Fahey v. Department of Revenue

Filing 17

Judge William G. Young: ORDER entered. MEMORANDUM AND ORDER: This Court REVERSES the Bankruptcy Court's judgment in Perkins and enters summary judgment in favor of the Department. The Court also AFFIRMS the Bankruptcy Court's judgment in Fahey SO ORDERED...Associated Cases: 3:13-cv-30107-WGY, 1:13-cv-11875-WGY(Paine, Matthew)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

TIMOTHY P. PERKINS,
Plaintiff/Appellee,
v.
MASSACHUSETTS DEPARTMENT OF
REVENUE,
Defendant/Appellant.

BRIAN S. FAHEY,
Plaintiff/Appellee,
v.
MASSACHUSETTS DEPARTMENT OF
REVENUE,
Defendant/Appellant.

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CIVIL ACTION
NO. 13-30107-WGY

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CIVIL ACTION
NO 13-11875-WGY

YOUNG, D.J.

March 7, 2014

MEMORANDUM AND ORDER
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

1

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.

2

A. Procedural Posture
1. 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.

for summary judgment.

Both parties filed cross-motions

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.
Notice, ECF No. 8.
brief.

Elec.

On June 24, 2013, the Department filed its

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
1

In this section, the ECF numbers refer to Perkins’s case
docket, 13-30107-WGY.
3

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, ECF No. 15.

This Court denied the

motion for certification on July 5, 2013.
2013, ECF No. 19.

Elec. Order, July 5,

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.
No. 8.

The Department moved for summary judgment on January 27,
Id. No. 27.

2013.

Id.

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.
Appeal, ECF No. 1.

Notice

The case was assigned to this session of the

2

In this section, the ECF numbers refer to Fahey’s case
docket, 13-11875-WGY.
4

Court on August 6, 2013.

Elec. Notice, ECF No. 4.

21, 2013, Fahey filed his brief.

Br. Pl./Appellant Brian S.

Fahey (“Fahey’s Br.”), ECF No. 13.
brief on November 4, 2013.

On October

The Department filed its

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

5

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 16, 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

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

6

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.

ANALYSIS
A. 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.,
7

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.
U.S.C. § 727.
taxes.

11

This discharge includes debts related to unpaid

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

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
3

The provision reads, in relevant part:
(a) A discharge under section 727, 1141, 1228(a), 1228(b),
or 1328(b) 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;”
8

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 (B.A.P. 10th Cir. 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 (S.D. Ohio
1997)).
In 2005, however, Congress approved the Bankruptcy Abuse
Prevention and Consumer Protection Act (the “Act”), which made
several changes to the Bankruptcy Code.
Stat. 23 (2005).

Pub. L. No. 109-8, 119

Among those changes, the Act included an

unnumbered paragraph following section 523(a)(19), which
attempted to establish a definition of return.

The unnumbered

paragraph is also referred to as the “hanging paragraph,” In re
Pendergast, 494 B.R. 8, 12 (Bankr. D. Mass. 2013) (Hillman,
Bankr. J.), or simply as “section 523(a)(*),” In re McCoy, 666

9

F.3d 924, 928 (5th Cir. 2012), cert. denied, 133 S. Ct. 192
(2012).
Far from achieving its clarifying purpose, the paragraph
stirred more controversy about whether a document qualifies as a
return.

The unnumbered paragraph defines returns in the

following terms:
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)(*).

The first sentence of the unnumbered

paragraph, thus, sets the general rule, according to which a
return, to be considered as such, must satisfy the requirements
of applicable nonbankruptcy law (including applicable filing
requirements).4

4

The second sentence, which will be dealt with infra,
includes as returns those filed pursuant to section 6020(a) of
the Internal Revenue Code of 1986 – where the Secretary of the
Internal Revenue Service prepares the tax return for a person
who, despite not filing the return himself, discloses all
information necessary for its preparation – or similar State or
local law, while at the same time excluding the returns filed
pursuant to section 6020(b) of such Code – where the Secretary
files the tax return for a person who does not cooperate with
the government, or “makes . . . a false or fraudulent return.”
26 U.S.C. § 6020.
10

The applicable nonbankruptcy law, in the present cases, is
the Massachusetts Tax Code under Massachusetts General Law
chapter 62C, section 6(c), which states that, “[e]xcept as
otherwise provided, returns under this section shall be made on
or before the fifteenth day of the fourth month following the
close of each taxable year.”

Mass. Gen. Laws ch. 62C, § 6(c);

see also Department’s Br. Perkins 10.
C. The Department’s Arguments
The Massachusetts Tax Code contains “filing requirements
stating that a resident income tax return ‘shall’ be filed on
April 15th of the succeeding calendar year.”
Perkins 1.

Department’s Br.

