                                                             FILED
 1                          ORDERED PUBLISHED                 DEC 17 2015
                                                          SUSAN M. SPRAUL, CLERK
 2                                                          U.S. BKCY. APP. PANEL
                                                            OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No.     EC-14-1180-KuKiTa
                                   )
 6   KEVIN WAYNE MARTIN and SUSAN )         Bk. No.     11-62436
     MARTIN,                       )
 7                                 )        Adv. No.    12-01131
                    Debtors.       )
 8   ______________________________)
                                   )
 9   UNITED STATES,                )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )        OPINION
                                   )
12   KEVIN WAYNE MARTIN; SUSAN     )
     MARTIN,                       )
13                                 )
                    Appellees.     )
14   ______________________________)
15                  Argued and Submitted on November 19, 2015
                             at Pasadena, California
16
                            Filed – December 17, 2015
17
              Appeal from the United States Bankruptcy Court
18                for the Eastern District of California
19         Honorable W. Richard Lee, Bankruptcy Judge, Presiding
20
     Appearances:      Boris Kukso argued for appellant United States;
21                     Appellees Kevin Wayne Martin and Susan Martin
                       argued pro se.
22
23   Before: KURTZ, KIRSCHER and TAYLOR, Bankruptcy Judges.
24   KURTZ, Bankruptcy Judge:
25
26
27
28

                                        1
 1                              INTRODUCTION
 2        When is a tax return not a tax return?   According to an
 3   increasing number of courts, including some courts of appeal, the
 4   answer is: when the tax return, otherwise wholly compliant with
 5   applicable tax laws, is filed a second (or more) late.    According
 6   to these courts, by way of the 2005 Bankruptcy Code amendments,
 7   Congress intended to make a substantial and exceptionally harsh
 8   change to nondischargeability law by adding a hanging paragraph
 9   at the end of 11 U.S.C. § 523(a)1 defining the term “return” to
10   exclude any taxpayer filing that does not wholly and strictly
11   comply with all applicable return filing requirements, even if
12   the taxing authority itself could and would forgive that
13   noncompliance.   Indeed, the United States rejects this statutory
14   interpretation in this appeal.
15        The courts adopting a literal construction of the “return”
16   definition more or less admit that their unforgiving view of
17   congressional intent cannot be squared within the context of
18   § 523(a), or even within the narrower context of the hanging
19   paragraph itself, without running into some significant
20   conundrums.   The second sentence of the hanging paragraph
21   expressly includes within the definition of “return” some types
22   of returns that the taxing authority prepares on behalf of the
23   taxpayer, when the taxpayer never gets around to it.   Why
24   Congress would want to treat a taxpayer who files a tax return a
25
          1
26         Unless specified otherwise, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
27   all "Rule" references are to the Federal Rules of Bankruptcy
     Procedure, Rules 1001-9037. All “Civil Rule” references are to
28   the Federal Rules of Civil Procedure.

                                      2
 1   month or a week or even a day late – possibly for reasons beyond
 2   his or her control – so much more harshly than a taxpayer who
 3   never files a tax return on his or her own behalf is a mystery
 4   that literal construction adherents never adequately explain.
 5   Nor have they adequately explained why, later on in the second
 6   sentence of the hanging paragraph, Congress felt a need to
 7   explicitly exclude from the “return” definition another type of
 8   return filed by taxing authorities on behalf of taxpayers when
 9   that exclusion is superfluous if one accepts a literal
10   construction of the first sentence of the hanging paragraph.
11        When one looks beyond the hanging paragraph, at the context
12   of the nondischargeability statute as a whole and Congress’
13   scheme for nondischargeable debts, one encounters additional,
14   even-more-serious problems with the literal construction of the
15   “return” definition.   Section 523(a)(1)(B)(ii), which pre-existed
16   the 2005 amendments, already contains a specific and carefully-
17   balanced treatment of tax debts associated with untimely-filed
18   tax returns.   Literal construction of the “return” definition
19   renders § 523(a)(1)(B)(ii) all but meaningless - reducing the
20   potential application of that provision to a minuscule scope.
21   And, according to the literal construction adherents, Congress
22   intended the “return” definition to accomplish this dramatic re-
23   balancing of the dischargeability of tax debt without a single
24   legislative comment to that effect.
25        In light of these concerns arising from a contextual reading
26   of the hanging paragraph, we reject the literal construction of
27   the “return” definition.   We further conclude that there is
28   binding Ninth Circuit authority predating the 2005 amendments

                                      3
 1   instructing us how to determine when a taxpayer filing should be
 2   treated as a return for nondischargeability purposes and that
 3   authority was not abrogated by the 2005 amendments.
 4        The bankruptcy court erred because it declined to apply the
 5   existing Ninth Circuit test as to what constitutes a “return,” so
 6   we VACATE the bankruptcy court’s ruling declaring the Martins’
 7   tax debt dischargeable, and we REMAND so that the bankruptcy
 8   court can apply the Ninth Circuit test.
 9                                    FACTS
10        The facts are undisputed.    The Martins did not file their
11   tax returns for 2004, 2005 and 2006 at the time they were due.
12   Consequently, the Internal Revenue Service (“IRS”) conducted an
13   audit examination beginning in June 2008 to fix the amount of the
14   Martins’ tax liability for those three years.       Without the
15   benefit of the Martins’ self-reported income tax data in the form
16   of tax returns, the IRS duly followed the deficiency and
17   assessment procedures set forth in the Internal Revenue Code.
18   See 26, U.S.C. § 6201, et seq.    In August 2008, following the
19   completion of the audit examination, the IRS issued a notice of
20   deficiency for each of the three tax years.
21        The Martins did not respond to the notices of deficiency,
22   but the notices did spur the Martins to hire a new accountant to
23   prepare the missing tax returns.       In December 2008, the
24   accountant signed and completed the Martins’ tax returns for
25   2004, 2005 and 2006, but the Martins did not get around to
26   signing and filing the tax returns until six months later in June
27   2009.   There is no evidence explaining the reason for the
28   Martins’ several-year delay in preparing their 2004, 2005 and

