In re: Kevin Wayne Martin Susan Martin, EC-14-1180-KuKiTa

Background

Kevin and Susan Martin failed to timely file federal income tax returns for 2004–2006; the IRS audited and issued notices of deficiency in Aug. 2008 and assessed in Mar. 2009.
The Martins’ accountant prepared the missing returns in Dec. 2008; the Martins signed and filed them in June 2009 (post-assessment). The IRS adjusted assessed liabilities but pursued collection before the returns were filed.
The Martins filed Chapter 7 in Nov. 2011 and sued for a declaration that the 2004–2006 tax debts were dischargeable.
The bankruptcy court applied a narrow, form‑based version of the Beard test and held the belated returns were "returns," making the taxes dischargeable.
The U.S. (IRS) appealed, arguing (1) untimely returns filed after assessment should not count as "returns" under § 523(a), and alternatively (2) the Beard test (as the Ninth Circuit applies it) would show the Martins’ filings are not returns.

Issues

Issue	Plaintiff's (United States) Argument	Defendant's (Martins) Argument	Held
Whether BAPCPA’s hanging paragraph unambiguously excludes late-filed returns from the § 523(a) definition of “return”	The hanging paragraph’s phrase "applicable filing requirements" plainly includes statutory time deadlines, so late returns are not "returns" and are nondischargeable	The Beard test still governs; late-filed returns can be "returns" if they meet the Beard factors	Court rejected the literal hanging‑paragraph construction; held context and precedent counsel against treating all late returns as non‑returns
Whether Ninth Circuit Beard test (Hatton II/Hindenlang formulation) was abrogated by BAPCPA	IRS (fallback) argued post‑assessment filing should be treated as non‑return; preferred test focusing on pre‑assessment filing	Martins argued the Beard test applies and their filings met it	Court held Hatton II’s Beard formulation remains controlling in Ninth Circuit and BAPCPA did not abrogate it
Standard for the “honest and reasonable attempt” Beard factor	U.S. contended that applying Ninth Circuit Beard test to facts would show Martins did not honestly or reasonably attempt to comply	Martins argued the court may assess the filings on their face (narrow, objective test)	Court held the bankruptcy court applied an incorrect, overly narrow version; remanded to apply the broader Hatton II inquiry including delay, reasons, number of years missed
Whether a post-assessment tax debt is always nondischargeable because assessment means no return was filed	IRS argued assessment-based debts are still "no-return" debts regardless of later-filed returns	Martins argued post-assessment returns can still be "returns" under Beard and Hatton II	Court rejected the IRS’s categorical post‑assessment rule and remanded for application of Beard/Hatton II factors

Key Cases Cited

Beard v. Comm’r, 793 F.2d 139 (6th Cir. 1986) (affirming tax-court articulation of the four‑factor test for what constitutes a “return”)
United States v. Hatton (In re Hatton), 220 F.3d 1057 (9th Cir. 2000) (adopting the Hindenlang/Beard formulation for § 523(a) return analysis)
United States v. Hindenlang (In re Hindenlang), 164 F.3d 1029 (6th Cir. 1999) (Beard‑style factors for determining a return)
In re Mallo, 774 F.3d 1313 (10th Cir. 2014) (adopting a literal hanging‑paragraph reading that late returns are not "returns")
McCoy v. Miss. State Tax Comm’n (In re McCoy), 666 F.3d 924 (5th Cir. 2012) (holding untimely returns fail the hanging‑paragraph definition)
Fahey v. Mass. Dep’t of Revenue (In re Fahey), 779 F.3d 1 (1st Cir. 2015) (reading the hanging paragraph to exclude late returns)
Kawaauhau v. Geiger, 523 U.S. 57 (1998) (principle that exceptions to discharge are construed narrowly)
Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013) (reinforcing narrow construction of discharge exceptions)