In Re: Michael J. Moroney, Debtor. Michael J. Moroney v. United States of America Internal Revenue ServiceIn Re: Michael J. Moroney, Debtor. Michael J. Moroney v. United States of America Internal Revenue Service
Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge TRAXLER and Judge PAYNE joined.
OPINION
The question in this case is whether delinquent personal income tax filings, submitted years after the Internal Revenue Service has already prepared its own assessments, constitute “returns” for purposes of the Bankruptcy Code. A debtor in bankruptcy is permitted to discharge personal income tax liabilities, but only if he has filed a return with the IRS reporting those tax liabilities. In the present case, because the debtor’s eventual submissions were neither honest nor reasonable attempts to comply with the tax laws, both the bankruptcy and district courts found that no returns had ever been filed. We affirm that judgment.
I.
The basic facts in this case are not in dispute. Debtor Michael J. Moroney did not submit timely personal income tax filings for either the 1990 or 1992 tax years. Moroney never offered any evidence to the bankruptcy or district courts to explain his late filing. When asked before the district court, Moroney’s attorney said that Moro-
As a result of Moroney’s failure to file, in 1994 the IRS began to examine Moro-ney’s income tax liabilities. The IRS then independently prepared “Substitutes for Returns” (“SFRs”) to determine the amounts that Moroney owed for the 1990 and 1992 tax years. On the basis of the SFRs, the IRS assessed taxes against Mo-roney of $23,197.00 for the 1990 tax year and $45,567.00 for the 1992 tax year.
At some point thereafter, Moroney submitted income tax statements for 1990 and 1992. The IRS contends that Moroney did not file his forms until November 1998. Moroney, however, points to communications between his accountants and the IRS that indicate the forms were filed two years earlier in November 1996. Regardless, Moroney concedes that his forms postdated by at least two years the SFRs prepared by the IRS, and that his forms postdated the original filing deadlines by at least four and six years, respectively. Because Moroney’s forms reported tax liabilities that were less than the IRS’s assessments, the IRS lowered Moroney’s unpaid assessments. Specifically, the IRS abated $8,330 of the 1990 tax year assessment and $14,980 of the 1992 tax year assessment.
On March 23, 2000, Moroney filed a voluntary petition for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia. Moroney listed his 1990 and 1992 tax liabilities as nonpriority claims, subject to discharge in a Chapter 7 proceeding. However, the IRS notified Moroney that, given his delinquency in filing for those years, it did not consider his tax liabilities subject to discharge. The IRS and Moro-ney filed cross-motions for summary judgment before the bankruptcy court, seeking a determination of whether Moroney’s tax liabilities were excepted from discharge under Section 523 of the Bankruptcy Code. The bankruptcy court held that Moroney had not filed a “return” within the meaning of Section 523 and therefore that Moroney’s tax liabilities were not dischargeable in bankruptcy. On appeal, the United States District Court for the Eastern District of Virginia affirmed the bankruptcy court’s grant of summary judgment. Moroney now challenges the decisions of the bankruptcy and district courts.
II.
In general, a debtor filing for relief under Chapter 7 of the Bankruptcy Code is discharged from all pre-petition debt, subject to the exceptions enumerated in Section 523. In relevant part, Section 523 provides:
(a) A discharge under section 727 ... does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty— ❖ 4? *
(B) with respect to which a return, if required—
(i) was not filed; or
(ii) was filed after the date on which such return was last due ... and after two years before the date of the filing of the petition; or
(C) with respect to which the debt- or made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.
A.
Neither the Bankruptcy Code nor the Internal Revenue Code defines the term “return.” The Internal Revenue Code generally requires that those owing taxes “make a return or statement” on the necessary forms, without specifying how timely the forms must be in order to qualify as returns.
Moroney and the IRS agree that Moro-ney’s late-filed statements purported to be returns; that they were executed under penalty of perjury; and that they contained sufficient data to permit calculation of Moroney’s taxes, although of course the IRS had already determined Moroney’s taxes using SFRs. Moroney and the IRS’s disagreement concerns whether Moroney’s statements were honest and reasonable attempts to satisfy the filing requirement imposed by the bankruptcy and tax laws.
