Robin Hayes

1
UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
ROBIN HAYES, Chapter 7
Debtor Case No. 07-13967-JNF
~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the Debtor’s Motion to Alter or Amend Judgment.
In 57 numbered paragraphs, the Debtor asserts that this Court erred in granting the
“Motion by Commissioner of Massachusetts Department of Revenue to Convert Case to
Chapter 7, or in the Alternative to Dismiss” and that this Court should alter or amend its
judgment by vacating the order dated November 24, 2008 and allowing the Debtor to
pursue financial rehabilitation in Chapter 13. The Commissioner of the Massachusetts
Department of Revenue (the “DOR”) filed an Opposition to the Debtor’s Motion to Alter
or Amend Judgment, and the Debtor filed a Response to the Opposition. The issue
presented is whether the Debtor has sustained her burden of showing a manifest error of
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 1 of 14

Section 1308 provides in relevant part the following:1
(a) Not later than the day before the date on which the meeting of the
creditors is first scheduled to be held under section 341(a), if the debtor
was required to file a tax return under applicable nonbankruptcy law, the
debtor shall file with appropriate tax authorities all tax returns for all
taxable periods ending during the 4-year period ending on the date of the
filing of the petition.
(b)(1) Subject to paragraph (2), if the tax returns required by subsection (a)
have not been filed by the date on which the meeting of creditors is first
scheduled to be held under section 341(a), the trustee may hold open that
meeting for a reasonable period of time to allow the debtor an additional
2
law or fact. For the reasons set forth below, the Court finds that the Debtor failed to satisfy
that burden and that the order converting the Debtor’s case from Chapter 13 to Chapter 7
will not be vacated.
II. PROCEDURAL BACKGROUND
The Debtor filed a voluntary Chapter 13 petition, her third, on June 26, 2006. On
Schedule B-Personal Property, she listed a checking and savings account at Sovereign Bank,
as well as an interest in Helen’s Helping Hands, an unincorporated business. Additionally,
she indicated that she was not owed any money, although she noted that “the tax returns
are in the possession of the preparer and debtor doesn’t know whether there is a refund.”
In her Statement of Financial Affairs, the Debtor further disclosed that she earned gross
income from all sources in the sum of $4,000 in 2006 and that prior to that “Debtor’s ex
husband gave her money as needed.”
On July 27, 2006, the Commissioner of the DOR filed a Notice of Unfiled Prepetition
Tax Returns and a Request for the Same Pursuant to 11 U.S.C.§ 1308. The Notice1
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 2 of 14

period of time to file any unfiled returns, but such additional period of
time shall not extend beyond--
(A) for any return that is past due as of the date of the filing
of the petition, the date that is 120 days after the date of that
meeting; or
(B) for any return that is not past due as of the date of the
filing of the petition, the later of--
(i) the date that is 120 days after the date of
that meeting; or
(ii) the date on which the return is due under
the last automatic extension of time for filing
that return to which the debtor is entitled, and
for which request is timely made, in
accordance with applicable nonbankruptcy
law.
(2) After notice and a hearing, and order entered before the tolling of any
applicable filing period determined under this subsection, if the debtor
demonstrates by a preponderance of the evidence that the failure to file a
return as required under this subsection is attributable to circumstances
beyond the control of the debtor, the court may extend the filing period
established by the trustee under this subsection for--
(A) a period of not more than 30 days for returns described
in paragraph (1); and
(B) a period not to extend after the applicable extended due
date for a return described in paragraph (2).
11 U.S.C. § 1308.
3
provided: “Please take notice that under applicable laws of the Commonwealth of
Massachusetts, the debtor in the above -captioned case is required to file annual taxes with
the Massachusetts Department of Revenue.” Specifically, the DOR sought income tax
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 3 of 14

