DISCUSSION
Standards for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure, which is made applicable to bankruptcy by Fed.R.Bankr.P.7056(c), provides that a motion for summaryjudgmentmaybegrantedif"thepleadings, depositions,answerstointerrogatories,andadmissions onfile,togetherwiththe affidavits,ifany, showthat there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." In deciding whether there is a triable dispute, the court must construe all reasonable inferences that can be drawn from the facts in favor of the nonmoving party. Bartman v. Allis-Chalmers Corp., 799 F.2d 311, 312 (7th Cir. 1986).
Undisputed Facts
Payne did not controvertthe listofundisputedfactssubmittedbythe USAinsupportof its motion for summary judgment. Therefore, pursuant to Local Rule 402 N(3)(b) the following facts are deemed admitted:
1. TheIRSwasproperlynotifiedofPayne'sChapter7bankruptcycase. The IRS never filed a claim against Payne's estate nor did it file an adversary to determine the dischargeability of any of the income taxes owed by Payne.
2. Payne was paid $155,604.77 in wages by RBH of Illinois, Inc. in 1986, from which
$44,520 in federal income taxes and $3,003.00 in social security taxes was withheld.
3. The USA gave Payne credit for the $44,520 withheld from his wages on or about April
15, 1987.
4. Payne failed to file a tax return for 1986 on or before the required due date of April 15,
1987.
5. OnoraboutNovember6,1989,theIRSfiledasubstitutereturnforPayne pursuant to 26
U.S.C.§6020(b). That substitute return showed no income for 1986. TheIRSthenbegantoinvestigate
to determine the proper tax liability owed by Payne.
6. On or about December 31, 1990, a delegate of the Secretary of Treasury made an
assessment for unpaid income tax in the amount of $64,472.00, plus penalties and interest.
- The IRS has no record that Payne ever filed a tax return for the 1986 tax year.
- PaynesaysthathemailedseveralyearsoflatereturnsinMarchof1992,includingthe1986
return. Payne's 402 N Statement. The IRS has acknowledged receiving the other returns, but says it never
received the 1986 return. If Payne did file the 1986 return in March of 1992, that was more than two years
prior to filing of his Bankruptcy Petition on December 31, 1997.
§ 523 Exceptions to Discharge
Section 523 of the Code which enumerates exceptions to discharge provides in relevant part:
- (a)
- A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-
- (1)
- for a tax or a customs duty-
- (A)
- of the kind and forthe periodsspecifiedinsection507(a)(2) or 507(a)(8) of this title, whether or not a claim for such tax was filed or allowed;
- (B)
- with respect to which a return, if required-
- (i)
- was not filed; or
- (ii)
- was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or
- (C)
- with respect to whichthe debtor madeafraudulent returnorwillfullyattempted in any manner to evade or defeat such tax;
11 U.S.C. § 523(a)(1)(a)(A)-(C).
Exceptions to discharge arenarrowlyconstruedinfavorofprovidingthedebtorwithafreshstart.Goldberg
Securities, Inc. v. Scalata, 979 F.2d 521, 524 (7th Cir. 1992) (citation omitted). However, Congress has
evincedanintent to balancethis policywithrecognitionofthe needto encourage voluntarycompliancewith
applicable tax law. Collier on Bankruptcy, ¶ 507.10[1][b] (15th ed. 2002). Thus, income tax debts have
priority and are nondischargeable even if the taxing authority does not file a claim, unless the following
criteria aremet:(1) the debtor filedthe requiredreturnand did not attempt to willfully avoid paying the tax
(11 U.S.C. § 532(a)(1)(B)-(C)); (2) the taxes came due more than three-years prior to the debtor filing
for bankruptcy, including any extensions (11 U.S.C. § 523(a)(1)(A)); (3) the taxes were not assessed
within 240 days of filing the bankruptcy, including extensions (11 U.S.C. § 523(a)(1)(A)); and (4) the
required return was filed more than two years before the debtor filed for bankruptcy (11 U.S.C. §
523(a)(1)(B)(ii)).
The USA's Argument against Discharge
The USA raises a twofold argument insupportofitsclaimthatPayne isineligible for discharge of
his1986taxbecause he failed to file the required return. First,the InternalRevenue Servicehasno record
that the return was ever received by it. Secondly, even if Payne mailed a 1040 Form to the IRS when he says he did, that form does not constitute avalid returnforpurposes of§ 523 because it was mailed after
the IRS had already assessed the tax. Each of these arguments will be taken in turn.
