Mallo v. United States (In re Mallo)
498 B.R. 268
D. Colo.2013Background
- Debtors Edson and Liana Mallo failed to timely file Form 1040s for tax years 2000–2001; IRS audited, issued Notices of Deficiency, and assessed taxes in 2006.
- Debtors filed the 2001 return on April 6, 2007 and the 2000 return on October 7, 2007 — after IRS assessment and collection notices.
- Debtors filed bankruptcy (Chapter 13 converted to Chapter 7) and received a discharge in July 2011, then sued the IRS seeking a determination that the 2000 and 2001 tax liabilities were discharged.
- IRS moved for summary judgment asserting § 523(a)(1)(B)(i) excepts taxes from discharge when a return was not filed (as defined by the BAPCPA “hanging paragraph”); Debtors cross-moved for dischargeability.
- The Bankruptcy Court granted the IRS’s motion, holding the belated 2007 filings were not “returns” under the applicable test and the taxes were nondischargeable; the District Court affirmed.
Issues
| Issue | Plaintiff's Argument (Mallo) | Defendant's Argument (U.S.) | Held |
|---|---|---|---|
| Whether returns filed after IRS assessment qualify as "returns" under 11 U.S.C. § 523(a)(1)(B)(i) | Late-filed 1040s should qualify as returns if they meet tax-law standards (Beard test objectively applied); timeliness is separate from "applicable filing requirements" | Taxes assessed before a taxpayer-filed return are debts "for which a return was not filed" and thus nondischargeable; post-assessment filings do not change the nature of the debt | Court held post-assessment filings failed the fourth Beard prong (not an honest and reasonable attempt) and therefore were not "returns"; taxes were excepted from discharge |
| Proper interpretive test for "return" after BAPCPA hanging paragraph | Apply pre-BAPCPA Beard test (as part of nonbankruptcy law) but treat the fourth prong objectively (face of form controls) | Use an assessment-based rule or defer to IRS Chief Counsel position that post-assessment debts are nondischargeable; majority of circuits treat post-assessment filings as non-returns | Court adopted the Beard test but endorsed a subjective inquiry for the fourth prong (delinquency and surrounding facts relevant); concluded the Mallos’ filings failed that prong |
| Whether the Fifth Circuit’s McCoy rule (per se timeliness requirement) should control | Reject McCoy’s per se rule; "applicable filing requirements" should not automatically include due dates; McCoy is too harsh | The court and IRS declined to adopt McCoy here but noted similar results under other analyses; IRS position urged assessment rule | Court declined to follow McCoy’s per se timeliness approach and instead applied Beard fourth-prong analysis, reaching a nondischargeability result |
| Role of IRS Chief Counsel Notice and policy considerations | Argues statutory language controls; IRS Notice should not override statutory/hanging paragraph interpretation | IRS Notice supports treating debts assessed before a return as nondischargeable and is administrable | Court considered the Notice but refused to adopt the IRS’s argument as dispositive; applied Beard analysis and reached the IRS-favored outcome based on record facts |
Key Cases Cited
- In re McCoy, 666 F.3d 924 (5th Cir.) (interpreting BAPCPA hanging paragraph to treat late-filed returns that miss filing requirements as non-returns)
- In re Wogoman, 475 B.R. 239 (10th Cir. B.A.P.) (post-BAPCPA BAP panel applying Beard test and concluding post-assessment filings failed the honest-and-reasonable prong)
- In re Moroney, 352 F.3d 902 (4th Cir.) (belated filings after IRS assessment not honest and reasonable; nondischargeable)
- In re Payne, 431 F.3d 1055 (7th Cir.) (post-assessment returns generally not returns absent extraordinary circumstances)
- In re Colsen, 446 F.3d 836 (8th Cir.) (fourth Beard prong evaluated from the face of the return; timeliness/intent irrelevant to that inquiry)
- In re Hindenlang, 164 F.3d 1029 (6th Cir.) (applying Beard test and finding post-assessment filings ineffective to create dischargeable debt)
- Badaracco v. Comm’r, 464 U.S. 386 (U.S.) (tax-law principle that a return may be judged by its face for statute-of-limitations purposes)