Tax Discharge

In re McCoy, a case that should have been relegated to the realm of judicial outliers has instead advanced another step through the circuit courts. First, it toppled the Tenth Circuit in In re Mallo, 2014 WL 7360130 (10th Cir. Dec. 29, 2014), and now the First Circuit has likewise found that a late-filed Massachusetts state income tax return does not constitute a “return” for dischargeability purposes under section 523(a). Fahey v. Mass. Dept. of Rev., No. 14-1328; Perkins v. Mass Dept. of Rev., No. 14-1350, Gonzalez v. Mass. Dept. of Rev. No. 14-9002; Brown v. Mass. Dept. of Rev. No. 14-9003 (February 18, 2015). [Read more…] about McCoy Marches On

The IRS has filed an amicus brief in the First Circuit taking the position that the Fifth Circuit erred in McCoy v. Miss. State Tax Comm’n, 666 F.3d 924 (5th Cir. 2012), when it held that a late-filed return can never be a “return” for dischargeability purposes unless filed under IRC section 6020(a). Wood v. Mass. Dept. of Rev., Nos. 14-9004, 14-9006 and Pendergast v. Mass. Dept. of Rev., 14-9005, 14-9007 (1st Cir.) (amicus brief filed Nov. 4, 2104). [Read more…] about Not Even the IRS Approves of McCoy

Massachusetts law treats post-assessment, late-filed tax returns as “abatement applications” and, therefore, any tax liability based on those documents is nondischargeable. Pendergast v. Mass. Dept. of Rev. (In re Pendergast), No. 13-32 and Wood v. Mass. Dept of Rev. (In re Wood), No. 13-058 (B.A.P. 1st Cir. May 2, 2014). [Read more…] about Tax Liability Nondischargeable Where Returns Filed Post-Assessment

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 outlined 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 a specific provision for nondischargeability of tax returns filed both late and within two years of bankruptcy. Therefore, it found that the 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

One step forward, two steps back. Two courts out of Massachusetts reached opposite conclusions on the issue of whether a late-filed tax return may be discharged in bankruptcy. Although both courts ostensibly relied on the same Massachusetts tax law, the issue ultimately came down to a differing interpretation of language in BAPCPA. In a parenthetical that packs a punch, Section 523(a)(*) defines a return as “a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).” The question before both courts was whether “applicable filing requirements” refers only to proper forms and documentation, or includes a timeliness factor. The BAP for the First Circuit found the former, Gonzalez v. Mass. Dept. of Rev., No. 13-26 (March 6, 2014), while a Massachusetts District Court found the latter, Perkins v. Mass. Dept. of Rev. (In re Perkins), No. 13-30107, consolidated with, Fahey v. Mass. Dept. of Rev. (In re Fahey), No. 13-11875 (D. Mass. March 7, 2014). [Read more…] about Two Cases on Late-Filed Tax Returns – McCoy Limps On

The District Court for the Middle District of Alabama kept the harsh McCoy rule alive while ultimately finding the debtor failed to file a tax “return” under the more lenient test set forth in Beard. In re Perry, No. 12-913 (Oct. 30, 2013). [Read more…] about District Court Punts McCoy Issue

In In re Mallo, No. 13-98 (Sept. 11, 2013), and In re Martin, No. 12-3380 (Sept. 23, 2013), the District Court in Colorado was faced with determining under what circumstances a late-filed tax return, filed after the IRS had conducted its own assessment, could be deemed a “return” within the meaning of section 523(a)(1)(B)(i). [Read more…] about District Court in Colorado Declines to Adopt McCoy Approach to Late-Filed Tax Returns