Filed: March 11, 2011 

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 10-1083

(1:09-cv-02702-JFM)

In Re: DENISE A. CIOTTI,

Debtor.

------------------------

STATE OF MARYLAND, Peter Franchot, Comptroller of Maryland,

Plaintiff - Appellee,

v.

DENISE A. CIOTTI,

Defendant – Appellant,

and

CHARLES R. GOLDSTEIN,

Trustee.

O R D E R

The Court amends its opinion filed March 8, 2011, as 

follows:

On page 4, second and sixth lines from end of page –-

the reference to “§ 532(a)(1)(B)” is corrected to 

“§ 523(a)(1)(B).” 

For the Court – By Direction

/s/ Patricia S. Connor

Clerk
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: DENISE A. CIOTTI, 

Debtor.

STATE OF MARYLAND, Peter

Franchot, Comptroller of

Maryland,

Plaintiff-Appellee,  No. 10-1083

v.

DENISE A. CIOTTI,

Defendant-Appellant,

and

CHARLES R. GOLDSTEIN,

Trustee. 

Appeal from the United States District Court

for the District of Maryland, at Baltimore.

J. Frederick Motz, District Judge.

(1:09-cv-02702-JFM)

Argued: January 27, 2011

Decided: March 8, 2011

Before TRAXLER, Chief Judge, and KING and

WYNN, Circuit Judges.
Affirmed by published opinion. Chief Judge Traxler wrote the

opinion, in which Judge King and Judge Wynn joined.

COUNSEL

ARGUED: Daniel Mark Press, CHUNG & PRESS, PC,

McLean, Virginia, for Appellant. Brian L. Oliner, OFFICE

OF THE ATTORNEY GENERAL OF MARYLAND,

Annapolis, Maryland, for Appellee. ON BRIEF: Douglas F.

Gansler, Attorney General of Maryland, Baltimore, Maryland,

for Appellee.

OPINION

TRAXLER, Chief Judge:

Denise Ciotti appeals a district court order reversing a

bankruptcy order declaring that her Maryland state income tax

liability for the tax years 1992-1996 had been discharged in

bankruptcy. Finding no error, we affirm.

I.

In 1996 Ciotti filed Maryland state income tax returns for

the 1992, 1993, 1994, 1995, and 1996 tax years. Ciotti later

filed for Chapter 7 bankruptcy on April 9, 2007. She received

her discharge, and her case was subsequently closed. 

In 1998 the Internal Revenue Service ("IRS") issued a Letter of Determination making adjustments to each of Ciotti’s

returns, significantly increasing her federal adjusted income

for each of the 1992-1996 tax years. Inasmuch as Maryland

taxable income is based upon federal adjusted income, Ciotti

was required under Maryland law to report the amount of the

changes to her federal adjusted income to Maryland tax

2 IN RE: CIOTTI
authorities (and explain any errors that she believed the IRS

made). See Md. Code Ann., Tax-Gen. § 13-409(b). Although

Ciotti, in fact, did not report the changes to the Maryland

authorities, the IRS forwarded its determination to the Maryland Comptroller. Based on the information the IRS provided,

the Comptroller made adjustments to Ciotti’s state returns that

resulted in an assessment of more than $500,000 in taxes,

penalties, and interest.

In February 2009, Ciotti successfully moved to reopen her

bankruptcy case and filed a complaint seeking a declaration

that her Maryland income tax liabilities for 1992 through

1996 had been discharged. The Maryland Comptroller

responded that the tax liabilities were excepted from discharge under 11 U.S.C.A. § 523(a)(1)(B) (West Supp. 2010),

which prohibits discharge of a tax debt "with respect to which

a return, or equivalent report or notice, if required . . . was not

filed or given." The bankruptcy court subsequently granted

judgment on the pleadings to Ciotti, see Fed. R. Civ. P. 12(c);

Fed. R. Bankr. P. 7012(b), concluding that the report that

§ 13-409 required Ciotti to file did not constitute an "equivalent report or notice" within the meaning of § 523(a)(1)(B).

On appeal, the district court reached the opposite conclusion

and reversed the bankruptcy court judgment.

II.

Ciotti now argues that the district court erred in ruling that

her tax debt was not discharged. We disagree.

The question before us is the legal issue of the proper application of § 523(a)(1)(B) on established facts. We review de

novo the judgment of a district court sitting in review of a

bankruptcy court, reviewing the bankruptcy court’s legal conclusions de novo as well. See Foley & Lardner v. Biondo (In

re Biondo), 180 F.3d 126, 130 (4th Cir. 1999). 

