In re: Peter George Martin

Filing 18

ORDER: the decision of the Bankruptcy Court granting the Debtor's Motion for Summary Judgment in this adversary proceeding (AP No. 11-01536) is reversed by Judge Lewis T. Babcock on 9/23/13. (dkals, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
LEWIS T. BABCOCK, JUDGE

Civil Case No. 12-cv-03380-LTB
IN RE:
PETER GEORGE MARTIN,
Debtor.

PETER GEORGE MARTIN,
Plaintiff-Appellee,
v.
THE UNITED STATES OF AMERICA,
Defendant-Appellant.
______________________________________________________________________________
ORDER
______________________________________________________________________________
Appellant, The United States of America, appeals an order of the United States
Bankruptcy Court for the District of Colorado dated November 14, 2012, denying its Motion for
Summary Judgment and granting the Motion for Summary Judgment filed by the Appellee,
Debtor Peter George Martin. [Appellate Record at Doc #10 pg. 178] Oral argument would not
materially assist in the determination of this appeal. After consideration of the record and the
parties’ briefs, and for the reasons set forth below, I REVERSE the order of the Bankruptcy
Court.

I. Facts
The underlying facts in this case are undisputed. As relevant here, Debtor failed to
timely file his Form 1040 Federal Income Tax Return for the tax years 2000 and 2001. As a
result, the Internal Revenue Service (“IRS”) made assessments for the Debtor’s 2000 and 2001
tax years following an examination and the issuance of a Notice of Deficiency. Debtor did not
challenge the tax determination set forth in the Notice and, as such, a tax assessment was made
for the 2000 and 2001 tax period on November 8, 2004. After Debtor failed to pay his assessed
income tax debt, the IRS undertook collection action by issuing a Notice of Intent to Levy
regarding Debtor’s 2000 and 2001 tax debt on November 29, 2004. Debtor subsequently filed
Form 1040s for his 2000 and 2001 federal income tax liability approximately five (5) months
later on May 5, 2005. As a result, the IRS partially abated its tax assessment to a total amount
equal to the amount reported by Debtor on his 1040s.
Thereafter, on October 28, 2010, Debtor filed a voluntary petition for bankruptcy under
Chapter 7, Title 11, of the United States Bankruptcy Code. The Court issued a discharge order
on February 18, 2011. [Doc #10 pg.14] Following the discharge, Debtor filed an adversary
proceeding (AP No. 11-01536) seeking a determination that his income tax debt from 2000 and
2001 was discharged by the discharge order. [Doc #10 pg. 6] In response, the IRS filed a motion
seeking summary judgment and a determination that Debtor’s 2000 and 2001 income tax debt
was excepted from discharge because it was not a debt for which a return was filed within the
meaning of 11 U.S.C. §523(a)(1)(B)(i). [Doc #10 pg. 17-74] Debtor, in response, filed a crossmotion seeking summary judgment in his favor and a ruling that his 2000 and 2001 income tax
debt was, in fact, discharged. [Doc #10 pg. 75-102]

