In re: Rose A. Romeo

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: March 23, 2018
• Docket: AZ-17-1215-BLKu
• Status: Unpublished

Opinion

FILED MAR 23 2018 SUSAN M. SPRAUL, CLERK 1 NOT FOR PUBLICATION U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT 2 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. AZ-17-1215-BLKu ) 6 ROSE A. ROMEO, ) Bk. No. 2:14-07986-BKM ) 7 Debtor. ) ) 8 ) ROSE A. ROMEO, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M1 11 ) EDWARD JOHN MANEY, Chapter 13 ) 12 Trustee, ) ) 13 Appellee. ) ______________________________) 14 Argued and Submitted on February 23, 2018, 15 at Phoenix, Arizona 16 Filed - March 23, 2018 17 Appeal from the United States Bankruptcy Court for the District of Arizona 18 Honorable Brenda K. Martin, Bankruptcy Judge, Presiding 19 20 Appearances: David Allegrucci argued for appellant Rose A. Romeo; Rachel Flinn argued for appellee Edward John 21 Maney, Chapter 13 Trustee. 22 Before: BRAND, LAFFERTY and KURTZ, Bankruptcy Judges. 23 24 25 26 1 This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 28 Cir. BAP Rule 8024-1. 1 2 Chapter 132 debtor Rose A. Romeo appeals an order overruling 3 her objection to the motion of the chapter 13 trustee, Edward J. 4 Maney ("Trustee"), for access to Romeo's postpetition Federal 5 income tax return transcripts on file with the court and for 6 turnover of her postpetition State income tax returns. We AFFIRM, 7 in part, and REVERSE, in part. 8 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY 9 Romeo, a below median debtor, filed her chapter 13 bankruptcy 10 case on May 27, 2014. The bankruptcy court later entered an order 11 confirming Romeo's chapter 13 plan. 12 On September 1, 2016, Romeo filed a transcript of her 2015 13 Federal income tax return with the court. 14 Thereafter, Trustee filed a motion to allow electronic access 15 to Romeo's 2015 Federal tax return transcript and to order 16 turnover of her 2015 State income tax return to Trustee ("Tax 17 Return Motion"). Trustee cited his statutory duty to investigate 18 Romeo's financial affairs as a chapter 13 debtor as the basis for 19 gaining access to her tax information and argued that he was 20 authorized to receive the information contained in those returns 21 under § 521(g)(2). 22 Romeo raised two arguments in opposition: (1) neither the 23 Code nor the Final Guidance for Protection of Tax Information, 24 promulgated in March 2015 ("Final Guidance") provided for the 25 allowance of turnover of postpetition State income tax returns; 26 27 2 Unless specified otherwise, all chapter, code and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 28 the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.

-2- 1 and (2) although the Code allowed for Trustee's access to her 2 postpetition Federal income tax returns, he had failed to comply 3 with the Final Guidance by demonstrating a need for the requested 4 tax information; his statutory duty to investigate her financial 5 affairs was insufficient. 6 While the Tax Return Motion was pending, Romeo filed a 7 transcript of her 2016 Federal income tax return with the court. 8 At the hearing on the Tax Return Motion, counsel for Trustee 9 explained that a debtor's State income tax returns are needed to 10 ensure that the information being reported in both the Federal and 11 State returns is consistent, and because certain things may appear 12 in a State return that do not appear in a Federal return and vice 13 versa. Counsel argued that the information in postpetition tax 14 returns assists a trustee in carrying out his or her duties of 15 examining the financial affairs of the debtor and can provide a 16 basis for proposing plan modifications or requiring the filing of 17 amended Schedules I and J. The information could also assist in 18 revealing any potential fraud by the debtor. 19 After hearing argument from the parties, the bankruptcy court 20 determined that Trustee had demonstrated a need for the Federal 21 income tax returns and a need for turnover of the State returns. 22 The court granted Romeo's oral request for stay pending appeal. 23 The bankruptcy court entered (1) an order granting the Tax 24 Return Motion and (2) an order staying the court's ruling pending 25 appeal. Romeo timely appealed. 26 II. JURISDICTION 27 The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 28 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.