Although we traditionally interpret exceptions to discharge

narrowly, see id., we have an "obligation to interpret statutory

IN RE: CIOTTI 3
language in a manner that effectuates congressional intent," In 

re Price, 562 F.3d 618, 628 (4th Cir. 2009) (internal quotation 

marks omitted). We conclude that the district court did just 

that in ruling that § 523(a)(1)(B) excepted Ciotti’s Maryland 

tax debt from discharge. 

As originally enacted as part of the Bankruptcy Reform Act 

of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (1978), the statute 

provided that a discharge under Chapter 7 did "not discharge an 

individual debtor from any debt – (1) for a tax . . . (B) with 

respect to which a return, if required – (i) was not filed"; or 

was filed late and within 2 years of filing the bankruptcy, or 

was fraudulent or evasive. This exception reflected Congress’s 

attempt to balance the

three-way tension [that] exists among (1) general 

creditors, who should not have the funds available for 

payment of debts exhausted by an excessive accumulation of taxes for past years; (2) the debtor, whose 

"fresh start" should likewise not be burdened with such 

an accumulation; and (3) the tax collector, who should 

not lose taxes which he has not had reasonable time to 

collect or which the law has restrained him from collecting. 

S. Rep. No. 95-989, at 13 (1978), reprinted in 1978 

U.S.C.C.A.N. 5787, 5800. The exception also embodied the 

bankruptcy policy that "[i]n general, tax claims which are 

nondischargeable, despite a lack of priority, are those to 

whose staleness the debtor contributed by some wrong-doing 

or serious fault." S. Rep. No. 95-989, at 14, reprinted in 1978 

U.S.C.C.A.N. 5787, 5800. After Congress enacted § 

523(a)(1)(B), several courts considered whether a failure to file 

reports similar to the one § 13-409 requires constituted the failure to file "a return," such that the corresponding tax liability 

would be excepted from discharge, and almost all of them determined that § 523(a)(1)(B) did not except the tax liability from 

discharge. Compare Dahmer v. United States

4 IN RE: CIOTTI
(In re Dahmer), 336 B.R. 784, 789 (Bankr. W.D. Mo. 2006)

(holding that taxpayer’s failure to follow state requirement

that he report change in federal income tax did not except

state tax liability from discharge), State of Cal. Franchise Tax

Bd. v. Jerauld (In re Jerauld), 208 B.R. 183, 189 (B.A.P. 9th

Cir. 1997) (similar); Olson v. United States (In re Olson), 174

B.R. 543, 547-48 (Bankr. D. N.D. 1994) (similar), and Blackwell v. Commonwealth of Va. Dep’t of Taxation (In re Blackwell), 115 B.R. 86, 88-89 (Bankr. W.D. Va. 1990) (similar),

with Blutter v. United States Dep’t of IRS (In re Blutter), 177

B.R. 209, 211-12 (Bankr. S.D.N.Y. 1995) (holding that failure

to report a change in federal taxable income, as required by

state law, excepted state tax liability from discharge). 

In 2005, Congress, attempting to reduce the spiraling cost

to society of bankruptcies, enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"),

Pub. L. No. 109-8, 119 Stat. 23 (2005). See H.R. Rep. No.

109-31, at 90-92 (2005) (explaining that the legislation was

motivated by four factors: the "recent escalation of consumer

bankruptcy filings," the "significant losses . . . associated with

bankruptcy filings," the fact that the "bankruptcy system has

loopholes and incentives that allow and—sometimes—even

encourage opportunistic personal filings and abuse," and "the

fact that some bankruptcy debtors are able to repay a significant portion of their debts"). In amending § 523(a)(1)(B) in

particular, Congress made it applicable not only to the failure

to file a required return, but also to the failure to file or give

an "equivalent" required "report or notice." Thus, as amended,

§ 523(a)(1)(B) provides that a discharge under Chapter 7

"does not discharge an individual debtor from any debt – (1)

for a tax . . . (B) with respect to which a return, or equivalent

report or notice, if required – (i) was not filed or given"; or

was filed or given late and within 2 years of filing the bankruptcy, or was fraudulent or evasive. 11 U.S.C. § 523(a)(1)(B)

(new language underlined). It is apparent from the changes

that Congress determined that the same policy reasons that

justify precluding the discharge of tax debt when the debtor

IN RE: CIOTTI 5
failed to file a return also justify precluding the discharge of

the tax debt when the debtor failed to file or give a required

report or notice corresponding to that debt. See Collier on

Bankruptcy ¶ 523.07 (Alan N. Resnick & Henry J. Sommer

eds., 16th ed. 2010) ("The reference to the failure to provide

‘notice’ means that if a debtor is obligated under nonbankruptcy law to file an amended return or give notice to a governmental unit of an amendment or correction to a prior filed

federal tax return, the failure to do so will render nondischargeable any corresponding tax liability to the governmental

unit." (footnote omitted)). 

