• Home
  • Tax liability from un filed tax returns.
  • Tax liability from un filed tax returns.


    Tax liability from un filed tax returns.

    United States v. Martin (In re Martin), 542 B.R. 479 (B.A.P. 9th Cir., 2015)
    11 U.S. Code § 523.Exceptions to discharge

    (a)A discharge under section 72711411228(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—(A)of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title, whether or not aclaim for such tax was filed or allowed;(B)with respect to which a return, or equivalent report or notice, if required(i)was not filed or given; or(ii)was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or(C)with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax;



    “applicable filing requirements” effectively excepts from discharge all taxes associated with untimely-filed returns, but the second sentence adds right back into the definition returns prepared by taxing authorities under 26 U.S.C. § 6020(a) or under equivalent state statutes. That subsection provides:

    (a) Preparation of return by Secretary. —If any person shall fail to make a return required by this title or by regulations prescribed thereunder, but shall consent to disclose all information necessary for the preparation thereof, then, and in that case, the Secretary may prepare such return, which, being signed by such person, may be received by the Secretary as the return of such person. United States v. Martin (In re Martin), 542 B.R. 479 (B.A.P. 9th Cir., 2015)

    “applicable filing requirements” effectively excepts from discharge all taxes associated with untimely-filed returns, but the second sentence adds right back into the definition returns prepared by taxing authorities under 26 U.S.C. § 6020(a) or under equivalent state statutes. That subsection provides:

    (a) Preparation of return by Secretary. —If any person shall fail to make a return required by this title or by regulations prescribed thereunder, but shall consent to disclose all information necessary for the preparation thereof, then, and in that case, the Secretary may prepare such return, which, being signed by such person, may be received by the Secretary as the return of such person. United States v. Martin (In re Martin), 542 B.R. 479 (B.A.P. 9th Cir., 2015)



    Our rejection of the literal construction of the “return” definition leaves us with the task of articulating what the definition of “return” in the hanging paragraph is supposed to mean. The generic terms “applicable bankruptcy law” and “applicable filing requirements” necessarily reflect that the answer will depend on which nonbankruptcy laws are applicable (federal or state or local) and what the applicable filing requirements say. “[N]early all courts” pre-BAPCPA utilized some version of the Beard test. In re Mallo, 774 F.3d at 1318.
    In other words, for purposes of determining the dischargeability of federal income tax debt, the “return” definition added by Congress in 2005 effectively codified the Beard test, except that Congress in the second sentence of the hanging paragraph carved out some specific rules for tax returns prepared by taxing authorities.

    In this appeal, in the context of late-filed federal income tax returns prepared and filed by the taxpayers, there is no convincing or persuasive indication that BAPCPA or the hanging paragraph abrogated Hatton II’s holding that we should use In re Hindenlang’s version of the Beard test—a test derived from nonbankruptcy law—to determine whether the Martins’ untimely tax returns qualify as tax returns for nondischargeability purposes. That version of the Beard test provides:

    (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 tax law.
    In re Hindenlang, 164 F.3d at 1033.8

    Similar to what this Panel held in In re Nunez, the bankruptcy court here concluded that it should utilize a different version of the Beard test. In this alternate version, the prong of the test focusing on the honesty and reasonableness of the debtor’s efforts to file the return is narrow in scope and considers only the form and substance of the purported return while ignoring the length of delay, the reason for the delay, and the number of tax years missed. As we stated at the outset of this discussion, this alternate version of the Beard test is inconsistent with the holding and reasoning set forth in Hatton II , so we cannot uphold the bankruptcy court’s usage of this alternate test.

    Hatton II offered two distinct reasons why the taxpayer there did not satisfy the Beard test. Hatton II , 220 F.3d at 1061. First, Hatton II explained the taxpayer had not signed any document under penalty of perjury, so the second Beard test factor was not met. Id. In addition, Hatton II explained that the taxpayer indisputably took no steps to cure his delinquency in filing his 1983 federal income tax return, and did not begin to cooperate with the IRS’s efforts, until the IRS threatened to levy on his wages and his bank account. Id. According to Hatton II , these undisputed facts established that the taxpayer had not engaged in “an honest and reasonable attempt to comply with the requirements of the tax law” as required by the fourth Beard test factor. Id. The bankruptcy court posited that, because Hatton II offered two separate and independent reasons why the Beard test was not met, the second reason given—regarding the honesty and reasonableness of the taxpayer’s efforts—perhaps was non-binding dicta. We disagree. When alternate grounds are given for a holding, neither ground constitutes non-binding dicta. Exp. Grp. v. Reef Indus., Inc. , 54 F.3d 1466, 1471 (9th Cir.1995). United States v. Martin (In re Martin), 542 B.R. 479 (B.A.P. 9th Cir., 2015)

    11 U.S.C. 523(a) “[f]or purposes of this subsection, the term ‘return’ means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).”

    In re Giacchi, No. 15-3761 (3rd Cir. May 5, 2017) “any . . . debt for a tax . . . with respect to which a return, or equivalent report or notice, if required, . . . was not filed or given.” 

    BAPCPA changes to § 523, the court adopted the oft-cited Beard standard for tax returns, which sets forth the four elements of a proper tax return: “(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 tax law.”

    In re Van Arsdale, No. 14-04035 (Bankr. N.D. Cal. May 18, 2017)
    In that case, the IRS argued that a document filed after the IRS files a substitute for return does not constitute a return and is not an honest and reasonable attempt to address a tax obligation.