ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on a Motion for Summary Judgment [Doc. No. 10], brought by the Defendant in this adversary proceeding, the Internal Revenue Service (the “IRS”). The Debtor initiated this proceeding seeking a determination that his debts to the IRS, arising from personal income taxes for years 2002, 2007, 2010, and 2011 will be discharged in this chapter 7 case. The IRS seeks a determination that debts arising from the Debtor’s personal income taxes for the years 2002, 2010, and 2011
For the reasons explained below, the Court holds that the debts for 2010 and 2011, where the return was due within three years of the Debtor filing his bankruptcy petition, are excepted from discharge under 11 U.S.C. §§ 523(a)(1)(A), 507(a)(8). The Court further holds that a post-assessment late-filed return, such as that filed for 2002, may qualify as a “return” under 11 U.S.C. § 523(a)(1)(B)(i). The Court therefore grants in part and denies in part the Defendant’s Motion for Summary Judgment.
As this matter arises in connection with a complaint to determine dischargeability of a debt, it constitutes a core proceeding over which this Court has subject matter jurisdiction and as to which this Court can enter a final judgment. See 28 U.S.C. § 1334 and § 157(b)(2)(i).
The parties agree that there are no genuine disputes of material fact relevant to this matter. The parties have not disputed the admissibility of any of the documents proffered by either party. As such, the Court takes into consideration all of the documents filed with the parties’ pleadings.
The Debtor did not file his tax return for the 2002 taxable year when it became due on April 15, 2003 or on the date of the extension granted to him by the IRS, October 15, 2003. As a result, the IRS conducted an examination, calculated his income tax liability for 2002, and issued the Debtor a statutory notice of deficiency on December 20, 2004. This notice, or “90-day letter,” informs a taxpayer that he may file a petition with the U.S. Tax Court for a redetermination of the deficiency within 90 days of the mailing of the letter. The Debtor did not respond to this notice.
After giving notice and opportunity to contest the proposed deficiency in Tax Court, on August 22, 2005, the IRS assessed the Debtor’s tax liability for 2002 in the amount of $226,536.78 plus related interest and penalties. Only after the IRS sent the Debtor a notice of its intent to levy the Debtor’s assets to collect on his 2002 tax liabilities did the Debtor file his return for the 2002 tax year. The return, filed in November of 2006, showed a tax liability of $149,870.00. On March 17, 2008, the IRS abated $76,666.78 of the taxes, representing the difference between the amount calculated and assessed by the IRS and that provided by the Debtor’s untimely 2002 tax return. The IRS later levied $43,012.27 and applied it to the 2002 tax debt as well as applying $81,627.83 in tax overpayments to the 2002 tax debt. [Doc. No. 10, Part 2 at 2].
On October 17, 2011, the Debtor filed a tax return for the 2010 tax year, showing a tax liability of $28,171.00. On May 29, 2012, the Debtor filed a tax return for the 2011 tax year, showing no tax liability. The returns for both of these years are currently under examination by the IRS. [Doc. No. 10, Part 2 at 2]. The Debtor filed his bankruptcy petition on March 23, 2013.
LEGAL CONCLUSIONS
Standard for Summary Judgment
Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322,
The party moving for summary judgment has “the initial responsibility of informing the ... court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits if any’ which it believes demonstrate the absence of a genuine issue of material fact.” United States v. Four Parcels of Real Prop.,
Dischargeability of debt for 2010 and 2011 taxes
The IRS argues that the Debtor’s tax liabilities for the 2010 and 2011 returns are excepted from discharge under 11 U.S.C. §§ 523(a)(1)(A) and 507(a)(8). Section 523(a)(1)(A) excepts from discharge debt from taxes of a kind described in Section 507(a)(8). Section 507(a)(8), in turn, gives priority to income taxes “for which a return, if required, is last due, including extensions, after three years before the date of the filing of the petition.” The combined effect of these two provisions is to except from discharge any income taxes for which a return was due within the three years prior to the bankruptcy filing. Console v. C.I.R.,
Under 26 U.S.C. § 6072(a), a taxpayer must file a tax return for a given taxable year on or before the fifteenth day of April of the following year, unless he obtains an extension of the time to file pursuant to 26 U.S.C. § 6081. The Debtor’s tax returns for 2010 and 2011 were due on April 15 of 2011 and 2012, respectively, but the Debt- or obtained extensions until October 15th of each year. The Debtor filed his bankruptcy petition on March 23, 2013.
