Hindenlang, In re

• Decision Date: 22 January 1999
• Docket Number: No. 97-4321,97-4321
• Citation: 164 F.3d 1029
• Parties: -509, 99-1 USTC P 50,214, 41 Collier Bankr.Cas.2d 351, Bankr. L. Rep. P 77,877 In re William C. HINDENLANG, Debtor. United States of America, Appellant, v. William C. Hindenlang, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1029

164 F.3d 1029

83 A.F.T.R.2d 99-509, 99-1 USTC P 50,214,

41 Collier Bankr.Cas.2d 351,

Bankr. L. Rep. P 77,877

In re William C. HINDENLANG, Debtor.

United States of America, Appellant, v. William C. Hindenlang, Appellee.

No. 97-4321.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 30, 1998.

Decided Jan. 22, 1999.

Robert W. Metzler (argued and briefed), Kenneth L. Greene (briefed), U.S. Department of Justice, Appellate Section Tax Division, Washington, D.C., for Appellant.

William B. Fecher (argued and briefed), Alan J. Statman (briefed), Reisenfeld & Statman, Cincinnati, Ohio, for Appellee.

Before: DAUGHTREY and MOORE, Circuit Judges; COHN, ^* District Judge.

OPINION

MOORE, Circuit Judge.

William C. Hindenlang, a Chapter 7 debtor in bankruptcy, seeks to discharge certain federal tax liabilities under 11 U.S.C. § 727. The United States argues that Hindenlang falls under the exceptions to discharge provision in 11 U.S.C. § 523(a)(1)(B), which prohibits discharge of taxes for which the debtor did not file a return. Here, Hindenlang filed Forms 1040 only after the Internal Revenue Service ("IRS") had calculated its own assessment of Hindenlang's liability by its authority under 26 U.S.C. § 6201, after which Hindenlang's late-filed forms served no purpose under tax law, and therefore the United States argues that his Forms 1040 were no longer "returns" under § 523(a)(1)(B). The district court ruled in favor of Hindenlang. We hold that Hindenlang's Forms 1040 were not returns, and we therefore REVERSE the judgment of the district court.

I. FACTS AND PROCEDURE

The basic facts are not in dispute. William Hindenlang did not file federal income tax returns for years 1985 through 1988. The IRS sent Hindenlang notice of proposed deficiency letters ("thirty-day letters") for years 1985 through 1987 in April of 1990, and one such letter for the 1988 taxable year in December of 1990. When the debtor did not consent to the proposed liability, the IRS prepared substitute returns ("Substitutes for Returns" or "SFRs") for the relevant years and sent them to Hindenlang. See 26 U.S.C. § 6020(b). Again Hindenlang neither responded to nor executed the SFRs, leading the IRS to send out formal notice of deficiency letters ("ninety-day letters"). ¹ Hindenlang did not file a petition in the Tax Court challenging any of these deficiency notices. Therefore, in 1991, after waiting the statutorily prescribed ninety days, the IRS assessed the deficiencies against Hindenlang.

Finally, in 1993, two years after assessment, Hindenlang sent the IRS what was purported to be individual income tax returns for the years in question. ² Hindenlang used the proper Forms 1040, see 26 C.F.R. § 1.6012-1(a)(6), and calculated the taxes substantially the same as in the SFRs previously prepared by the IRS. Hindenlang still did not pay any of the deficiencies.

On January 22, 1996, Hindenlang filed a Chapter 7 bankruptcy petition. He then instituted an adversary proceeding seeking a bankruptcy court determination that the tax liability in question was dischargeable pursuant to 11 U.S.C. § 727(a). ³ Both parties moved for summary judgment. The bankruptcy court granted summary judgment to Hindenlang, and the district court affirmed. See United States v. Hindenlang (In re Hindenlang ), 214 B.R. 847 (S.D.Ohio 1997).

II. ANALYSIS

Bankruptcy court orders granting summary judgment are final appealable orders and are reviewable by the district court. See Oakland Gin Co. v. Marlow (In re Julien Company ), 44 F.3d 426, 428 (6th Cir.1995). We have jurisdiction over bankruptcy appeals pursuant to 28 U.S.C. § 158(d), which authorizes appellate jurisdiction over final decisions of the district courts that reviewed bankruptcy court determinations pursuant to § 158(a).

