by 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).
Section 523(a)(1)(B)(i) excepts from discharge a tax debt based on taxes for which a return was not filed. This provision has given rise to controversy as to what constitutes a “return.” The controversy was exacerbated by Congress’s explanatory definition in a hanging paragraph to section 523(a) which defines a return as “a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).”
In Wood and Pendergast (consolidated for briefing), the MDOR took the hard line based on McCoy, that “applicable filing requirements” includes temporal filing requirements, and therefore, a late-filed return is not dischargeable.
The debtors argued that “applicable filing requirements” applies to the substance of the return rather than the timing of filing. Therefore, so long as the debtor files a return that substantively conforms to state requirements, it is a “return” for bankruptcy purposes. As noted in the IRS brief, this position adheres to the Eighth Circuit decision in Colsen v. United States (In re Colsen), 446 F.3d 836 (8th Cir. 2006), where the court examined whether the purported return constituted an honest and reasonable attempt to comply with the tax laws as discerned from the face of the return, without regard to the timing of filing.
The IRS has consistently endorsed a middle view that tax liability based on returns filed prior to independent assessment by the tax authority under IRC section 6020(b) are dischargeable based on the pre-BAPCPA test expressed in Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986). The “Beard” test applies a four-part inquiry including consideration of whether the late-filed return represented an honest and reasonable attempt to satisfy the requirements of the tax law.
In its amicus brief the IRS argues that “[t]he BAP’s analysis appropriately conditions the dischargeability of a debt on whether debtors’ tax forms are filed before or after the taxing authority has made its own assessment of the tax.” With respect to the McCoy rule, the IRS does not mince words: “It produces overly harsh results, allows general statutory language to govern over more specific provisions, and renders other statutory language meaningless, contrary to the cardinal rule of statutory construction that no part of a statute should be rendered superfluous.” The IRS maintains that in order to be a “return,” the tax return must inform the assessment process and that, if it is filed after the IRS has does its own assessment without the cooperation of the debtor, the debtor’s efforts are rendered essentially meaningless and the return not a “return,” even where the debtor’s return states an amount different from that reached by the IRS.
The issue is currently under consideration in the Ninth and Tenth Circuits. Martin Smith v. United States (In re Smith), No. 14-15857 (9th Cir.); Mallo v. United States (In re Mallo) and Martin v. United States (In re Martin), Nos. 13-1464 and 13-1488 (consol.) (10th Cir.).
[…] out of the US Bankruptcy Court in the Southern District of Florida, Coyle v. U.S., has rejected the McCoy line of cases and relied on the beard test to determine whether tax debt based on returns filed after IRS […]