Berry v. Mass. Dep't of Revenue (In re Berry)
| Decision Date | 30 June 2016 |
| Docket Number | Adversary Proceeding No. 15-4045-CJP,Case No. 15-41218-CJP |
| Parties | In re: EDWIN D. BERRY, II, Debtor EDWIN D. BERRY, II, Plaintiff v. MASSACHUSETTS DEPARTMENT OF REVENUE, Defendant |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Before the Court is the Motion for Judgment on the Pleadings (Adv. Doc. No. 7) (the "Motion") filed by the defendant, the Massachusetts Department of Revenue (the "MDOR"), and the Opposition to Motion for Judgment on the Pleadings and for Entry of Judgment (Adv. Doc. No. 14) (the "Opposition") filed by the debtor plaintiff, Edwin D. Berry, II (the "Debtor"). The Debtor filed the above-captioned adversary proceeding seeking the discharge of certain income taxes owed to the MDOR pursuant to 11 U.S.C §§ 507(a)(8)(A)(ii) and 523(a)(1)(A).1 TheMDOR moves for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c), as made applicable to this proceeding by Fed. R. Bankr. P. 7012(b), asserting that, because the Debtor failed to file an amended return reporting a change in the amount of his federal taxable income, the corresponding state tax liability is non-dischargeable pursuant to 11 U.S.C. § 523(a)(1)(B)(i). The Debtor opposes the Motion and also seeks judgment in his favor on the pleadings. For the reasons set forth below, the Court enters judgment in favor of the MDOR on its Motion and against the Debtor.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(a)-(b) and the order of reference from the United States District Court for the District of Massachusetts set forth in Massachusetts District Court Local Rule 201. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
The material facts necessary to decide this Motion are undisputed. The Debtor filed a Chapter 7 case on June 23, 2015 (the "Petition Date"). On Schedule F, "Creditors Holding Unsecured Nonpriority Claims," accompanying his petition, the Debtor listed outstanding indebtedness to the Commonwealth of Massachusetts for taxes for the tax year ending December 31, 2010, totaling $21,513.00. On July 1, 2015, the Debtor commenced this adversary proceeding against MDOR to determine the dischargeability of income taxes, penalties, and interest he owed for the 2010 tax year.
The Debtor timely filed his 2010 state tax return. Pursuant to an exchange program2 with the Internal Revenue Service ("IRS"), the MDOR subsequently received information that the Debtor had failed to report taxable pensions and annuities in the amount of $336,739.00 for the 2010 tax year.3 The Debtor did not submit a Form CA-6 "Application for Abatement/Amended Return" ("Form CA-6") to the MDOR to report the change in his federal taxable income. On October 15, 2014, the MDOR issued a Notice of Assessment, a copy of which is attached by the Debtor in support of his complaint (Adv. Doc. No. 1) (the "Complaint"), showing that, as of October 13, 2014, the Debtor owed income taxes to the MDOR for calendar year 2010 in the sum of $20,692.71. This assessment included an additional $17,847.17 in personal income tax liability for 2010.
The Debtor asserts that because (i) his 2010 return was due more than three years prior to the Petition Date, (ii) such tax return was filed more than two years prior to the Petition Date, and (iii) taxes were assessed on October 13, 2014, more than 240 days prior to the Debtor filing for bankruptcy, his 2010 tax debt is dischargeable by operation of §§ 523(a)(1)(A) and 507(a)(8)(A)(ii).
On July 30, 2015, the MDOR filed its answer (Adv. Doc. No. 4) (the "Answer"), admitting the Debtor's factual allegations and, raising, among other things, sufficiency of process as an affirmative defense. The MDOR acknowledges that the return at issue was duemore than three years prior to the Petition Date and that the return was filed more than two years prior to the Petition Date. The MDOR also agrees that the taxes were assessed more than 240 days prior to the Petition Date. The MDOR asserts, however, that application of § 523(a) to these facts mandates a determination that the Debtor's 2010 tax liability is not dischargeable because the Debtor failed to amend his return by filing Form CA-6 once there was a change in his federal taxable income that resulted in increased Massachusetts tax liability.