                                        4
 1   2006 tax returns, nor is there any evidence explaining the
 2   Martins’ delay in signing and filing the completed returns.2
 3
          2
 4         While it does not constitute evidence in the strict sense,
     at the summary judgment oral argument, the Martins attempted to
 5   explain the delays. With respect to their initial failure to
     timely prepare their 2004, 2005 and 2006 tax returns, Ms. Martin
 6   stated:
 7        [W]e had problems with our previous accountant. Her
 8        husband died and she had to let us go and -- and so she
          -- basically we were trying to -- she had her assistant
 9        try to finish us up. And she got sick and held on to
          our taxes for over a year. And we repeatedly tried to
10        get them back from her, and she kept saying she was
          going to finish them.
11
12        And then by the time we realized -- finally we
          demanded them back, and we had to find a new accountant
13        who had to start fresh. And that was Andrea, and
          that's when she started reassessing and doing all our
14        taxes to help get us caught up.
15
     Hr’g Tr. (Aug. 29, 2013) at 6:4-15. With respect to the six-
16   month delay in signing and filing the completed returns, the
     bankruptcy court and Ms. Martin engaged in the following
17   colloquy:
18        THE COURT: Why didn't the tax returns get filed [six]
19        months earlier, when the accountant signed them?

20        SUSAN MARTIN: Because she actually finished them on
          12-18-08. And I believe we were waiting for two other
21        years that were behind, '07 and '08, to be completed
          before we put them all in together.
22
23        THE COURT: Why?   Why.   Why didn't -- why didn't --

24        SUSAN MARTIN: I don't know. I -- I just feel like we
          were trying to get it all in at once. I -- I guess
25        that's why we waited. I was wondering the same thing,
26        why we didn't get them in right away. But we had so
          many back taxes that we were just trying to get them
27        all done. And that's why they sat for a little while.

28                                                        (continued...)

                                       5
 1        Meanwhile, having not heard from the Martins, the IRS made
 2   assessments against the Martins for the 2004, 2005 and 2006 tax
 3   years in March 2009.     Thereafter, the IRS twice sent the Martins
 4   notices of the unpaid taxes and demands for payment – once in
 5   March 2009 and another time in April 2009.       The IRS then gave the
 6   Martins notice of its intent to collect the assessed taxes by
 7   levy.
 8        Only after the IRS threatened to collect the unpaid taxes
 9   did the Martins finally file their 2004, 2005 and 2006 tax
10   returns.     The IRS accepted the untimely returns and adjusted the
11   Martins’ tax liability based on the information set forth in the
12   returns.     The IRS adjusted their 2004 tax liability downward by
13   roughly $1,000 (from $18,432 to $17,358), their 2005 tax
14   liability upward by roughly $5,000 (from $9,928 to $14,852), and
15   their 2006 tax liability downward by roughly $5,000 (from $32,133
16   to $27,010).
17        The Martins commenced their chapter 7 bankruptcy case in
18   November 2011 and commenced pro se the adversary proceeding from
19   which this appeal arises in July 2012.       By way of their
20   complaint, they sought a determination that their 2004, 2005 and
21   2006 tax debt was dischargeable.       The IRS responded to the
22   complaint by alleging that the subject tax debt was
23   nondischargeable pursuant to § 523(a)(1)(B)(i), as a tax debt for
24   which a tax return was required but never filed.3
25
          2
26         (...continued)
     Hr’g Tr. (Aug. 29, 2013) at 5:7-19.
27
          3
              Ultimately, the IRS conceded the dischargeability of the
28                                                         (continued...)

                                        6
 1        The IRS filed a summary judgment motion based on the
 2   undisputed facts.   The bankruptcy court denied the IRS’s summary
 3   judgment motion and instead, on the undisputed facts, granted
 4   judgment in favor of the Martins.    In a thoughtful, thorough and
 5   detailed memorandum of decision, the bankruptcy court rejected
 6   the IRS’s legal theories attempting to explain why a tax return
 7   filed post-assessment is the functional equivalent of no tax
 8   return at all for both tax purposes and nondischargeability
 9   purposes.
10        The bankruptcy court also grappled with the meaning of the
11   word “return” for purposes of the nondischargeability statute,
12   both before and after the 2005 Bankruptcy Code amendments.
13   Ultimately, the bankruptcy court held that the correct standard
14   for determining whether a taxpayer filing qualified as a return
15   for purposes of the nondischargeability statute had not changed
16   as a result of the 2005 amendments.   According to the bankruptcy
17   court, the test established in the tax court decision of Beard v.
18   Commissioner, 82 T.C. 766, 774–79 (1984), aff'd 793 F.2d 139 (6th
19   Cir. 1986), should be used to determine whether the debtor
20   taxpayer had filed a return.   The Beard test as articulated in
21   Ninth Circuit authority requires courts to consider the following
22   factors:
23        (1) it must purport to be a return; (2) it must be
          executed under penalty of perjury; (3) it must contain
24        sufficient data to allow calculation of tax; and (4) it
          must represent an honest and reasonable attempt to
25
26        3
           (...continued)
27   additional amount assessed for 2005 based on the Martins’ 2005
     tax return. Nor did it contest the dischargeability of the
28   penalties it assessed and the interest accrued on the penalties.