Ciotti argues against this interpretation but offers no plausible alternative meaning for the amendment. She argues that

Congress amended § 523(a)(1)(B) in order to allow dischargeability of tax debt for debtors who failed to file a required

return but nevertheless gave or filed an equivalent notice or

report. Congress, however, had no apparent motivation to

make such a change, and, in any event, the language of the

amendment is not susceptible to that reading. Congress

amended the statute to refer to the failure to file or give "a

return, or equivalent report or notice, if required." In so

doing, Congress clearly expanded the class of requirements

that, when they are not met, preclude dischargeability. Ciotti

fails to satisfactorily explain what sort of reports or notices

Congress targeted with its amendment if it was not the very

sort that are the subject of this case. 

Ciotti contends that her failure to file a § 13-409 report did

not trigger application of § 523(a)(1)(B) because the required

report was not sufficiently similar to a return that the report

could be considered an "equivalent report or notice." The

Code provides that "return," in this context, "means a return

that satisfies the requirements of applicable nonbankruptcy

law (including applicable filing requirements)." 11 U.S.C.A.

§ 523(a). Under the relevant precedent, 

[I]n order for a document to be considered a ‘return,’

under either the bankruptcy or the tax laws, it must

6 IN RE: CIOTTI
(1) purport to be a return; (2) be executed under penalty of perjury; (3) contain sufficient data to allow

calculation of tax; and (4) represent an honest and

reasonable attempt to satisfy the requirements of the

tax laws.

Moroney v. United States (In re Moroney), 352 F.3d 902, 905

(4th Cir. 2003). Ciotti notes that a § 13-409 report need not

be submitted under penalty of perjury or even signed. She

also argues that it need not contain sufficient data to allow a

calculation of state tax liability because § 13-409 does not

require taxpayers to explain the bases on which their federal

tax liability was adjusted. She also points out that, unlike a

return, the report that § 13-409 requires must include an

explanation of any errors taxpayers believe the IRS made in

increasing their federal tax liability.

We conclude, however, that the report required by § 13-409

is much more similar to a return than Ciotti represents. First,

despite the lack of a requirement that a § 13-409 report be

signed, Maryland law provides that giving false or misleading

information in such a report with the intent to evade payment

or collection of the tax constitutes a misdemeanor punishable

by a fine of up to $5,000 and imprisonment of up to 18

months. See Md. Code Tax–Gen. § 13-1024(a). Also, notwithstanding Ciotti’s argument that a § 13-409 report need

not contain the information necessary to compute a taxpayer’s

adjusted state tax liability, the applicable Maryland regulation

in fact requires that the report must include a "complete copy

of the federal audit including any exhibits attached to it." Md.

Code Regs. 03.04.02.11. Finally, the fact that § 13-409 also

requires that the taxpayer provide information additional to

that which would be found in a return, namely an explanation

of any disagreement the taxpayer has with the federal adjustment, hardly supports the contention that the report is not an

"equivalent report" for purposes of § 523(a)(1)(B). In the end,

we conclude that the report required by § 13-409 is quite similar to a return in several respects and is, indeed, the type of

IN RE: CIOTTI 7
report to which Congress intended § 523(a)(1)(B) would

apply.

Ciotti alternatively maintains that even if the § 13-409

report is the type to which § 523(a)(1)(B) can apply, the

report was nonetheless "given" to the Maryland Comptroller

when the IRS forwarded its audit determinations. We disagree. Section 13-409 states,

Within 90 days after the [IRS] issues to a person the

final determination [increasing federal taxable

income], the person shall submit to the tax collector

a report of federal adjustment that includes: 

(1) a statement of the amount of the increase; and 

(2) if the person contends that the final federal determination is erroneous, an explanation of the reasons

for the contention. 

Md. Code Tax-Gen. § 13-409(b) (emphasis added). Maryland

law is clear that the IRS’s reporting to Maryland the amount

of a taxpayer’s increased federal liability does not satisfy the

taxpayer’s statutory obligation to report the information herself. See Brown v. Comptroller of the Treasury, 747 A.2d 232,

237 (Md. Ct. Spec. App. 2000). Thus, it is plain that the report

required by § 13-409 was neither filed nor given as required

by the Maryland statute, even if some or all of the information

required in the report was given to the Maryland Comptroller

by the IRS. 

III.

In sum, we hold that the district court correctly ruled that

Ciotti’s state tax debt was nondischargeable.

AFFIRMED

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