Held: Late-Filed State Tax Return as Invalid
HELD: LATE-FILED STATE TAX RETURN AS INVALID; and because late-filed tax return was invalid, the taxes were not dischargeable, by debtor, in debtor’s bankruptcy case
Kline v. Internal Revenue Service and Arkansas Department of Finance & Administration, 581 B.R. 597 (Bankr. W.D. Ark., 2018)
In this case what has become known as the “McCoy rule” rearsits head again, and, like McCoy, it involves state income taxes, in particular taxes assessed by the Arkansas Department of Finance and Administration. The debtor filed his state tax returns years after they were due. The State challenged the dischargeability of the liabilities because the applicable State statute required that the returns “shall” be filed by a certain date. But ” … in fact all of the returns at issue were filed … more than four and a half years after the 2008 return was due and fourteen and a half years after the 1998 tax was due.” The State averred its argument based on 11 U.S.C. § 523(a)(19).
That section reads:
“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 a similar State or local law.” inf.added
The court commented:
“This Court agrees that the language defining “return” that was added under BAPCPA is clear and unambiguous and that the phrase “including applicable filing requirements” is not superfluous to the definition. To determine what the applicable filing requirements are, the Court must turn to Arkansas law.
In Arkansas, an income tax return “shall be filed as follows: (a) If covering the preceding calendar year, on or before April 15.” Ark. Code Ann. § 26-51-806(a)(2)(A). By including a requirement that a tax return “shall be filed” by a certain date, the state is indicating that timeliness is a condition to filing.”
ed. note:
This case is in the 8th Circuit, which has not adopted the McCoy rule. This case, like a growing handful of courts outside the 1st., 5th., and 10th. circuits, have independently adopted the McCoy “late filed returns are invalid” rule. If a case involves late-filed returns, it is not enough to assume that because your district is not in one of the 3 McCoy rule circuits, you need not give it a second thought. You may want to check out your local judge’s inclination, if any, for or against people who have filed their tax returns late.