According to the Department, because the Debtors

filed their returns for the years at issue after that date, they
failed to comply with the state law requirements; thus, these
late filings cannot constitute returns for discharge purposes.
Id. at 11; Department’s Br. Fahey 1-2.
Simply put, the Department argues that no late-filed
returns would be subject to discharge, unless they were prepared
pursuant to section 6020(a) of the Internal Revenue Code of 1986
(“section 6020(a)”) and filed prior to two years before the
bankruptcy petition.

See Department’s Br. Perkins 10-11.

structure of discharge related to late-filed returns of

11

The

Massachusetts state tax, as envisioned by the Department, would
work in the following manner:
(i) The general rule is that late-filed returns are not to
be considered as returns for purposes of discharge, because they
do not fulfill the filing requirements of the state tax law.
See Department’s Br. Fahey 8.
(ii) The second sentence of the unnumbered paragraph,
however, creates a safe harbor for late-filed returns prepared
pursuant to section 6020(a) or similar state or local law, or a
written stipulation to a judgment or a final order entered by a
nonbankruptcy tribunal.

In this situation, a late-filed return

would still be considered a return for discharge purposes.
(iii) For these returns, section 523(a)(1)(B)(i) would not
be applied, because a return would have been considered as
filed.

Thus, the court would then have to look at section

523(a)(1)(B)(ii), to determine whether the late-filed return is
subject to discharge.

Section 523(a)(1)(B)(ii) excepts tax

liability from the discharge when the return “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 petition.”
§ 523(a)(1)(B)(ii).

11 U.S.C.

As a result, if the late-filed return was

nonetheless filed more than two years before the bankruptcy

12

petition, it would be included in the discharge.

See

Department’s Br. Perkins 14.
In sum, the Department’s argument is that no late-filed
returns are subject to discharge, unless they are prepared
pursuant to section 6020(a) or some similar state law, and filed
prior to two years before the bankruptcy petition.

As a

practical matter, because Massachusetts has no state law similar
to section 6020(a), late-filed state tax returns could never be
considered “returns” for purposes of discharge under Chapter 7
bankruptcy.

See id. at 9 n.4.

D. The Debtors’ Arguments
The Debtors present several arguments to rebut the
Department’s view.

They first claim that the interpretation

proposed by the Department for section 523(a)(1)(B)(i) would
render section 523(a)(1)(B)(ii) all but inoperative.
Br. 3; Fahey’s Br. 5.

Perkins’s

As a result, the Department’s

interpretation allegedly eliminates the discharge for virtually
all late-filed returns, “eviscerat[ing] the pre-2005 law on
late-filed returns.”

Perkins’s Br. 4; Fahey’s Br. 7.

Second,

the Debtors claim that the “filing requirements” mentioned by
the unnumbered paragraph do not include timeliness issues.
Perkins’s Br. 5; Fahey’s Br. 8.

Finally, the Debtors argue that

their late-filed returns would qualify as “returns” under the

13

Beard test, which should be applied even after the Act’s changes
to the Bankruptcy Code.

Perkins’s Br. 6; Fahey’s Br. 9-10.

E. The Division on the Issue
Since the Act inserted the unnumbered paragraph in section
523(a), purporting to define what qualifies as a “return” for
purposes of bankruptcy discharge, courts have taken varied
approaches on the application of the law to cases, like the
present ones, where the petitioner has filed his state tax
return after the deadline prescribed by the state tax law.

This

is a matter of first impression for this Court, and the First
Circuit has not had the opportunity to express its view on the
issue.
As noted above, judges of the Bankruptcy Court for the
District of Massachusetts, however, have already addressed the
issue, reaching opposite conclusions that essentially repeat the
division among courts around the country.
1. The decision in In re Brown
In In re Brown, 489 B.R. 1 (Bankr. D. Mass. 2013) (Hoffman,
Bankr. J.), the Bankruptcy Court, Central Division, ruled that
“the [Department]’s interpretation of § 523(a) is ill-conceived
and unjustified.”

Id. at 5.

The court reasoned that

“[i]nterpreting the definitional paragraph of § 523(a) to mean
that all late-filed Massachusetts tax returns are not returns

14

renders virtually meaningless § 523(a)(1)(B)(ii), arguably the
most frequently resorted-to subsection of § 523(a)(1).”

Id.

The Brown court noted that the Department’s interpretation
would considerably narrow the application of section
523(a)(1)(B)(ii).

In fact, this section would apply solely to

the returns prepared pursuant to section 6020(a), because such
returns were carved out by the second sentence of the unnumbered
paragraph.5

The problem, according to the Brown court, is that

this interpretation would render section 523(a)(1)(B)(ii)
superfluous and, given the lack of legislative history
justifying the change to the pre-Act approach, do “too much
violence to the statute.”