-3- 1 III. ISSUES 2 1. Did the bankruptcy court apply the correct standard of law 3 for allowing Trustee access to Romeo's Federal income tax return 4 transcripts under § 521(g)(2)? And, if so, did the bankruptcy 5 court clearly err in finding that Trustee showed a demonstrated 6 need for them? 7 2. Did the bankruptcy court err by relying on § 521(g) to order 8 turnover of Romeo's State income tax returns to Trustee? 9 IV. STANDARDS OF REVIEW 10 We review the bankruptcy court's interpretation of the Code 11 de novo. Meruelo Maddux Properties—760 S. Hill Street, LLC v. 12 Bank of Am., N.A. (In re Meruelo Maddux Props., Inc.), 667 F.3d 13 1072, 1076 (9th Cir. 2012). We review the bankruptcy court's 14 factual findings for clear error. Id. Factual findings are 15 clearly erroneous if they are illogical, implausible, or without 16 support in the record. Retz v. Samson (In re Retz), 606 F.3d 17 1189, 1196 (9th Cir. 2010). 18 Whether an issue is ripe for federal adjudication is a 19 question of law reviewed de novo. Municipality of Anchorage v. 20 United States, 980 F.2d 1320, 1322-23 (9th Cir. 1992). 21 V. DISCUSSION 22 A. The bankruptcy court properly applied § 521(g)(2) to grant Trustee access to Romeo's Federal income tax return 23 transcripts and did not clearly err in finding that Trustee showed a demonstrated need for them. 24 25 1. Governing law 26 Romeo does not contest that she was required to file her 27 postpetition Federal income tax returns, or transcripts of such 28 returns, with the court for the tax years during which her chapter

-4- 1 13 case was pending. See § 521(f).3 She also does not contest 2 that Trustee could access those Federal returns or transcripts 3 upon the proper showing pursuant to § 521(g)(2). 4 Section § 521(g)(2) provides that "[t]he tax returns, 5 amendments, and statement of income and expenditures described in 6 subsections (e)(2)(A) and (f) shall be available to the United 7 States trustee (or the bankruptcy administrator, if any), the 8 trustee, and any party in interest for inspection and copying, 9 subject to the requirements of section 315(c) of the Bankruptcy 10 Abuse Prevention and Consumer Protection Act of 2005" ("BAPCPA") 11 (emphasis added). 12 Section 315(c) of BAPCPA mandates that the Director of the 13 3 Section 521(f) requires chapter 13 debtors to file with 14 the court their postpetition Federal income tax returns or transcripts (and any amendments thereto) while their chapter 13 15 case is pending. Specifically, that statute provides, in relevant part: 16 (f) At the request of the court, the United States 17 trustee, or any party in interest in a case under chapter 7, 11, or 13, a debtor who is an individual shall file 18 with the court— 19 (1) at the same time filed with the taxing authority, a copy of each Federal income tax return required under 20 applicable law (or at the election of the debtor, a transcript of such tax return) with respect to each tax 21 year of the debtor ending while the case is pending under such chapter; 22 (2) at the same time filed with the taxing authority, 23 each Federal income tax return required under applicable law (or at the election of the debtor, a transcript of 24 such tax return) that had not been filed with such authority as of the date of the commencement of the case 25 and that was subsequently filed for any tax year of the debtor ending in the 3-year period ending on the date of 26 the commencement of the case; 27 (3) a copy of each amendment to any Federal income tax return or transcript filed with the court under paragraph 28 (1) or (2)[.]

-5- 1 Administrative Office of the United States Courts establish 2 procedures for safeguarding the confidentiality of tax information 3 required to be produced under § 521. On September 20, 2005, the 4 Judicial Conference approved interim guidance drafted to implement 5 this statutory directive, effective October 17, 2005, the 6 effective date of BAPCPA. In March 2015, the Director issued the 7 Final Guidance, which established the following procedures for 8 obtaining access to a debtor's tax information filed with the 9 bankruptcy court: 10 § 830.30 Tax Information Disclosure Requests 11 To gain access to a debtor's tax information under 11 U.S.C. § 521(f), the United States trustee or 12 bankruptcy administrator, case trustee, and any party in interest, including a creditor, must follow the procedures 13 set forth below. 14 (a) A written request that a debtor file copies of tax returns with the court under 11 U.S.C. § 521(f) must be 15 filed with the court and served on the debtor and debtor's counsel, if any. 16 (b) To obtain access to debtor's tax information that is 17 filed with the bankruptcy court, the movant must file a motion with the court, which should include: 18 (1) a description of the movant's status in the case, 19 to allow the court to ascertain whether the movant may properly be given access to the requested tax 20 information; 21 (2) a description of the specific tax information sought; 22 (3) a statement indicating that the information 23 cannot be obtained by the movant from any other source; and 24 (4) a statement showing a demonstrated need for the 25 tax information[.] 26 (c) An order granting a motion for access to tax information should include language advising the movant 27 that the tax information obtained is confidential and should condition dissemination of the tax information as 28 appropriate under the circumstances of a particular case.

