Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-14-15857/USCOURTS-ca9-14-15857-0/pdf.json

Parties Involved:
Martin Smith

A. Lavar Taylor
Amicus Curiae
United States Internal Revenue Service
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE MARTIN SMITH,

Debtor,

MARTIN SMITH,

Plaintiff-Appellant,

v.

UNITED STATES INTERNAL

REVENUE SERVICE,

Defendant-Appellee.

No. 14-15857

D.C. No.

4:13-cv-00871-YGR

OPINION

Appeal from the United States District Court

for the Northern District of California

Yvonne Gonzalez Rogers, District Judge, Presiding

Argued and Submitted May 12, 2016

San Francisco, California

Filed July 13, 2016

Before: Jerome Farris, Diarmuid F. O’Scannlain,

and Morgan Christen, Circuit Judges.

Opinion by Judge Christen

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2 IN RE SMITH

SUMMARY*

Bankruptcy

The panel affirmed the district court’s order reversing the

bankruptcy court and entering summary judgment in favor of

the IRS in a debtor’s adversary proceeding seeking a

determination that his federal income tax liabilities were

dischargeable in bankruptcy.

The panel held that the debtor’s tax liabilities were nondischargeable under 11 U.S.C. § 523(a)(1)(B)(i), which

exempts from discharge any debt for a tax with respect to

which a return was not filed. The panel held that the debtor’s

late-filed Form 1040 did not represent an honest and

reasonable attempt to satisfy the requirements of the tax law,

and he therefore did not file a “return” within the meaning of

§ 523(a)(1)(B)(i). Agreeing with other circuits, the panel

held that In re Hatton, 220 F.3d 1070 (9th Cir. 2000), which

adopted the Tax Court’s widely-accepted definition of

“return,” applied to the bankruptcy code as since amended.

COUNSEL

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

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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IN RE SMITH 3

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.

OPINION

CHRISTEN, Circuit Judge:

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.

FACTUAL AND PROCEDURAL BACKGROUND

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

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4 IN RE SMITH

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.

STANDARD OF REVIEW

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).

DISCUSSION

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

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IN RE SMITH 5

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 nonbankruptcylaw

(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 filingmet

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

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6 IN RE SMITH

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

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IN RE SMITH 7

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

AFFIRMED.

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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