Dischargeability of debt for 2002 taxes
The IRS argues that the debt arising from the Debtor’s 2002 tax liability is excepted from discharge by 11 U.S.C. § 523(a)(1)(B)(i). Section 523(a)(1)(B) provides:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty—
(B) with respect to which a return, or equivalent report or notice, if required—
(i) was not filed or given; or
(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 IRS bases its position that Section 523(a)(1)(B)(i) excepts the debt from discharge on two primary arguments. The first argument is that the tax “debt” arose from the IRS assessment, rather than the late-filed return, making the debt one for which a return was not filed at the time it arose. The IRS’s second argument is that the late-filed, post-assessment return does not qualify as a “return” under applicable non-bankruptcy law.
Whether the debt arose from the assessment or the late-ñled return
The IRS’s first argument is that the debt in question “arose and became enforceable by virtue of the assessment” of the tax liability, not the Debtor’s late-filed return. [Doc. No. 10 at 5]. Because the debt for the 2002 tax year arose before the late return for that year was filed, the IRS argues it was tax debt “with respect to which a return ... if required ... was not filed or given” at the time it became en
The definitions of “debt” and “claim” under the Bankruptcy Code “focus on the nature and source of debt ..., not the mechanism to determine the debt.” Rhodes v. United States (In re Rhodes),
The IRS argues that its right to payment of the debt from the Debtor’s 2002 tax liability did not accrue until it formally assessed the debt. In support of this argument, it notes that “under the Internal Revenue Code the IRS’s right to seek payment from [the Debtor] stems from its assessment.” [Doc. No. 10 at 9]. Thus, because the IRS cannot actively seek payment from the Debtor until it has formally assessed the debt, it argues that right to payment does not accrue until this assessment is made. This argument conflates the right to payment with the right to collect payment.
At the end of the 2002 tax year, the IRS had a right to payment of the Debtor’s income taxes, and the Debtor was liable when the taxes became due, April 15, 2003. The underlying debt, although unfixed, thus existed and was enforceable regardless of when the IRS later assessed the amount of debt or when the Debtor filed his late return. See Rhodes,
Cases cited by the IRS in support of a distinction of debt based on assessment are unpersuasive. Wogoman v. IRS (In re Wogoman),
Whether the 2002 ñling qualiñes as a “return” under applicable law
The IRS next argues that the 2002 late-filed return does not qualify as a “return” for discharge purposes under Section 523(a)(1)(B)(i). Because this section applies only where a return or equivalent report or notice is not filed, if the Debtor’s belated 2002 filing qualifies as a “return” for purposes of this section, the debt will be dischargeable. Different interpretations of what constitutes a “return” under Section 523 exist due to the conflict between pre-BAPCPA case law and the definition of “return” added to the section in 2005.
Prior to the enactment of BAPCPA, the term “return” was not defined in the Bankruptcy Code or the Internal Revenue Code. When analyzing the definition of a
Pre-BAPCPA analysis under the Beard test generally focused on the fourth element, whether the filing was an honest and reasonable attempt to satisfy applicable tax laws. Courts disagreed as to whether this element incorporated the timeliness of the debtor’s filing into the analysis. Compare Hindenlang,
In 2005, as part of the enactment of BAPCPA, Congress added a definition of the term “return” as applied to discharge-ability by adding the “hanging paragraph” to Section 523(a)(19). This paragraph reads:
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.
