Four Late-Return Tax Cases Before First Circuit–How Will McCoy Fare?

Posted by NCBRC - April 12, 2014

In the most recent case to find its way to the First Circuit Court of Appeals, the BAP rejected McCoy and found that there is no per se rule that a late-filed tax return can only be a “return” for bankruptcy discharge purposes if it is filed by the IRS under the “safe harbor” provision of IRC § 1060(a). Brown v. Mass. Dept. of Rev., No. 13-27 (B.A.P. 1st Cir. April 3, 2014). There, the debtor argued that Massachusetts law “permits a taxpayer, once notified by the commissioner of its failure to file a return, to still file a proper return within 30 days before a tax will be assessed.” Where the debtor complied with all elements of a return as required by state filing laws, the fact that the return itself was filed late, did not change the fundamental nature of the document. Relying on its reasoning in Gonzalez v. Mass. Dept. of Rev., 2014 WL 888460, (March 6, 2014), the Bankruptcy Appellate Panel agreed. The panel found that the bankruptcy court had correctly rejected the “draconian” rule set forth in McCoy v. Miss. State Tax Comm’n, 666 F.3d 924 (5th Cir. 2012). In Gonzalez the court noted that section 523(a)(1)(B)(ii) makes specific provision for nondischargeability of tax returns filed both late and within two years of bankruptcy. Therefore, it found that untimeliness of filing alone was not intended to preclude discharge of tax liabilities.

The MDOC has filed an appeal to the First Circuit, No. 14-9003, where it will join three other cases: In re Perkins, No. 14-1350; In re Fahey, No. 14-1328 (both adopting McCoy); and In re Gonzalez, No. 14-9002 (rejecting McCoy).

Brown opinion 1st BAP


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