McCoy v. Mississippi State Tax Comm'n

• Decision Date: 04 January 2012
• Docket Number: No. 11–60146.,11–60146.
• Citation: 666 F.3d 924
• Parties: In the Matter of Linda Trenett McCOY, also known as Linda Trenett Hays, Debtor.Linda Trenett McCoy, Appellant, v. Mississippi State Tax Commission, State of Mississippi, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

666 F.3d 924

In the Matter of Linda Trenett McCOY, also known as Linda Trenett Hays, Debtor.Linda Trenett McCoy, Appellant,

v.Mississippi State Tax Commission, State of Mississippi, Appellee.

No. 11–60146.

United States Court of Appeals, Fifth Circuit.

Jan. 4, 2012.

Richard Ray Grindstaff, Byram, MS, for Appellant.

Heather S. Deaton, Abigail Marshall Marbury, Mississippi Dept. of Revenue, Legal Div., Jackson, MS, for Appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before KING, JOLLY, and WIENER, Circuit Judges.

KING, Circuit Judge:

Linda Trenett McCoy filed for bankruptcy on September 25, 2007, and was granted a discharge by the bankruptcy court pursuant to 11 U.S.C. § 727. McCoy then filed an adversary proceeding in the bankruptcy court against the Mississippi State Tax Commission on December 3, 2008, seeking a declaration that two years of her pre-petition state income tax debts were subject to that discharge. On motion by the Commission, the bankruptcy court dismissed McCoy's complaint. The bankruptcy court reasoned that because McCoy had failed to timely file her Mississippi income tax returns, her tax filings were not “returns” for the purposes of discharge under the Bankruptcy Code, which requires the filing of a “return” for the discharge of income tax debts. The district court affirmed the judgment of the bankruptcy court. McCoy timely appealed. We AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

On September 25, 2007, Linda Trenett McCoy (“McCoy”) filed a voluntary Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Southern District of Mississippi. McCoy's discharge was granted by the bankruptcy court, pursuant to 11 U.S.C. § 727, on January 23, 2008. On December 3, 2008, McCoy returned to the bankruptcy court to commence a post-discharge adversary proceeding against the Mississippi State Tax Commission (“MSTC”), ¹ seeking a declaration that her debt to the State of Mississippi (“Mississippi”), resulting from pre-petition income tax obligations for the 1998 and 1999 tax years, had been discharged in bankruptcy.²

MSTC moved to dismiss McCoy's complaint, arguing that because the state income returns filed by McCoy for the 1998 and 1999 tax years were filed late, they did not qualify as “returns” under the definition provided in 11 U.S.C. § 523(a)(*),³ a provision added to the Bankruptcy Code as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), 119 Stat. 23, Pub.L. 109–8 (Apr. 20, 2005).⁴ MSTC further argued that because the late-filed returns did not qualify as “returns” for discharge purposes, McCoy's income tax debts to Mississippi cannot be discharged in bankruptcy. See 11 U.S.C. § 523(a)(1)(B)(i) (“A discharge under section 727 ... of this title does not discharge an individual debtor from any debt ... for a tax ... with respect to which a return, or equivalent report or notice, if required ... was not filed or given....”). McCoy countered by arguing MSTC's reading of the statute was incorrect and that the definition of “return” in § 523(a) should be governed by the test outlined in the pre-BAPCPA case of United States v. Hindenlang (In re Hindenlang), 164 F.3d 1029, 1033 (6th Cir.1999), cert. denied, 528 U.S. 810, 120 S.Ct. 41, 145 L.Ed.2d 37 (1999).

The bankruptcy court agreed with MSTC's interpretation of § 523(a)(*), concluding that because McCoy's filings did not comport with Mississippi's timeliness requirements, they were not “returns” for discharge purposes. Accordingly, the bankruptcy court held that McCoy had failed to properly state a cause of action and dismissed her claim on August 31, 2009. McCoy appealed the bankruptcy court's decision to the district court, which rejected McCoy's appeal and affirmed the bankruptcy court's decision. McCoy now appeals the dismissal of her case, arguing that we should adopt the Hindenlang test for determining whether filings constitute returns for discharge purposes, that the documents she filed constitute returns under this test, and that her tax debts to Mississippi should be declared discharged.