11 U.S.C. § 523(a) (emphasis added) (paragraph hereinafter “ § 523(a)(*)”).
Timeliness
A number of courts conclude that the reference in Section 523(a)(*) to “applicable nonbankruptcy law (including applicable filing requirements)” necessarily encompasses the timeliness requirement of 26 U.S.C. § 6072(a). E.g., McCoy v. Miss. State Tax Comm. (In re McCoy),
This interpretation carries the harsh result of excepting all late-filed returns from discharge, even if filed only one day late. In re Martin,
Other courts have criticized the harsh result of this line of cases, noting it does “too much violence to the statute.” Brown v. Mass. Dep’t of Revenue (In re Brown), 489 B.R. 1, 5-6 (Bankr.D.Mass.2013) aff'd sub nom. Gonzalez v. Mass. Dept. of Rev. (In re Gonzalez),
Courts excluding timeliness from the definition of a return also conclude that interpreting the statute otherwise would render Section 523(a)(1)(B)(ii) superfluous. In re Gonzalez,
The Court concludes that the “applicable non-bankruptcy law (including applicable filing requirements)” referenced in Section 523(a)(*) does not incorporate the timeliness requirements of the tax code. When interpreting a statute, courts should not examine a particular statutory provision in isolation. Instead the words of a statute should be read in context “with a view to their place in the overall statutory scheme.” IBT Int’l, Inc. v. Northern (In re Int’l Admin. Servs., Inc.),
Initially, reading the first sentence of Section 523(a)(*) to include a timeliness requirement is inconsistent with the remainder of the paragraph. If the first sentence operates to preclude all late-filed returns from the definition of “return,”
The second sentence of Section 523(a)(*) specifically includes returns prepared under IRC Section 6020(a) in the definition of “return” and specifically excludes those prepared under IRC Section 6020(b). If one were to read timeliness into the definition of “return” under Section 523(a)(*), then the inclusion of late-filed returns under IRC Section 6020(a) is contradictory and the specific exclusion of returns under IRC Section 6020(b) is redundant and unnecessary. If, however, Section 523(a)(*) is read to exclude the timeliness requirement, the second sentence is consistent with the first. It operates to clarify which of the two returns the IRS is authorized to prepare will be considered a “return” for dischargeability purposes, focusing on the content of the return rather than timeliness of its filing. By allowing the inclusion of only the returns where the debtor is liable for the accuracy of the included information, the statute is consistent with the ultimate goal of filing tax returns: providing accurate information that can be used to correctly assess tax liability.
Second, the Court concludes the definition of “return” does not include a timeliness requirement because to do so would render Section 523(a)(1)(B)(ii) meaningless. See Rhodes,
Courts that support including a timeliness requirement in the definition of “return” argue that Section 523(a)(1)(B)(ii) is not rendered meaningless, because the section still has application to the late-filed returns prepared pursuant to I.R.C. 6020(a). Payne,
Since the Court has concluded “applicable filing requirements” does not include a timeliness requirement, the next question is whether “applicable nonbankruptcy law” includes the Beard test and if so, whether it includes a timeliness requirement. Courts disagree as to whether “applicable nonbankruptcy law” includes pre-BAPCPA case law, such as the Beard test. See Martin,
Other courts include the Beard analysis in the law applicable to defining a “return” for dischargeability purposes. Mallo,
Since neither party argued that the Beard test was inapplicable, the Court will examine whether a late filing qualifies as a “return” for dischargeability purposes using the Beard test. A filing that satisfies the Beard test of “a return” must 1) purport to be a return; 2) be executed under penalty of perjury; 3) contain sufficient data to allow calculation of tax; and 4) represent an honest and reasonable attempt to satisfy the requirements of the tax law. Hindenlang, 164 F.3d at 1029; Beard,
Courts reach varying conclusions as to how a debtor may satisfy the fourth requirement and whether the timeliness of the filing should be considered in the determination. One of the first courts to address the issue, the Sixth Circuit Court of Appeals in In re Hindenlang,
A majority of courts applying the Beard four-prong test follow the rationale of the Sixth Circuit in Hindenlang, without adopting the strict per se rule excluding all post-assessment filings from qualifying as