More fundamentally, they disagree about the relevant time frame in which to assess the honesty and reasonableness of Moroney’s belated statements. Moroney contends that his purported returns satisfy the filing requirement, because — at the time they were filed — they were accurate on their face and intended to comply with the tax laws. Moroney notes that some courts in determining good faith have focused on the debtor’s intent at the time the returns are filed, rather than on the debtor’s intent during the delay prior to filing.
See, e.g., In re Nunez,
The IRS, however, rejoins that most courts have not ignored a debtor’s delinquency in filing, especially where the IRS’s interim preparation of a SFR renders the debtor’s filing unnecessary. According to these courts, forms filed after an involuntary assessment do not serve the purposes of the tax system, and thus rarely, if ever, qualify as honest and reasonable attempts to comply with the tax laws.
See, e.g., Hindenlang,
We agree with the weight of authority that a debtor’s delinquency is relevant to determining whether the debtor has filed a return. The very essence of our system of taxation lies in the self-reporting and self-assessment of one’s tax liabilities.
See Commissioner v. Lane-Wells Co.,
Here, there is no question that Moroney failed to file timely returns, and that as a result of his failure, the IRS had to assume the onerous task of estimating Moroney’s taxes without his assistance. Moroney did not explain to the bankruptcy or district courts why his eventual filings were anything other than self-serving attempts to reduce his tax liabilities. And he never attempted to explain why his statements, which were submitted at least four to six years after the original deadlines, should be considered honest and reasonable attempts at compliance with the tax laws. To consider Moroney’s statements “returns” would thus be to render that word a ghost of its true self. In fact, by Moroney’s own admission, he simply did not “get around to filing his tax returns.” As the district court correctly observed, such nonchalance falls well short of satisfying the statutory standard.
B.
However, Moroney argues that his late-filed statements, despite their extreme delinquency, functioned no differently from timely filed tax returns. His statements, like timely filed returns, self-reported his tax liabilities. And although the IRS had prepared SFRs before Moroney filed, Mo-roney contends that his statements still were not purposelessly duplicative. Rather, because his statements showed lesser liabilities than the IRS had estimated, the IRS abated portions of its prior assessments. In Moroney’s view, his statements must be considered honest and reasonable attempts to comply with the tax laws— after all, the IRS credited them enough to reduce his assessments.
Moroney’s argument, however, misses the point. The relevant inquiry is whether Moroney made an honest and reasonable effort to comply with the tax laws, and not whether Moroney’s eventual effort had some effect on his tax liability. Under Moroney’s approach, the availability of discharge would turn on the IRS’s accuracy in assessing taxes, rather than on Moro-ney’s sincerity and diligence in complying with the tax code. In effect, Moroney failed to provide the IRS with the very information it needed to accurately assess his taxes, and now he seeks to benefit from the IRS’s resulting imprecision (which was hardly surprising, given Moroney’s lack of assistance). Moroney’s approach would only discourage the IRS from abating debtors’ tax liabilities — especially when any adjustment, no matter how small, would lead to a discharge of the entire tax liability, no matter how large.
Moroney also argues that any inquiry into his honesty and reasonableness in filing late should occur not under
Moroney is wrong to conclude that the Bankruptcy Code implicitly condones any conduct that does not rise to the level of outright fraud or evasion. A “return” is not reasonably understood to mean any tax form — whatever its defects — submitted to the IRS, but rather a form that in good faith reports required information like income, deductions, exemptions, and taxes due. Delinquency, no less than fraud or willful evasion, can result in tax forms not naturally thought of as returns.
III.
We hold then that income tax forms unjustifiably filed years late, where the IRS has already prepared substitute returns and assessed taxes, do not constitute “returns” for purposes of
Here we face only a debtor who was apparently too busy, for no less than six years, to file returns, and whose ultimate filing was merely an attempt to lessen the liability that he never wanted to assume. Under these circumstances, we cannot hold that Moroney filed a return in any meaningful sense of that word. We thus affirm the judgment of the district court.
AFFIRMED
Notes
.
. Although Moroney relies heavily on
Nunez,
it is not clear that
Nunez
remains controlling. The Bankruptcy Appellate Panel's decision in
Nunez
relied heavily on its prior decision in
In re Hatton,