No. 14-15857.

828 F.3d 1094 (2016)

IN RE Martin SMITH, Debtor. Martin Smith, Plaintiff-Appellant, v. United States Internal Revenue Service, Defendant-Appellee.

United States Court of Appeals, Ninth Circuit.

Filed July 13, 2016.

Attorney(s) appearing for the Case

Robert L. Goldstein (argued), Law Offices of Robert L. Goldstein, San Francisco, California, for Plaintiff-Appellant.

Julie C. Avetta (argued) and Ellen Page DelSole , Attorneys; Tamara W. Ashford , Acting Assistant Attorney General; Tax Division, Department of Justice, Washington, D.C.; for Defendant-Appellee.

A. Lavar Taylor , Law Offices of Lavar Taylor, Santa Ana, California, as and for Amicus Curiae.

Before: Jerome Farris, Diarmuid F. O'Scannlain, and Morgan Christen, Circuit Judges.


Martin Smith did not file a 2001 tax form on time. Instead, he filed a Form 1040 seven years after it was due, and three years after the IRS assessed a deficiency against him. Smith later filed for bankruptcy and sought to discharge his 2001 tax liability. The bankruptcy court permitted the discharge, but the district court reversed. Smith appeals the district court's ruling.


After Martin Smith failed to timely file his 2001 tax forms, the IRS prepared a Substitute for Return or "SFR" based on information it gathered from third parties. In March 2006, the IRS mailed Smith a notice of deficiency. Smith did not challenge the notice of deficiency within the allotted 90 days and the IRS assessed a deficiency against him of $70,662. Three years later, in May 2009, Smith filed a Form 1040 for the year 2001 on which he wrote "original return to replace SFR." On this late-filed form, Smith reported a higher income than the one the IRS calculated in its assessment, thereby increasing his tax liability. The IRS added the additional arrearage to its assessment. Two months after that, in July 2009, Smith submitted an offer in compromise, hoping to resolve his tax liability. The IRS rejected his offer. Smith later lost his job and the IRS allowed him to pay his tax bill in monthly installments of $150.

After about five months, Smith declared bankruptcy and sought to discharge his 2001 tax debt before the bankruptcy court. Smith and the IRS agreed that the increase in the assessment based on Smith's late-filed form was dischargeable, but they disputed whether the IRS's original $70,662 assessment was also dischargeable. The bankruptcy court ruled that it was. The district court reversed. Smith appeals the district court's ruling. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm the district court's order entering summary judgment in favor of the IRS.


This court reviews de novo the bankruptcy court's interpretation of the bankruptcy code. In re Hatton, 220 F.3d 1057, 1059 (9th Cir. 2000). We also review de novo a district court's order granting a motion for summary judgment. Ditto v. McCurdy, 510 F.3d 1070, 1075 (9th Cir. 2007).


The bankruptcy code exempts from discharge "any ... debt for a tax ... with respect to which a return, or equivalent report or notice, if required ... was not filed or given." 11 U.S.C. § 523(a)(1)(B)(I). In In re Hatton, we adopted the Tax Court's widely-accepted definition of "return." 220 F.3d at 1060 (internal citation omitted). There, we stated that "[i]n order for a document to qualify as a [tax] return: (1) it must purport to be a return; (2) it must be executed under penalty of perjury; (3) it must contain sufficient data to allow calculation of tax; and (4) it must represent an honest and reasonable attempt to satisfy the requirements of the tax law." Id. at 1060-61 (internal citation and quotation marks omitted).

When we decided Hatton, the bankruptcy code did not define "return," id. at 1060, but Congress amended the bankruptcy code in 2005 and it added a definition. In pertinent part, the amendment reads:

For purposes of this subsection, the term "return" means a return that satisfies the requirements of applicable non-bankruptcy law (including applicable filing requirements).

11 U.S.C. § 523(a).

We have not interpreted this new definition, but both parties and several of our sister circuits agree that Hatton's four-factor test still applies, see In re Ciotti, 638 F.3d 276, 280 (4th Cir. 2011); In re Justice, 817 F.3d 738, 740-41 (11th Cir. 2016); and the Tax Court has not wavered in its application of this common-law test in the sixteen years since we decided Hatton. See, e.g., Estate of Sanders v. Comm'r of Internal Revenue, 144 T.C. 63 (2015).

The parties' dispute centers on whether Smith's filing met the fourth requirement of the operative test: was his filing "an honest and reasonable attempt to satisfy the requirements of the tax law?" Hatton considered this question under similar circumstances. The taxpayer in Hatton failed to file a tax return and the IRS computed and assessed his tax liability by creating an SFR. Hatton, 220 F.3d at 1059. Throughout the process, the IRS sent numerous notices to Hatton, but it received no responses. Id. Hatton finally met with the IRS more than seven years after the original return was due and more than four years after the IRS assessed a deficiency. Id. He did not dispute his liability and the IRS agreed to a $200-a-month payment plan. Id. We held that Hatton's "belated acceptance of responsibility" was not an honest and reasonable attempt to comply with the tax code. Id. at 1061.

Here, Smith failed to make a tax filing until seven years after his return was due and three years after the IRS went to the trouble of calculating a deficiency and issuing an assessment. Under these circumstances, Smith's "belated acceptance of responsibility" was not a reasonable attempt to comply with the tax code. Many of our sister circuits have held that post-assessment tax filings are not "honest and reasonable" attempts to comply and are therefore not "returns" at all. See In re Justice, 817 F.3d at 746; In re Payne, 431 F.3d 1055, 1057-60 (7th Cir. 2005); In re Moroney, 352 F.3d 902, 907 (4th Cir. 2003); In re Hindenlang, 164 F.3d 1029, 1034-35 (6th Cir. 1999). But see In re Colsen, 446 F.3d 836, 840-41 (8th Cir. 2006). We need not decide the close question of whether any post-assessment filing could be "honest and reasonable" because these are not close facts; the IRS communicated with Smith for years before assessing a deficiency, and Smith waited several more years before responding to the IRS or reporting his 2001 financial information.

Smith argues that Hatton's "honest and reasonable" inquiry requires looking only at the face of the filing, and that Hatton's facts are distinguishable because Hatton did not file a tax form at all. We disagree. Hatton focused the "honest and reasonable" inquiry on the honesty and reasonableness of the taxpayer's conduct, not on any deficiency in the documents' form or content. See Hatton, 220 F.3d at 1061 ("Hatton made every attempt to avoid paying his taxes until the IRS left him with no other choice."). We hold that Hatton applies to the bankruptcy code as amended, and that Smith's tax filing, made seven years late and three years after the IRS assessed a deficiency against him, was not an "honest and reasonable" attempt to comply with the tax code.1



1. The IRS argues that even if Smith's filing was a return, the deficiency it assessed against Smith was not a "debt for a tax ... with respect to which" a return was filed because Smith had not yet filed anything when it assessed the deficiency. We do not reach this argument because we hold that Smith's filing was not a return.


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