For Purpose of Considering the Motion for Summary
Judgment, the IRS is Presumed to have Received Return
Payne has raised an unrebutted presumption for purpose of considering the motion for summary
judgment thathis1986 taxreturnwas received by the IRS alongwithhisotherreturns for1983-1991. His
swornaffidavitstatesthatheexecutedand mailed the 1986 returnin1992alongwithhisotherreturns. He
attached a purported retained copyofthe 1986return. Anunrebuttedstatement in an affidavit is sufficient
to raise a presumption that Payne’s return was delivered to the IRS. See Godfrey, 997 F.2d at 338.
Particularlyinlightofthe acknowledgment thatotherreturns thatweresent atthe same time byPayne were
received, the IRS’s failure to locate the return in issue is insufficient to rebut for purposes of summary
judgment a presumptionthatitwasdelivered.Nimz, 505 F.2d at 179 (failure of bankruptcy court clerkto
locateproofofclaims wasinsufficient to showclaimswerenotreceived);Barnettv. OkeechobeeHospital,
283 F.3d 1232, 1241 (11th Cir. 2002) (same); Sorrentino v. United States of America, 199 F.Supp. 2d
1068, 1077 (D. Co. 2002) (same involving missing tax return). It is at least possible on the present record
that the 1986 return was received by the IRS, which acknowledges receiving the other returns, and was
subsequently misplaced. The USA has not offered any evidence to show that this did not happen except
proof that its search has not turned up the return in issue.
As argued by the Government, mailing is not filing. United States v. Lombardo, 241 U.S. 73, 76
(1916). To file a required document with a governmental agency, it must be delivered to and received by
the proper government official. Id. Congress has elaborated on this requirement with enactment of 26
U.S.C.§ 75021/ whichallowsa postmarkto establish the filing date of a tax return which is mailedbefore
the tax filing deadline.
UnderSection7502, adocument isdeemeddeliveredonthe date itispostmarkedifthe document
was: (1) properly placed in the U.S. mail priorto the filingdeadline;and (2) delivered to the IRS after the
deadline.26 U.S.C.§ 7502(a)(1)-(2).Documentssentviaregisteredmailorcertifiedmailconstitutesprima
1/ Timely mailing treated as timely filing and paying
(a) General Rule.---
- (1)
- Dateofdelivery.—Ifanyreturn ... required to be made, ... on or before a prescribed date ... is,aftersuch... date, delivered by United States mail to the agency, ... or office withwhichsuchreturn, ... isrequiredto befiled,... the date ofthe UnitedStatespostmark stamped on the coverinwhichsuchreturn ... is mailed shall be deemed to be the date of delivery ....
- (2)
- Mailing requirements.---This subsection shall apply only if---
- (A)
- the postmark date falls within the prescribed period or on or before the prescribed date---
- (i)
- for the filing ... of the return ..., and ...
- (B)
- the return ... was, within the time prescribed in subparagraph(A),depositedin the mail in the United States in an envelope or other appropriate wrapper, postage prepaid, properly addressed to the agency ... or office with which the return ... is required to be filed.... ... (c) Registered and certified mailing.---
- (1)
- Registered mail.---For purposes of this section, if any such return ... is sent by United States registered mail---
- (A)
- such registration shall be prima facie evidence that the return ... was delivered to the agency ... or office to which addressed, and (B) the date of registration shall be deemed the postmark date.
- (2)
- Certified mail.---The Secretary is authorized to provide by regulations the extent to which the provisions of paragraph (1) of this subsection with respect to prima facie evidence of delivery and the postmark date shall apply to certified mail.
26 U.S.C. § 7502.
facie evidenceofdelivery, providedthe taxpayerhasapostmarkedreceiptshowingthatthedocument was mailed before the filing deadline. 26 U.S.C. § 7502(c)(1)-(2). The Government argues that § 7502 abrogated the common law mailbox rule whereunder properly mailing of a document raises a rebuttable presumptionthatitwasreceived.MatterofNimzTransportation,505F.2d177,178(7thCir.1974). Thus, itcontendsthatPayne’sinability to produce a registration showing that he mailedthe returnvia certifiedor registered mail means that he cannot as a matteroflawestablishthatthereturnwasfiled. See Reply Brief
p. 3.
There is a split of authority on the issue of whether § 7502 abolished the mailbox rule applicable under earlier cited authority as to tax filings. See Carroll v. Commissioner, 71 F.3d 1228, 1232 (listing cases). The Eighth and Ninth Circuits have answered this question in the negative. See Anderson v. United States, 966 F.2d 487 (9th Cir. 1992); Estate of Wood v. Commissioner, 909 F.2d 1155 (8th Cir. 1990). According to those opinions, if Congress had intended to abrogate the mailbox rule it would have said so expressly. Estate of Wood, 909 F.2d at 1160. Wood concluded that there is nothing in § 7502 which indicates an intent to abolish the mailbox rule. Id. Hence, absent a clear manifestation of a contrary intent, § 7502 should be construed in harmony with prior existing law and judicial construction. Id. Therefore, it was reasoned that § 7502 created a “safe harbor” which does not exclude the presumption of delivery under the common law mailbox rule. Id. at 1161.
