by 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). Mr. Perry filed his Forms 1040 for the relevant years approximately four to ten years after they were due and four months to three-and-a-half years after the IRS had filed substitute returns. When the debtor sought to have those tax liabilities discharged in bankruptcy, the IRS argued that they were nondischargeable because they were tax liabilities for which a return had not been filed within the meaning of section 523(a)(1)(B)(i). Relying on McCoy v. Miss. State Tax Comm’n, 666 F.3d 924 (5th Cir.), cert. denied, 113 S. Ct. 192 (2012), the bankruptcy court agreed, observing that the Fifth Circuit and other courts “have unanimously concluded that [the hanging paragraph] excludes a late filed return,” unless it satisfies the “safe harbor” provision for late returns.
Section 523(a)(1)(B)(i) excepts from discharge tax debts for which a return was not filed. In one of the many unnumbered paragraphs that hang like jewels from the neck of the Bankruptcy Code, “return” is defined in section 523 as “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),” under which the IRS fills out the return with the debtor’s cooperation, “but does not include a return made pursuant to section 6020(b),” under which the IRS fills out the return without the assistance of the debtor.
On appeal, the district court addressed three approaches to the issue of whether a tax return filed after the IRS has done an independent assessment under 6020(b) is a “return” for dischargeability purposes: 1) the McCoy Rule, 2) the IRS approach, and 3) the Beard test. The Fifth Circuit in McCoy, adopted a per se rule that that no late-filed return could be deemed a “return” for dischargeability purposes unless it fell under the “safe harbor” of having been filed by the IRS with the debtor’s cooperation pursuant to section 6020(a). The IRS approach also establishes a per se rule, albeit a far less draconian one, under which a return filed after the IRS has conducted its own assessment under section 6020(b) may not be deemed a “return” under section 523. The pre-BAPCPA Beard approach sets forth a fact-specific four part test under which the return (1) must purport to be a return, (2) must be executed under penalty of perjury, (3) must contain sufficient data to allow calculation of tax, and (4) must represent an honest and reasonable attempt to satisfy the requirements of the tax law. Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986). See also United States v. Hindenlang, 164 F.3d 1029, 1033 (6th Cir. 1986).
The court concluded that the debtor’s tax return did not qualify for discharge under any of the three tests (it may be observed that any late-filed tax return that does not qualify under Beard, or the IRS test, will necessarily fail the McCoy test as well). Therefore, the court neither explicitly rejected nor adopted any of the tests.
Although the court ultimately determined that the “return” failed the Beard test, and therefore, much of the opinion could be considered dicta, there were some points in the opinion that do not bode well for debtors. First, since the bankruptcy court decision specifically relied on McCoy, the district court could have taken the opportunity to reject the McCoy per se rule but did not. Compare In re Mallo, No. 13-98 (D. Colo. Sept. 11, 2013), and In re Martin, No. 12-3380 (D. Colo. Sept. 23, 2013) (rejecting McCoy as unsupported by statutory text and logic).
Mr. Perry’s attempt to distinguish McCoy also failed. The court rejected the argument that a late-filed return could be deemed dischargeable as an “equivalent report or notice” within the meaning of section 523(a)(1)(B). The court interpreted the equivalent report or notice to be an additional filing requirement rather than a substitute requirement, whereby, if the debtor has filed a timely return, but failed to file a separately required report or notice, he may still be disqualified from discharge. See Maryland v. Ciotti (In re Ciotti), 638 F.3d 276, 279 (4th Cir. 2011); Green v. United States (In re Green), 472 B.R. 347, 364 (Bankr. W.D. Tex. 2011). Notwithstanding the nonsensical interpretation of the word “equivalent” to mean “different” the Perry court was persuaded that the interpretation adopted in Ciotti was correct.
The court also rejected as so much “spilled ink” the debtor’s argument that the per se rule set forth in McCoy obviates section 523(a)(1)(B)(ii)’s language that returns filed late and within two years of the bankruptcy filing are non-dischargeable. The court therefore, did not do justice to the debtor’s argument that a plain reading of subparagraph (B)(ii) shows that Congress contemplated that late-filed returns filed more than two years before the bankruptcy could qualify as “returns” without regard to whether they were filed under McCoy’s safe harbor of section 6020(a).
Ultimately, however, the court found that, under the facts indicating that the debtor did not file his return until backed into a corner, the return failed the fourth prong of the Beard test. Of the three tests—McCoy, IRS, and Beard—Beard is the most flexible and lenient. Having been found to have failed that test, all other discussion of the more stringent tests, must be relegated to dicta. See also Wogoman v. Internal Revenue Service (In re Wogoman), 475 B.R. 239 (B.A.P. 10th Cir. July 3, 2012).
(Although the court mentioned in passing an interpretation of Beard under which the “honest and reasonable attempt to comply with filing requirements” refers only to the adequacy of documentation and not to timeliness requirements, see In re Colsen, 446 F.3d 836, 840 (8th Cir. 2006), it did not discuss this line of reasoning. Given the general tenor of the opinion, it may be just as well).