Coyle v. United States (In re Coyle)
Coyle v. United States (In re Coyle), 524 B.R. 863 (Bankr. S.D.Fla., 2015) addresses issues regarding whether a tax can be dischargeable, per 11 USC 523(a)(1), when the debtor’s tax return for that tax is filed later than when it was due, but is filed more than 2 years before debtor files bankruptcy.
In Coyle, the taxpayer filed his tax returns later than they were due, and filed the tax returns after the IRS had already assessed the taxes. In Coyle, the bankruptcy for the Southern District of Florida avoided following the so called McCoy rule (McCoy rule prevents late filed returns from being dischargeable), and instead, based its decision instead on the 4-prong Beard test. Citing Pendergast v. Mass. Dep’t of Revenue 510 B.R. 1 (B.A.P. 1st Cir., 2014) the court wrote:
“The Pendergast court agreed with McCoy that the changes in BAPCPA replaced the Beard test but held that:
” if a tax return is never filed, then it is clear that the tax obligation is nondischargeable. If a return is filed late, dischargeability depends on the taxpayer’s cooperation with the taxing authorities. In Massachusetts, if the debtor engages in self-assessment by filing a late return before the taxing authority assesses a deficiency (analogous to 26 U.S.C. § 6020(a)), then the tax liability may be dischargeable if the return was filed more than two years before the filing of the petition. If the Massachusetts tax authority assesses a deficiency before the debtor’s self … the debtor’s tax liability will not be dischargeable.
“Although this Court is relying on the Beard test, the reasoning in Pendergast is instructive. The IRS Assessment occurred on May 11, 2009, without the Debtor’s cooperation and input. After the IRS Assessment, the IRS began its collection efforts. The Debtor then, in response to the IRS’s actions, filed her Form 1040 for tax year 2006 in February 19, 2010, roughly two years after a return was due.
The Debtor’s filing of a Form 1040, according to counsel for the IRS … was never considered a “tax return” by the IRS, but was rather taken as an administrative request to reconsider the IRS Assessment, which the IRS accepted and used to modify the Debtor’s tax liability. In sum, because the Debtor filed her Form 1040 for 2006 after the IRS Assessment, it was not an honest and good faith effort to comply with the tax laws. Therefore, the tax owed on the late filed return, was not dischargeable in debtor’s bankruptcy, even though debtor filed the late return more than 2 years before debtor filed bankruptcy.