Conversely, the Second and Sixth Circuits have held that § 7502 is the exclusive means of establishing delivery or timeliness of tax documents mailed to the IRS. Miller v. United States, 784 F.2d 728 (6th Cir. 1986); Deutsch v. Commissioner, 599 F.2d 44 (2nd Cir. 1979). However, neither opinion is persuasive. See Carroll, 71 F.3d at 1232 (expressing belief that it is time to revisit issue of whether § 7502 abolished mailbox rule). Both Miller and Deutsch held that a taxpayer must meet two conditions to qualify for the safe harbor under § 7502: (1) the return must be mailed within the prescribed period; and
(2) the return must be received by the IRS. Miller and Deutsch stand for the proposition that § 7502 enumeratestheonlymeans throughwhichthe taxpayercanestablishthe presumptionofdelivery.Thiscould leadto the absurdresult that a taxpayer filinganuntimelyreturn, as here,would be barred fromintroducing anyproof that the late return was mailed because the taxpayercould notsatisfythe firstelement of§ 7502 (filingofa timelyreturn).The anomalyofreadingthe statute thatwayisillustratedbya taxpayertimelyfiling a return onthe lastdayofthe prescribedperiod by registered mail but the postmark was inadvertently set for the next day. The taxpayer could not offer a registered receipt with the correct date of mailing to establish the presumption that the return was received by the IRS. See Miller, 784 F.2d at 731 Fn. 4 (acknowledging the harsh and illogical result of strict application of § 7502). Clearly, Congress did not intend such aresult whenitenacted § 7502 to alleviate the inequities caused by disparate postal systems. Miller, 784 F.2d at 730 (§ 7502 is remedial statute).
Finally, nothing in § 7502 evinces a statutory holdingthatthe IRS willneverloseafiled tax return. Yet, that is the presumed result if one applies the reasoning of Miller and Deutsch. See BMC Bankcorp, Incv.U.S.(unpublishedopinion),59F.3d 170 (6th Cir.1995)(panelconstrainedbyMiller torejectclaim that return was filed even though IRS acknowledged receiving two of three returns mailed by company).
Thereare no casesdirectlyonpoint inthis Circuit.See L&HCompany, Inc.v. U.S., 761 F.Supp. 572,574(N.D.Ill.1991)(expressingsupportforWood indicta).However,an opinion ofthisCircuithas applied the mailbox rule to overturn a decision granting summary judgment for the IRS. Godfrey v. U.S., 997F.2d335,338-40(7th Cir. 1993). In Godfrey, a couplesought$6,580.50ininterestpaymentsfrom the IRS for delaying payment of a refund check. Id. at 336. The Government claimed that the plaintiff’s were not entitled to any interest because it mailed a refund check to the couple within the time allowed by statute. Id. However, the taxpayers claimed they never received the check. Eventually, the Government canceled the original check and issued a replacement check. Id. On appeal, the opinion stated that the Government wasentitledto the presumptionunderthe mailboxrule,but becausethe IRS failedto offerany evidencethatthe originalcheckwasever mailed, it could not avail itselfofthe presumption. Id. at338-40. Another Seventh Circuit opinion held that the IRS was not entitled to the presumption where it did not produce the returnreceiptfora deficiencynoticewhichwasallegedto have beensent bycertifiedmail. See McPartlin v. Commissioner, 653 F.2d 1185, 1191 (7th Cir. 1981).
As decided in Wood, supra, there is nothing in § 7502 which shows that Congress intended to abolish the general mailbox rule. Further, it would be an anomaly to allow the IRS to invoke the mailbox rule, but to refuse application of the same to taxpayers. This is particularly true in the bankruptcy context where the intent of Congress to discharge taxes where a return was filed is clear.
Finally, the IRS’s argument under § 7502(c) is unfounded because the express language of the statute states that it only applies to documents that are filed before the required deadline and provides a “safe harbor” to allow debtors to file timely and avoid penalties for late filing. Here, Payne alleges that he filed his 1986 return in March of 1992, well after the April 15, 1987, deadline for filing his income tax return. Thus, the safe harbor provision of § 7502 is unavailable to Payne to avoid penalties. But the IRS is arguing for an unrebuttable presumption that Payne never filed his 1986 return and cannot get the tax debtdischargedbecausehedidnotsenditinbycertifiedorregisteredmail. That position is not supported by the Bankruptcy Code or § 7502(c).