4
returns for tax years 1999 through 2006 inclusive.
The Debtor moved to strike the Notice. Noting that under Mass. Gen. Laws ch. 62, § 5,
income which does not exceed $8,000 is exempt from taxation, the Debtor stated:
To the best of the debtor’s recollection, this issue was raised at the first
meeting of creditors in her prior case, docket number 06-12851, at which a
representative of the Commissioner was present. It is her recollection that
she testified that between 1999 and 2005, she had no income of her own and
was dependent on her husband. In 2006, she separated from her husband
and began to earn her own income, but she believes her income was less than
$8,000. She recently divorced.
The DOR opposed the Motion to Strike, noting that in the Debtor’s prior case, both it and
and the Internal Revenue Service (“IRS”) filed proofs of claim to which the Debtor did not
object. The DOR also observed that the Court had ordered the Debtor to file federal tax
returns for years 1998 through 2005, but her case was dismissed before the deadline was
reached. The DOR stated that the Debtor “appears never to have filed a Massachusetts tax
return,” either individually or with her former spouse. In a footnote, it noted a series of
transactions set forth in a complaint filed by the Attorney General involving the Debtor’s
purchase of a 2004 Cadillac Escalade for $61,755 and other activities in the real estate
market.
The Debtor moved for summary judgment with respect to her Motion to Strike,
maintaining in her memorandum that the issue presented is “whether the debtor was
required by state law to file tax returns even if she did not have taxable income,” adding
that the Commissioner relies entirely on conclusory allegations, improbable inferences and
unsupported speculation, and fails to show that there is any real evidence supporting an
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 4 of 14

Section 1307(e) provides:2
(e) Upon the failure of the debtor to file a tax return under section 1308, on
request of a party in interest or the United States trustee and after notice
and a hearing, the court shall dismiss a case or convert a case under this
chapter to a case under chapter 7 of this title, whichever is in the best
interest of the creditors and the estate.
11 U.S.C. § 1308(e).
5
inference that the debtor was required to file returns.” The Debtor did not attach an
affidavit to her Motion for Summary Judgment. In her Statement of Undisputed Facts she
stated that, although her name had been linked to a number of corporations, partnerships
and trusts created by her former husband, she “disclaimed any knowledge of the activities
of those entities.”
On August 14, 2006, the Chapter 13 Trustee conducted the first meeting of creditors.
The Debtor did not file any motion or other request for relief under 11 U.S.C. § 1308(b)(2).
Prior to the hearing on the Motion to Strike, the DOR objected to confirmation of the
Debtor’s plan, and the Debtor filed an objection to the proof of claim filed by the DOR on
August 9, 2006 in which it estimated the tax liabilities of the Debtor for personal income
taxes for the years 1999 through 2006. In her First Omnibus Objection to Claims, the
Debtor, relying upon the reasoning set forth in her Motion to Strike, denied that she had
any income for which a return was required prior to 2006.
In a memorandum filed in conjunction with its Opposition to the Debtor’s Motion
for Summary Judgment, the DOR discussed the requirements of section 1308 of the
Bankruptcy Code and the relief available under section 1307(e) in the event a debtor does2
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 5 of 14

6
not file required returns, namely dismissal or conversion. It also observed that its purpose
in filing Notices of Unfiled Tax Returns is to inform parties that returns have not been filed,
adding “[i]t is then up to the relevant parties to use that information as they deem
appropriate - e.g., the Chapter 13 trustee’s questioning of the debtor at the Section 341
meeting on this topic, the filing of returns by the debtor, or making a request to the Chapter
13 trustee for more time to file the returns.”
On September 20, 2007, the Court denied the Debtor’s Motion to Strike and her
Motion for Summary Judgment.
The DOR filed a response to the Debtor’s Objection to its estimated claim. It set
forth well settled law, namely that a claim is presumptively valid, and that, in an objection
to a tax claim, the allocation and burden of proof remains the same as it does under
applicable non-bankruptcy law, citing Raleigh v. Illinois Department of Revenue, 530 U.S.
15 (2000). It added that under Massachusetts law, the taxpayer has the burden of
establishing her entitlement to an exemption for tax purposes, citing Macy’s East, Inc. v.
Commissioner of Revenue, 441 Mass. 797, 804 (2004). The DOR, referencing the Debtor’s
testimony at her Section 341 meeting which occurred on October 4, 2006 in a prior case,
stated that the Debtor testified that in October of 2004 she started working at a veterans’
home and that on September 27, 2006 she started “taking in” veterans under the name
Helen’s Helping Hands. The DOR also set forth a series of real estate transactions
involving, at the very least, use of the Debtor’s name. It concluded that “[t]he burden is
on the Debtor in this objection to prove that for each year between 1999 and 2006 that she
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 6 of 14