-6- 1 At the discretion of the court, the order may state that sanctions may be imposed for improper use, disclosure, or 2 dissemination of the tax information. 3 Guide to Judiciary Policy, Vol. 4, Ch. 8, found on the public 4 website of the Administrative Office of the United States Courts 5 at: http://www.uscourts.gov/sites/default/files/vol04_ch08.pdf. 6 Thus, the safeguards set forth in the Final Guidance reflect 7 a strong intention for the court to determine when a trustee's or 8 creditor's need for information is outweighed by the debtor's 9 right to keep that information confidential. See In re Tomer, 10 508 B.R. 641, 646 (Bankr. W.D. Va. 2014); see also In re Byrne, 11 2007 WL 2580834, at *2 (Bankr. D. Vt. June 15, 2007)(interpreting 12 the interim guidance). 13 2. Analysis 14 The bankruptcy court agreed with Romeo that Trustee was 15 subject to the Final Guidance, and that he had to show more than 16 his general statutory duty of investigating a debtor's financial 17 affairs to meet his burden of showing a "demonstrated need" for 18 Romeo's Federal income tax return transcripts. That was a proper 19 application of § 521(g)(2) with respect to the Federal returns. 20 Romeo takes issue with the bankruptcy court's finding that 21 Trustee showed a "demonstrated need for the tax information" as 22 required by the Final Guidance. Romeo has not cited, and we could 23 not locate, any published (or unpublished) authority stating what 24 constitutes sufficient evidence to show a demonstrated need for 25 tax information. In his Tax Return Motion, Trustee did not 26 articulate any factual basis for needing Romeo's Federal returns 27 other than his fiduciary duty to investigate her financial 28 affairs. However, at the hearing, Trustee's counsel articulated a

-7- 1 list of reasons for why they were needed, which the bankruptcy 2 court found established a "demonstrated need" for the Federal 3 returns under § 521(g)(2): 4 I agree with you that there needs to be some further demonstration, but [Trustee's counsel] has elaborated to 5 some degree in stating today that the reason for wanting to see it is to confirm that there doesn't need to be a 6 modification to the plan, there doesn't need to be a modification to the amendments, and to confirm the numbers 7 that have been shown to you. That's more of an elaboration than simply an automatic turn it over to me 8 because I have a duty. 9 Hr'g Tr. (June 13, 2017) 11:7-14. 10 We conclude that the bankruptcy court's finding that Trustee 11 had shown a "demonstrated need" for accessing Romeo's Federal 12 income tax return transcripts was not illogical, implausible, or 13 without support in the record. In re Retz, 606 F.3d at 1196. 14 Trustee established that the tax information would aid in the 15 administration of the chapter 13 case; it was not being obtained 16 for an improper purpose, such as a discovery tool to assist a 17 creditor with a nondischargeable judgment in aid of collection or 18 to harass the debtor. See In re Tomer, 508 B.R. at 644; In re 19 Byrne, 2007 WL 2580834, at *2. 20 Romeo's real issue with Trustee having access to her tax 21 information is what he may do with it. Specifically, Romeo 22 complains that Trustee will use the information as a basis for 23 plan modification — i.e., to increase her plan payments. However, 24 the purpose of § 521(f) — added by BAPCPA in 2005 — appears to be 25 to allow interested parties like Trustee to monitor a debtor's 26 financial condition during the pendency of the chapter 13 case and 27 28

