John A. Aragon and Annette Chavez Aragon

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
PACER Cover Sheet
for Electronically Filed Documents
Any data shown here are current as of 	. Any element of information on this form,
except the received date, is subject to change as changes may be made to the Court's official docket.
Case Title:
Case Number:
Document Information
Description:
Date Filed:
Date Entered On
Docket:
Filer Information
Submitted By:
If this form is attached to the document identified above, it serves as an endorsed copy of the
document as it existed on the above date. To confirm that nothing has changed since then,
review the docket.
06/10/06
John A. Aragon and Annette Chavez Aragon
04-12685
Memorandum Opinion re: [48-1] Objection To Claim Objection filed by Debtor
Annette Chavez Aragon, Debtor John A. Aragon to Claim of NM Taxation & Revenu
Dept.; Claim Number 9 by John A. Aragon, Annette Chavez Aragon .
Received on: 2005-07-01 11:44:11.000
2005-07-01 00:00:00.000
2005-07-05 00:00:00.000
James Burke
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 1 of 10

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
John A. Aragon
and Annette Chavez Aragon,
Debtors. No. 13-04-12685 SS
MEMORANDUM OPINION AND ORDER ON OBJECTION TO CLAIM 9
This matter is before the Court on the Debtor’s Objection
to Proof of Claim 9 by the New Mexico Taxation and Revenue
Department (“NMTRD”)(doc. 48). NMTRD filed a response to the
objection (doc. 52) and the parties have submitted briefs in
connection with the legal issues (docs. 58, 59 and 61). This
is a core proceeding. 28 U.S.C. § 157(b)(2)(B).
The facts are not disputed. Mr. Aragon is a New Mexico
attorney. He and his wife filed a joint Chapter 13 bankruptcy
petition on April 14, 2004. On or about December 8, 2004, Mr.
Aragon submitted income and gross-receipts tax returns to
NMTRD. The gross receipts taxes were for periods from May
1997 to June 2004. Therefore, some of the returns are for
periods for which the returns were due more than 3 years
before the date of the petition (i.e., before April 14,
2001)(hereafter, the “Old Tax liability”). NMTRD filed a
proof of claim asserting priority treatment of $55,739.33 for
taxes and interest and unsecured treatment of $3,644.16 for
penalties. Debtors objected, claiming that pursuant to
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 2 of 10

Page -2-
Section 507(a)(8)(A) the Old Tax liability and any interest
thereon are not priority claims.
Section 507(a)(8)(A) provides:
(a) The following expenses and claims have priority
in the following order:
...
(8) Eighth, allowed unsecured claims of
governmental units; only to the extent that such
claims are for–
(A) a tax on or measured by income or gross
receipts–
(i) for a taxable year ending on or
before the date of the filing of the
petition for which a return, if
required, is last due, including
extensions, after three years before
the date of the filing of the
petition;
(ii) assessed within 240 days, plus
any time plus 30 days during which an
offer in compromise with respect to
such tax that was made within 240
days after such assessment was
pending, before the date of the filing
of the petition; or
(iii) other than a tax of a kind
specified in section 523(a)(1)(B) or
523(a)(1)(C) of this title, not
assessed before, but assessable, under
applicable law or by agreement, after,
the commencement of the case.
Section 523(a)(1)(B) provides:
(a) A discharge under section 727, 1141, 1228(a),
1228(b), or 1328(b) of this title does not discharge
an individual debtor from any debt–
(1) for a tax or a customs duty–
...
(B) with respect to which a return, if
required–
(i) was not filed; or
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 3 of 10