                                      7
 1        satisfy the requirements of the tax law.
 2   United States v. Hatton (In re Hatton), 220 F.3d 1057, 1060–61
 3   (9th Cir. 2000) (“Hatton II”) (citing United States v. Hindenlang
 4   (In re Hindenlang), 164 F.3d 1029, 1033 (6th Cir. 1999)).
 5        Instead of utilizing the version of the Beard test as
 6   applied in Hatton II and In re Hindenlang, the bankruptcy court
 7   utilized a slightly different version of the Beard test.    Whereas
 8   the honest-and reasonable inquiry in the Hatton/Hindenlang
 9   version is broad in scope and at least partially subjective in
10   focus, the honest-and-reasonable inquiry in the version of the
11   Beard test utilized by the bankruptcy court was narrow in scope
12   and exclusively objective in focus.   The bankruptcy court only
13   considered the face of the Martins’ tax filings and looked at the
14   form and content of those filings in order to determine, from an
15   objective standpoint, that the Martins’ filings for the 2004,
16   2005 and 2006 tax years constituted “an honest and reasonable
17   attempt to satisfy the requirements of the tax law.”
18        The bankruptcy court concluded that the Martins’ 2004, 2005
19   and 2006 tax filings qualified as returns for nondischargeability
20   purposes and granted judgment in their favor on that basis.   The
21   IRS timely filed its notice of appeal on April 14, 2014.
22                             JURISDICTION
23        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
24   §§ 1334 and 157(b)(2)(I), and we have jurisdiction under
25   28 U.S.C. § 158.
26                                 ISSUE
27        Did the bankruptcy court apply the correct legal standard
28   for determining whether the Martins’ tax filings qualified as tax

                                     8
 1   returns for purposes of the nondischargeability statute?
 2                            STANDARD OF REVIEW
 3        This appeal presents a question of statutory construction,
 4   which is a question of law we review de novo.    Samson v. W.
 5   Capital Partners, LLC (In re Blixseth), 684 F.3d 865, 869 (9th
 6   Cir. 2012) (per curiam).
 7                                 DISCUSSION
 8   A.   The Parties’ Positions
 9        In this appeal, the IRS has advocated two distinct
10   positions: an official, preferred position and an unofficial,
11   fall-back position.    Officially, the IRS contends that the
12   dischargeability of income tax debt associated with a late-filed
13   tax return should hinge on whether the taxpayer filed the return
14   before or after the IRS made any assessment.    This position is
15   not new for the IRS.    See, e.g., Mallo v. I.R.S. (In re Mallo),
16   774 F.3d 1313, 1325-27 (10th Cir. 2014); Wogoman v. I.R.S.
17   (In re Wogoman), 475 B.R. 239, 250 (10th Cir. BAP 2012); see also
18   IRS Chief Counsel Notice CC–2010–016, available at 2010 WL
19   3617597.
20        Alternately and unofficially, the IRS contends that the
21   Ninth Circuit’s version of the Beard test is sufficient to
22   accomplish its litigation goal in this appeal.    According to the
23   IRS, if the bankruptcy court here had applied the Ninth Circuit
24   version of the Beard test, it should have and would have
25   concluded that the Martins’ 2004, 2005 and 2006 tax returns do
26   not qualify as returns for nondischargeability purposes.
27        The Martins similarly contend that the Beard test applies,
28   but they insist that the bankruptcy court correctly determined

                                       9
 1   under the Beard test that their 2004, 2005 and 2006 tax returns
 2   qualify as returns for nondischargeability purposes.
 3         Notably, neither side here advocates in favor of the literal
 4   construction of the “return” definition that Congress added to
 5   the nondischargeability statute as part of the 2005 Bankruptcy
 6   Code amendments.    Indeed, in this case and in other cases, the
 7   IRS expressly has rejected the literal construction and has
 8   stated that the literal construction leads to “overly harsh”
 9   results.    In re Wogoman, 475 B.R. at 250.   Instead, the IRS has
10   advocated for its less draconian approach focusing on whether the
11   taxpayer filing occurred before or after an IRS tax assessment.
12   Id.
13         Even though neither side here supports the literal
14   construction of the “return” definition, in light of the
15   increasing number of courts that have adopted that construction,
16   our analysis necessarily focuses on that approach first.    Before
17   undertaking that analysis, however, we first describe the legal
18   state of affairs in the Ninth Circuit before Congress added the
19   “return” definition to the nondischargeability statute.
20   B.    The Ninth Circuit Legal Landscape Before BAPCPA4
21         Section 523(a)(1)(B)(i) excepts from discharge tax debt when
22   the debtor taxpayer was required to file a tax return but did not
23   do so.    Cal. Franchise Tax Bd. v. Jackson (In re Jackson),
24   184 F.3d 1046, 1050 (9th Cir. 1999).    “The policy behind this
25   subsection is that a debtor should not be permitted to discharge
26
27
           4
           The Bankruptcy Abuse Prevention and Consumer Protection
28   Act, Pub.L. No. 109–8, 119 Stat. 23 (2005) (“BAPCPA”).

                                      10
 1   a tax liability based upon a required tax return that was never
 2   filed.”   Id. at 1052 (citing 3 NORTON BANKRUPTCY LAW AND PRACTICE 2d
 3   § 47:6, 47–15 (1997)).    Meanwhile, § 523(a)(1)(B)(ii) excepts
 4   from discharge tax debt associated with untimely filed tax
 5   returns filed within two years of the debtor’s bankruptcy filing,
 6   and § 523(a)(1)(C) excepts from discharge tax debt associated
 7   with tax returns that are fraudulent or evasive.       See
 8   In re Hindenlang, 164 F.3d at 1032; see also 4 COLLIER ON BANKRUPTCY
 9   ¶ 523.07[3],[4] (Alan N. Resnick & Henry J. Sommer, eds., 16th
10   ed. rev. 2015).
11        In United States v. Hatton (In re Hatton) (“Hatton I”),
12   216 B.R. 278, 282 (9th Cir. BAP 1997), this Panel adopted for
13   purposes of § 523(a)(1)(B)(i) the meaning of “return” set forth
14   in Beard.   Beard held that a document qualifies as a return if:
15        (1) it must purport to be a return; (2) it must be
          executed under penalty of perjury; (3) it must contain
16        sufficient data to allow calculation of tax; and (4) it
          must represent an honest and reasonable attempt to
17        satisfy the requirements of the tax law.
18   In re Hindenlang, 164 F.3d at 1033.     Hatton I applied the Beard
19   test in upholding the bankruptcy court’s finding that the debtor
20   had filed a return within the meaning of § 523(a)(1)(B)(i).
21   Hatton I reasoned that the debtor taxpayer came close enough to
22   filing a return by meeting with the IRS, by acquiescing to the
23   substitute return the IRS filed on the debtor taxpayer’s behalf,
24   by acknowledging his liability for 1983 taxes in the amount set
25   forth in the substitute return, and by entering into an
26   installment payment agreement, pursuant to which debtor agreed to
27   pay his delinquent taxes at a rate of $200 per month.
28        The Ninth Circuit Court of Appeals reversed.       Hatton II,