7
did not have taxable income in excess of $8,000 in that year.”
On November 1, 2007, the Court took the Debtor’s Objection to the claim of the DOR
under advisement. On November 14, 2007, in light of the contested matters involving the
the proofs of claim filed by the DOR and IRS, see Fed. R. Bankr. P. 9014, the Court entered
an order requiring discovery to be completed by December 31, 2007. It also ordered the
filing of motions for summary judgment on or before January 18, 2008. The Debtor and the
IRS agreed to extensions of the discovery deadline.
On July 11, 2008, the IRS filed a Motion to Compel Responses to Discovery Requests.
The Debtor filed a response in which she indicated that she was asserting her Fifth
Amendment Privilege against self-incrimination “as to matters relating to the ‘foreclosure
rescue scheme’ and every issue reasonably related to it.” On September 4, 2008, the Court
granted the IRS’s Motion to Compel. The Court further stated that the IRS and DOR “may
file dispositive motions by 09/26/08 with respect to the Debtor’s First Omnibus Objection
to Claims.” On September 18, 2008, the IRS filed a Motion for Summary Judgment. On
September 24, 2008, the DOR filed its Motion to Convert Case to Chapter 7, or in the
Alternative to Dismiss. The Court scheduled both motions to be heard on November 24,
2008.
The Debtor objected to the DOR’s Motion on October 6, 2008. On November 19,
2008, she filed a “Motion for Leave to Supplement Objection to Motion of Massachusetts
Department of Revenue to Dismiss or Convert.” In that Motion, she stated that she had
met with her counsel and reviewed the exhibits attached to the DOR’s motion and that she
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 7 of 14

The Debtor did not attempt to explain why she had not consulted with the tax3
preparer sooner in view of her statement on Schedule B filed in June of 2007, namely,
“the tax returns are in the possession of the preparer and debtor doesn’t know whether
there is a refund.”
8
took copies of the exhibits to a tax preparer to seek advice and assistance. In an attached
Affirmation, the Debtor disclosed that she purchased the property at 232 Perkins, Avenue,
Brockton, Massachusetts (the “Property”) from which she operates Helen’s Helping Hands
in early November 2004 with her former husband’s assistance. She added that the first
time that she received income from the Property was in December 2004 and that Exhibits
A and B to the DOR’s Motion, namely deposit slips totaling $23,833.01 for 2005 and
$6,799.06 for 2006 for her Sovereign Bank checking account “appear to represent income
relating to residents of the Perkins Avenue Property.” The Debtor reiterated her
contention that she had no tax liability for the activities of her former husband, but she
concluded that “[b]ased on the exhibits to this motion as well as the motion of the Internal
Revenue Service, I consulted with a tax preparer and have prepared and filed returns for
2004.” In her Affirmation, she represented that “[u]ntil I consulted with the tax preparer,
I did not know I was required to file returns or that I could get a refund by filing.”3
On November 21, 2008, the Court granted the Debtor’s Motion for Leave to File
Supplement and ordered her to bring copies of her 2004, 2005 and 2006 tax returns to the
hearing. On the day of the hearing on the DOR’s Motion to Convert Case to Chapter 7, or
in the Alternative to Dismiss, the Debtor produced copies of the returns, but counsel to
both the DOR and IRS represented that the returns had not been filed with the taxing
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 8 of 14

9
authorities. Following argument, the Court granted the DOR’s alternative request to
convert the Debtor’s Chapter 13 case to a case under Chapter 7, finding that she had failed
to file required tax returns, rejecting the Debtor’s assertions that she did not understand
her obligation to file returns until the DOR and IRS produced evidence of income in excess
of the exempt amount. The Court also determined that the Debtor had engaged in delay
prejudicial to creditors in her chapter 13 case by taking inconsistent positions with respect
to the amount of her income.
III. DISCUSSION
The Court finds that the Debtor has failed to demonstrate a manifest error of law or
fact with respect to the Court’s order of November 24, 2008, and she did not produce newly
discovered evidence. See In re Wedgestone Financial, 142 B.R. 7 (Bankr. D. Mass. 1992).
See also Fed. R. Civ. P. 59(e), made applicable to this matter by Fed. R. Bankr. P. 9023.
Because the Debtor did not file any tax returns before the date on which the meeting of
creditors was first scheduled and because she did not seek an extension of time within
which to file such returns in accordance with 11 U.S.C. § 1308(b)(1) or (2), the DOR satisfied
its burden under 11 U.S.C. §§ 1307(e) and 1308.
The Debtor clearly misapprehended her burden to produce and file tax returns. Her
Motion to Strike and Motion for Summary Judgment through which she addressed the
DOR’s Notice of Unfiled Tax Returns demonstrates the fallacy underlying her Motion to
Alter and Amend. The filing of those pleadings resulted in needless and prejudicial delay.
The burden was not on the DOR to establish that the Debtor had taxable income; the
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 9 of 14