1In its Response Brief, doc. 59 at p.10, NMTRD does argue
that the Old Taxes are priority under Sections 507(a)(8)(ii).
This is dealt with below.
Page -3-
(ii) was filed after the date on which
such return was last due, under
applicable law or under any extension,
and after two years before the date of
the filing of the petition.
NMTRD concedes that the Old Taxes are not a priority
claim under either Sections 507(a)(8)(i) or (ii)1. See
NMTRD’s Response to Debtor’s Objection to Claim, doc. 52, at
3-4, ¶¶ 14-15. Therefore, for the Old Taxes to be priority
claims, they must fit within Section 507(a)(8)(iii). That is,
the Old Taxes must not be taxes described in Sections
523(a)(1)(B) or (C), and they must be “assessable” after the
filing of the bankruptcy.
NMTRD concedes that the Debtor’s returns are the only
assessments for the Old Taxes. See NMTRD’s Response to
Debtor’s Objection to Claim, doc. 52, at 2, ¶ 7. In the case
of self-assessment by filing a return, the tax assessment is
effective when the department receives the return showing a
liability. § 7-1-17(B)(1) N.M.Stat.Ann. 1978 (2001 Repl.).
Therefore, the Old Taxes were assessable after the filing of
the bankruptcy.
Debtors claim that the Old Taxes are § 523(a)(1)(B)(ii)
taxes because the respective returns were filed after the date
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 4 of 10

Page -4-
on which they were last due and after two years before the
date of the filing of the petition. NMTRD challenges this
interpretation, suggesting that Section 523(a)(1)(B)(ii)
should be limited to situations where the returns were
actually filed before the bankruptcy. In other words, NMTRD
seeks to have the two year period end with the petition.
NMTRD challenges the Debtors’ interpretation of the statute as
absurd, because under their interpretation a tax could be
priority on one day and not a priority the next if a debtor
filed a bankruptcy petition.
It is well established that “when the statute’s
language is plain, the sole function of the courts–
at least where the disposition required by the text
is not absurd– is to enforce it according to its
terms.” Hartford Underwriters Ins. Co. v. Union
Planters Bank, N.A., 530 U.S. 1, 6 (2000).
Lamie v. United States Trustee, 540 U.S. 526, 534 (2004). In
this case, § 523(a)(1)(b)(ii) is clear. It only requires that
the return be filed after a date two years prior to the
petition. It does not require that the return be filed before
the bankruptcy petition. See Savaria v. United States (In re
Savaria), 317 B.R. 395, 399-400 (9th Cir. B.A.P. 2004)(Holding
that the two year period extends to include post-petition
filing of returns.) See also In re Harrell, 318 B.R. 692, 694
(Bankr. E.D. Ark. 2005)(Same, citing cases.) Compare Dixon v.
Internal Revenue Service (In re Dixon), 218 B.R. 150, 153 (10th
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 5 of 10

Page -5-
Cir. B.A.P. 1998)(“[A] return coming due after the petition
was filed is indeed due ‘after three years before’ the
petition, which is what the statute requires.”)(Discussing
Section 507(a)(8)(i).)
The Court does not find that application of the statute
according to its literal terms is absurd. The Bankruptcy Code
and rules are replete with examples where a one day difference
is outcome determinative. See, e.g., Section 362(e)
(Automatic stay terminates 30 days after creditor requests
relief unless court orders it continued to a final hearing);
Section 522(l) and Fed.R.Bankr.P. 4003(b) (Property claimed
exempt is exempt if no objection is filed within 30 days after
conclusion of first meeting of creditors. See Taylor v.
Freeland & Kronz, 503 U.S. 638, 642 (1992)); Section 523(c)(1)
and Fed.R.Bankr.P. 4007(c) (Debtor has an affirmative defense
if certain complaints objecting to discharge of debt are not
filed within 60 days of the first date set for the first
meeting of creditors. See Kontrick v. Ryan, 540 U.S. 443, 456
(2004)); Section 546(a)(1) (Trustee must bring all avoidance
actions within two years of the order for relief.); Section
547(b)(4)(A) (Trustee can only avoid preferences to non-
insiders made on or within 90 days of the petition. See
Barnhill v. Johnson, 503 U.S. 393, passim (1992)). Indeed,
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 6 of 10