                                       11
 1   220 F.3d at 1060–61.   Hatton II rejected Hatton I’s attempted
 2   expansion of the Beard test to include a debtor taxpayer who had
 3   not signed any document under penalty of perjury and who “made
 4   every attempt to avoid paying his taxes” until the IRS sent the
 5   debtor taxpayer a letter threatening to levy on his wages and
 6   bank accounts and to seize his property.   Id. at 1061.   But
 7   Hatton II did not throw out the baby with the bath water.    For
 8   purposes of § 523(a)(1)(B)(i), Hatton II explicitly adopted
 9   Beard’s definition of return, as articulated in
10   In re Hindenlang.5
11        By adopting In re Hindenlang’s version of the Beard test,
12   Hatton II sub silentio overruled, at least in part, another Panel
13   decision – United States v. Nunez (In re Nunez), 232 B.R. 778,
14   783 (9th Cir. BAP 1999).   In re Nunez adopted a slightly
15
16
          5
           There is nothing in Hatton II suggesting that it adopted
17   other aspects of In re Hindenlang, particularly
     In re Hindenlang’s holding that post-assessment tax returns filed
18   by the taxpayer never qualify as returns for purposes of
19   § 523(a)(1)(B). To the contrary, Hatton II’s analysis –
     especially its reliance on the Beard test to determine whether
20   the taxpayer filed a return – is inconsistent with
     In re Hindenlang’s pre- or post-assessment test. As stated in
21   one persuasive bankruptcy court decision:
22
          Had the Hatton court adopted the Hindenlang [pre- or
23        post-assessment] Rule, it would not have needed to
          consider whether the Debtor had executed the
24        submissions under penalty of perjury or the Debtor's
          subjective intent post assessment. The court would
25        have simply determined that the debtor's post
26        assessment submissions, could not as a matter of law,
          constitute returns under § 523(a)(1)(B).
27
     Rushing v. United States (In re Rushing), 273 B.R. 223, 227
28   (Bankr. D. Ariz. 2001).

                                     12
 1   different version of the Beard test.      Following Savage v. I.R.S.
 2   (In re Savage), 218 B.R. 126, 132 (10th Cir. BAP 1998),
 3   In re Nunez narrowed the honesty-and-reasonableness prong of the
 4   Beard test to examine only what appeared on the face of the
 5   taxpayer’s filing in order to ascertain whether that filing
 6   constituted “an honest and genuine endeavor to satisfy the law.”
 7   In re Nunez, 232 B.R. at 783 (quoting In re Savage, 218 B.R. at
 8   132).    In re Nunez, therefore, excluded from its honesty-and-
 9   reasonableness analysis the length of the delay in the taxpayer’s
10   filing, the reason for the delay and the number of tax years for
11   which timely filings were missed.      Id.   It is impossible to
12   reconcile this aspect of In re Nunez with Hatton II’s honesty-
13   and-reasonableness analysis, which largely hinged on the delay in
14   taxpayer compliance.    See Hatton II, 220 F.3d at 1061.
15        In short, in the Ninth Circuit, the Hatton II/
16   In re Hindenlang version of the Beard test indisputably governed
17   the definition of the term “return” for purposes of determining
18   the nondischargeability of tax debts, at least until the
19   enactment of BAPCPA.    In the next section, we attempt to discern
20   how (if at all) BAPCPA changed the legal landscape.
21   C.   The Impact of BAPCPA on the Nondischargeability of Tax Debts
22           Recall that, when Congress first enacted the Bankruptcy
23   Code in 1978, it specifically noted that § 523(a)(1)(B)
24   represented a careful balancing of the competing interests of the
25   debtor, the taxing authority, and the debtor’s other creditors.
26   See Maryland v. Ciotti (In re Ciotti), 638 F.3d 276, 279 (4th
27   Cir. 2011) (citing S.Rep. No. 95–989, at 14 (1978), reprinted in
28   1978 U.S.C.C.A.N. 5787, 5800)).    Congress further stated that

                                       13
 1   § 523(a)(1)(B) reflected its intent that “tax claims which are
 2   nondischargeable, despite a lack of priority, are those to whose
 3   staleness the debtor contributed by some wrong-doing or serious
 4   fault.”   S.Rep. No. 95–989, at 14 (1978), reprinted in 1978
 5   U.S.C.C.A.N. 5787, 5800 (emphasis added).
 6        In contrast, when Congress enacted BAPCPA, it did not offer
 7   any similarly specific statement of its legislative rationale for
 8   adding a definition of “return” into the Code’s
 9   nondischargeability statute.   In re Mallo, 774 F.3d at 1327.6
10   But BAPCPA was accompanied by a general statement of legislative
11   intent indicating that the 2005 amendments as a whole were
12   motivated by four general factors:
13        the “recent escalation of consumer bankruptcy filings,”
          the “significant losses . . . associated with
14        bankruptcy filings,” the fact that the “bankruptcy
          system has loopholes and incentives that allow
15
16
          6
           Congress did explain the second sentence of the hanging
17   paragraph, as follows:
18        Income Tax Returns Prepared by Tax Authorities.
19        Section 714 of the Act amends section 523(a) of the
          Bankruptcy Code to provide that a return prepared
20        pursuant to section 6020(a) of the Internal Revenue
          Code, or similar State or local law, constitutes filing
21        a return (and the debt can be discharged), but that a
          return filed on behalf of a taxpayer pursuant to
22
          section 6020(b) of the Internal Revenue Code, or
23        similar State or local law, does not constitute filing
          a return (and the debt cannot be discharged).
24
     H.R. REP. 109-31(I), at 103 (2005), reprinted in 2005
25   U.S.C.C.A.N. 88, 167. It seems odd that Congress would bother to
26   explain the relatively minuscule effect of the second sentence of
     the hanging paragraph but not offer any legislative comment on
27   the first sentence, which literal construction adherents claim
     dramatically altered the nondischargeability of tax debt
28   associated with untimely filed tax returns.