-8- 1 to seek plan modification under § 13294 if there are material 2 increases in net income that can be captured for contribution. We 3 have held that utilizing a chapter 13 debtor's tax information as 4 a means for plan modification is proper and consistent with the 5 Code: 6 The obvious purpose of this self-reporting obligation [in § 521(f) & (g)] is to provide information needed by a 7 trustee or holder of an allowed unsecured claim in order to decide whether to propose hostile § 1329 plan 8 modifications. 9 This power of the trustee and of creditors holding allowed unsecured claims to request that a confirmed plan be 10 modified by increasing payments in order to capture material increases in net income that occur during the 11 life of the plan is an important feature of chapter 13. 12 Fridley v. Forsythe (In re Fridley), 380 B.R. 538, 544 (9th Cir. 13 BAP 2007). Accord Danielson v. Flores (In re Flores), 735 F.3d 14 855, 860 n.7 (9th Cir. 2013); In re Escarcega, 573 B.R. 219, 224 15 (9th Cir. BAP 2017); In re King, 2010 WL 4363173, at *3 (Bankr. D. 16 Colo. Oct. 27, 2010) (together § 521(f) and § 1329 ensure that 17 debtors repay the maximum they can afford over the course of their 18 chapter 13 case); In re Self, 2009 WL 2969489, at *5 (Bankr. D. 19 Kan. Sept. 11, 2009) (in reading § 1329 together with § 1325 and 20 § 521, it is clear that Congress intended to allow case trustees 21 to seek modifications of plans postpetition in order to address 22 4 Section 1329 provides, in relevant part: 23 (a) At any time after confirmation of the plan but before 24 the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or 25 the holder of an allowed unsecured claim, to — 26 (1) increase or reduce the amount of payments on claims of a particular class provided for by the 27 plan[.] 28 11 U.S.C. § 1329(a)(1) (emphasis added).

-9- 1 changes in disposable income); In re Slusher, 359 B.R. 290, 304 2 (Bankr. D. Nev. 2007) (stating that § 1329 is bolstered by the 3 reporting requirements of § 521(f)). 4 To the extent Romeo argues that using her tax information as 5 a means to involuntarily increase her plan payments violates the 6 Thirteenth Amendment to the U.S. Constitution, that issue is not 7 ripe for appeal. 8 Ripeness doctrine is drawn both from Article III limitations on judicial power and from prudential reasons 9 for refusing to exercise jurisdiction. In measuring whether the litigant has asserted an injury that is real 10 and concrete rather than speculative and hypothetical, the ripeness inquiry merges almost completely with standing. 11 As a prudential matter, we will not consider a claim to be ripe for judicial resolution if it rests upon contingent 12 future events that may not occur as anticipated, or indeed may not occur at all. . . . The prudential considerations 13 of ripeness are amplified where constitutional issues are concerned. 14 15 Scott v. Pasadena Unified Sch. Dist., 306 F.3d 646, 662 (9th Cir. 16 2002) (internal quotation marks and citations omitted). See also 17 Ray Charles Found. v. Robinson, 795 F.3d 1109, 1117 (9th Cir. 18 2015) ("abstract inquiries about speculative injuries" are not 19 ripe for review). 20 Here, the constitutional issues are woefully inadequate for 21 adjudication. Because the bankruptcy court issued a stay of its 22 order, Trustee has yet to even gain access to Romeo's Federal 23 income tax return transcripts or receive copies of her State 24 income tax returns. Further, Trustee has not sought modification 25 of Romeo's plan, and he may never do so once he does receive her 26 tax information. Thus, any ruling from the Panel on this issue 27 would be advisory, because the events that might raise a 28 constitutional question are still hypothetical. Accordingly,

