Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-08088/USCOURTS-ca10-90-08088-0/pdf.json

Parties Involved:
Douglas W. Bergstrom
Appellant
United States of America
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

In Re: DOUGLAS W. BERGSTROM, 

Debtor, 

DOUGLAS W. BERGSTROM, 

Appellant, 

FILED 

United States Court of Appealn Tenth Circuit 

NOV 13 1991 

.ROBERT L. HOECKER 

Clerk 

v. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

No. 90-8088 

UNITED STATES OF AMERICA, 

Appellee. 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF WYOMING 

(D.C. No. C90-085K) 

Janet L. Tyler (Dennis K. Ridley with·her on the brief) of Dennis 

K. Ridley & Associates, Cheyenne, Wyoming, attorney for Appellant. 

Brian C. Griffin (Shirley o. Peterson, Assistant Attorney General; 

Gary R. Allen, William s. Estabrook and Kevin M. Brown, Tax 

Division, Department of Justice; Richard A. Stacy, United States 

Attorney, of counsel; on the brief), Department of Justice, 

Washington, D.C., attorney for Appellee. 

Before McKAY, Chief Judge, BARRETT and BRORBY, Circuit Judges. 

BARRETT, Senior Circuit Judge. 

Appellate Case: 90-8088 Document: 010110097325 Date Filed: 11/13/1991 Page: 1 
Douglas w. Bergstrom 

the district court affirming 

(Bergstrom) appeals from the order of 

the bankruptcy court's denial of 

Bergstrom's motion to have his income tax liabilities for the 

years 1979, 1980 and 1981 discharged in his bankruptcy proceeding. 

Background 

The relevant facts are not in dispute and will be briefly 

summarized. Bergstrom failed to file federal income tax returns 

for taxable years 1979, 1980 and 1981. The Internal Revenue 

Service (IRS) prepared documents entitled "substitute for returns" 

(hereinafter "substitute returns") for those years. (R., Vol. I, 

Tab 7 at 2). Bergstrom neither participated in the preparation of 

the substitute returns nor consented to their preparation; 

further, the returns were not signed by either Bergstrom or the 

preparer (i.e., the IRS). (R., Vol. I, Tab 7 at 5). The 

substitute returns for 1979 and 1980 were filed on February 8, 

1984, and the substitute return for 1981 was filed on April 11, 

1983. The substitute returns reflected Bergstrom's tax liability 

based upon information from W-2 forms and 1099 forms; however, the 

returns did not include any deductions. (R., Vol. I, Tab 7 at 2). 

Based upon the substitute ~eturns, a statutory notice of 

deficiency was mailed to Bergstrom for the 1979, 1980 and 1981 tax 

years. (R., Vol. I, Bankruptcy Docs. at p. 11). 

Bergstrom filed a Chapter 7 bankruptcy petition on November 

2, 1988. After the Trustee determined that the case was a "no 

asset" case, a final decree was entered on April 12, 1989. On 

-2-

Appellate Case: 90-8088 Document: 010110097325 Date Filed: 11/13/1991 Page: 2 
September 25, 1989, the bankruptcy court reopened the case based 

on Bergstrom's motion which he filed when the IRS began collection 

on claimed deficiencies. Bergstrom then filed a motion to 

determine tax liability. Following a hearing, the bankruptcy 

court denied the motion on November 29, 1989. (R., Vol. I, Tab 7 

at p. 2). The denial was appealed to the district court, where a 

hearing was held. The district court affirmed the bankruptcy 

court. (R., Vol. I, Tab 7 at p. 6). 

District Court's Order 

In its "order affirming decision of bankruptcy court with 

findings," the district court found that the issues raised in the 

instant case were matters of first impression in this circuit and 

that the body of law in the area was sparse. (R., Vol. I, Tab 7 

at p. 3). 

The district court found that the substitute returns "were 

not contemplated as § 6020 returns but rather were simply 

necessary bookkeeping devices to enable appropriate assessments to 

be made." The court further found that in order to have obtained 

a discharge, Bergstrom would have had to file the tax returns 

himself. (R., Vol. I, Tab 7 at p. 5). 

Appellate Contentions 

On appeal, Bergstrom seeks determination on the following 

issues: (1) whether substitute returns prepared by the IRS should 

be considered filed returns for purposes of 11 u.s.c. § 

523(a)(l)(B); (2) whether substitute returns prepared by the IRS 

-3-

Appellate Case: 90-8088 Document: 010110097325 Date Filed: 11/13/1991 Page: 3 
are dischargeable when they are prepared more than three years 

prior to filing a bankruptcy petition; and (3) whether penalties 

assessed as a result of the substitute returns are dischargeable 

under 11 u.s.c. § 523(a)(7)(B). 

Discussion - Conclusion 

We hold that the district court did not err in affirming the 

bankruptcy court's denial of Bergstrom's motion to determine tax 

liability. However, we hold that the district court erred in 

determining that the tax penalties were nondischargeable. 

Therefore, we affirm in part and reverse in part. 

Because the relevant facts are undisputed and only legal 

issues have been appealed, our review is de novo. In Re Thompson, 

984 F.2d 1227 (10th Cir. 1990). 

I . 

Bergstrom contends that substitute returns prepared by the 

IRS are filed returns for purposes of 11 u.s.c. § 523(a)(l)(B). 