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On November 14, 2012, the Bankruptcy Court ruled in favor of Debtor by granting his
motion for summary judgment, and denying the United State’s motion for summary judgment.
[Doc #10 pg.178] In re Martin, 482 B.R. 635, 636 (Bkrtcy. D.Colo. 2012). The United States
appealed this decision to the Bankruptcy Appellate Panel. On December 27, 2012, Debtor
elected to remove the appeal to the District Court pursuant to 28 U.S.C. §158(c)(1)(B).
II. Standard of Review
In reviewing a Bankruptcy Court’s decision, the district court functions as an appellate
court and is authorized to affirm, reverse, modify or remand the Bankruptcy Court’s ruling. 28
U.S.C. §158(a); Fed. R. Bankr. P. 8013. As relevant here, a Bankruptcy Court’s legal
conclusions – as opposed to its factual findings – are reviewed de novo. In re Warren, 512 F.3d
1241, 1248 (10th Cir. 2008); In re D.E. Frey Group, Inc., 2008 WL 630044, 2 (D. Colo. 2008).
III. Underlying Law
The legal question at issue is whether the Debtor’s tax liability for 2000 and 2001 was
discharged in bankruptcy by the order of discharge – as argued by Debtor – or whether the
exception found at 11 U.S.C. §523(a)(1)(B)(i) applies, making the tax debt non-dischargeable –
as argued by the United States.
The general rule is that a debtor who files a bankruptcy petition is discharged from
personal liability for all debts incurred before the filing of the petition, including those related to
unpaid taxes. 11 U.S.C. §727(b). The Bankruptcy Code lists several exceptions to the general
rule of dischargeability of an unpaid tax debt under 11 U.S.C. §523(a)(1), which precludes the
discharge of a tax debt in several circumstances. For example, a priority tax is not dischargeable
pursuant to §523(a)(1)(A), nor is a debt with respect to a fraudulent return pursuant to
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§523(a)(1)(C). The exception to discharge at issue here is §523(a)(1)(B), which renders a tax
debt nondischargeable if a related return was filed within the two years of the filing of the
bankruptcy petition or, as relevant here, when a return was not filed. Specifically, that exception
provides as follows:
(a) A discharge [in bankruptcy] does not discharge an individual debtor from any debt –
(1) for a tax ... –
(B) with respect to which a return . . . if required –
(i) was not filed . . .
In October 2005, §523(a) was amended by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005, 119 Stat. 23 (April 20, 2005)(the “BAPCPA”), which – as
relevant here – added an unnumbered paragraph at the end of the section and provides a
definition of a “return” as follows:
For purposes of this subsection, the term ‘return’ means a return that satisfies the
requirements of applicable nonbankruptcy 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 nonbankruptcy tribunal, but
does not include a return made pursuant to section 6020(b) of the Internal
Revenue Code of 1986, or similar State or local law.
This unnumbered section, located at the end of §523(a), is often referred to as a “hanging
paragraph.”
I note that a return under §6020(a) of the Internal Revenue Code is one prepared by the
IRS with the assistance of the taxpayer, as well as signed by the taxpayer – and thus is
considered a “return” under §523(a)(1)(B)(i) – while a §6020(b) return is prepared and executed
by the IRS without assistance or a signature from the taxpayer – and, as such, is not deemed a
“return” for the purposes of §523(a)(1)(B)(i). This case does not involve a tax liability assessed

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by either §6020(a) or §6020(b), but rather assessment via a Notice of Deficiency as provided for
in 26 U.S.C. §6212.
IV. Bankruptcy Court Ruling
The Bankruptcy Court in this matter ruled that Debtor’s belated 1040s – filed after IRS
assessment – constituted a “return” for purposes of the exception to discharge at §523(a)(1)(B)(i)
and, as such, it concluded that the subject tax debt was dischargeable. In re Martin, supra, 482
B.R. at 641.
In so doing, the Bankruptcy Court first determined that the language “applicable filing
requirements” – as set forth in the first sentence of the hanging paragraph of §523(a) – does not
include time requirements or due dates for filing a tax return. Specifically, the Bankruptcy Court
ruled that interpreting “applicable filing requirements” to encompass the time for filing a tax
return would result in essentially any late-filed return as failing to meet the hanging paragraph
definition of a “return” and, in turn, “all taxes relating to late-filed returns [would be]
non-dischargeable under §523(a)(1)(B)(i).” In re Martin, supra, 482 B.R. at 638-39. The Court
found such an interpretation untenable in that it would essentially render §523(a)(1)(B)(ii) –
which provides that taxes for which a return was filed “after such return was last due” and less
than 2 years prior to the date of bankruptcy are not discharged – superfluous. In re Martin,
supra, 482 B.R. at 639. The Court also determined that such an interpretation would defy the
normal rule of statutory construction that identical words used in different parts of the same act
are intended to have the same meaning, because the term “return” in §523(a)(1)(B)(ii) speaks of
“returns” filed “after the date on which such return . . . was last due.” Id. As such, the
Bankruptcy Court concluded that “‘[a]pplicable filing requirements’ must refer to considerations

