Update On The “Late Return” Dischargeability Litigation: 9th Circuit To Hold Oral Argument in Smith Case
We welcome back A. Lavar Taylor who updates us on developments in the Ninth Circuit regarding whether a late-filed return is a return for purposes of the discharge rules in the Bankruptcy Code.
Those of you who are private practitioners who deal with the question of whether a “late-filed” tax return is or is not a “return” for purposes of section 523(a) of the Bankruptcy Code undoubtedly rejoiced when you read the recent opinion of the Ninth Circuit Bankruptcy Appellate Panel in United States v. Martin, 542 B.R. 479 (9th Cir. BAP 2015), issued on December 17 of last year. Keith Fogg previously discussed that opinion here, which also contains links to the underlying cases as well as links to prior PT posts on the issue. At long last, an appellate court rejected the position adopted by the Fifth Circuit (McCoy v. Miss. State Tax Comm’n (In re McCoy), 666 F.2d 924 (5th Cir. 2012), the Tenth Circuit (Mallo v. I.R.D. (In re Mallo),774 F.3d 1313 (10th Cir. 2014), and the First Circuit (Fahey v. Massachusetts Dep’t of Revenue (In re Fahey), 779 F.3d 1 (1st. Cir. 2015).
From my own perspective, the Bankruptcy Appellate Panel’s opinion in theMartin case seems to get “right” most everything that the three Court of Appeals opinions got wrong. The “one day late” interpretation of section 523(a) adopted by the three Court of Appeals opinions is nonsensical from a practical standpoint. That interpretation actually creates a disincentive for taxpayers, who for any reason fail to file a tax return on time, to promptly get into compliance by filing their “late” return(s) as soon as possible. Why is that so? Consider the following hypothetical, which might take place in a jurisdiction that is subject to the “one day late” rule set forth in McCoy.