Justice v. United States (In re Justice)

Decision Date30 March 2016
Docket NumberNo. 15–10273.,15–10273.
Citation817 F.3d 738
Parties In re Christopher Michael JUSTICE, Debtor. Christopher Michael Justice, Plaintiff–Appellant, v. United States of America, Treasury Department, Internal Revenue Service, Defendant–Appellee.
CourtU.S. Court of Appeals — Eleventh Circuit

Keith H. Johnson, Adam Louis Heiden, Johnson & Johnson, PA, Jacksonville, FL, for PlaintiffAppellant.

Julie Ciamporcero Avetta, Ellen Page Delsole, Gilbert Steven Rothenberg, Thomas K. Vanaskie, U.S. Department of Justice–Tax, Washington, DC, for DefendantAppellee.

Before TJOFLAT, MARTIN and ANDERSON, Circuit Judges.

ANDERSON

, Circuit Judge:

The issue in this case is whether the Forms 1040 belatedly filed by PlaintiffAppellant Christopher Michael Justice ("Justice") for the tax years 2000 through 2003 constitute "returns" for purposes of 11 U.S.C. § 523(a)

relating to the dischargeability vel non of tax debts. Justice declared bankruptcy in 2011 and sought to discharge his federal income tax liability for tax years 2000 through 2003. Justice had filed Forms 1040 for those tax years many years late, and only after the Internal Revenue Service ("IRS") had issued notices of deficiency and had assessed the amount of taxes he owed. The United States Bankruptcy Court for the Middle District of Florida determined that Justice's tax debts were non-dischargeable and granted the United States of America's motion for summary judgment. Justice appealed to the district court, which affirmed.

The criteria for a document to qualify as a tax return are set out in the Beard test articulated by the United States Tax Court in 1984. Beard v. Comm'r of Internal Revenue, 82 T.C. 766, 777, 1984 WL 15573 (1984)

, aff'd sub nom. Beard v. C.I.R., 793 F.2d 139 (6th Cir.1986). The Beard test was derived from the Supreme Court opinions in Zellerbach Paper Company v. Helvering, 293 U.S. 172, 180, 55 S.Ct. 127, 79 L.Ed. 264 (1934) and Germantown Trust Co. v. Commissioner of Internal Revenue, 309 U.S. 304, 306–09, 60 S.Ct. 566, 567–69, 84 L.Ed. 770 (1940). It establishes four requirements for a document to serve as a tax return:

(1) it must purport to be a return; (2) it must be executed under penalty of perjury; (3) it must contain sufficient data to allow calculation of tax; and (4) it must represent an honest and reasonable attempt to satisfy the requirements of the tax law. See In re Hindenlang, 164 F.3d 1029, 1033 (6th Cir.1999)

. Only the fourth1 prong of the Beard test is at issue in this case: whether Justice's Forms 1040 represented an honest and reasonable effort to comply with the tax law.

At least three2 other circuit courts have held that delinquency in filing is relevant to the fourth Beard factor. See In re Payne, 431 F.3d 1055, 1057 (7th Cir.2005)

(holding that the debtor's "belated filing was not a reasonable effort to satisfy the requirements of the tax law," relying significantly on the debtor's delinquency in failing to file his tax returns until after the IRS assessment, thus "defeating the main purpose" of the self-reporting requirement of our tax system); In re Moroney, 352 F.3d 902, 906 (4th Cir.2003) (holding that "a debtor's delinquency is relevant to determining whether the debtor has filed a return," and holding that failing to file until after IRS assessment undermines the self-reporting, self-assessment essence of our tax system, and is "hardly how honest and reasonable taxpayers attempt to comply with the tax code"); Hindenlang, 164 F.3d at 1034–35 (holding that the government had met its burden of proving that debtor's actions were not an honest and reasonable effort to satisfy the tax law when the debtor failed to file a timely return, failed to respond to the thirty-day letter and the ninety-day letter, and belatedly filed the Forms 1040 only after the IRS assessed the taxes).

In this case, Justice failed to file timely tax returns for tax years 2000 through 2003. As a result, the IRS attempted to determine Justice's liability for those years using third-party information. The IRS's estimates of tax liability for a taxpayer who has failed to file a return are known as Substitute for Return ("SFR") tax assessments. Once it had prepared the SFRs, the IRS issued Justice notices of deficiency for all four tax years. Justice did not challenge the notices of deficiency in the Tax Court, so on August 28, 2006, the IRS assessed tax deficiencies against Justice in the amounts it had determined through the SFRs.