A. Standard of Review

The issue of whether Forms 1040 filed after the IRS has made an assessment can constitute returns for purposes of § 523(a)(1)(B) is a question of law, to be reviewed de novo. See Wesbanco Bank Barnesville v. Rafoth (In re Baker & Getty Fin. Servs.), 106 F.3d 1255, 1259 (6th Cir.), cert. denied, --- U.S. ----, 118 S.Ct. 65, 139 L.Ed.2d 27 (1997). For purposes of summary judgment, this court must consider all the relevant facts in a light most favorable to the nonmoving party and determine whether the movant must prevail as a matter of law. See General Elec. Co. v. G. Siempelkamp GmbH & Co., 29 F.3d 1095, 1097 (6th Cir.1994). There are no material disputed fact issues in this case, so we proceed to the legal issue.

B. Definition of Return Under § 523(a)(1)

The issue in this case is the meaning of the word "return" under § 523(a)(1) of the Bankruptcy Code. The section reads:

(a) A discharge under section 727 ... 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)(2) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed;

(B) with respect to which a return, if required--

(i) was not filed; or

(ii) was filed after the date on which such return 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.

11 U.S.C. § 523(a)(1) (emphasis added).

Under this provision, when a debtor files for bankruptcy, "tax on or measured by income or gross receipts" for the last three taxable years is not dischargeable. See 11 U.S.C. §§ 507(a)(8)(A), 523(a)(1)(A). Furthermore, only taxes for which a return was filed more than two years before the petition for bankruptcy are dischargeable. See § 523(a)(1)(B)(ii). Finally, if "the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax," the tax is not dischargeable. See § 523(a)(1)(C).

This provision appears to serve two purposes. First, the requirement of a two-year waiting period after filing a late return but before seeking discharge prevents a debtor who has ignored the filing requirements of the Internal Revenue Code from waiting until the eve of bankruptcy, filing a delayed but standard tax return form, and seeking discharge the next day. It is, in a sense, a provision affording notice and an opportunity to act, giving the IRS time to seek payment by levy or court proceeding. Second, § 523 forbids discharge when the debtor has acted fraudulently or in a manner calculated to evade or defeat a tax. This corresponds with the notion that "good faith and candor are necessary prerequisites to obtaining a fresh start." Industrial Ins. Servs., Inc. v. Zick (In re Zick ), 931 F.2d 1124, 1129 (6th Cir.1991) (citation omitted).

Hindenlang filed Forms 1040 for the years in question after the IRS had already made independent assessments of his tax liability. He waited the requisite two years required by § 523 before filing for bankruptcy. The government does not claim that the Forms 1040 were fraudulent in any respect. Finally, the government does not attempt to argue that the act of filing late Forms 1040, however delinquent, could be construed as an attempt to evade or defeat taxes due under § 523(a)(1)(C). The government's argument is that once a taxpayer has been assessed a deficiency, a Form 1040 submitted by the taxpayer to the IRS no longer qualifies as a return under § 523(a)(1)(B). We are left, therefore, with the threshold question of what constitutes a return under § 523(a)(1)(B) of the Bankruptcy Code.

We think it is appropriate to look to the Internal Revenue Code to determine the proper definition of return. The Bankruptcy Code simply adopts the term "return" without defining it further, and there is no reason to presume the Bankruptcy Code sought to encompass as a return any document, form, paper, or the like that would not qualify as a return under the applicable tax law. ⁴

The Internal Revenue Code, which liberally uses the concept of returns, does not formally define "return." Under 26 U.S.C. § 6011(a), titled the "[g]eneral requirement of return, statement, or list," the Code provides:

[w]hen required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations.

See also 26 C.F.R. § 1.6011-1(a), (b). Most individuals are required to file returns. See 26 U.S.C. § 6012. As the Supreme Court has stated, "[t]he purpose [of the return] is not alone to get tax information in some form but also to get it with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished." Commissioner v. Lane-Wells Co., 321 U.S. 219, 223, 64 S.Ct. 511, 88 L.Ed. 684 (1944). "[I]t is clear that the existing tax system could not function properly if the great majority of taxpayers did not report the correct amount of tax without the government's prior determination of tax liability." BERNARD WOLFMAN, JAMES P. HOLDEN, KENNETH L. HARRIS, STANDARDS OF TAX PRACTICE § 201 (1995). Although the general view is that substantial compliance is sufficient to comply with the law, see BORIS I. BITTKER & MARTIN J. MCMAHON, JR., FEDERAL INCOME TAXATION OF INDIVIDUALS § 40.1 (1988), the Internal Revenue Code does not specifically set out how accurate, thorough, or complete the requisite form must be in order to qualify as a return under the many sections of the Code that reference a return. The Code also does not specify when a late tax form will no longer qualify as a return under the tax law.

The district court applied a four-part test to determine whether a filing with the IRS constitutes a "ret...