The Third Circuit Court of Appeals declined to decide if a late filed return would automatically fail to constitute returns for bankruptcy purposes in the case of In re Thomas Giacchi v. United States, CA3, No. 15-3761, deciding the taxpayer’s attempt at filing a valid return for bankruptcy purposes fell short for other reasons.

Since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2015 (BAPCPA) that added the definition of a “return” to the Bankruptcy Code, the question has arisen about whether a late filed return could ever constitute a tax return where the balance of unpaid tax could be discharged in bankruptcy (after meeting various other requirements).

Even prior to BAPCPA the Bankruptcy Code provided that no discharge was available for which no return was filed.[1]  But prior to 2005 what constituted a return was not defined with regard to this provision.

BAPCPA added a definition of return in this context, providing “the term 'return' means a return that satisfies the requirements of applicable nonbankruptcy law (including applicable filing requirements).”[2]  Since then a number of Circuit Courts of Appeal have interpreted “all applicable filing requirements” to include filing a return on time.  Specifically, this view that even a one day late filed return’s tax debt cannot be discharged in bankruptcy has been endorsed by the First, Fifth and Tenth Circuits.  However, the Third Circuit had not yet issued a ruling on this issue.

In this case, Mr. Giacchi had clearly failed to timely file his tax return.  As the Third Circuit’s opinion notes:

Giacchi failed to file Forms 1040 for 2000, 2001, and 2002 in a timely manner. In 2004, the IRS investigated and assessed a tax liability against Giacchi for 2000 and 2001. Approximately one month after the IRS made those tax assessments, Giacchi filed Forms 1040 for 2000 and 2001. However, he did not file his overdue Form 1040 for 2002 at that time. The IRS assessed his 2002 tax liability in 2005, and Giacchi submitted a Form 1040 for 2002 in 2006. Based on information in the forms Giacchi filed, the IRS abated a portion of the assessment it had made.

In 2010 Mr. Giacchi filed a Chapter 7 bankruptcy for which he received a discharge of Pennsylvania taxes, followed by a 2012 Chapter 13 filing.  As part of the Chapter 13 proceeding, Mr. Giacchi sought a judgment that the federal liabilities had also been discharged in the 2010 Chapter 7 bankruptcy.  The IRS contended that Mr. Giacchi’s returns filed after the IRS had contacted him were not returns under Bankruptcy Code §523(a) and thus the liabilities remained in force.

As should be obvious, if the Third Circuit agreed with the three Circuits that held the filing date were part of the “applicable filing requirements” then the matter would be immediately ended.  But the Third Circuit found that it need not decide that matter, since Mr. Giacchi’s “wait until the IRS comes looking for money” approach to filing would have doomed his attempt to call his filings returns even under prior law.

The Court turned to the logic found in the case of Beard v. Commissioner, 58 AFTR 2d 86-5290, affirming 82 TC 766 (1984), finding that Mr. Giacchi’s “returns” failed the test for being a “return” without worrying about the additional conditions imposed by BAPCPA.

To constitute a return for bankruptcy purposes, in addition to the “all applicable requirements” test noted above, a document purporting to be a tax return must meet all the following requirements.

• The document must purport to be a return,
• The document must be executed under penalty of perjury,
• The document must contain sufficient data to allow calculation of tax, and
• The document must represent an honest and reasonable attempt to satisfy the requirements of the tax law.

The “honest and reasonable attempt to satisfy the requirements of the tax law” test is where Mr. Giacchi’s actions fell short. 

Under prior law, filing a return after the IRS assessment was virtually always fatal to the finding that the document met the “honest and reasonable attempt test.”  The opinion continues:

Forms filed after their due dates and after an IRS assessment rarely, if ever, qualify as an honest or reasonable attempt to satisfy the tax law. This is because the purpose of a tax return is for the taxpayer to provide information to the government regarding the amount of tax due. If a taxpayer does not file a return, the IRS is required to independently assess the taxpayer’s liability, as it did when Giacchi failed to timely file his 2000, 2001, or 2002 tax returns. Once the IRS assesses the taxpayer’s liability, a subsequent filing can no longer serve the tax return’s purpose, and thus could not be an honest and reasonable attempt to comply with the tax law. Here, there is no dispute that Giacchi failed to file timely returns, and that, as a result of Giacchi’s failure, the IRS had to estimate his taxes without his assistance.

Mr. Giacchi argued that his case was different.  First, he attempted to get the Third Circuit panel to follow the Eight’s Circuit’s logic in the case of In re Colson, 446 F.3d 836, CA8 (2006) that an “honest and reasonable attempt” test should look at the content and not the timing of the filing of the document.  The Third Circuit panel refused to adopt that position, instead agreeing “with the weight of authority that the timing of the filing of a tax form is relevant to determining whether the form evinces an honest and reasonable attempt to comply with tax law.”

He also argued that his returns did serve a purpose, since the IRS abated a portion of the assessment with the information provided in the returns.  But the panel did not agree, noting:

Giacchi failed to provide the IRS information to determine his tax liability so that the IRS had to estimate his taxes without his assistance; Giacchi cannot now seek to benefit from the IRS’s imprecise estimate. Giacchi’s belated filings are merely self-serving bids to reduce his tax liabilities, rather than attempts to comply with the requirements and objectives of prompt self-reporting and self-assessment.

In the end the Third Circuit didn’t reject or accept the “one day late” test, but rather side-stepped the issue by arriving at the same result that would have applied if it had agreed with its three sister circuits (the documents weren’t returns) without having to decide whether a late filed return could ever be a return for purposes of discharge of the related tax debt in bankruptcy.

[1] 11 USC §523(a)(1)(B)(i)

[2] 11 USC §523(a)