In re Pierchoski
| Decision Date | 28 July 1999 |
| Docket Number | Bankruptcy No. 96-22017-BM. Adversary No. 97-2414-BM. |
| Citation | 243 BR 639 |
| Parties | In re John C. PIERCHOSKI, Debtor. John C. Pierchoski, Plaintiff, v. United States of America, Internal Revenue Service, Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
John C. Pierchoski, Ebensberg, PA, pro se.
Angelo A. Frattarelli, Trial Attorney, Tax Division, U.S. Department of Justice, Washington, DC, for defendant.
Plaintiff's Motion For Partial Summary Judgment After Remand
We previously determined that the debt owed to Internal Revenue Service by debtor John Pierchoski for unpaid federal income taxes for tax years 1983 through 1989 was dischargeable and on that basis entered summary judgment in favor of debtor and against Internal Revenue Service in the above adversary action.
The precedent upon which our decision was based was subsequently reversed, causing our reviewing court to vacate the order and remand to allow debtor an opportunity to demonstrate that Forms 1040 he filed with Internal Revenue Service after it had assessed him for the taxes had a tax purpose or some effect under the Internal Revenue Code. If he so demonstrates, the District Court has directed, we must enter summary judgment in debtor's favor. If he fails to do so, however, we must enter summary judgment in favor of Internal Revenue Service.
We determine, for reasons set forth below, that debtor has not shown that the Forms 1040 he ultimately filed with Internal Revenue Service had a tax purpose or some effect under the Internal Revenue Code. Consequently we shall enter summary judgment in favor of Internal Revenue Service and against debtor. The debt he owes to Internal Revenue Service for unpaid federal income taxes for tax years 1983 through 1989 is excepted from discharge.
The pertinent facts of this case were set forth in detail in our previous decision in Pierchoski v. Internal Revenue Service (In re Pierchoski), 220 B.R. 20 (Bankr. W.D.Pa.1998) and hereby are incorporated as if fully set forth herein. We therefore shall not recite them here.
Understandably displeased with our decision, Internal Revenue Service appealed to the District Court, which issued a memorandum and order vacating our judgment and remanding the matter for further proceedings consistent with its memorandum.
Our decision was based in large part on the reasoning set forth in In re Hindenlang, 205 B.R. 874 (Bankr.S.D.Ohio), aff'd, 214 B.R. 976 (S.D.Ohio 1997). Approximately nine months after we had issued our decision, the United States Court of Appeals for the Sixth Circuit concluded the Forms 1040 Hindenlang had submitted to Internal Revenue Service after it had assessed him for unpaid income taxes were not "returns" for purposes of 11 U.S.C. § 523(a)(1)(B)(i) and reversed the decision of the District Court.
The District Court in our case adopted the reasoning of the Sixth Circuit in Hindenlang and concluded on March 15, 1999, that Internal Revenue Service had made out a prima facie case that the Forms 1040 debtor had submitted to Internal Revenue Service approximately one month after it had assessed debtor were not an honest and reasonable effort to comply federal tax laws. Acting out of an abundance of caution, however, the District Court decided that debtor Pierchoski should be afforded an opportunity to demonstrate that the 1040s he filed with Internal Revenue Service served some "tax purpose" under the Internal Revenue Code. It vacated our judgment and remanded the matter for further proceedings. We were directed to enter summary judgment in favor of Internal Revenue Service if debtor fails to so demonstrate.
Obviously eager to make the required showing, debtor renewed his motion for summary judgment on April 2, 1999. We conducted a hearing on the matter on June 10, 1999.
The facts of Hindenlang bear a decided resemblance to the facts presented in our case.
Internal Revenue Service served Hindenlang with 30-day notices of deficiency in 1990 after he had failed to file timely federal income tax returns for tax years 1985 through 1988. Thereafter it prepared and served upon Hindenlang substitute income tax returns for these tax years. When Hindenlang did not execute them or otherwise respond, Internal Revenue Service served him with 90-day deficiency notices. Hindenlang did not challenge the deficiencies in tax court. After waiting for the prescribed period, Internal Revenue Service assessed the tax deficiencies against Hindenlang. Hindenlang, 164 F.3d at 1031.
Two years after the assessments were made, Hindenlang finally filed Forms 1040 with Internal Revenue Service for the tax years at issue. His calculation of the taxes owed was identical to what was contained on the substitute returns Internal Revenue Service had prepared in 1990. Hindenlang did not, however, pay any of the taxes owed. Id.
In 1996, some three years after he had filed the Forms 1040 and some five years after Internal Revenue Service had assessed him for the taxes, Hindenlang filed a voluntary chapter 7 petition, seeking to discharge the debt owed to Internal Revenue Service for these unpaid taxes. Shortly thereafter he commenced an adversary action seeking a determination that the debt owed to Internal Revenue Service was dischargeable. Id.
The bankruptcy court determined that Hindenlang had filed a tax "return" and entered summary judgment in his favor and against Internal Revenue Service. The district court affirmed the decision of the bankruptcy court. Id.
The threshold issue on appeal was whether the Forms 1040 Hindenlang had filed with Internal Revenue Service qualified as "returns" for purposes of § 523(a)(1)(B)(i). More precisely, the Sixth Circuit set out to determine when a purported return is filed too late to qualify as a bona fide tax return. After looking at the Internal Revenue Code and concluding that it did not directly provide an answer, the Sixth Circuit applied the four-part test which we also had employed the first time around. If a document is to qualify as a bona fide tax "return", it must: (1) purport to be a tax return; (2) be executed under penalty of perjury; (3) contain sufficient information to enable calculation of the amount of tax owed; and (4) represent an honest and reasonable attempt to satisfy the requirements of the tax laws. 164 F.3d at 1033-34.
The Sixth Circuit concluded that, if a Form 1040 is filed too late to serve a tax purpose or to have any effect at all under the Internal Revenue Code, it cannot as a matter of law qualify as an "honest and reasonable attempt to satisfy the requirement of the tax laws" and therefore cannot qualify as a tax "return" for purposes of § 523(a)(1)(B)(i). In particular, it concluded that a Form 1040 filed after Internal Revenue Service has assessed a taxpayer for unpaid taxes cannot as a matter of law qualify as a bona fide tax return for this reason. 164 F.3d at 1034-35.1 Such a filing, it reasoned, is too late to have any effect on the ability of Internal Revenue Service to enter an assessment or to collect on it through levy or judicial proceeding and does not affect the taxpayer's civil or criminal liability. 164 F.3d at 1035.
The rationale for the Sixth Circuit's holding goes as follows. The purpose of a tax return is not merely to provide tax information in some form but also to provide it "with such uniformity, completeness, and arrangement that the physical task of handling and verifying tax returns may be readily accomplished". Commission v. Lane-Wells Co., 321 U.S. 219, 223, 64 S.Ct. 511, 88 L.Ed. 684 (1944). Our tax system would implode if taxpayers were permitted to report the correct amount of tax owed after the government has gone to the trouble and expense of determining on its own a taxpayer's tax...
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