07/26/2010 01:06:00 PM EST
Sharp v. United States (In re Sharp), 2009 Bankr. LEXIS 4416 (Bankr. N.D. Ill. Sept. 25, 2009)
The IRS acknowledged that assessed federal income taxes were dischargeable in bankruptcy, even though relevant returns for two tax years were not timely filed. Congress did not intend to repeal the law that taxes assessed in accordance with a return filed late are governed primarily by 11 U.S.C.S. Sec. 523(a)(1)(B)(ii) -- (not Sec. 523(a)(1)(B)(i)). Sharp v. United States (In re Sharp), 2009 Bankr. LEXIS 4416 (Bankr. N.D. Ill. Sept. 25, 2009). (See also attachment - United States' withdrawal of argument that timeliness is part of definition of "return" in 11 U.S.C.S. Sec. 523(a)). This means that tax is dischargeable if more than two years elapse between the filing of the return and the bankruptcy petition.
The Service recognized these ambiguities in the governing statute's definition of "return":
- Limiting "returns" filed late to returns prepared by the IRS pursuant to 26 U.S.C.S. Sec. 6020(a) would effectively nullify Bankruptcy Code section 523(a)(1)(B)(ii), since Section 6020(a) returns are rare.
- Inconsistencies in language affecting late-filed returns between 26 U.S.C.S. Sec. 6020(a) and 11 U.S.C.S. 523(a) flush language.
In three previous cases, taxing agencies had successfully argued that a late filed return is not a return for 11 U.S.C.S. Sec. 523(a)(1)(B)(ii) purposes on grounds that a timely return one of the "applicable filing requirements."