                                     14
 1        and—sometimes—even encourage opportunistic personal
          filings and abuse,” and “the fact that some bankruptcy
 2        debtors are able to repay a significant portion of
          their debts.”
 3
 4   In re Ciotti, 638 F.3d at 279 (citing H.R.Rep. No. 109–31, at 3-5
 5   (2005), reprinted in 2005 U.S.C.C.A.N. 88, at 90–92).
 6        In any event, BAPCPA added the “return” definition into the
 7   nondischargeability statute in a hanging paragraph tacked onto
 8   the end of § 523(a) and often cited as § 523(a)(*).   The hanging
 9   paragraph consists of two sentences, the first of which defines
10   the term “return” and the second of which further refines that
11   definition by explicitly including a certain type of return
12   prepared by the taxing authority on behalf of the taxpayer and by
13   expressly excluding another.   The full text of the hanging
14   paragraph provides as follows:
15        For purposes of this subsection, the term “return”
          means a return that satisfies the requirements of
16        applicable nonbankruptcy law (including applicable
          filing requirements). Such term includes a return
17        prepared pursuant to section 6020(a) of the Internal
          Revenue Code of 1986, or similar State or local law, or
18        a written stipulation to a judgment or a final order
          entered by a nonbankruptcy tribunal, but does not
19        include a return made pursuant to section 6020(b) of
          the Internal Revenue Code of 1986, or a similar State
20        or local law.
21   11 U.S.C. § 523(a)(*).
22        A number of courts, including several Courts of Appeal, have
23   addressed the issue of what the “return” definition means, and
24   many of them have held that the term “applicable filing
25   requirements” is unambiguous and that the plain and ordinary
26   meaning of the term necessarily includes time deadlines for
27   filing returns as stated in the Internal Revenue Code, 26 U.S.C.
28   § 6072(a), and/or in equivalent state statutes.   Therefore, these

                                      15
 1   literal construction courts have concluded that untimely returns
 2   are not returns at all for purposes of the nondischargeability
 3   statute.    See, e.g., Fahey v. Massachusetts Dep’t of Revenue
 4   (In re Fahey), 779 F.3d 1, 4-5 (1st Cir. 2015); In re Mallo,
 5   774 F.3d at 1321; McCoy v. Miss. State Tax Comm'n (In re McCoy),
 6   666 F.3d 924, 928, 932 (5th Cir. 2012).
 7        The literal construction adherents have not been deterred by
 8   the perceived harshness resulting from their reading of the
 9   statute.    They rely heavily (if not exclusively) on the plain
10   language of the phrase “applicable filing requirements” to
11   conclude that Congress intended by way of the “return” definition
12   in the hanging paragraph to except from discharge the tax debts
13   of all taxpayers whose tax returns do not strictly comply with
14   all filing requirements – including time deadlines.    See, e.g.,
15   In re Fahey, 779 F.3d at 4-5; In re Mallo, 774 F.3d at 1321;
16   In re McCoy, 666 F.3d at 932.    In doing so, they gloss over one
17   of the most important rules of plain meaning statutory
18   construction: that the meaning of a statutory term only is
19   considered plain and unambiguous if the term is clearly
20   understood in the context of the words surrounding it and in the
21   context of the larger statutory scheme.
22        The Supreme court reiterated the vital importance of
23   contextual reading in Yates v. United States, 135 S. Ct. 1074,
24   1081-82 (2015).    Yates emphasized that the clarity of statutory
25   language only can be measured in “the specific context in which
26   that language is used, and the broader context of the statute as
27   a whole.”    Id. at 1081 (quoting Robinson v. Shell Oil Co.,
28   519 U.S. 337, 341 (1997)).    While the Court’s ruling in Yates was

                                      16
 1   a plurality decision, there was no controversy amongst the
 2   Justices about the critical importance of contextual reading.    In
 3   fact, the Yates dissent, in which four Justices joined, was even
 4   more compelling on this point:
 5        I agree with the plurality (really, who does not?) that
          context matters in interpreting statutes. We do not
 6        “construe the meaning of statutory terms in a vacuum.”
          Rather, we interpret particular words “in their context
 7        and with a view to their place in the overall statutory
          scheme.” And sometimes that means, as the plurality
 8        says, that the dictionary definition of a disputed term
          cannot control.
 9
10   Id. at 1092 (Justice Kagan dissenting) (citations omitted).
11        The more one considers the phrase “applicable filing
12   requirements” in context, the more doubtful the literal
13   construction becomes.   First, within the hanging paragraph
14   itself, the second sentence does not square with the so-called
15   ordinary meaning of the term “applicable filing requirements”
16   found in the first sentence.   The literal construction of
17   “applicable filing requirements” effectively excepts from
18   discharge all taxes associated with untimely-filed returns, but
19   the second sentence adds right back into the definition returns
20   prepared by taxing authorities under 26 U.S.C. § 6020(a) or under
21   equivalent state statutes.   That subsection provides:
22        (a) Preparation of return by Secretary.--If any person
          shall fail to make a return required by this title or
23        by regulations prescribed thereunder, but shall consent
          to disclose all information necessary for the
24        preparation thereof, then, and in that case, the
          Secretary may prepare such return, which, being signed
25        by such person, may be received by the Secretary as the
          return of such person.
26
27   26 U.S.C. § 6020(a).    Thus, under the literal construction of the
28   hanging paragraph, a debtor taxpayer who is one month or one day

