828 F.3d 1094
9th Cir.2016Background
- Martin Smith failed to timely file a 2001 federal tax return; the IRS prepared a Substitute for Return (SFR) and assessed a $70,662 deficiency in 2006 after a notice of deficiency went unchallenged.
- Smith filed a Form 1040 for 2001 in May 2009 (seven years late, three years after assessment), labeling it "original return to replace SFR," and reported higher income that increased his tax liability.
- The IRS adjusted the assessment to reflect the late-filed return, later rejected Smith’s offer in compromise, and accepted a temporary low monthly payment plan.
- Smith filed for bankruptcy and sought discharge of his 2001 tax debt; the parties agreed the additional tax from the late filing was dischargeable but disputed whether the original 2006 assessment was dischargeable.
- The bankruptcy court discharged the original tax debt; the district court reversed. The Ninth Circuit affirmed the district court, holding Smith’s late-filed return was not an "honest and reasonable" attempt to comply and thus not a qualifying "return."
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Smith’s 2009 post-assessment Form 1040 qualifies as a "return" under 11 U.S.C. § 523(a)(1)(B)(i) (i.e., an "honest and reasonable" attempt to comply) | Smith: The form on its face purports to be a return and should be judged by its contents; it satisfies the return elements. | IRS: A filing made years after assessment and after extensive IRS contact is a belated acceptance of responsibility, not an honest and reasonable attempt; thus not a qualifying return. | The Ninth Circuit held the 2009 filing was not an "honest and reasonable" attempt to comply and therefore was not a qualifying "return," affirming summary judgment for the IRS. |
Key Cases Cited
- In re Hatton, 220 F.3d 1057 (9th Cir. 2000) (adopted four-factor test for whether a document is a tax "return," emphasizing honesty and reasonableness of taxpayer conduct)
- In re Justice, 817 F.3d 738 (11th Cir. 2016) (post-assessment filings generally not "honest and reasonable")
- In re Payne, 431 F.3d 1055 (7th Cir. 2005) (post-assessment filings fail to qualify as returns for discharge purposes)
- In re Moroney, 352 F.3d 902 (4th Cir. 2003) (same)
- In re Hindenlang, 164 F.3d 1029 (6th Cir. 1999) (same)
- In re Colsen, 446 F.3d 836 (8th Cir. 2006) (contrasting view that some post-assessment filings may qualify as returns)