. Department of Revenue, Daniel J. Hammond, Attorney General's Office Boston, MA, for Defendant/Appellant.

Carl D. Aframe, Aframe & Barnhill P.A., Worcester, MA, for Plaintiff/Appellee.

MEMORANDUM AND ORDER
YOUNG, District Judge.
I. INTRODUCTION

This opinion addresses two bankruptcy appeals that were consolidated because they present the same legal issue. Both cases originate in adversary proceedings pertaining to Chapter 7 bankruptcy filings. In these proceedings, the plaintiffs, Timothy P. Perkins (“Perkins”) and Brian S. Fahey (“Fahey”) (collectively, the “Debtors”), seek a determination that their income liabilities to the defendant, the Massachusetts Department of Revenue (the “Department”), for the years at issue are subject to the debtor's discharge. The key issue in the two cases is the same—to wit, whether belatedly filed state tax returns constitute “returns” for purpose of the discharge.

In the first case, the plaintiff, Perkins, seeks a determination that his income liabilities to the Department for the years 2004, 2005, and 2006 are subject to his debtor's discharge. The bankruptcy court entered judgment in Perkins's favor, and the Department now appeals.

In the second case, the plaintiff, Fahey, appeals from the judgment entered by the bankruptcy court ruling that his income liabilities to the Department for the years 1997 through 2002 and 2004 through 2005 were not subject to his debtor's discharge.

Thus, this Court faces a single legal issue decided in opposite ways by two different bankruptcy judges. As previously mentioned, the key question to be considered in these appeals is whether the tax returns belatedly filed by the Debtors constitute “returns” for purposes of discharge.

A. Procedural Posture1. Perkins¹

On August 3, 2012, Perkins brought an adversary proceeding against the Department in his Chapter 7 Bankruptcy proceeding. United States Bankruptcy Court, District of Massachusetts, Adversary Proceeding No. 12–03030 (“Adversary Docket”) No. 1, ECF No. 5–1. The Department answered and counterclaimed on August 14, 2012. Id. No. 4. Both parties filed cross-motions for summary judgment. Id. Nos. 11, 24. On April 8, 2013, the Bankruptcy Court denied the Department's motion for summary judgment, granted Perkin's motion for summary judgment, Order, ECF No. 10, and entered judgment in favor of Perkins. Judgment, ECF No. 6.

On May 8, 2013, the Department filed a notice of appeal with the Bankruptcy Appellate Panel. Adversary Docket No. 41. On June 5, 2013, Perkins elected to appeal to the District Court for the District of Massachusetts, id. No. 46, and the case was assigned to this session of the Court on June 10, 2013. Elec. Notice, ECF No. 8. On June 24, 2013, the Department filed its brief. Br. Def./Appellant Mass. Dep't Revenue (“Department's Br. Perkins”), ECF No. 13. On June 26, 2013, Perkins moved that this Court certify this case for direct appeal to the First Circuit, Req. Certif. Fed. R. Bankr.P. 8001(f) & 28 U.S.C. § 158(d)(2)(A)(i) & (ii), ECF No. 14, to which the Department opposed, Appellant's Opp'n Appellee's Req. Certif. Ct. Appeals & Opp'n Certif. Sua Sponte,

[507 B.R. 47]

ECF No. 15. This Court denied the motion for certification on July 5, 2013. Elec. Order, July 5, 2013, ECF No. 19. Perkins filed his brief on August 7, 2013. Br. Pl.–Appellee Timothy P. Perkins (“Perkins's Br.”), ECF No. 21.

2. Fahey²

On August 8, 2012, Fahey brought an adversary proceeding against the Department in his Chapter 7 Bankruptcy proceeding. United States Bankruptcy Court, District of Massachusetts, Adversary Proceeding No. 12–01204, No. 1, ECF No. 2. The Department answered and counterclaimed on August 24, 2012. Id. No. 8. The Department moved for summary judgment on January 27, 2013. Id. No. 27. On June 11, 2013, the Bankruptcy Court granted the Department's motion for summary judgment and entered judgment in favor of the Department. Order, ECF No. 5–1; Mem. Decision, ECF No. 5.

On June 25, 2013, Fahey filed a notice of appeal to the District Court for the District of Massachusetts. Notice Appeal, ECF No. 1. The case was assigned to this session of the Court on August 6, 2013. Elec. Notice, ECF No. 4. On October 21, 2013, Fahey filed his brief. Br. Pl./Appellant Brian S. Fahey (“Fahey's Br.”), ECF No. 13. The Department filed its brief on November 4, 2013. Br. Def./Appellee, Massachusetts Department Revenue (“Department's Br. Fahey”), ECF No. 14.

On October 8, 2013, the Department, with Fahey and Perkins's assent, moved to consolidate the two cases for oral argument. Mot. Appellant Consolidate Oral Arguments (Assented Appellee), ECF No. 11. The motion was granted on the following day and both cases were consolidated for oral hearing. Elec. Order, Oct. 9, 2013, ECF No. 12.

