Coyle v. United States (In re Coyle)
| Decision Date | 14 January 2015 |
| Docket Number | CASE NO. 12–35685–BKC–RAM,ADV. NO. 13–01982–RAM |
| Citation | 524 B.R. 863 |
| Parties | In re Elaine Coyle, Debtor. Elaine Coyle, Plaintiff, v. The United States of America, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Michael S. Hoffman, Esq. 909 North Miami Beach Blvd. Suite 201 Miami, FL 33162 (Counsel for Plaintiff)
Derek P. Richman, Esq. Special Assistant United States Attorney 51 SW First Avenue, Suite 1114 Miami, FL 33130 (Counsel for Defendant)
The chapter 7 debtor, Elaine Coyle (the “Debtor”), filed this adversary proceeding to determine the dischargeability of her income tax debt for the years 2006 and 2007. The issue presented in the pending cross-motions for summary judgment is whether the Debtor's untimely Form 1040 for 2006, filed after the Internal Revenue Service (“IRS”) assessed her tax liability, is a “return” as that term is used in § 523(a)(1)(B) of the Bankruptcy Code. For the reasons that follow, this Court agrees with a majority of courts that have held that late returns filed after an IRS assessment are not “returns.” Therefore the Debtor's tax liability for 2006 will be excepted from discharge.
The facts are not disputed. After obtaining an extension, the Debtor's 2006 federal income tax return was due on October 15, 2007. On December 29, 2008, because the Debtor had not filed a tax return, the IRS sent the Debtor a notice of deficiency for the 2006 tax year, which the Debtor did not challenge. Then, on May 11, 2009, pursuant to section § 6020(b) 1 of the Internal Revenue Code (“IRC”), the IRS assessed the Plaintiff $59,087 in tax liability and commenced collection activities (the “IRS Assessment”).
Several months later, on February 19, 2010, nearly two and a half years after the return was due, the Debtor filed a Form 1040 for the 2006 tax year. Based on the Form 1040, the IRS abated portions of the tax, penalties, and interest, leaving a balance owed of $28,499.74.
The Debtor filed her chapter 7 petition on October 12, 2012 and filed the complaint initiating this adversary proceeding on December 26, 2013 [DE # 1]. The complaint seeks to discharge the Debtor's 2006 (Count I) and 2007 (Count II) tax liability. The IRS concedes that the Plaintiff's 2007 tax liability is dischargeable; therefore only Count I and the $28,499.74 owed for the Debtor's 2006 tax year are at issue.
The Debtor filed a Motion for Summary Judgment on July 23, 2014 [DE # 15]. The Debtor also attached her affidavit to the motion (the “Affidavit”). The Affidavit provides no explanation for the Debtor's failure to file her 2006 return until 2010 other than a statement that the late filing was “[d]ue to personal issues I was experiencing at the time.” DE # 15–1 at ¶ 4.
On August 19, 2014, the IRS filed its Opposition to Plaintiff's Motion for Summary Judgment and Cross–Motion for Summary Judgment (the “IRS Cross–Motion”) [DE # 20]. The Debtor filed her Reply on September 5, 2014 [DE # 23] and the Court heard oral argument on the motions on September 9, 2014.
After review of the record, consideration of the arguments presented at the September 9th hearing, and review of the applicable law, the Court finds that there are no genuine issues of material fact and that the IRS is entitled to judgment as a matter of law.
The IRS seeks to except the Debtor's 2006 tax liability from discharge pursuant to § 523(a)(1)(B)(i) which excepts from discharge tax debt “with respect to which a return ... if required ... was not filed or given.” The IRS argues that this exception applies because the Debtor's Form 1040 filed after the IRS Assessment was not a “return.”
The IRS presents two alternative theories to support its position. First it argues that the Form 1040 filed by the Debtor after the IRS Assessment is not a “return” because the 2006 tax debt was created by the IRS Assessment. Under this theory, the Court needs to look no further than May 1, 2009, the date of the IRS Assessment. Because there was no return filed by the Debtor on that date, the IRS argues that the taxes owed for 2006 became a debt excepted from discharge at that time and any future tax filing by the Debtor, unless it increased the tax liability, was irrelevant.
Alternatively, the IRS argues that the Form 1040 filed by the Debtor after the IRS Assessment is not a “return” under the four prong test for determining what constitutes a tax return as set forth in Beard v. Commissioner of Internal Revenue, 82 T.C. 766 (1984), aff'd, 793 F.2d 139 (6th Cir.1986) ( “Beard ”). Under the Beard test, a document submitted to the IRS by a taxpayer qualifies as a return if it (1) purports to be a return; (2) is executed under penalty of perjury; (3) contains sufficient data to calculate the tax liability; and (4) represents an honest and reasonable attempt to satisfy the requirements of the tax law. Beard at 777–78.