2Rev. St. U.S. Sec. 5128 (14 Stat. 534). Also available
at the Library of Congress website:
http://lcweb2.loc.gov/ammem/hlawquery.html (last visited June
30, 2005).
Page -6-
arbitrary time limits have always been part of the United
States bankruptcy laws. See, e.g., Jordan v. Downey (In re
Lamberd), 40 Md. 401, 1874 WL 4743, *7 (Md. 1874)(Section 352
of the 1867 Bankruptcy Act allows the assignee to recover
preferences made in prior four months and fraudulent transfers
made in prior six months.) Therefore, the Court finds that
application of the statute is not absurd even though its
effects hinge on a single event (the filing of the petition).
Both parties cite to legislative history in support of
their theories. However, the statute is plain on its face so
the Court does not need to examine the legislative history.
Lamie, 540 U.S. at 539.
NMTRD also argues that the fact that Debtors waited until
after the petition was filed to file the tax returns
demonstrates an intention to take advantage of a “loophole”
and that therefore the filing is in bad faith. The Court
disagrees. “The legal right of a taxpayer to decrease the
amount of what otherwise would be his taxes, or altogether
avoid them, by means which the law permits, cannot be
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 7 of 10

Page -7-
doubted.” Gregory v. Helvering, 293 U.S. 465, 469
(1935)(Citations omitted.)
[T]axpayer ingenuity, although channeled into an
effort to reduce or eliminate the incidence of
taxation, is ground for neither legal nor moral
opprobrium. As Learned Hand so eloquently stated,
“any one may so arrange his affairs that his taxes
shall be as low as possible; he is not bound to
choose that pattern which will best pay the
Treasury, there is not even a patriotic duty to
increase one’s taxes...” Helvering v. Gregory, 69
F.2d 809, 810 (2d Cir. 1934), aff’d. 293 U.S. 465,
55 S.Ct. 266, 79 L.Ed. 596 (1935).
Grove v. Commissioner, 490 F.2d 241, 242 (2nd Cir. 1973). In
this case, Debtors are availing themselves of benefits
authorized by the Bankruptcy Code. This is not bad faith.
Finally, NMTRD argues that Section 1305(b) elevates its
claim to priority. Section 1305(a)(1) allows a governmental
unit to file a proof of claim “for taxes that become payable”
while the Chapter 13 case is pending. Section 1305(b) states
that a Section 1305 claim is allowed or disallowed the same as
if such claim had arisen before the date of the filing of the
petition. If the claim is treated as arising before the
petition, NMTRD argues that it should be treated as having a
priority claim based on prepetition assessment of the tax,
i.e., Section 507(a)(8)(A)(ii). The Court finds, however,
that the taxes did not become payable postpetition. Under §
7-1-13(A) N.M.Stat. Ann. 1978 (2001) a taxpayer is liable for
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 8 of 10

Page -8-
tax at the time of and after the transaction or incident
giving rise to the tax. In the case of gross receipts taxes,
payment is due on the 25th day of the month following the month
in which the taxable event occurs. § 7-9-11 N.M.Stat.Ann.
1978 (2001). Therefore, all of the Old Taxes were payable
before the Chapter 13 case was pending, and do not constitute
Section 1305 claims. See Dixon, 218 B.R. at 152-53 (Section
1305 unavailable for taxes incurred prepetition.)
CONCLUSION
Debtors Old Taxes are Section 523(a)(1)(B) taxes because
they were filed late and after two years before the bankruptcy
petition. The Old Taxes are therefore not priority taxes
under Section 507(a)(8)(A)(iii). Therefore, Debtors’
objection to Claim 9 is sustained.
ORDER
IT IS ORDERED that Debtors’ objection to claim 9 of the
New Mexico Taxation and Revenue Department is sustained.
IT IS ORDERED that the tax debt and interest thereon for
all periods prior to March 2001 is allowable as a general
unsecured claim only.
Honorable James S. Starzynski
United States Bankruptcy Judge
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 9 of 10

Page -9-
I hereby certify that on July 1, 2005, a true and correct copy
of the foregoing was electronically transmitted, faxed,
delivered, or mailed to the listed counsel and/or parties.
Leslie C King, III
PO Box 1923
Santa Fe, NM 87504-1923
James C Jacobsen
111 Lomas NW Ste 300
Albuquerque, NM 87102-2368
Rachael J Zepeda (for info only)
Special Assistant US Attorney
210 E Earll MS 2200 PX
Phoenix, AZ 85012-2626
Kelley L. Skehen, Trustee
625 Silver Avenue SW
Suite 350
Albuquerque, NM 87102-3111
Case 04-12685-s13 Doc 67 Filed 07/01/05 Entered 07/05/05 10:24:00 Page 10 of 10