10
burden was on the Debtor to file tax returns for the years within which she, in fact, had
taxable income. Her “belief” that she did not have income sufficient to trigger the necessity
of filing a return for 2005 is insufficient to shift the burden to the DOR to establish that she
had such income. The Debtor caused both the DOR and the IRS to engage in extensive
discovery to prove what the Debtor knew or should have know with respect to her income
from Helen’s Helping Hands. The Debtor could have, but did not, look at her own
checking account statements from Sovereign Bank, which she listed on Schedule B, to
determine whether she had reportable income, relying only upon her unsubstantiated
statements that she did not have income triggering the need to file a return. As the DOR
demonstrated, the Debtor’s belief about the amount of her earnings was inaccurate. The
Debtor had an obligation at the beginning of the Chapter 13 case to ascertain whether she
had sufficient income to trigger the requirement to file tax returns. She cannot now
purport to file returns and argue that the provisions of section 1308 do not apply because
her understanding of her income was wrong. The provisions of section 1308(b) afforded
the Debtor time to ascertain her income from Helen’s Helping Hands and to file any
required returns. She did not avail herself of the statute’s safe-harbor.
An analysis of the burden of proof applicable to tax claims is helpful to
understanding why the Debtor’s Motion to Alter or Amend lacks merit, although this
Court is not ruling, at this time, on the Debtor’s Objection to the DOR’s proof of claim. A
proof of claim filed in accordance with the Bankruptcy Rules is prima facie evidence of the
validity and amount of the claim. Fed. R. Bank. P. 3001(f); In re Hemingway Transport, Inc.,
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 10 of 14

11
993 F.2d 915, 925 (1st Cir.1993), cert. denied, 510 U.S. 914 (1993). In order to rebut the
presumption that attaches to a proof of claim, the objecting party must come forward with
“substantial evidence.” Id. at 925. Thus, the party objecting to a properly filed proof of
claim - - the Debtor in this case - - has the initial burden of presenting sufficient probative
evidence to overcome such prima facie effect and once having done so the burden shifts
to the creditor to establish the validity of the claim. If a tax claim is involved, however, and
“the specific issue is one on which, in a nonbankruptcy forum, the taxpayer would have
the burden of proof, a debtor-taxpayer in bankruptcy must carry the burden of proof on
that issue in connection with an objection to claim.” In re Shabazz, 206 B.R. 116, 120 (Bankr.
E.D. Va. 1996)(citing IRS v. Levy ( In re Landbank Equity Corporation), 973 F.2d 265 (4th
Cir.1992) (debtor-taxpayer has burden of proof on disallowed deductions)). A denial of
receipt of income greater than $8,000 for 2005, which is subsequently proved false, is not
“substantial evidence.”
As the Court noted in In re Callery, 274 B.R. 51, 57 (Bankr. D. Mass. 2002), a case
involving an amended proof of claim filed by the IRS,
All taxpayers have a duty to maintain sufficient accounting records for tax
reporting purposes. United States v. Morse, 491 F.2d 149, 151 (1st Cir.1974)
(citation omitted). Where a taxpayer fails to maintain or produce adequate
books and records, the Commissioner is authorized to compute the
taxpayer’s taxable income by any method that clearly reflects income. 26
U.S.C. § 446(b); Holland v. United States, 348 U.S. 121, 130-132, 75 S.Ct. 127,
99 L.Ed. 150 (1954). The taxpayer bears the burden of proving that the
assessment is arbitrary or erroneous. Day v. Commissioner, 975 F.2d 534, 537
(8th Cir.1992). A court must accept the Commissioner’s method of
reconstructing income “so long as it is rationally based.” Welch v. Helvering,
290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212 (1933); Bernuth v. Commissioner, 470
F.2d 710, 714 (2nd Cir.1972); Rowell v. Commissioner, 884 F.2d 1085, 1087
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 11 of 14