After hearing from counsel in a motion hearing on January 22, 2014, this Court took the matter under advisement. Elec. Clerk's Notes, Jan. 22, 2014, ECF No. 16.

B. Undisputed Facts

The underlying facts in both cases are undisputed. Perkins failed to file his resident income tax return for the years at issue on the date prescribed by Massachusetts law, instead filing them at least nine months after they were due:

Tax Year	Filing Due Date	Actual Filing Date
2004	April 15, 2005	March 14, 2007
2005	April 18, 2006	January 9, 2008
2006	April 17, 2007	January 9, 2008

Department's Br. Perkins 4. More than two years after filing his 2006 return, on July 22, 2010 Perkins filed a voluntary Chapter 7 bankruptcy petition, and nearly two years after that, Perkins initiated the present adversary proceeding, seeking a determination that the tax liabilities to the Department related to the years at issue are subject to his debtor's discharge. Id. at 2.

Fahey likewise failed to file his resident income tax return for the years at issue on the date prescribed by Massachusetts law:

Tax Year	Filing Due Date	Actual Filing Date
1997	April 15, 1998	December 28, 2001
1998	April 15, 1999	December 30, 2001
1999	April 18, 2000	December 28, 2001
2000	April 15,2001	December 28, 2001
2001	April 15, 2002	August 5, 2002
2002	April 15, 2003	December 8, 2003
2004	April 15, 2005	February 18, 2009
2005	April 18, 2006	July 17, 2008 [507 B.R. 48]

Department's Br. Fahey 5. More than two years after submitting his 2005 return, on October 13, 2010 Fahey filed a voluntary Chapter 13 bankruptcy petition, which was subsequently converted to a Chapter 7 liquidation case, id. at 2, and nearly two years after that, Fahey initiated the present adversary proceeding, seeking a determination that the tax liabilities to the Department related to the years at issue are subject to his debtor's discharge, id. at 3.

C. Jurisdiction

This Court has original jurisdiction over bankruptcy cases and all civil proceedings “arising under title 11 [of the United States Code], or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). The Court has jurisdiction to hear bankruptcy appeals pursuant to 28 U.S.C. § 158(a). The legal and factual issues on appeal arise in and are related to bankruptcy proceedings filed by the Debtors. Both Perkins and Fahey elected to proceed to the district court pursuant to 28 U.S.C. section 158(c)(1)(B). Appellee's Statement Election Have U.S. District Ct. Hear Appeal, Perkins's ECF No. 3; Statement Election Appellant Appeal Final Judgment U.S. District Ct. Boston, Mass., Notice Appeal, Fahey's ECF No. 3.

II. ANALYSISA. Standard of Review

“On appeal from a judgment in an adversary proceeding, a district court reviews conclusions of law de novo, but ought accept the bankruptcy judge's finding of fact unless they were clearly erroneous.” Cromwell v. Countrywide Home Loans, Inc., 483 B.R. 36, 40 (D.Mass.2012). “The district court may also ‘affirm the bankruptcy court order on any ground apparent from the record on appeal.’ ” Id. (quoting Spenlinhauer v. O'Donnell, 261 F.3d 113, 117 (1st Cir.2001)).

B. Legal Background

In a bankruptcy proceeding filed under Chapter 7, the general rule set by section 727 of the Bankruptcy Code is that the Court shall grant the debtor a discharge from his debts. 11 U.S.C. § 727. This discharge includes debts related to unpaid taxes. See In re Hatton, 220 F.3d 1057, 1060 (9th Cir.2000). The Bankruptcy Code, however, excludes under section 523(a) many categories of debts from the general rule. 11 U.S.C. § 523(a). One of those exceptions, section 523(a)(1)(B)(i), is at issue in this case. It provides that the discharge does not encompass the debt related to a tax for “which a return, if required, was not filed.” 11 U.S.C. § 523(a)(1)(B)(i). ³

[507 B.R. 49]

Originally, the Bankruptcy Code did not define the term “return.” In order to find what qualified as “return,” many courts settled on applying a four-prong test outlined by the United States Tax Court in Beard v. Commissioner of Internal Revenue, 82 T.C. 766, 777–78 (1984), aff'd,793 F.2d 139 (6th Cir.1986). See, e.g., United States v. Klein, 312 B.R. 443, 447 (S.D.Fla.2004) (discussing the Beard test application). The Beard test has been broadly used in the bankruptcy context. In re Wogoman, 475 B.R. 239, 245 (10th Cir. BAP 2012); In re Hindenlang, 164 F.3d 1029, 1033–34 (6th Cir.1999).

According to the Beard test, for a document to be considered a tax return, “(1) it must purport to be a return; (2) it must be executed under penalty of perjury; (3) it must contain sufficient data to allow calculation of tax; and (4) it must represent an honest and reasonable attempt to satisfy the requirements of the tax law.” In re Hindenlang, 164 F.3d at 1033 (quoting In re Hindenlang, 214 B.R. 847, 848...