FILE LATE AT YOUR PERIL by AVRAM SALKIN
In its recent opinion in Mallo v. United States of America, the Tenth Circuit Court of Appeals included broad language indicating that a late filed tax return is not a tax return for purposes of determining a discharge of tax liabilities in bankruptcy.
The underlying district court denied a discharge on the grounds that the return was filed after the taxes were assessed based on a substitute return being filed by the Commissioner on the taxpayer’s behalf. Although this holding is consistent with decisions in several other circuits, this opinion contains reasoned dicta that effectively says that tax obligations created by any late filed return are not dischargeable in bankruptcy. The Tenth Circuit’s opinion interprets Section 523(a) of the Bankruptcy Code, which excludes from discharge “any debt”
(1) for a tax or customs duty —
(B) with respect to which a return, or equivalent report 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; or
(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax;
. . . .
For purposes of this subsection, the term ‘return” means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).
The Tenth Circuit in Mallo first refers to the decisions of a majority of the courts that have determined that returns filed after assessment are not returns under Sec. 523 of the Bankruptcy Act. The Tenth Circuit noted that nearly all courts determined whether a document qualified as a tax return by applying a test fashioned from Justice Cardozo’s decision in Zellerbach Paper Co. v. Helvering, and approved by the United States Court of Appeals for the Sixth Circuit in Beard v. Commissioner. This test, often referred to as the Beard test, has four elements: “[f]irst, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”
Since the taxpayer in Mallo did not attempt to file a return until after assessment, the Tenth Circuit could have affirmed the denial of a bankruptcy discharge without analyzing whether any late filing eliminates the right to a bankruptcy discharge. After summarizing the positions of both the Taxpayer and the Commissioner, the tenth Circuit concludes:
“…we agree with the Fifth Circuit’s decision in McCoy [666 F.3d 924 (5th Cir. 2012)] that the plain and unambiguous language of Sec. 523(a) excludes from the definition of ‘return’ all late-filed tax forms, except those prepared with the assistance of the IRS under Sec. 6020(a).”
Although the law is not yet settled, anyone concerned about the ability to discharge tax liabilities through bankruptcy should make sure that all relevant tax returns are timely filed. Also, the first funds available should be used to pay off tax liabilities attributable to delinquent returns in order to avoid the issue.
AVRAM SALKIN – For more information please contact Avram Salkin at AS@taxlitigator.com. Mr. Salkin represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation. Additional information is available at www.taxlitigator.com
 Mallo et vir et al. v. United States of America, (No. 13-1464) __ F.3d __ (10th Cir., December 29,2014, affirming Mallo v. United States, No. 1:13-cv-00098 (D. Colo. 2013)
 293 U.S. 172 (1934)
 793 F.2d 139 (6th Cir. 1986) (per curiam), aff’g 82 T.C. 766 (1984)
 Beard v. Comm’r, 82 T.C. 766, 777 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986) (per curiam).
 The Tenth Circuit noted that the hanging paragraph added by Congress in 2005 defines return as a document that “satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).” 11 U.S.C. section 523(a)(*). They then proceeded to the question whether the reference to “applicable filing requirements” includes the date a tax form is due, thereby excluding a late-filed Form 1040, which otherwise satisfies the Beard test, from the definition of return in section 523(a)(*). To determine what falls within that definition, they looked to the nonbankruptcy law found in the Internal Revenue Code noting that Chapter 61 of the Internal Revenue Code governs “Information and Returns.” In particular, subchapter A, Part V — Time for Filing Returns and Other Documents, provides:
“In the case of [income tax] returns, returns made on the basis of the calendar year shall be filed on or before the 15th day of April following the close of the calendar year and returns made on the basis of a fiscal year shall be filed on or before the 15th day of the fourth month following the close of the fiscal year.” 26 U.S.C. section 6072(a).
The Tenth Circuit noted that the “phrase ‘shall be filed on or before’ a particular date is a classic example of something that must be done with respect to filing a tax return and therefore, is an ‘applicable filing requirement.’ Indeed, in a different context, the Supreme Court has characterized the date a document ‘shall be filed’ as a ‘filing requirement.’ See Pace v. DiGuglielmo, 544 U.S. 408, 414-15 (2005). There, the Supreme Court concluded that timeliness was a ‘condition to filing’ as required for a habeas petition to be ‘properly filed,’ where the state rule listed as a mandatory condition that the petition ‘shall’ be filed within the time limit. Id. The court reasoned, ‘We fail to see how timeliness is any less a ‘filing’ requirement than the mechanical rules that are enforceable by clerks.’ Id. at 414-15. And this court has characterized a time limit in a different section of the Bankruptcy Code as a “filing requirement.” Matter of Colo. Energy Supply, Inc., 728 F.2d 1283, 1285 (10th Cir. 1984) (referring to a bankruptcy rule that a notice of appeal “shall be filed within 10 days”); see also United States v. Bourque, 541 F.2d 290, 293 (1st Cir. 1976) (characterizing a provision of the Tax Code that returns of corporations “shall be filed on or before March 15” as a “filing requirement”). We agree with these decisions and hold that, because the applicable filing requirements include filing deadlines, section 523(a)(*) plainly excludes late-filed Form 1040s from the definition of a return.”