The statute provides: “(a) Notwithstanding the provisions of section four, Part4
A taxable income, Part B taxable income and Part C taxable income, shall be exempt
from all taxes imposed under this chapter if the Massachusetts adjusted gross income
for the taxable year does not exceed the following threshold: (1) in the case of a single
person, eight thousand dollars. . . .”
12
(8th Cir.1989) (citation omitted). When taxpayers fail to file returns or file
returns substantially understating their income, and cannot produce records
which provide the “[a]rithmetic precision . . . originally and exclusively in
[their] hands,” an assessment is necessarily an estimate. Rowell, 884 F.2d at
1088. “As long as the method for assessment is reasonable and logical,
defaulting taxpayers may not complain of the inevitable inaccuracies in
assessment their default occasions.” Id. at 1087-88.
The ruling on the DOR’s Motion to Convert Case to Chapter 7, or in the Alternative
to Dismiss was not a determination of the Debtor’s tax liability, if any, to the DOR. Rather,
the Court’s order granting the DOR’s alternative motion to convert was in response to the
Debtor’s failure to file required returns based upon an unfounded contention that the DOR
had the burden of proving that she had income in excess of $8,000. See Mass. Gen. Laws
ch. 62, § 5(a)(1); Mass. Gen. Laws ch. 62C, § 6. The Notice of Unfiled Prepetition Tax4
Returns and a Request for the Same Pursuant to 11 U.S.C. § 1308 and the filing of a proof
of claim by the DOR placed the burden on the Debtor to establish that she, in fact, had no
income in excess of $8,000. As a matter of law, it was her burden to demonstrate that she
was entitled to the benefits of Mass. Gen. Laws ch. 62, § 5 and Mass. Gen. Laws ch. 62C, §
6, and, if she was not, to file the required returns within the time set forth in section 1308.
At the very least, she could have examined her own bank records and filed informational
returns showing what she believed her income to be. She did not. Thus, she did not satisfy
her duties under section 1308 by waiting for the DOR to examine her Sovereign Bank
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 12 of 14

13
records and only then, when confronted with indisputable evidence of her income,
consulting with a tax preparer in order to file returns based upon their discovery to date.
The DOR provided the Debtor with a road map regarding her responsibilities. She
chose to ignore it at her peril. In Raleigh v. Illinois Dept. of Revenue, 530 U.S. at 20-21, the
Supreme Court stated that “we have long held that the burden of proof to be a
‘substantive’ aspect of a claim,” adding “the burden of proof is an essential element of the
claim itself; one who asserts claim is entitled to the burden of proof that normally comes
with it.” Id. at 21. The Supreme Court further observed:
Tax law is no candidate for exception from this general rule, for the very fact
that the burden of proof has often been placed on the taxpayer indicates how
critical the burden rule is, and reflects several compelling rationales: the vital
interest of the government in acquiring its lifeblood, revenue, the taxpayer’s
readier access to the relevant information, and the importance of
encouraging voluntary compliance by giving taxpayers incentives to
self-report and to keep adequate records in case of dispute. These are
powerful justifications not to be disregarded lightly.
Congress of course may do what it likes with entitlements in bankruptcy, but
there is no sign that Congress meant to alter the burdens of production and
persuasion on tax claims. . . .
Id. (citations omitted, footnote omitted).
As the Supreme Court noted, taxpayers have readier access to relevant information.
The provisions of the Bankruptcy Code, particularly after the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, place sufficient demands on debtors to
retain and produce financial information. The Debtor cannot shirk her responsibilities to
retain financial records by improperly attempting to shift the burden to the taxing
authorities to establish what her income actually was in 2005 and the other years in
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 13 of 14

14
question.
IV. CONCLUSION
In view of the Supreme Court’s decision in Raleigh and the facts set forth above
the Court shall enter an order denying the Debtor’s Motion to Alter or Amend Judgment
and sustaining the DOR’s Opposition.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: December 22, 2008
cc: David G. Baker, Esq., Stephen G. Murphy, Esq., Carolyn Bankowski, Esq.
Case 07-13967 Doc 503 Filed 12/22/08 Entered 12/22/08 16:59:53 Desc Main
Document Page 14 of 14