The IRS asks this Court to adopt and follow the holdings in numerous cases, including decisions by four circuit courts of appeal that applied the Beard test and held that returns filed after IRS Assessments are not “returns” under § 523(a)(1)(B). Infra pp. 11–13.
Although not supported by the IRS, there is a third argument for finding that the late return in this case is not a “return” for dischargeability purposes. This argument arises from a definition of “return” added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). The definition of “return” is found in the so-called “hanging paragraph” placed after the last exception to discharge in § 523(a)(19) (the “Hanging Paragraph”). The Hanging Paragraph defines a “return” for § 523 purposes as follows:
For purposes of this subsection, the term “return” means a return that satisfies the requirements of applicable non-bankruptcy 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 non-bankruptcy 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.
Based on this definition, some courts have concluded that the only late return that can qualify as a “return” is one filed by the IRS under § 6020(a) of the IRC.2 They reach this conclusion because the definition in the Hanging Paragraph states that a return must satisfy “the requirements of applicable law” and applicable law requires tax returns to be filed timely. The Court will address this third argument because two circuit courts of appeal and several lower courts have reached this conclusion.
The Debtor, in turn, relies on the definition of 11 U.S.C. § 523(a)(1)(B)(ii), which allows debtors to discharge tax debts that arise:
(B) with respect to which a return, or equivalent report or notice, if required ... (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....
The Debtor argues that the Form 1040 she filed in February 19, 2010 falls within the safe harbor language of § 523 (a)(1)(B)(ii), because it is a tax return, filed after it was due, but more than two years prior to the bankruptcy filing date.
The addition of the Hanging Paragraph has caused confusion and disagreement between courts. The Fifth Circuit in McCoy v. Miss. State Tax Comm'n (In re McCoy) , 666 F.3d 924, 929–32 (5th Cir.2012) (“McCoy”) held that “BAPCPA amended § 523(a) to provide an unambiguous definition of ‘return,’ obviating the need to return to the pre-BAPCPA [Beard ] test” and that a tax return, “filed late under the applicable non-bankruptcy state law is not a ‘return’ for bankruptcy discharge purposes under § 523(a).” The Tenth Circuit recently reached the same conclusion in In re Mallo, 774 F.3d 1313 (10th Cir.2014)(“Mallo ”).
Some lower courts have also ruled this way, including Judge Kimball of this district in Wendt v. U.S. (In re Wednt), 512 B.R. 716 (Bankr.S.D.Fla.2013) ( “Wendt ”). The court in Wendt adopted the Fifth Circuit's McCoy decision, stating that it is “hard to imagine Congress intended any other result.” Wednt, 512 B.R. at 720.
Under McCoy and Mallo, § 523(a)(1)(B)(ii), which specifically addresses late filed tax returns, when read together with the Hanging Paragraph, only allows the dischargeability of § 6020(a) late filed tax returns.
This Court declines to follow the Fifth and Tenth Circuit decisions in McCoy and Mallo. The conclusion of those courts is troubling particularly because the IRS does not agree with this position. In a memorandum issued by the IRS's Office of Chief Counsel, citing to the Supreme Court's decision in Kawaauhau v. Geiger , 523 U.S. 57, 62, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998), the IRS writes that “[i]t is a cardinal principle of statutory construction that a statute should be construed so that no clause, sentence or word is rendered superfluous.”3 The IRS also quotes from the Supreme Court's decision in Dewsnup v. Timm, 502 U.S. 410, 419, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) : “This Court has been reluctant to accept arguments that would interpret the Code, however vague the particular language under consideration might be, to effect a major change in pre-Code practice that is not the subject of a least some discussion in the legislative history.”
The Office of Chief Counsel concludes that when read together, § 523(a)(1)(B)(ii) and the Hanging Paragraph cannot be interpreted so that a debtor's late filed tax return can only be discharged if filed pursuant to § 6020(a). The IRS's official position is that a late filed tax return can be discharged if it complies with § 523(a)(1)(B)(ii) and if the filing takes...
To continue reading
Request your trial
- Herrera-Edwards v. Moore (In re Herrera-Edwards), Case No. 8:12–bk–15725–KRM
-
Shek v. Mass. Dep't of Revenue (In re Shek)
...the Bankruptcy Code's definition of a return to permit only the discharge of late filings filed under § 6020(a).24 The Bankruptcy court in Coyle agreed with the IRS's official position that a late filed tax return is dischargeable if it complies with § 523(a)(1)(B)(ii) and if the filing tak......
-
File Timely Returns!
...the recent case of Coyle v. United States (In re Coyle), 524 B.R. 863 (Bankr. S.D. Fla. 2015)(http://www.flsb.uscourts.gov) the U.S. Bankruptcy Court for the Southern District of Florida ("Bankruptcy Court") held that a debtor's untimely Form 1040 for 2006 that was filed in 2010, after the ......