II. DISCUSSION

A. Standard of Review

“We review a district court's affirmance of a bankruptcy court decision by applying the same standard of review to the bankruptcy court decision that the district court applied.” Barner v. Saxon Mortg. Servs., Inc. (In re Barner), 597 F.3d 651, 653 (5th Cir.2010) (internal quotation marks and citation omitted). We review factual findings for clear error and conclusions of law de novo. Id.

The pleading standards for a Rule 12(b)(6) motion to dismiss are derived from Rule 8 of the Federal Rules of Civil Procedure, which provides, in relevant part, that a pleading stating a claim for relief must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).⁵ “The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid claim when all well-pleaded facts are assumed true and are viewed in the light most favorable to the plaintiff.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir.2010) (citing In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir.2007)). The complaint must state “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Our task, then, is to determine whether the plaintiff has stated a legally cognizable claim that is plausible, not to evaluate the plaintiff's likelihood of success. Lone Star Fund, 594 F.3d at 387 (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)). In other words, we look to see whether McCoy's pleadings, including her legal arguments, plausibly state a claim that her tax debt should be discharged pursuant to § 523(a).

B. Section 523(a) of the Bankruptcy Code

Section 727 of the Bankruptcy Code permits the discharge of debts in Chapter 7 bankruptcies, but contains several exceptions, including those outlined in § 523. See 11 U.S.C. § 727(b) (“Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter ...”). In relevant part, § 523 provides that:

(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—

(A) of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed;

(B) with respect to which a return, or equivalent report or notice, if required—

(i) was not filed or given ....

11 U.S.C. § 523(a)(1)(B)(i) (emphasis added).

Until the passage of BAPCPA, the term “return” was not defined for § 523(a) purposes and so courts relied on a four-part test outlined in Hindenlang, 164 F.3d at 1033.⁶ This test, based on the holdings of the Supreme Court cases of Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 55 S.Ct. 127, 79 L.Ed. 264 (1934), and Germantown Trust Co. v. Commissioner, 309 U.S. 304, 60 S.Ct. 566, 84 L.Ed. 770 (1940), was adopted by other courts of appeals. See In re Payne, 431 F.3d 1055, 1057 (7th Cir.2005); Moroney v. United States (In re Moroney), 352 F.3d 902, 905 (4th Cir.2003); United States v. Hatton (In re Hatton), 220 F.3d 1057, 1060–61 (9th Cir.2000). These cases held that a late-filed tax return that required the government to assess the tax without the tax payer's assistance would not be treated as a “return” for § 523 purposes. Payne, 431 F.3d at 1058; Moroney, 352 F.3d at 906; Hatton, 220 F.3d at 1061; Hindenlang, 164 F.3d at 1035. These cases, however, dealt with federal income taxes, and the court in Hindenlang specifically explained that its holding “d[id] not address the issue of the definition of return for purposes of § 523(a)(1)(B) when a taxpayer seeks to discharge state, municipal, or other tax liability.” Hindenlang, 164 F.3d at 1033 n. 4.

In 2005, Congress passed BAPCPA to address several problems with the Bankruptcy Code. See H.R. Rep. No. 109–31 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 90–92 (explaining that BAPCPA was motivated by four factors: the “recent escalation of consumer bankruptcy filings,” the “significant losses ... associated with bankruptcy filings,” the fact that the “bankruptcy system has loopholes and incentives 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”). As part of its package of amendments, BAPCPA added a new hanging paragraph to § 523(a) which defined the term “return” for discharge purposes:

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)(*) (emphasis added). In the instant appeal, the Mississippi tax code provides the “applicable nonbankruptcy law (including applicable filing requirements)” for the case at issue. It provides, in relevant part:

Returns of individuals, estates, trusts and partnerships shall be filed on or before the fifteenth day of the fourth month following the close of the fiscal year; or if the return is filed on the basis of a calendar year, it shall be filed on or before April 15th of each year.

Miss.Code Ann. § 27–7–41. Both parties agree that this provision means that McCoy filed her tax...