                                      17
 1   or even one hour late in filing his or her return will have his
 2   associated tax debt excepted from discharge, whereas a debtor
 3   taxpayer who never bothers to file his or her own return can
 4   discharge his or her associated tax debt if the IRS fortuitously
 5   prepares a return on that person’s behalf.
 6        Why would Congress want to treat debtor taxpayers who do
 7   nothing on their own to comply with their return filing
 8   obligations so much better than debtor taxpayers who – perhaps
 9   for reasons beyond their control – miss the filing deadline by as
10   little as a day but then conscientiously complete and file their
11   return?   The literal construction adherents have an answer to
12   this question, but that answer is hardly persuasive.    The literal
13   construction adherents speculate that Congress wanted to make
14   available to the taxing authorities a “carrot” they could offer
15   to formerly uncooperative taxpayers to encourage their
16   cooperation going forward.    In re Fahey, 779 F.3d at 7;
17   In re Mallo, 774 F.3d at 1324; In re McCoy, 666 F.3d at 931.
18        This makes no sense.    The literal construction adherents
19   admit (at least some of them do) that it is extremely rare for
20   taxing authorities to engage in the expensive and time-consuming
21   process of preparing tax returns on behalf of taxpayers.    See,
22   e.g., In re Fahey, 779 F.3d at 6-7.    More importantly, the
23   literal construction of the “return” definition in reality
24   creates an incentive for impoverished taxpayers who already are
25   late in filing one or more tax returns to further delay, with the
26   hope that they would be some of the lucky few for whom the taxing
27   authorities decide to prepare returns on the taxpayers’ behalf
28   (which then would enable them under the literal construction to

                                      18
 1   obtain a discharge of an otherwise nondischargeable tax debt).
 2        When read with a literal construction, the disconnect
 3   between the first and second sentences of the hanging paragraph
 4   does not end there.    In the last part of the second sentence, the
 5   hanging paragraph excludes from the definition of “return”
 6   returns prepared by taxing authorities under 26 U.S.C. § 6020(b)
 7   or under equivalent state statutes.   That subsection provides in
 8   relevant part:
 9        (b) Execution of return by Secretary.--
10             (1) Authority of Secretary to execute return.--If
               any person fails to make any return required by
11             any internal revenue law or regulation made
               thereunder at the time prescribed therefor, or
12             makes, willfully or otherwise, a false or
               fraudulent return, the Secretary shall make such
13             return from his own knowledge and from such
               information as he can obtain through testimony or
14             otherwise.
15   26 U.S.C. § 6020(b).    Thus, according to the literal construction
16   adherents, even though the first sentence of the hanging
17   paragraph already excludes all late-filed returns from the
18   definition of “return,” Congress felt it necessary (supposedly
19   for the sake of clarity) to repeat one tiny aspect of this
20   exclusion one sentence later – the exclusion with respect to §
21   6020(b) returns, which by definition are untimely.   See, e.g., In
22   re Fahey, 779 F.3d at 7;   In re Mallo, 774 F.3d at 1324.   Many
23   literal construction adherents acknowledge that a statute should,
24   if possible, be construed in a manner that avoids rendering any
25   part of it redundant.   See, e.g., In re Fahey, 779 F.3d at 6;
26   In re Mallo, 774 F.3d at 1317.   Indeed, In re Fahey cites to
27   TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001), which stated: “[i]t
28   is a cardinal principle of statutory construction that a statute

                                      19
 1   ought, upon the whole, to be so construed that, if it can be
 2   prevented, no clause, sentence, or word shall be superfluous,
 3   void, or insignificant.”   Id. (citations and internal quotation
 4   marks omitted and emphasis added).
 5        The literal construction adherents offer little to explain
 6   their acceptance of the redundancy created by their
 7   interpretation of the hanging paragraph.   According to them,
 8   Congress likely was redundant for the sake of clarity.   But this
 9   explanation is wholly at odds with the cardinal principle of
10   statutory construction referenced immediately above.
11   Alternately, the literal construction adherents dismiss the
12   redundancy as insignificant, especially in light of the plain
13   meaning of the term “applicable filing requirements.”    See, e.g.,
14   In re Fahey, 779 F.3d at 7.   This reasoning not only is circular
15   but also undermines a contextual reading of the statute.
16        Assuming the literal construction of the term “applicable
17   filing requirements” already has not collapsed under the weight
18   of the contextual difficulties found within the hanging paragraph
19   itself, another more-extreme level of difficulties awaits within
20   § 523(a)(1)(B)(ii).   In that subparagraph, as originally enacted
21   in 1978, Congress clearly excepted from discharge any and all tax
22   debts associated with untimely filed returns that were filed
23   within two years of the debtor’s bankruptcy petition filing.
24   In re Ciotti, 638 F.3d at 279.   Before BAPCPA, there was no
25   genuine dispute regarding the broad coverage of this
26   subparagraph.   See id.   After BAPCPA, at least under the literal
27   construction, the once-expansive coverage of this subparagraph
28   has been dramatically reduced to an infinitesimal scope – a scope

                                      20
 1   bordering on and approaching zero.    As the literal construction
 2   adherents would have it, this subparagraph post-BAPCPA only would
 3   apply to § 6020(a) returns, since § 6020(a) returns are the only
 4   type of untimely returns that fall within the definition of
 5   “return” under the literal construction.   See, e.g., In re Fahey,
 6   779 F.3d at 6; In re Mallo, 774 F.3d at 1323-24.
 7        Structurally, interpreting the definitional hanging
 8   paragraph in a way that dramatically alters the coverage of
 9   § 523(a)(1)(B)(ii) is an excellent example of “the tail wagging
10   the dog.”   This structural concern is the least of our concerns.
11   The literal construction also renders § 523(a)(1)(B)(ii) all but
12   meaningless.   The literal construction adherents explain away
13   this concern by suggesting that, while “meaningless” is not okay
14   under the cardinal rule disfavoring interpretations that render
15   part of a statute superfluous, “all but meaningless” is fine.
16   See, e.g., In re Fahey, 779 F.3d at 6; In re Mallo, 774 F.3d at
17   1323-24.
18        And yet we have an even more significant concern.   The
19   Supreme Court disfavors interpretations of ambiguous Bankruptcy
20   Code provisions (and amendments) that impose major changes in
21   pre-existing practice in the absence of at least some discussion
22   in the legislative history.   See Dewsnup v. Timm, 502 U.S. 410,
23   419 (1992).    The literal construction adherents reason that this
24   concern is unjustified because the “return” definition is
25   unambiguous.   But our contextual reading of the statutory text
26   convinces us otherwise.
27        At the outermost circle of contextual reading, we must
28   consider how the literal construction of the term “applicable