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other than timeliness, such as the form and contents of a return, the place and manner of filing,
and the types of taxpayers that are required to file returns.” In re Martin, supra, 482 B.R. at 639.
As a result of this determination, the Bankruptcy Court then reviewed pre–BAPCPA case
law that assessed whether a disputed document sufficiently complied with requirements
concerning form, manner, contents, and place of filing, in order to be considered a “return”
sufficient to avoid the discharge exception of §523(a)(1)(B)(i). The Court noted that the most
common rubric used to make such a determination is known as the “Beard test,” which indicates
that to constitute a “return” a document must: “(1) contain sufficient information to permit a tax
to be calculated; (2) purport to be a return; (3) be sworn to as such; and (4) evince an honest and
genuine endeavor to satisfy the law.” In re Martin, supra, 482 B.R. at 640 (citing Beard v.
Commissioner, 82 T.C. 766, 774–79, 1984WL15573 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986)).
When looking at the question of whether a filing constitutes a “return” for purposes of
§523(a)(1)(B)(i), the Bankruptcy Court noted that the Circuits have differed in their application
of the fourth element of the Beard test when a taxpayer files a 1040 after assessment is made by
the IRS. The Sixth, Fourth and Seventh Circuits have found that a 1040 form filed after an
assessment “serve no tax purpose” and, thus, the debtor’s actions in filing the belated 1040s were
not an “honest and reasonable attempt to satisfy the requirements of the tax law.” Thus, these
Circuits concluded that the filings failed the fourth prong of the Beard test and, as such, they
were not “returns” for purposes of §523(a)(1)(B)(i). In re Martin, supra, 482 B.R. at 640 (citing
In re Hindenlang, 164 F.3d 1029, 1034–35 (6th Cir. 1999); In re Moroney, 352 F.3d 902, 906
(4th Cir. 2003); and In re Payne, 431 F.3d 1055, 1059–60 (7th Cir. 2005)). In contrast, the
Eighth Circuit found that whether a document evinces an honest and genuine attempt to satisfy

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the law does not require consideration of the timing of the taxpayer’s filing or of the filer’s
intent, but rather should be an objective test “determined from the face of the form itself, not
from the filer’s delinquency or the reasons for it.” In re Martin, supra, 482 B.R. at 640 (quoting
In re Colsen, 446 F.3d 836, 840 (8th Cir. 2006)).
The Bankruptcy Court here agreed with the analysis of the Eighth Circuit, that:
where the debtor’s 1040s contained data that allowed for the accurate
computation of his taxes, they served a valid purpose of the tax laws and were
properly found to be ‘returns’ [and] accordingly, the tax liability shown on the
returns was dischargeable in the debtor’s bankruptcy . . .
Id. In so doing, the Court noted that excepting tax debts from discharge related to untimely
and/or fraudulent returns is addressed in other sections of §523(a)(1). To graft the concepts of
timeliness and fraud into the meaning of “return” under these circumstances, the Bankruptcy
Court found, is both unnecessary and “distorts what is otherwise plain statutory language
concerned only with whether a ‘return’ was ‘filed.’” In re Martin, supra, 482 B.R. at 641.
Moreover, the Court determined while self-assessment of tax liability is important, “Congress
has so far elected not specifically to include it as an additional condition to discharge of tax
liability under §523(a)(1)(B)(i).” Id. If filing a return after an assessment was relevant to
discharge under §523(a)(1)(B)(i), the Bankruptcy Court expected that Congress “would have
made a more explicit reference in the statute” as it did – for example – in 11 U.S.C.
§507(a)(8)(A)(ii), which excludes from dischargeability tax debts “assessed within 240 days
before the date of the filing of the petition.” Id.

