Justin Sabin and Bryce Suzuki discuss a current Circuit split regarding whether or not a late filed tax return constitutes a “return” at all, a critical determination in whether those tax debts are dischargeable under section 523(a) of the Bankruptcy Code. The two views are summarized as such,
The Majority View.
Under the majority view followed in the Fourth, Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits, the Beard test governs the “return” inquiry. As elements one through three are usually satisfied where a tax payer files an appropriate tax form, even if late, the inquiry inevitably becomes whether the debtor’s late filing represents an honest and reasonable attempt to satisfy the tax law requirements. The timing of the late filing is generally considered relevant, as is the debtor’s justification for the late filing, whether the IRS has already assessed the past-due taxes, and whether the late filing serves the purposes of the tax system.
The Minority View.
Under the minority view adopted in the First, Fifth, and Tenth Circuits, tax debts are not dischargeable if the tax return is filed after the applicable deadline—even if late by a single day. The rationale for this so-called “one-day-late rule” is that, under the plain language of the BAPCPA amendments’ new definition, a tax filing is only a return if it satisfies the requirements of the applicable nonbankruptcy law, “including applicable filing requirements.” Under this view, the applicable filing requirements include filing deadlines. Thus, late tax filings simply do not constitute returns for purposes of section 523(a).
Posted by Allison Trupp, Associate Editor, Wealth Strategies Journal