In contrast, a minority of courts reject an analysis of the “honest and reasonable” requirement that includes consideration of timeliness or a subjective inquiry into the debtor’s circumstances at filing. Colsen,
The Colsen court found the dissenting opinion of Judge Easterbrook in Payne,
Since the definition of “return” in Section 523(a)(*) points to applicable non-bankruptcy law, cases decided by the U.S. Tax Court are instructive. The U.S. Tax Court tends to analyze the fourth
Other tax court cases include an analysis of the taxpayer’s subjective intent at the time of filing — not with respect to the timeliness of the return, as the majority view suggests — but rather whether the taxpayer intended to convey accurate information in the filing. See Laue v. C.I.R.,
Having considered the authority on what an “honest and reasonable attempt to satisfy the tax law” entails, the Court is persuaded by Judge Easterbrook’s dissent, the tax court cases, and those courts adopting the minority view. The view is also consistent with the distinction made in the hanging paragraph in Section 523 between an IRS-prepared return where the debtor provides the information to the IRS and one where the debtor did not participate. The inquiry under the fourth prong of the Beard test should focus on whether the filing represents the debtor’s honest and reasonable attempt to disclose the relevant financial data. As Judge Easterbrook explained, “[s]ecuring this information from the person with the best knowledge about his income and deductible expenses is why tax law requires returns in the first place.” Payne, 431 F.3d
Further, the plain language and construction of Section 523(a)(1)(B) do not support incorporating consideration of the timeliness of fifing or the surrounding circumstances. Subsection (i) excepts debt for taxes for which a required return “was not filed or given.” It does not read “was not filed or given until after the debt was assessed” or “was not filed or given at a time where it could have utility to the taxing agency.” If Congress wanted to include this kind of language or limitation, it could have done so. While the definition Congress did provide was less than clear, incorporating timeliness into the definition of a return, under either a plain reading of Section 523(a)(*) or the Beard test, is illogical and inconsistent with the construction of the statute.
The Tax Court’s treatment of the “honest and reasonable” element of the Beard test supports this reading. These cases look at the nature and form of the information contained in the fifing to decide if the taxpayer was honestly trying to provide the required information. The focus of the “honest and reasonable” inquiry under the Beard test should therefore be whether the debtor’s fifing represents his honest attempt to reasonably convey accurate information regarding the debtor’s wages, deductions, and allowances.
In the present case, the IRS has not presented evidence to show that the Debt- or’s 2002 fifing was not an “honest and reasonable attempt to satisfy the tax laws” other than demonstrating that it was untimely filed. As such, the Court concludes the IRS has not demonstrated, as a matter of law, that the 2002 fifing is not a “return.”
CONCLUSION
In conclusion, the Debtor’s tax liabilities for 2010 and 2011 are non-dischargeable under 11 U.S.C. §§ 523(a)(1)(A) and 507(a)(8) as taxes for which a return was due within the three years before the Debtor’s bankruptcy fifing. The treatment of the 2002 taxes is dependent on whether the 2002 return is an honest and reasonable attempt to satisfy the tax laws. The IRS has presented no evidence to show that the 2002 fifing was not an honest and reasonable attempt to convey accurately the required information. As a result, the IRS is not entitled to summary judgment with respect to the 2002 taxes. Accordingly, it is hereby
ORDERED that the defendant’s Motion for Summary Judgment is GRANTED with respect to the tax debt for years 2010 and 2011, and is DENIED with respect to the tax debt for 2002.
IT IS ORDERED.
Notes
. The IRS additionally contested the dis-chargeability of the debt arising from the Debtor's 2007 tax return, but later conceded that it is dischargeable. United States' Motion for Summary Judgment, [Doc. No. 10 at 11.
. The Debtor initially filed a Chapter 13 petition, but the case was converted to Chapter 7 on April 17, 2013.
. Section 6020(a) of the Internal Revenue Code allows the IRS to prepare a tax return when the debtor provides the needed information, while Section 6020(b) allows the IRS to prepare a return without the taxpayer’s participation.
. A majority of the Tax Court cases refer to this as the third prong due to different ordering.