                                      21
 1   filing requirements” fits within Congress’ statutory scheme for
 2   excepting debts from discharge.    Recall that Congress’ original
 3   Bankruptcy Code enactment of § 523(a)(1)(B) embodied a careful
 4   balancing of the competing interests of the debtor, taxing
 5   authorities and the debtor’s other creditors.   See In re Ciotti,
 6   638 F.3d at 279 (citing S.Rep. No. 95–989, at 14 (1978),
 7   reprinted in 1978 U.S.C.C.A.N. 5787, 5800)).    Nothing in the term
 8   “applicable filing requirements” or in the four general factors
 9   that served as the impetus for BAPCPA manifests an intent to
10   effect a sea-change in how Congress chose to balance the
11   dischargeability of tax debts associated with untimely filed
12   returns.
13        The Supreme Court before BAPCPA recognized that “exceptions
14   to discharge should be confined to those plainly expressed,”
15   Kawaauhau v. Geiger, 523 U.S. 57, 62 (1998) (quoting Gleason v.
16   Thaw, 236 U.S. 558, 562 (1915)), and the Supreme Court after
17   BAPCPA continues to adhere to this same principle.   Bullock v.
18   BankChampaign, N.A., 133 S. Ct. 1754, 1760 (2013).   Here, in
19   light of our contextual reading of the term “applicable filing
20   requirements,” we are not persuaded that the statutory text, as
21   amended by BAPCPA, manifests a plainly expressed intent to re-
22   balance the nondischargeability of tax debts associated with
23   untimely filed tax returns.
24
     D.   Application of the Correct Definition of “Return” to this
25        Appeal
26        Our rejection of the literal construction of the “return”
27   definition leaves us with the task of articulating what the
28   definition of “return” in the hanging paragraph is supposed to

                                       22
 1   mean.    The generic terms “applicable bankruptcy law” and
 2   “applicable filing requirements” necessarily reflect that the
 3   answer will depend on which nonbankruptcy laws are applicable
 4   (federal or state or local) and what the applicable filing
 5   requirements say.    “[N]early all courts” pre-BAPCPA utilized some
 6   version of the Beard test.    In re Mallo, 774 F.3d at 1318.   In
 7   other words, for purposes of determining the dischargeability of
 8   federal income tax debt, the “return” definition added by
 9   Congress in 2005 effectively codified the Beard test, except that
10   Congress in the second sentence of the hanging paragraph carved
11   out some specific rules for tax returns prepared by taxing
12   authorities.7
13        In this appeal, in the context of late-filed federal income
14   tax returns prepared and filed by the taxpayers, there is no
15   convincing or persuasive indication that BAPCPA or the hanging
16   paragraph abrogated Hatton II’s holding that we should use
17   In re Hindenlang’s version of the Beard test – a test derived
18   from nonbankruptcy law – to determine whether the Martins’
19   untimely tax returns qualify as tax returns for
20   nondischargeability purposes.    That version of the Beard test
21   provides:
22        (1) it must purport to be a return; (2) it must be
          executed under penalty of perjury; (3) it must contain
23        sufficient data to allow calculation of tax; and (4) it
          must represent an honest and reasonable attempt to
24        satisfy the requirements of the tax law.
25
26
          7
27         We express no opinion on what “return” means under
     applicable nonbankruptcy law when state tax returns are in play,
28   as that issue is not properly before us.

                                      23
 1   In re Hindenlang, 164 F.3d at 1033.8
 2        Similar to what this Panel held in In re Nunez, the
 3   bankruptcy court here concluded that it should utilize a
 4   different version of the Beard test.    In this alternate version,
 5   the prong of the test focusing on the honesty and reasonableness
 6   of the debtor’s efforts to file the return is narrow in scope and
 7   considers only the form and substance of the purported return
 8   while ignoring the length of delay, the reason for the delay, and
 9   the number of tax years missed.    As we stated at the outset of
10   this discussion, this alternate version of the Beard test is
11   inconsistent with the holding and reasoning set forth in
12   Hatton II, so we cannot uphold the bankruptcy court’s usage of
13   this alternate test.
14        Hatton II offered two distinct reasons why the taxpayer
15   there did not satisfy the Beard test.    Hatton II, 220 F.3d at
16   1061.    First, Hatton II explained the the taxpayer had not signed
17   any document under penalty of perjury, so the second Beard test
18   factor was not met.    Id.   In addition, Hatton II explained that
19
          8
20         The IRS follows the Beard test in defining the term
     “return” under many circumstances. As the bankruptcy court noted
21   in its Memorandum Decision:
22
          The IRS has referenced the Beard Test in its revenue
23        rulings and other materials. See Rev. Rul. 2005-59,
          2005-2 C.B. 505 (2005) (clarifying when documents
24        constitute valid returns under Beard Test in context of
          joint filers); I.R.S. Chief Couns. Notice CC-2004-032,
25        2004 WL 3210764 (Sept. 9, 2004) ("The four part test
26        set forth in [Beard] is widely accepted as the analysis
          for determining what constitutes a return for purposes
27        of the Internal Revenue Code.").

