Fahey v. Mass. Dep’t of Revenue, No. 14-1328 (1st Cir. 2015)Annotate this Case
The four debtors involved in these bankruptcy appeals all failed to timely file their Massachusetts income tax returns and failed to pay their taxes. Each debtor eventually filed his late tax returns but still failed to pay the taxes that were due. Each debtor eventually filed for Chapter 7 bankruptcy and sought a ruling that their obligation to pay the unpaid taxes was dischargeable. The Massachusetts Department of Revenue argued that 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. 532(a)(1)(B)(i). The bankruptcy courts split three to one in favor of the debtors. In the two cases appealed to the Bankruptcy Appellate Panel (BAP), the BAP sided with the debtors. In the two cases appealed to the district court, the court granted summary judgment to the Department. The First Circuit affirmed the district court’s judgment in favor of the Department and reversed the BAP’s grant of judgment for the debtors, holding that a Massachusetts state income tax return filed after the date by which Massachusetts requires such returns to be filed does not constitute a “return” under 11 U.S.C. 523(a) such that unpaid taxes due under the return can be discharged in bankruptcy.