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In applying these rulings, the Bankruptcy Court concluded that:
A document is a ‘return’ for purposes of §523(a)(1)(B)(i) if it complies with
‘applicable filing requirements’ concerning the form and contents of a return, the
place and manner of filing, and the types or classifications of taxpayers that are
required to file returns, and if it otherwise complies with requirements of
nonbankruptcy law. In making the determination of whether a document ‘evinces
an honest and genuine endeavor’ to satisfy the law, an objective test, based on the
face of the document, not the timeliness of its filing, must be used. Using these
tests, the undisputed facts in this case demonstrate that Debtor’s 2000 and 2001
Forms 1040 were ‘returns,’ and the debt owed to the United States as shown on
these returns is not within the discharge exception of §523(a)(1)(B)(i).
In re Martin, supra, 482 B.R. at 641. Accordingly, the Bankruptcy Court entered summary
judgment in favor of Debtor, and declared that the tax debt owed to the IRS for his 2000 and
2001 income taxes was discharged. The United States appeals this ruling and argues that the
Bankruptcy Court erred in ruling that the exception in 11 U.S.C. §523(a)(1)(B)(i) did not apply.
IV. Analysis
I recently considered the appeal of the Bankruptcy Court’s ruling in Mallo v. Internal
Revenue Service (In re Mallo), 2013WL49774 (Bkrtcy. D.Colo. 2013). Under a nearly identical
fact pattern, the Bankruptcy Court in In re Mallo, supra, ruled that the debtors’ 1040s – filed
after the IRS assessed tax liability – were not “returns” for purposes of applying §523(a)(1)(B)(i)
and, accordingly, the related tax debt was not dischargeable. As a result, the Bankruptcy Court
In re Mallo, supra, granted judgment in favor of the IRS/United States and against the debtors.
On appeal, I affirmed the Bankruptcy Court in an order dated September 11, 2013, Case No. 13cv-00098-AP-LTB.

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In In re Mallo, the debtors – like the Debtor here – failed to timely file their 1040s for the
tax years 2000 and 2001 and, as a result, the IRS made assessments for those tax years following
an examination and the issuance of Notices of Deficiency. The debtors did not challenge the tax
determinations and, in July 2006, tax assessments were made against one debtor for the 2000 tax
year and against the other debtor for the 2001 tax year. The IRS then issued Notices of Intent to
Levy. The debtors subsequently filed joint Form 1040s reporting their 2001 income, over a year
later in April of 2007, and reporting their 2000 income six month later, in October of 2007.
Thereafter, on February 18, 2010, the debtors voluntarily filed for bankruptcy and the
Bankruptcy Court issued a discharge order on July 5, 2011.
The In re Mallo debtors then filed an adversary proceeding against the IRS seeking a
determination that their income tax debt from the years 2000 and 2001 was discharged, and the
IRS responded by filing a motion for summary judgment and seeking determination that the
relevant tax debts (as to each individual debtor) were excepted from discharge pursuant to
§523(a)(1)(B)(i). On January 3, 2013, the Bankruptcy Court ruled in favor of the IRS by
granting its motion for summary judgment. In re Mallo, supra, 2013WL49774. On appeal of
the Bankruptcy Court’s ruling in In re Mallo, supra, I affirmed by ruling in favor of the IRS as
follows.
A. Interpretation of Hanging Paragraph by Fifth Circuit in In Re McCoy
I first reviewed the case law that has interpreted the language in the first sentence of the
hanging paragraph following §523(a) to rule that when a debtor’s returns are filed late, they do
not comply with the “applicable filing requirements” and, therefore, are not “returns” for
discharge purposes. In re McCoy, 666 F.3d 924, 932 (5th Cir. 2012)(cert. denied by McCoy v.
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Mississippi State Tax Comm’n, 133 S.Ct. 192, 184 L.Ed.2d 38 (U.S. Oct 01, 2012)). I compared
the Fifth Circuit ruling in In re McCoy, supra, with the recent ruling by the United States
Bankruptcy Appellate Panel for the Tenth Circuit in Wogoman v. Internal Revenue Service (In re
Wogoman), 475 B.R. 239 (10th Cir. BAP July 3, 2012), which noted the hanging paragraph’s
first sentence “is susceptible to the construction that [any] late-filed return is not a return for
purposes of dischargeability,” but ruled that it did not have to “conclusively define the
boundaries of the hanging paragraph in this case because it does not involve a tax return that was
merely filed ‘late’.” In re Wogoman, supra, 475 B.R. at 250. Rather, the case involved debtors
who, without any reason justifying the delay, did not file their returns until “after the IRS had
completed the burdensome process of determining their tax liability, providing the statutory
notice of deficiency, assessing the taxes, and attempting collection.” Id.
I did not reconcile these conflicting rulings, however, as the parties in In re Mallo agreed
that the ruling in In re McCoy, supra, should not be adopted. Specifically, the United States
conceded that the In re McCoy interpretation should not be adopted “as it leads to harsh results
that would penalize taxpayers who file even a day late and without requiring government
intervention to assess the tax.” In this case, the parties again agree that I should not follow or
adopt the ruling in In re McCoy. Debtor here argues that I should affirm the Bankruptcy Court’s
ruling that “‘applicable filing requirements’ must refer to considerations other than timeliness,”
In re Martin, supra, 482 B.R. at 639, but the United States again indicates that it “does not
advocate adoption of [In re] McCoy . . .”. As a result, I again decline to apply or adopt the In re
McCoy analysis in this matter.