Under 11 u.s.c. § 523(a)(l)(B), 

(a) A discharge under Section 727, •.. does 

not discharge an individual debtor from any debt -

(1) for a tax ... 

(B) with respect to which a return, if 

required -

(i) was not filed ... 

The language of this statute is clear. An individual's tax 

liability is nondischargeable in bankruptcy when the liability 

results from the individual's failure to file a return. The clear 

-4-

Appellate Case: 90-8088 Document: 010110097325 Date Filed: 11/13/1991 Page: 4 
meaning of this statute is reinforced by the Report of the Senate 

Finance Committee which outlined the intent of the statute: 

[T]he debtor should not be able to use 

bankruptcy to escape these kinds of taxes [arising 

from his deliberate misconduct]. Therefore, these 

taxes have no priority in payment from the estate 

but survive as continuing debts after the case. 

In Re Haywood, 62 B.R. 482, 485 (Bkrtcy. N.D. Ill. 1986) (quoting 

s. Rep. No. 95-1106, 95th Cong., 2nd Sess. 22 (1978)). See also 

In Re Rench, 129 B.R. 649, 651 (Bkrtcy. D. Kan. 1991). The 

legislative history of the statute further provides, 

Also included in the nondischargeable debts 

are taxes for which the debtor had not filed a 

required return as of the petition date, or for 

which a return had been filed beyond its last 

permitted due date (§523 (a)(l)(B)). 

Id., (quoting S. Rep. No. 95-989, 95th Cong., 2nd Sess. 78 (1978), 

U.S. Code Cong. & Admin. News 1978, p. 5787, 5864). See also 

Rench at 651. 

The Internal Revenue Code permits the Secretary to prepare a 

return for any person who fails to do so as required by law. The 

Secretary prepares the return from his own knowledge and from any 

information he can obtain. 26 u.s.c. § 6020(b)(l) (1988). The 

Code further provides that any return prepared by the Secretary 

"shall be prima facie good and sufficient for all legal purposes." 

26 U.S.C. § 6020(b) (2) (1988) .. However, the return prepared by 

the Secretary must be signed by the delinquent taxpayer before it 

can be accepted as the filed return of the taxpayer. 26 u.s.c. § 

6020(a) (1988). 

-5-

Appellate Case: 90-8088 Document: 010110097325 Date Filed: 11/13/1991 Page: 5 
The substitute return may be prepared on a Form 1040, In Re 

Chastang, 116 B.R. 833 (Bkrtcy. M.D. Fla. 1990), or a Form 870, In 

Re D'Avanza, 101 B.R. 787 (Bkrtcy. M.D. Fla. 1989). 

Courts have held that 26 u.s.c. § 6020(b) provides the IRS 

with some recourse if a taxpayer fails to file a return as 

required under 26 u.s.c. § 6012, but that it does not excuse a 

taxpayer from the filing requirement. Moore v. C.I.R., 722 F.2d 

193, 196 (5th Cir. 1984). ("That section [26 u.s.c. § 6020(b)] 

provides the Secretary with some recourse should a taxpayer fail 

to fulfill his statutory obligation to file a return, and does not 

supplant the taxpayer's original obligation to file established by 

26 u.s.c. § 6012."). See also United States v. Lacy, 658 F.2d 

396, 397 (5th Cir. 1981). (". the purpose of section 

6020(b)(l) is to provide the Internal Revenue Service with a 

mechanism for assessing the civil liability of a taxpayer who has 

failed to file a return, not to excuse that taxpayer from criminal 

liability which results from that failure."). We agree. 

Many other courts have addressed the issue of whether a 

substitute return constitutes a filed return, and they have found 

that it does not. See, In Re Crawford, 115 B.R. 381, 383 (Bkrtcy. 

N.D. Ga. 1990); In Re Pruitt, 107 B.R. 764, 766 (Bkrtcy. D. Wyo. 

1989); In Re Hofmann, 76 B.R •. 853, 854 (Bkrtcy. S.D. Fla. 1987); 

Haywood at 486; D'Avanza at 789; Chastang at 834; Rench at 651. We 

agree. 

We hold that substitute returns do not constitute filed 

returns in the absence of the signature of the taxpayer, as 

required by 26 u.s.c. § 6020(a). 

-6-

Appellate Case: 90-8088 Document: 010110097325 Date Filed: 11/13/1991 Page: 6 
II. 

Bergstrom contends that substitute returns prepared more than 

three years prior to filing a bankruptcy petition are 

dischargeable. 

In view of the fact that we have held that the substitute 

returns in this case are nondischargeable under 11 u.s.c. § 

523(a)(l)(B), this issue is moot. 

III. 

Bergstrom contends the penalties assessed as a result of the 

substitute returns are dischargeable under 11 u.s.c. § 

523(a)(7)(B). 

The IRS acknowledges that our decision In Re Roberts, 906 

F.2d 1440 (10th Cir. 1990), holding that the tax penalties imposed 

on an event which occurred more than three years before the filing 

of bankruptcy are dischargeable under 11 u.s.c. § 523(a)(7)(B), 

controls here. That decision was not available to the district 

court when it rendered its decision in this case. 

In light of Roberts, we hold that the district court erred in 

determining the tax penalties nondischargeable. 

Accordingly, we AFFIRM in _part and REVERSE in part. 

-7-

Appellate Case: 90-8088 Document: 010110097325 Date Filed: 11/13/1991 Page: 7