Id.

Finally, the court observed that

the interpretation proposed by the Department would also render
the unnumbered paragraph’s reference to the section 6020(b)
superfluous.

Id. (“If all late-filed returns except § 6020(a)

returns are not returns there is no need to state that § 6020(b)
returns are not returns.”).
As a result, the Brown court read out timeliness
requirements from the unnumbered paragraph’s reference to
“applicable filing requirements.”

See id. at 5-6.

Instead, the

court applied a “more nuanced Beard-influenced approach” to the
unnumbered paragraph, whereby tardiness in filing a tax return

5

supra.

That is, in fact, the Department’s argument, as explained

15

does not mean that a return was not filed, as long as “the latefiled tax return[] serve[s] a[] tax purpose under Massachusetts
law.”

Id. at 6.

The Brown court then observed that “a late-

filed return serves as the formal assessment of the tax in the
amount set forth therein,” and thus “[t]he only way a late-filed
return does not serve as the tax assessment under Massachusetts
law is when the commissioner of revenue assesses the tax first.”
Id. (citing Mass. Gen. Laws ch. 62C, § 26(a), (d)).
Therefore, according to the Brown court, the late-filed
return would still be a return for discharge purposes as long as
it was prepared before the commissioner’s tax assessment.
2. The decision in In re Pendergast
A few months later, in In re Pendergast, 494 B.R. 8 (Bankr.
D. Mass. 2013) (Hillman, Bankr. J.), the Bankruptcy Court,
Eastern Division, disagreed with In re Brown.

The Pendergast

court observed that the language of the unnumbered paragraph is
plain, needing no construction.

Id. at 13 (“I do not start

‘from the premise that this language is imprecise,’ but instead
must ‘assume that . . . Congress said what it meant.’”)
(alteration in original) (quoting United States v. LaBonte, 520
U.S. 751, 757 (1997)).
The Pendergast court addressed its disagreements with the
Brown court in a single paragraph:

16

The fact that 11 U.S.C. § 523(a)(1)(B)(ii) applies to
only a small number of cases does not render it a
nullity.
So long as there is at least one situation
where an untimely return is still considered a
“return” for purposes of 11 U.S.C. § 523(a), 11 U.S.C.
§ 523(a)(1)(B)(ii) will apply and have meaning. I am
also unpersuaded that the reference to 26 U.S.C.
§ 6020(b) is superfluous under this construction.
As
elucidated by the United State[s] Court of Appeals for
the Fifth Circuit in In re McCoy, [666 F.3d at 931,]
the reference “simply explains that returns filed
pursuant to § 6020(a) do qualify as returns for
discharge purposes, while those filed pursuant to
§ 6020(b) do not.” In this context, I agree with the
Fifth Circuit that the language is explanatory and
clarifies that the carve out provided by the second
sentence of the hanging paragraph is a narrow one.
While I appreciate Judge Hoffman's concerns regarding
the absence of legislative history, the Supreme Court
instructs that “where the language is unambiguous,
silence
in
the
legislative
history
cannot
be
controlling.”
Id. at 15 (internal citation and footnotes omitted).

The

Pendergast court held, therefore, that timeliness was exactly
the type of “applicable filing requirements” to which the
unnumbered paragraph referred.

Id. at 16.

Because the

Massachusetts Tax Code set a deadline for the filing of the
state tax returns, any document filed after the deadline does
not satisfy the requirement of the tax law, and therefore cannot
be considered a return.
granted.

As a result, no discharge could be

Id.

Overall, as mentioned above, the division of other courts
to address this issue follows the lines drawn by these two
cases: some courts opted to read out timeliness requirements

17

from the unnumbered paragraph and continue to apply the Beard
test, while others opted to apply what they consider to be a
more literal construction of the unnumbered paragraph, dropping
the Beard test altogether.

Compare In re Mallo, 498 B.R. 268,

281 (D. Colo. 2013) (“[T]he Beard test is the applicable
nonbankruptcy law to be used to determine[] whether a filing
constitutes a ‘return’ - for purposes of applying the
dischargeability exception to a tax debt set forth in
§ 523(a)(1)(B)(i) . . . .”), with In re McCoy, 666 F.3d at 932
(“Unless it is filed under a ‘safe harbor’ provision similar to
§ 6020(a), a state income tax return that is filed late under
the applicable nonbankruptcy state law is not a ‘return’ for
bankruptcy discharge purposes under § 523(a).”).
F. Determining the Correct Approach
As explained above, Pendergast starts from a very clean
perspective: where there is no imprecision in the law, there is
no need for construction; the law only needs to be applied.

The

unnumbered paragraph states that the applicable filing
requirements must be observed for a document to be considered a
return.

