The Essential Resource for Today’s Busy Insolvency Professional
Consumer Counterpoint
By Eric W. Lomas
The Point of No Returns
Late-Filed Returns Are Not Considered “Returns” Post-BAPCPA
I
t is the duty of the taxpayer to comply with “the
system of self-assessment, which is so largely
the basis of our American scheme of income taxation.”1 After the passage of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005
(BAPCPA),2 delinquency in performing this duty
of self-assessment has enhanced consequences for
debtors. Under BAPCPA, if debtors file tax returns
after the date such returns were due under applicable nonbankruptcy law, absent a specific “safeharbor” provision, the late filing does not qualify
as a “return” for dischargeability purposes, and the
underlying tax debt is nondischargeable.3
Eric W. Lomas
Klenda Austerman LLC
Wichita, Kan.
Eric Lomas is an
associate at Klenda
Austerman LLC
in Wichita, Kan.,
and represents
debtors, creditors
and trustees in
bankruptcy cases
and related litigation.
The Pre-BAPCPA Determination
of a “Return”
Before BAPCPA, bankruptcy courts utilized
the four-prong Beard test to determine whether
a document qualified as a “return” for dischargeability:4 “(1) it must purport to be a return; (2) it
must be executed under penalty of perjury; (3)
it must contain sufficient data to allow calculation of tax; and (4) it must represent an honest
and reasonable attempt to satisfy the requirements
of the law.” 5 When applying the Beard test, the
outcome often turned on whether a document
purporting to be a tax return was an honest and
reasonable attempt to satisfy the law, or whether
it was too little, too late.
Tax debts resulting from purported returns
filed after the tax was assessed have generally been
deemed nondischargeable by appellate courts. These
decisions found that the documents filed were not
1 Commissioner v. Lane-Wells Co., 321 U.S. 219, 223 (1944).
2 Pub. L. 109-8, 119 Stat. 23 (April 20, 2005).
3 See 11 U.S.C. § 523(a)(1)(B). See In re McCoy, 666 F.3d 924 (5th Cir. 2012). But see In
re Martin, 432 B.R. 635 (Bankr. D. Colo. 2012) (finding documents to be “returns” for
purposes of § 523(a)(1)(B) even though documents were filed late and after assessment).
4 See In re Hindenlang, 164 F.3d 1029, 1033 (6th Cir. 1999) (describing how tax court in
Beard v. Commissioner, 82 T.C. 766 (1984), created four-part test).
5 Hindenlang, 164 F.3d at 1033 (quoting In re Hindenlang, 214 B.R. 847, 848 (S.D. Ohio 1997)).
“returns” for purposes of § 523.6 In support of this
position, the Sixth Circuit held that “[a] purported
return filed too late to have any effect at all under
the Internal Revenue Code cannot constitute ‘an
honest and reasonable attempt to satisfy the requirements of the tax law.’”7
BAPCPA Now Defines “Return”
As part of the BAPCPA amendments to the
Bankruptcy Code, § 523(a) was amended to add
a “hanging paragraph” after § 523(a)(19). This
amendment defined the term “return” for purposes
of dischargeability. As defined:
[T]he term “return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing
requirements). Such term includes a return
prepared pursuant to section 6020(a) of the
Internal Revenue Code of 1986, or similar
State or local law, or a written stipulation
to a judgment or a final order entered by a
nonbankruptcy tribunal, but does not include
a return made pursuant to section 6020(b)
of the Internal Revenue Code of 1986, or a
similar State or local law.8
By defining “return,” the hanging paragraph
antiquates the Beard test in bankruptcy cases filed
post-BAPCPA.9 The hanging paragraph provides an
explicit definition of “return” for purposes of dischargeability. The definition of “return” expressly
includes a return prepared in accordance with
6 See In re Casano, 473 B.R. 504, 506-07 (Bankr. E.D.N.Y. 2012) (“A majority of the courts
of appeal[s] that have considered the issue of whether a Form 1040 filed by a debtor
post-assessment by the IRS constitutes a ‘return’ have held that a Form 1040 did not
constitute a ‘return’ for tax purposes because they found such filing lacked an honest
and genuine endeavor by the debtor to satisfy the requirements of the tax law.”). But see
In re Colsen, 446 F.3d 836, 840 (8th Cir. 2006) (“We therefore hold that the honesty and
genuineness of the filer’s attempt to satisfy the tax laws should be determined from the
face of the form itself, not from the filer’s delinquency or the reasons for it. The filer’s
subjective intent is irrelevant.”).
