U.S. v. Martin (In re Martin)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 2 months ago

Citation:

In re Martin, BAP No. EC-14-1180-KuKiTa (9th Cir. B.A.P. Dec. 17, 2015). Published.

Tag(s):

Ruling:

A late-filed tax return can be a return under section 523(a)(1) if, among other things, the return represents an honest and reasonable attempt to satisfy the requirements of the tax law.

Procedural context:

The chapter 7 debtors commenced an adversary proceeding seeking a determination that their IRS tax debt for three prepetition years was dischargeable. The bankruptcy court granted summary judgment for the debtors. On the IRS's appeal, the BAP reversed and remanded.

Facts:

The debtors failed timely to file IRS tax returns for three prepetition years. After the IRS issued notices of deficiency and threatened to collect the unpaid taxes, the debtors filed the returns untimely. More than two years later, the debtors filed their petition. Section 523(a)(1)(B)(i) excepts from discharge tax debt for which the debtor was required to file a tax return but did not do so. Section 523(a)(1)(B)(ii) excepts from discharge tax debt associated with untimely filed tax returns filed within two years of the petition date. Section 523(a)(1)(C) excepts from discharge tax debt associated with tax returns that are fraudulent or evasive. The hanging paragraph at the end of section 523(a) defines “return” to exclude any taxpayer filing that does not wholly and strictly comply with all applicable return filing requirements, even if the taxing authority itself could and would forgive that noncompliance. The BAP rejected the literal interpretation of the definition of return (which the IRS disclaimed): that a return filed even one second late is not a return, so a tax for which a return was filed late is always nondischargeable. The BAP also rejected the IRS's position that a return filed after the IRS's deficiency assessment is not a return. The BAP adopted the position that an untimely return may be a return for nondischargeability purposes if (1) it purports to be a return; (2) it is executed under penalty of perjury; (3) it contains sufficient data to allow calculation of tax; and (4) it represents an honest and reasonable attempt to satisfy the requirements of the tax law. Here, in evaluating whether the debtors had honestly and reasonably attempted to satisfy the requirements of the tax law, the bankruptcy judge considered only the form and content of the debtors' returns. The judge should also have considered the number of missing returns, the length of the delay, the reasons for the delay, and any other circumstances reasonably pertaining to the honesty and reasonableness of the debtors' efforts.

Judge(s):

Frank L. Kurtz, Ralph B. Kirscher, and Laura S Taylor, Bankruptcy Appellate Panel Judges. Opinion by Judge Kurtz.

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