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In re- 450 S. WESTERN AVE., LLC,

Summarizing by Bradley Pearce

Fahey v. Massachusetts Department of Revenue (In re Fahey) and other consolidated cases

Fahey v. MA Dept of Revenue (In re Fahey), --- F.3d --- (1st Cir. Feb. 18, 2015)
Unpaid taxes due on Massachusetts state income tax return filed after the statutory filing date cannot be discharged in bankruptcy under 11 U.S.C. 523(a). While section 523(a) a tax is not dischargeable if the debtor filed a "return," here the debtors filed late returns and failed to pay the taxes due thereunder. Analyzing the hanging paragraph in Section 523(a) (adopted in 2005 under BAPCPA), the First Circuit determined that a "return" must satisfy the requirements of applicable nonbankruptcy law (including all filing requirements). Finding that timely filing was a requirement under Massachusetts law, the First Circuit determined that late filed returns were not "returns" for which the taxes due would be dischargeable.
Procedural context:
Appeal from four actions in four different bankruptcy cases who split 3 to 1 in favor of the debtors. The First Circuit BAP sided with two of the debtors while the District Court granted summary judgment to the Department of Revenue in the two cases appealed to it. The First Circuit reviewed the decisions in all four matters on the single statutory interpretation issue on dischargeability.
All four debtors failed to timely file their Massachusetts income tax returns for multiple years in a row and also failed to pay their taxes to the Massachusetts Department of Revenue. Each debtor filed his late tax return but failed to pay all taxes, interest and penalties that were due. They each filed for bankruptcy more than two years later and seek a ruling that their obligation to pay the taxes they failed to pay is dischargeable. The Massachusetts Department of Revenue contends that because no timely "return" was filed by the statutory deadline, the unpaid taxes fall within an exception to discharge in Section 523(a).
Torruella, Thompson, and Kayatta

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