7 Hindenlang, 164 F.3d at 1034.
8 11 U.S.C. § 523(a)(*) (hanging paragraph) (emphasis added).
9 McCoy, 666 F.3d at 929.
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§ 6020(a) of the Internal Revenue Code (IRC), whereby a
person consents to and signs a return prepared by the Internal
Revenue Service (IRS). Unless filed pursuant to § 6020(a),
however, a late-filed tax return does not qualify as a “return”
in the dischargeability context because timeliness is an
“applicable filing requirement.”10 The hanging paragraph
goes a step further by stating that a return prepared by the
IRS pursuant to § 6020(b) of the IRC is not a return for dischargeability purposes.
An interpretation of the hanging paragraph as disqualifying all untimely returns for dischargeability purposes has
been criticized. One criticism arises from the statute’s specific exclusion of returns prepared pursuant to § 6020(b). If
all late-filed returns did not qualify as “returns,” it would
seem redundant for the statute to separately reference those
untimely returns made pursuant to § 6020(b).11 The Fifth
Circuit rejected the argument that such an interpretation
would render a reading of the statute superfluous, stating
the hanging paragraph “carves out a narrow exception”
for § 6020(a) returns in the definition of “return.”12 The
reference to returns prepared under § 6020(b), the court
explained, was to contrast those returns from the type
prepared under § 6020(a).13 The Fifth Circuit held that a
late-filed tax return is not a “return” for discharge purposes
under § 523(a), unless it is filed under the “safe harbor”
provision of § 6020(a).14
The holding in McCoy has significant impact on debtors who do not timely file tax returns. Potentially acknowledging this result, the IRS moderated its litigating position somewhat in late 2010. The IRS now contends that
tax debts attributable to a late-filed Form 1040 can be discharged as long as the filing preceded any assessment. 15
Although the IRS has effectively reverted to its pre-BAPCPA position, support for this position after BAPCPA has
been questioned.16 BAPCPA abrogates the Beard test and
obviates the “intent” element in determining whether a tax
filing qualifies as a return for discharge purposes. Under a
literal reading of the statute, a late return not filed under
§ 6020(a) is not a “return.”
Until appellate courts provide further guidance regarding
whether a late filing may qualify as a “return” in the dischargeability context, a literal interpretation of § 523(a) provides a compelling basis to find such documents beyond the
statutory definition of a “return.” As the McCoy court stated
in adopting its interpretation, “the plain language meaning of
the [Bankruptcy] Code should rarely be trumped. Although
the Code at times is awkward, and even ungrammatical ...
that does not make it ambiguous.”17 abi
Reprinted with permission from the ABI Journal, Vol. XXXII, No. 5,
June 2013.
The American Bankruptcy Institute is a multi-disciplinary, nonpartisan organization devoted to bankruptcy issues. ABI has
more than 13,000 members, representing all facets of the
insolvency field. For more information, visit ABI World at www.
abiworld.org.
10See, e.g., 26 U.S.C. §§ 6012(a) and 6072(a) (specifying persons required to file tax returns and date
when such returns shall be filed); see also In re Creekmore, 401 B.R. 748, 751 (N.D. Miss. 2008) (“[A]
late-filed income tax return, unless it was filed pursuant to § 6020(a) of the [IRC], can never qualify as a
return for dischargeability purposes because it does not comply with the ‘applicable filing requirements’
set forth in the [IRC].”).
11See McCoy, 666 F.3d at 930 (citing I.R.S. Chief Couns. Notice No. CC-2010-016 at 2 (Sept. 2, 2010)).
12Id. at 931.
13See id.
14Id. at 932.
15I.R.S. Chief Couns. Notice No. CC-2010-016 at 2-3 (Sept. 2, 2010).
16See In re Shinn, Adv. No. 10-8139, 2012 WL 986752, at *6 (Bankr. C.D. Ill. March 22, 2012)
(“Presumably, Congress was made aware of the IRS’s position during the eight years that bankruptcy
reform legislation was pending prior to ... BAPCPA. Yet, when Congress settled on a definition of ‘return,’
it did not adopt the long-sought-after rule advocated by the IRS in so many bankruptcy cases.... In effect,
the IRS is asking this Court to adopt its position not because of the language of the new definition, but in
spite of that language.”).
17McCoy, 666 F.3d at 929 (quoting In re Miller, 570 F.3d 633, 638 (5th Cir. 2009) (quoting Lamie v. U.S.
Trustee, 540 U.S. 526, 534 (2004))).
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