Because late-filed returns do not fulfill the filing

requirements, they cannot be considered returns for the purpose
of discharge.

18

The Pendergast court is correct when it notes that its
conclusions do not render section 523(a)(1)(B)(ii) superfluous,
because this section will still apply to returns prepared
pursuant to section 6020(a) and similar state or local laws.6
While this constitutes a narrow safe harbor, it still renders
section 523(a)(1)(B)(ii) applicable to a specific set of
circumstances, thus it cannot be deemed superfluous.

Finally,

Pendergast is also correct when it rebuts the criticism that its
application of the unnumbered paragraph would lead to a radical
change in the law without the proper support in the legislative
history.

As the court pointed out, “the Supreme Court instructs

that ‘where the language is unambiguous, silence in the
legislative history cannot be controlling.’”

In re Pendergast,

494 B.R. at 15 (quoting Dewsnup v. Timm, 502 U.S. 410, 419-420
(1992)).
The Brown court, however, persuasively delineates how its
construction of the unnumbered paragraph promotes a seamless
transition from the Beard test to the statutory mandate.
Brown, 489 B.R. at 6.

In re

The unnumbered paragraph would thus be no

more than the codification of the Beard test.
6

In this

The fact that Massachusetts does not have a similar state
law is not controlling here, because the safe harbor still has a
purpose within the federal taxation context. See In re McCoy,
666 F.3d at 931 n.10 (observing that the fact that the Debtor
could not point to any state tax provision analogous to
§ 6020(a) only meant that she could not rely on the “safe
harbor” provision.)
19

construction, the second sentence of the unnumbered paragraph,
dealing with sections 6020(a) and (b), would serve the purpose
of clarifying what was already a common result of the
application of the Beard test.
Indeed, courts applying the Beard test in the pre-Act era
usually found that late-filed returns were subject to discharge,
so long as they were made before the assessment by the IRS.
In re Wogoman, 475 B.R. at 245-46 (citing precedents).

See

The

reasoning was that, after the assessment by the IRS, the latefiled returns would no longer constitute “an honest and
reasonable attempt to satisfy the requirements of the tax law,”
and would thus fail the fourth prong of the Beard test.

See In

re Hindenlang, 164 F.3d at 1034 (“A purported return filed too
late to have any effect at all under the Internal Revenue Code
cannot constitute ‘an honest and reasonable attempt to satisfy
the requirements of the tax law.’

Once the government shows

that a Form 1040 submitted after an assessment can serve no
purpose under the tax law, the government has met its burden.”).
Under this approach, reading the timeliness requirement out
of the “applicable filing requirements” mentioned by the
unnumbered paragraph leads to a more balanced result, in line
with the longstanding standard set by the Beard test.

As a

result, the late-filed return would still be considered a return
for purposes of discharge, as long as it was filed before the

20

assessment by the state department of revenue, because it would
still “serve[] as the formal assessment of the tax in the amount
set forth therein.”

In re Brown, 489 B.R. at 6.

As the McCoy court observed, however, the Beard test “was
specifically conceived of and applied in the context of federal
taxation alone. . . . Moreover, none of the other courts of
appeals cases relying on this pre-[Act] test applied it in the
context of discharging state taxes.”
929-30 (emphasis omitted).

In re McCoy, 666 F.3d at

As a result, applying the Beard test

in the context of state tax law does not seem necessarily
justified.
In the end, this is a close call.

The essential question

seems to be whether the “applicable filing requirements” include
the timeliness requirements.

And, in that regard, one has to

make apart from the statutory language itself in order to
exclude timeliness issues from the “applicable filing
requirements.”

Had the Congress intended to do so, it could

easily have added some language to that effect.

It did not.

The plain and ordinary meaning of the statutory language is the
best indicia of the congressional mandate.

See Ardestani v.

Immigration & Naturalization Serv., 502 U.S. 129, 135-36 (1991);
see also Lamie v. United States Tr., 540 U.S. 526, 534 (2004);
Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530
U.S. 1, 6 (2000).

As approved, the law is straightforward, and

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does not allow one to read out timeliness issues from the
applicable filing requirements.

While this approach may indeed

constitute a break with pre-Act law, such a break is fully
justified by the changes wrought by the Congressional enactment.
Therefore, because the Debtors undisputedly filed their
state tax returns belatedly, failing to comply with the
“applicable filing requirements,” the Department must prevail.
III.

CONCLUSION
For the foregoing reasons, this Court REVERSES the

Bankruptcy Court’s judgment in Perkins and enters summary
judgment in favor of the Department. The Court also AFFIRMS the
Bankruptcy Court’s judgment in Fahey.
SO ORDERED.
/s/ William G. Young
WILLIAM G. YOUNG
DISTRICT JUDGE

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