A motion for summary judgment must be denied where a genuine issue of fact is unresolved. Fed.R.Bankr.P. 7056(c). Thus, construing the facts here in the light most favorable to the non-movant, a triable dispute is found over whether Payne filed his 1986 return in March of 1992.
Payne’s Return Satisfies § 523(a)(1)(B)
Alternatively, the Government argues that the 1040 Form allegedly mailed by Payne could not qualify as a return even if received, and therefore any filing of it in March of 1992 should be treated as a nonevent for purposes of § 523(a)(1)(B). It relies on In re Hindenlang, 164 F.3d 1029 (6th Cir. 1999), where the opinionheld:“Weconclude that if a document purporting to be a tax return serves no purpose at all under the Internal Revenue Code, such a document cannot as a matter of law, qualify as an honest and reasonable attempt to satisfy the requirements of tax law.” Id. At 1035. The requirement that a purported return must represent an honest and reasonable attempt to comply with the tax code is drawn from cases which apply a four-part test to determine whether a document qualifies as a return: (1) the document must purport to bea return, (2) itmustbeexecutedunderpenaltyofperjury, (3) it must contain sufficient data to allowcomputationof the tax, and (4) it must represent an honestand reasonable attempt to complywithtaxlaw. This isthe so-called“Beard test” which is derivedfromtwo earlierSupreme Court cases: Commissioner v. Lane-Wells Co., 321 U.S. 219, 223 (1944); and Zellerbach Paper Co. v. Helvering,293U.S.172,180(1934).See Beardv. CommissionerofInternetRevenue, 82T.C. 766, 775, 778 (1984).
The SixthCircuit opinioninHindenlang reasoned that a document purporting to be areturnwhich isfiledafteranassessmenthasbeenmadebytheIRShas no tax purpose. Hindenlang, 164 F.3d at1034
35. Hence,itreasonedthatsuchdocumentsareanullity and therefore do not qualify as a tax return under § 523(a)(1)(B). Id. Applying that reasoning, the Government argues that its assessment on December 31, 1990, made it legally impossible for Payne to file a valid return in March of 1992.
Other authority has rejectedthe reasoninginHindenlang whichone BAP Panel says could lead to the absurd result that the IRS would be given a veto over the dischargeability of tax debts in bankruptcy. See In re Savage, 218 B.R. 126, 132 (10th Cir. BAP 1998) (noting that a debtor for whom the IRS prepareda taxreturnforpurposes ofassessment could neverobtain a discharge of the tax debt). Another BAP Panel has stated that the view espoused in Hindenlang is unsupported by the plain language of § 523(a)(1)(B) and is contrary to the policy of narrowly interpreting exceptions to discharge. See In re Nunez, 232 B.R. 778, 783 (9th Cir. BAP 1999) (good faith-prong of “Beard test” should be narrowly construed to favor discharge). The Seventh Circuit has not spoken to this issue. However, Judge Squires of this Bankruptcy Court has adopted the reasoning of Nunez and Savage and refused to apply non-bankruptcy authorities to define what constitutes a meaningful return under § 523(a)(1)(B)(i). See In re Crawley, 244 B.R. 121 (Bankr. N.D. Ill. 2000).
Analysis inthe latteropinions ismorepersuasive thanthatinHindenlang. Obviously, the returnfiled by Payne met the first three prongs of the Beard test. Payne says that he executed the 1040 Form which he forwardedwithintent thatitserve as his 1986 taxform, and he nowdemonstratesprima facie a retained copy showing that he provided sufficient data to compute the tax. The only issue is whether he satisfied the good-faith requirement of the fourth prong ofBeard. However,the inquiryintoPayne’sgood-faith should focus on his intent, not on the timing of the return’s utility to the IRS. The fact that the return was mailed after the IRS had made an assessment in no way reflects on whether Payne had a good-faith intent to provideaccurateinformationonhisuntimelyfiledreturn. Given that the Bankruptcy Code already contains a good-faith test in § 523(a)(1)(c), it is inappropriate to impose a different good-faith requirement under non-bankruptcy law through the fourth prong of the Beard test. As stated in Nunez, the good-faith test
under Beard should be narrowly construed. Nunez, 232 B.R. at 783.
Analysis of “good faith” certainly must cover many issues, such as: whether a purported return is
accurate and supported by documents; whether the IRS was hot on the trail of a debtor with collection
efforts when a late return is filed2/; and whether the explanation for late filing is adequate. Those issues
remain to be tried.
Thus, on the current record it appears that Payne must be given the opportunity to show that his
belated 1040 Form if filed could have qualified as a good faith tax return.
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