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Joseph Hill v. Raquel King

Summarizing by J Newman

Justice v. U.S.A

Justice v. United States of America (In re Justice), Case No. 15-10273 (11th Cir. Mar. 30, 2016).
The Eleventh Circuit held that the debtor’s tax debts were not dischargeable under section 523(a)(1)(B)(i) of the Bankruptcy Code because the debtor’s late-filed Forms 1040 did not qualify as tax returns under applicable nonbankruptcy law, as they did constitute an honest or reasonable effort to comply with tax law.
Procedural context:
Appeal from the United States District Court for the Middle District of Florida of order granting summary judgment motion in favor of the United States of America, affirmed.
Christopher Michael Justice (the “Debtor”) filed a petition under chapter 7 of the Bankruptcy Code on July 22, 2011 and sought to discharge his income tax liability for the tax years 2000 through 2003. The Debtor had failed to file tax returns for tax years 2000 through 2003, and the IRS prepared substitutes for returns. The Debtor did not challenge the notices of deficiencies issued for all four tax years, and the IRS assessed tax deficiencies on August 28, 2006. The Debtor subsequently prepared Forms 1040 for all four tax years and submitted them to the IRS nearly fourteen months later on October 22, 2007. The Debtors’ Forms 1040 reported a lower tax liability, and the IRS abated a portion of the taxes assessed. Under section 523(a)(1)(B) of the Bankruptcy Code, a debtor is not discharged from a debt for a tax for which (i) a return was not filed or given or (ii) the return was late-filed and filed after two years before the petition date. Because it was undisputed that the Debtor’s Forms 1040 were late-filed and that the forms were filed more than two years before the petition date, whether the tax debt was dischargeable turned on whether the Debtor’s Forms 1040 constituted a return. While prior to the 2005 BAPCPA amendments, “return” was not defined by the Bankruptcy Code, the “hanging paragraph” of section 523 (“Section 523(*)”) provides that a return, for purposes of the subsection, “means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).” In interpreting the meaning of “applicable filing requirements” in Section 523(*), the Eleventh Circuit “assume[d], without deciding” that Congress did not intend for “applicable filing requirements” to include “filing deadlines,” notwithstanding the contrary holdings of the First, Fifth, and Tenth Circuit adopting the “one-day late rule,” meaning that any late filed tax document could never qualify as a return, unless it fell within narrow statutory exceptions. The Eleventh Circuit ultimately affirmed the district court’s conclusion that the Debtor’s belatedly filed Forms 1040 did not constitute returns that satisfied the “applicable nonbankruptcy law” based the four factor test Beard test. Under the Beard test, for a document to be considered a tax return, it must (1) purport to be a return, (2) be executed under penalty of perjury, (3) contain sufficient data to permit the calculation of tax, and (4) represent an honest and reasonable attempt to satisfy the requirements of the tax code. Only the fourth Beard factor was in dispute. In rejecting the minority view espoused by the Eighth Circuit, the Eleventh Circuit joined the Fourth, Sixth, Seventh, and Ninth Circuits in concluding that a delinquency in filing a tax return is relevant in determining whether the fourth prong of the Beard test is satisfied. Focusing on the fact that the tax system is predicated on honest self-reporting by taxpayers and that the fourth Beard factor focuses on the taxpayer’s conduct, rather than any value of the late-filed return to the IRS, the Eleventh Circuit held that a failure to file a timely return without a legitimate excuse or explanation, particularly after substitute returns and notices of deficiency have been issued, constitutes a lack of reasonable effort to comply with the law. The Eleventh Circuit also concluded that a taxpayer’s conduct with respect to the relevant tax years, rather than only the time frame in which the belated return is filed, should be evaluated under the fourth Beard factor.
Tjoflat, Martin and Anderson, Circuit Judges

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