On October 22, 2007, after the IRS had issued notices of deficiency to him and assessed his liability, Justice prepared Forms 1040 for all four tax years and delivered them to the IRS. The forms were tendered between three (for the 2003 tax year) and six (for the 2000 tax year) years late. For each tax year, Justice reported a lower tax liability than the IRS had assessed in the SFRs. The IRS reviewed Justice's Forms 1040 and abated a portion of the tax it had assessed against him for each year. Justice has not offered any excuse or explanation for his tardiness in filing his tax returns.

Justice filed a voluntary petition for Chapter 7 bankruptcy on July 22, 2011. He received a Discharge of Debtor on November 4, 2011. On January 10, 2012, his attorney filed an administrative claim with the IRS requesting a write-off for Justice's tax debts for years 2000 through 2003. The IRS denied the request, and this lawsuit followed.

The law restricts the circumstances under which tax debts may be discharged in bankruptcy. Specifically, a bankruptcy discharge does not relieve a debtor from any debt

(1) for a tax or a customs duty—
(B) with respect to which a return, or equivalent report or notice, if required—
(i) was not filed or given; or
(ii) was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition....

11 U.S.C. § 523(a)

. It is undisputed that Justice filed his Forms 1040 after the dates on which they were last due and at least two years before filing his bankruptcy petition. As a result, if Justice's Forms 1040 constitute tax returns, his tax debts are not excluded from discharge under § 523(a)(1)(B)(ii).3 If, however, the Forms 1040 do not qualify as "returns" at all, then Justice's tax debts are non-dischargeable under § 523(a)(1)(B)(i) —i.e., Justice is deemed never to have filed "returns." The issue in this case is whether the Forms 1040 that Justice belatedly filed constitute "returns" for purposes of § 523(a)(1)(B)(i).

Until 2005, the bankruptcy code did not include any language defining "return." The Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") of 2005 added, for the first time, a definition of "return" to the bankruptcy code. That definition reads:

For purposes of this subsection, the term "return" means 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) of the Internal Revenue Code

of 1986, or similar State or local law, or a written stipulation to a judgment or a final order entered by a nonbankruptcy tribunal, but does not include a return made pursuant to section 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.

11 U.S.C. § 523

(*) (herein referred to as the "hanging paragraph" and cited as § 523 (*)).4

Three of our sister circuits—the First, Fifth, and Tenth Circuits—have interpreted this definition in a manner that we need not address in this opinion. Those courts decided that the phrase "applicable filing requirements" in the BAPCPA definition includes filing deadlines. Therefore, those courts held, late-filed tax documents do not comply with applicable filing requirements and cannot be "returns." This approach has been termed the "one-day-late rule" because it prohibits discharge of a tax debt with respect to which a return was filed even one day late. In these "one-day-late" jurisdictions, there are only the narrow statutory exceptions to the "one-day-late rule," e.g., late-filed documents that qualify as returns under this interpretation are those filed in accordance with § 6020(a) of the Internal Revenue Code of 1986

.5

See In re Fahey, 779 F.3d 1, 4 (1st Cir.2015) ("So the question is whether timely filing is a ‘filing requirement’ ... The answer is plainly yes."); In re Mallo, 774 F.3d 1313 (10th Cir.2014), cert. denied sub nom. Mallo v. I.R.S., ––– U.S. ––––, 135 S.Ct. 2889, 192 L.Ed.2d 924 (2015) ; In re McCoy, 666 F.3d 924, 932 (5th Cir.2012) ("Unless it is filed under a ‘safe harbor’ provision similar to § 6020(a), a state income tax return that is filed late under the applicable nonbankruptcy state law is not a ‘return’ for bankruptcy discharge purposes under § 523(a).").

Partly because the one-day-late rule limits the application of § 523(a)(1)(B)(ii)

to the unusual situations in which the IRS prepares a return with the taxpayer's cooperation under § 6020(a), both Justice and the IRS argue that the rule is an incorrect interpretation of the statute. However, we hold that, even under Justice's preferred interpretation of § 523 (*), his tax debts are non-dischargeable. We can assume arguendo, although we expressly do not decide,6 that the one-day-late rule is incorrect. We can do this because, even under this assumption, Justice's tax debts are nevertheless non-dischargeable for the following reasons.

Thus, we assume arguendo that the applicable filing requirements Congress envisioned in the hanging paragraph do not include filing deadlines. Even if late-filed tax documents can sometimes qualify as returns, the BAPCPA definition also demands that a return satisfy "the requirements of applicable nonbankruptcy law." Both parties to this case, and all courts to consider the issue, agree that the term "applicable nonbankruptcy law" incorporates the Beard test. See, e.g., In re Martin, 500 B.R. 1, 8 (D.Colo.2013)

aff'd sub...

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