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B. IRS Official Position/Interpretation
In my ruling in In re Mallo, supra, I next addressed and rejected the IRS’ official position
that tax debts which are incurred by IRS assessment before the taxpayer subsequently files a
related return, are excepted from discharge under §523(a)(1)(B)(i) because such liability is not a
“debt for which a return was filed.” See IRS Office of Chief Counsel Notice CC-2010-016
CC-2010-016, 2010 WL 3617597 (Sept. 10, 2010)(“[i]f at the time of assessment no return has
been filed, then the debt recorded by that assessment is a debt with respect to which a return was
not filed and section 523(a)(1)(B)(i) applies to except it from discharge”). This is because “the
act of assessment creates or records a ‘debt’ for the assessed taxes that is legally enforceable by
lien or levy, [and] if a return has not been filed prior to assessment, the tax liability cannot be
discharged.” See In re Mallo, supra (quoting In re Wogoman, supra, 475 B.R. at 250). I
disagreed with the United States that the IRS’ interpretation was applicable, by rejecting its
argument that the nature of the debt (as assessed by the IRS prior to the filing of a return, as
opposed to a liability initially reported by the taxpayer via self-assessment) is somehow
contemplated or addressed by the statute. In re Mallo, supra (citing In re Savage, supra, 218
B.R. at 132; In re Nunez, 232 B.R. 778, 782 (9th Cir. BAP 1999)).
In this case the United States contends that the Bankruptcy Court erred in failing to adopt
the official position of the IRS that the debt in this case is not dischargeable under
§523(a)(1)(B)(i), because it again asserts that it is a “debt for which no return was filed” in that
the genesis of the debt in such cases comes from government action in assessing the liability, not
from the taxpayer action of filing a return.

