Not Filing Tax Return on Time Can be Serious in Bankruptcy

Tax returns filed late – can the debt be discharged in bankruptcy?
Confusion reigns among the various courts responsible to interpret and apply the bankruptcy laws.  The question is  whether a debtor can use bankruptcy to discharge a tax debt when a tax return was filed late.  Some court decisions have little to do with the law, but instead focus on the actions of the taxpayer.  even the IRS does not support the conclusion of some courts (filing a tax return even one day late = non-dischargeable).
At this time the Courts of Appeals fall generally into two camps of thought:
1) The First, Fifth and Tenth Circuits have convoluted the Bankruptcy Code, federal statutes and case law in order to determine that a tax debt is not discharged if the tax return is filed even one day late.
2) The Fourth, Sixth, Seventh, Eighth and Eleventh Circuits follow a 1984 Tax Court decision known as Beard v. Commissioner, 82 T.C. 766 (1984).  Of the four factors in Beard the above Courts generally focus on whether there was an honest and reasonable attempt to satisfy the requirements of tax law.  Or in the case of the Eighth Circuit – determine honesty solely from the face of the tax return.
In Smith v. I.R.S. (In re Smith), 14-15857 (July 13, 2016) the Ninth Circuit joined the second camp, distinguishing itself from the 8th Circuit carve out.  The court held that the return, filed eight years late and three years after the IRS’s deficiency notice,  was not dischargable because it “was not an honest and reasonable attempt to comply with the tax code.”

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