MEMORANDUM ORDER GRANTING DEFENDANT'S SUMMARY JUDGMENT AND DENYING PLAINTIFF'S SUMMARY JUDGMENT MOTION
CHARLES NOVACK, Bankruptcy Judge.
On May 15, 2017, this court heard dueling summary judgment motions in this adversary proceeding. All appearances were noted on the record. The sole issue for this court to determine is whether Chapter 7 debtor Jon Robin Van Arsdale's late filed 2001 federal tax return is a "return" under Bankruptcy Code § 523(a)(1)(B). The resolution of this issue will, in turn, determine if Van Arsdale may discharge his 2001 federal tax liability.
The pertinent facts are undisputed. Van Arsdale was required to file a federal tax return for income earned during 2001 by April 15, 2002. He did not adhere to this well known filing deadline. Van Arsdale did not file his 2001 federal tax return until August 2005. His return listed taxable income of $59,697.00 and $13,126.00 in taxes due. In the interim, the Internal Revenue Service filed a substitute for return (under 26 USC § 6020(b); "SFR") on October 27, 2003 which determined that Van Arsdale owed approximately $12,000.00 in taxes. In or around July 2005 Van Arsdale retained Robert Goldstein to prepare his 2001 tax return. Goldstein promptly prepared the return, and Van Arsdale filed the 2001 return in August 2005. This return listed slightly more in taxes that the SFR. Van Arsdale thereafter submitted three offers in compromise, which the IRS rejected. The IRS's account transcript for Van Arsdale's 2001 tax year does not indicate that the IRS made any attempt to collect the tax liability assessed by the SFR before Van Arsdale he filed his 2001 return in August 2005.
Van Arsdale states that while he knew he was required to file a 2001 return, he did not do so because he did not have the money to pay the taxes, and that he "panicked" and "stuck his head in the sand." His decision to file the 2001 return was motivated by his concern that he could be criminally prosecuted if he did not file the return by April 2008.
The United States (herein, the "IRS") and Van Arsdale have filed motions for summary judgment. The IRS's arguments are twofold: that the late filed 2001 return was not a "return" under Bankruptcy Code § 523(a)(1)(B) because it was filed after the SFR, and the August filing was not an honest and reasonable attempt to address his 2001 tax obligation under
The summary judgment standard is well established. Federal Rule of Bankruptcy Procedure 7056(a) provides that a court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Only disputes over facts that might affect the outcome of the adversary proceeding under applicable law will preclude the entry of summary judgment.
This standard does not change where the parties file cross-motions for summary judgment.
1. The IRS Motion.
Bankruptcy Code § 523(a)(1)(B) addresses the dischargeability of Van Arsdale's 2001 federal tax obligation. Section 523(a)(1)(B) states in pertinent part that a debtor cannot discharge an income tax "with respect to which a return, or equivalent report or notice, if required — (I) was not filed or given; or (ii) was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition . . . . The IRS concedes that the only legal issue before this court is whether Van Arsdale's 2001 return is a "return" for dischargeability purposes. If this court determines that his 2001 return is a "return," his 2001 taxes will be discharged.
The IRS contends that Van Arsdale's 2001 return was not a return under § 523(a)(1)(B). The IRS first argues that a tax return filed after it files a SFR is never a return under § 523(a)(1)(B). The IRS contends that since it assessed Van Arsdale's 2001 tax liability (which assessment creates the tax debt) before he filed his 2001 return, there no longer was any "debt" for which a return can be filed. As noted by the Tenth Circuit BAP in
The IRS also argues that Van Arsdale's 2001 return does not satisfy the definition of a tax return enunciated by
The IRS concedes that Van Arsdale's 2001 tax return satisfies the first three
The undisputed facts establish that Van Arsdale's August 2005 filing of his 2001 federal tax return was not an honest and reasonable attempt to satisfy his 2001 tax obligation. Van Arsdale's excuses are skimpy and insufficient. Simply stating that you "panicked" and "stuck your head in the sand" is insufficient. Van Arsdale does not state why he panicked, whether this panic attack left him emotionally or physically incapable of filing a return, or how long this panicked state lasted. At least one Circuit Court has rejected a similar plea. See
2. Van Arsdale's Motion.
While this court's granting of the IRS's motion necessarily requires that it deny Van Arsdale's summary judgment motion, some comment is necessary. Van Arsdale argues that his 2001 tax return was an "honest and reasonable attempt" to comply with his tax reporting obligations because he reported a greater tax liability than that assessed by the IRS. This argument has been rightly rejected by several courts. "[T]he argument that a belated return serves a legitimate tax purpose because it is useful to the IRS has been soundly rejected by the majority of circuit courts that have considered it. Most recently, the Eleventh Circuit Court of Appeals explained that `the focus of the fourth prong [
Van Arsdale also questions this court's capacity to determine a tax issue, and argues that this court should defer to the expertise of the IRS in whether to accept or reject a tax return. The standard that Van Arsdale pulls out of the IRS's Internal Revenue Manual, will, he contends, provide the bankruptcy courts with an objective, easy to apply test that will remove any uncertainty regarding the dischargeability of a Chapter 7 debtor's taxes. This court rejects his suggestion, as the
The IRS shall prepare an appropriate judgment.