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In re Fahey

United States Court of Appeals, First Circuit

February 18, 2015

IN RE: BRIAN S. FAHEY, Debtor;
v.
MASSACHUSETTS DEPARTMENT OF REVENUE, Appellee. BRIAN S. FAHEY, Appellant, IN RE: TIMOTHY P. PERKINS, Debtor; TIMOTHY P. PERKINS, Appellant,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE, Appellee. IN RE: ANTHONY M. GONZALEZ, Debtor; ANTHONY M. GONZALEZ, Appellee,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE, Appellant. IN RE: JOHN T. BROWN, Debtor; JOHN T. BROWN, Appellee,
v.
MASSACHUSETTS DEPARTMENT OF REVENUE, Appellant

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS. Hon. William G. Young, U.S. District Judge. APPEALS FROM THE BANKRUPTCY APPELLATE PANEL FOR THE FIRST CIRCUIT.

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.

Before Torruella, Thompson, and Kayatta, Circuit Judges.

OPINION

Page 2

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]

Page 3

The Department argues for the opposite result; it contends unpaid taxes for which no return was timely filed by the Commonwealth's statutory deadline 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 exceptions. In particular, 11 U.S.C. § 523(a)(1) controls whether ...


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