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However, as I ruled in In re Mallo, supra, “the statutory language defining a return for
purposes of assessing whether a ‘return was filed’. . . cannot be interpreted consistent with the
IRS’ official position” in that “[w]hether a tax debt is or is not dischargeable based on the
debtor’s self-assessment of that debt, via the timing of his or her filing before or after
assessment, is clearly not contemplated by a plain reading of the statutory language.” Id. As
such, I again conclude, based on the same rationale, that the IRS’ official position – that a tax
liability assessed by the IRS prior to the subsequent filing of a 1040 by the taxpayer is not a
“debt for which a return was filed” – is not supportable by the statutory language of
§523(a)(1)(B)(i). See In re Mallo, supra; see also In re Wogoman, supra, 475 B.R. at 250 (citing
In re Savage, supra, 218 B.R. at 132; In re Nunez, supra, 232 B.R. at 782).
C. Pre-BAPCPA Standard – “Beard Test”
After declining to adopt the analysis of In re McCoy supra – that all late returns rendered
a related tax debt nondischargeable – and ruling that the official position of the IRS was not
supported by the statutory language, I concluded in In re Mallo, supra, that the belated returns in
that case did not constitute “returns” for purposes of §523(a)(1)(B)(i), by employing the legal
standard used prior to the passage of the BAPCPA.
Specifically, I first determined that the four-prong “Beard test” was the relevant law to
determine whether a filing is a “return,” because that test constituted the “applicable
nonbankruptcy law” – pursuant to the first sentence of the hanging paragraph provided by the
BAPCPA – for purposes of determining whether a filing is a “return” under §523(a)(1)(B)(i). I
then agreed with the majority of the Circuits applying the Beard test to conclude that returns
filed after IRS assessment – absent evidence of circumstances beyond a taxpayer’s control that
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prevented him or her from filing a timely return – failed the fourth element of the test because
such filings “were not reasonable attempts to comply with the tax law.” In so doing, I rejected
the minority ruling – as set forth by the Eight Circuit in In re Colsen, 446 F.3d 836 (8th Cir.
2006) – that lateness should not be considered when assessing whether a document constitutes a
“a reasonable attempt to comply with tax law,” but rather such determination must be made
solely on the face of the document. As a result, I concluded that the untimely returns filed by the
debtors in In re Mallo, supra, were not “an honest and reasonable attempt to comply with tax
law” under the fourth prong of the test, because it was undisputed that the debtors “failed to file
their 1040 forms until between 12 and 18 months after the IRS examined and then determined
their tax liability, sent notices of deficiency, assessed the taxes, and then commenced collection
by sending notices of levy, and is devoid of any facts or claims of unique or special
circumstances that occurred beyond the Debtors’ control.” I therefore affirmed the Bankruptcy
Court’s ruling in In re Mallo, that the subjected taxes were excepted from discharge under
§523(a)(1)(B)(i).
In this case, the undisputed facts are essentially identical to those in In re Mallo, supra, in
that Debtor here also failed to file his 1040 forms until after the IRS examined and determined
his tax liability, sent a notice of deficiency, and assessed and commenced collection of the tax
liability. Likewise, there is no claim of unique or special circumstances that occurred beyond the
Debtor’s control that would excuse the belated filing. As a result, the belated 1040s in this case
did not constitute “returns” for purposes of §523(a)(1)(B)(i), in that it failed to meet the fourth
element of the Beard test as it was not reasonable attempts to comply with the tax law. In re
Mallo, supra; see also In re Wogoman, supra, 475 B.R. at 247 (ruling that the filing of such

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returns are merely “belated attempts to create a record of compliance when none really exists,
long after the IRS had filed substitutes for returns and provided notices of deficiency”).
As such, I reverse the Bankruptcy Court’s ruling in In re Martin, supra, that the subjected
tax liability was excepted from discharge under 11 U.S.C. §523(a)(1)(B)(i), as well as its
granting of summary judgment in favor of the Debtor.

Accordingly, IT IS ORDERED that the decision of the Bankruptcy Court granting the
Debtor’s Motion for Summary Judgment in this adversary proceeding (AP No. 11-01536) is
REVERSED.

Dated: September

23 , 2013 in Denver, Colorado.

BY THE COURT:
s/Lewis T. Babcock
LEWIS T. BABCOCK, JUDGE

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