Smith v. I.R.S. (In re Smith)
Smith v. I.R.S. (In re Smith), ___F.3d___ (9th Cir. July 13, 2016) Circuit case number 14-15857:
Ninth Circuit holds that taxes owed, pursuant to a tax return that the debtor files late – after the due date for the return – may still, under some circumstances be dischargeable in the debtor’s bankruptcy case, using a 4 part test known as the "Beard" test. The part of the Beard test that is most often contested by the tax agency is whether the debtor, in filing a late tax return, made an honest and reasonable attempt to satisfy the requirements of the tax law.
This adds the 9th Circuit to the 4th, 6th, 7th 8th and 11th Circuits, which have similar rulings.
The Ninth Circuit’s opinion is a vindication for the Ninth Circuit Appellate Panel’s December 2015 decision in U.S. v. Martin (In re Martin). There, the B.A.P. rejected the one-day-late rule by holding that the hanging paragraph did not alter two Ninth Circuit cases that adopted a version of the Beard test, which defines the term "return" in the context of determining nondischargeability of tax debts.
In Martin, the B.A.P. reversed and remanded for the bankruptcy judge to apply the Ninth Circuit’s modified Beard test, which inquires into whether the document purports to be a return that was signed under penalty of perjury, contained sufficient information to allow calculation of the tax, and was an "honest and reasonable" attempt to satisfy the requirements of tax law.
There is a "Circuit-Split" between those Circuits, and the 1st, 5th and 10th Circuits, each of which has held that if a tax return is filed even one day late, that the tax owed for that tax year is NOT dischargeable, ever.
It is extremely likely that at some point, the US Supreme Court will decide this issue, to resolve this "Circuit-Split".