28   Mem. Dec. (March 31, 2014) at 20:23-26.

                                       24
 1   the taxpayer indisputably took no steps to cure his delinquency
 2   in filing his 1983 federal income tax return, and did not begin
 3   to cooperate with the IRS’s efforts, until the IRS threatened to
 4   levy on his wages and his bank account.    Id.   According to
 5   Hatton II, these undisputed facts established that the taxpayer
 6   had not engaged in “an honest and reasonable attempt to comply
 7   with the requirements of the tax law” as required by the fourth
 8   Beard test factor.   Id.   The bankruptcy court posited that,
 9   because Hatton II offered two separate and independent reasons
10   why the Beard test was not met, the second reason given –
11   regarding the honesty and reasonableness of the taxpayer’s
12   efforts – perhaps was non-binding dicta.    We disagree.   When
13   alternate grounds are given for a holding, neither ground
14   constitutes non-binding dicta.    Exp. Grp. v. Reef Indus., Inc.,
15   54 F.3d 1466, 1471 (9th Cir. 1995).
16        The bankruptcy court attempted to offer some other reasons
17   why it might not be bound by Hatton II, but none of these other
18   reasons, even if valid, justify a departure from Hatton II’s
19   version of the Beard test, which included a broader honesty-and-
20   reasonableness prong than the bankruptcy court utilized.     Because
21   the bankruptcy court did not apply the correct legal standard for
22   assessing the honesty and reasonableness of the Martins’ efforts
23   to comply with applicable tax laws, we must VACATE AND REMAND so
24   that the bankruptcy court can apply the proper legal standard to
25   the relevant facts of this case, which are not limited to the
26   form and content of the Martins’ filings, but also include the
27   number of missing returns, the length of the delay, the reasons
28   for the delay, and any other circumstances reasonably pertaining

                                      25
 1   to the honesty and reasonableness of the Martins’ efforts.
 2        In sum, we need to ensure that the bankruptcy court views
 3   all of the relevant facts through the lens of the appropriate
 4   legal standard set forth in Hatton II, and we furthermore believe
 5   that the determination of whether all of the relevant facts and
 6   circumstances constitute an honest and reasonable effort to
 7   comply with the applicable tax laws is best made, in the first
 8   instance, by the bankruptcy court.
 9
     E.   IRS Argument That Tax Debts Associated With Post-Assessment
10        Tax Returns Are Always Nondischargeable
11        There is only one other issue that we need to address.     We
12   must address the IRS’s argument that a tax debt associated with
13   an IRS tax assessment made without the benefit of a taxpayer-
14   prepared tax return always should be treated as nondischargeable.
15        The IRS’s argument is twofold.   First, the IRS contends
16   that, when as here the taxpayer does not file his or her tax
17   return until after the IRS has assessed taxes pursuant to
18   Internal Revenue Code deficiency procedures, the debt arising
19   from the assessment is (and always will be) a debt for which no
20   return has been filed, thereby bringing the debt within the scope
21   of § 523(a)(1)(B)(i) – a tax debt for which a tax return was
22   required but never filed.   According to the IRS, it makes no
23   difference whether the taxpayer, after assessment, belatedly
24   files his or her tax return because the nature of the debt (as a
25   debt arising from the assessment rather than the return) cannot
26   and does not change under applicable tax law even when a return
27   is later filed.   Aplt. Opn. Br. at pp. 7-15.
28        Our initial reaction to this argument is that it tends to

                                     26
 1   prove too much.   If we were to accept the IRS’s interpretation of
 2   the nature of an assessment-based tax debt, it proves not only
 3   that the tax liability arose without a tax return, but also that
 4   a tax return was neither necessary nor “required” to impose the
 5   assessment-based tax debt.   In any event, even if the belated tax
 6   return associated with an assessment-based tax debt was still
 7   required in some sense, we agree with the reason offered by the
 8   bankruptcy court for rejecting this argument.      As the bankruptcy
 9   court explained, the tax debt within the meaning of the
10   Bankruptcy Code preexists both the filing of the return and the
11   issuance of the IRS assessment.    Mem. Dec. (March 31, 2014) at
12   p. 12 (citing Rhodes v. United States (In re Rhodes), 498 B.R.
13   357, 362 (Bankr. N.D. Ga. 2013); see also In re Mallo, 774 F.3d
14   at 1326 (following In re Rhodes).      Under the Internal Revenue
15   Code, the tax debt – or right to payment – arises at the end of
16   each tax year and not later on.    In re Rhodes, 498 B.R. at 362.
17   An assessment is merely a method for fixing the amount of that
18   debt and not the source of the debt itself.      Id.
19        Second, the IRS argues that a post-assessment tax return is
20   the functional equivalent of no tax return at all.      As the IRS
21   puts it, once it is forced to assess taxes without the benefit of
22   a taxpayer-prepared return, a later-filed tax return fails to
23   serve its primary function as a vehicle for self-reporting tax
24   liability.   We already rejected this identical argument in
25   In re Nunez, 232 B.R. 778, 781-82 (9th Cir. BAP 1999).      While
26   some parts of In re Nunez were sub-silentio overruled by
27   Hatton II, Hatton II did not overrule this part of In re Nunez.
28   Nor did Hatton II overrule the following reasoning from

                                       27
 1   In re Nunez supporting its rejection of the IRS’s post-assessment
 2   tax return argument:
 3        Congress could have conditioned discharge of tax debt
          on whether a return was filed prior to an assessment.
 4        As correctly noted by the [bankruptcy] court, Congress
          used assessment as a trigger for other time periods in
 5        the Code, for example, the priority qualifications
          found in Section 507(a)(8)(A)(ii). When Congress
 6        includes particular language in one section of the
          Code, but omits it in another, it is presumed to have
 7        acted intentionally and purposely. We will not read
          into Section 523(a)(1)(B) the requirement that a debtor
 8        must have filed a return prior to an assessment by the
          IRS.
 9
10   In re Nunez, 232 B.R. at 782 (internal citation omitted).
11        Indeed, Hatton II is consistent with Nunez’s rejection of
12   the IRS’s post-assessment tax return argument in the following
13   sense: if Hatton II had agreed with the IRS that a post-
14   assessment tax return is no tax return at all, Hatton II would
15   not have had any need to apply the Beard test (as it did) to
16   resolve the question of whether the debtor there had filed a
17   return within the meaning the nondischargeability statute.
18   Simply put, Hatton II’s holding and reasoning cannot be
19   reconciled with the IRS’s post-assessment tax return argument.
20        Accordingly, we reject both aspects of the IRS’s post-
21   assessment tax return argument.
22                              CONCLUSION
23        For the reasons set forth above, we VACATE the bankruptcy
24   court’s judgment holding that the Martins’ tax debt was
25   dischargeable, and we REMAND for further proceedings consistent
26   with this decision.
27
28

                                       28