Federal Rule of Civil Procedure 12(c) allows a party to move for judgment on the pleadings at any time "[a]fter the pleadings are closed—but early enough not to delay trial." Fed. R. Civ. P. 12(c). The standard in determining a motion for judgment on the pleadings under Fed. R. Civ. P. 12(c) is similar to the standard applicable to a motion to dismiss under Fed. R. Civ. P. 12(b)(6). See Gray v. Evercore Restructuring L.L.C., 544 F.3d 320, 324 (1st Cir. 2008) () (internal quotations omitted). For this purpose and because a Fed. R. Civ. P. 12(c) "motion calls for an assessment of the merits of the case at an embryonic stage, the court must view the facts contained in the pleadings in the light most favorable to the nonmovant and draw all reasonable inferences therefrom" in the opposing party's favor. R.G. Fin. Corp. v. Vergara-Nunez, 446 F.3d 178, 182 (1st Cir. 2006).
"While a Rule 12(b)(6) motion is laser-focused on the legal adequacy of the complaint, a motion for judgment on the pleadings under Rule 12(c) examines the undisputed factual record expanded by the defendant's answer to determine the merits of the claims as revealed in the formal pleadings." Best v. Nationstar Mortg. LLC (In re Best, Jr.), 540 B.R. 1, 7-8 (B.A.P. 1st Cir. 2015) (internal quotations omitted). "The court may supplement the facts contained in the pleadings by considering documents fairly incorporated therein and facts susceptible to judicial notice." R.G. Fin. Corp., 446 F.3d at 182; see also LeBlanc v. Salem (In re Mailman Steam Carpet Cleaning Corp.), 196 F.3d 1, 6 n.2 (1st Cir. 1999) () (quoting Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994)).
Section 727 governs the scope of a discharge in a chapter 7 case, which the Court shall grant to a debtor unless certain conditions are present. See 11 U.S.C. § 727(a). Section 523 addresses the nondischargeability of certain types of debts, including three categories of tax debts that are excepted from discharge. See 11 U.S.C. § 523(a)(1)(A)-(C). While "[t]he principal purpose of the Bankruptcy Code is to grant a fresh start to the honest and unfortunate debtor," tax obligations are an exception to the fresh-start policy. Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 367 (2007) (internal quotations omitted). Grogan v. Garner, 498 U.S. 279, 287 (1991).
The party seeking to establish an exception to the discharge of a debt under § 523 bears the burden of proof, see Nilsen v. Mass. Dep't of Revenue (In re Nilsen), 542 B.R. 640, 645 (Bankr. D. Mass. 2015), which is by the preponderance of the evidence. See Grogan, 498 U.S. at 291.
Section 523(a)(1) provides in relevant part as follows:
11 U.S.C. § 523(a)(1)(A)-(B). Specifically, § 523(a)(1)(B)(i) excludes from the scope of the discharge a tax liability if a required return, or equivalent report or notice was not filed.4 SeeFahey v. Mass. Dep't of Revenue (In re Fahey), 779 F.3d 1, 3 (1st Cir. 2015); Nilsen, 542 B.R. at 645; Shorton v. Commonwealth of Massachusetts (In re Shorton), 375 B.R. 26, 32 (Bankr. D. Mass. 2007).
From the enactment of the Bankruptcy Code, § 523(a)(1)(B)(i) excepted from discharge any debt "for a tax . . . (B) with respect to which a return, if required (i) was not filed[,]" but Congress amended the text of § 523(a)(1)(B)(i) in 2005 to add a further exception from discharge for a tax liability with respect to which an "equivalent report or notice . . . was not filed or given." Fahey, 779 F.3d at 10, n.11 (); see also State of Maryland v. Ciotti (In re Ciotti), 638 F.3d 276, 278-79 (4th Cir. 2011) (citing Bankruptcy Reform Act, Pub. L. No., 95-598, 92 Stat. 2549 (1978)). Given the additional language incorporated into § 523(a)(1)(B)(i), "[i]t is apparent from the changes that Congress determined that the same policy reasons that justify precluding the discharge of tax debt when the debtor failed to file a return also...
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