-10- 1 because this issue is not ripe for review, we lack subject-matter 2 jurisdiction to consider it. Principal Life Ins. Co. v. Robinson, 3 394 F.3d 665, 669 (9th Cir. 2006) ("If a case is not ripe for 4 review, then there is no case or controversy, and the court lacks 5 subject-matter jurisdiction"). 6 B. The bankruptcy court erred by relying on § 521(g)(2) to order turnover of Romeo's State income tax returns to Trustee. 7 8 Romeo argues that the bankruptcy court erred in ordering her 9 to turn over to Trustee her State income tax returns for years 10 2015 and 2016. Specifically, she argues that, while § 521(f) 11 requires the filing of postpetition Federal income tax returns or 12 transcripts with the court, it makes no mention of "State" income 13 tax returns. In addition, she argues, the Final Guidance 14 references only Federal income tax returns or transcripts thereof. 15 See § 830.10(b). Romeo has not cited, and we could not locate, 16 any published authority addressing this issue.5 17 It appears that the bankruptcy court relied on § 521(g)(2) 18 and the Final Guidance to order turnover of the State income tax 19 returns, given its finding that Trustee had shown a "demonstrated 20 need" for them. 21 To be sure, § 521(f) references only "Federal" income tax 22 returns. Section 521(g)(2), which provides for access to an 23 individual debtor's tax information to a party in interest, states 24 that "[t]he tax returns, amendments, and statement of income and 25 5 Romeo's counsel raised this issue in In re Ridenhour, 2016 26 WL 1688734, at *2 (Bankr. D. Ariz. Apr. 25, 2016). The bankruptcy court sustained the debtors' objection that they were not required 27 to file their postpetition State income tax returns with the court under § 521(f). However, the debtors and the trustee in that case 28 agreed that the statute did not require it.

-11- 1 expenditures described in subsections (e)(2)(A) and (f)" shall be 2 available for inspection and copying. Subsections (e)(2)(A) and 3 (f) of § 521 reference only "Federal" income tax returns or 4 transcripts. Therefore, the question is whether § 521(f) includes 5 "State" income tax returns. 6 The starting point in discerning congressional intent is the 7 existing statutory text. Lamie v. U.S. Tr., 540 U.S. 526, 534 8 (2004). Our inquiry will "end[] there as well if the text [of the 9 statute] is unambiguous." BedRoc Ltd. v. United States, 541 U.S. 10 176, 183 (2004). "The preeminent canon of statutory 11 interpretation requires us to 'presume that [the] legislature says 12 in a statute what it means and means in a statute what it says 13 there.'" Id. (alteration in original) (quoting Conn. Nat’l Bank 14 v. Germain, 503 U.S. 249, 253-54 (1992)); In re Meruelo Maddux 15 Props., Inc., 667 F.3d at 1076. If "the statute’s language is 16 plain, the sole function of the courts . . . is to enforce it 17 according to its terms." Lamie, 540 U.S. at 534. 18 As stated above, § 521(f) is silent on whether postpetition 19 "State" income tax returns or transcripts must be filed with the 20 court during the pendency of an individual debtor's case. 21 Notably, a chapter 13 debtor is required under § 1308 — another 22 BAPCPA provision — to file all prepetition Federal, State and 23 local tax returns due for all of the taxable periods ending during 24 the four year period ending on the date the bankruptcy petition 25 was filed. § 1308(a). Specifically, § 1308(c) states that: "For 26 purposes of this section, the term 'return' includes a return 27 prepared pursuant to subsection (a) or (b) of section 6020 of the 28 Internal Revenue Code of 1986, or a similar State or local law, or

-12- 1 a written stipulation to a judgment or a final order entered by a 2 nonbankruptcy tribunal." In addition, to confirm a chapter 13 3 plan, § 1325(b)(9) — another BAPCPA provision — requires the 4 debtor to file "all applicable Federal, State, and local tax 5 returns as required by section 1308." 6 Thus, Congress has been very clear as to when State income 7 tax returns are required under the Code. If Congress intended 8 that postpetition State income tax returns or transcripts be filed 9 with the court under § 521(f), it could have easily stated so. 10 The omission of the word "State" in § 521(f) strongly suggests 11 that such tax returns or transcripts are not required to be filed 12 with the court. Nor would it appear that § 521(g)(2) is the 13 proper authority under which to gain access to them. 14 Therefore, we believe the bankruptcy court erred in applying 15 § 521(g)(2) to order turnover of Romeo's 2015 and 2016 State 16 income tax returns to Trustee. Perhaps another means is available 17 for obtaining them, such as Rule 2004 or some other discovery 18 rule. See In re Collins, 393 B.R. 835, 837 (Bankr. E.D. Wis. 19 2008); In re Fontaine, 397 B.R. 191, 194 (Bankr. D. Mass. 2008). 20 However, we make no determination on that. We do determine, 21 however, that § 521(g)(2) is not the proper means. Accordingly, 22 we must reverse the bankruptcy court's order to the extent it 23 ordered turnover of the State income tax returns to Trustee. 24 VI. CONCLUSION 25 For the above reasons, we AFFIRM, in part, and REVERSE, in 26 part. 27 28

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