Court Opinion

ID: 4015371
Source: CourtListenerOpinion
Date Created: 2016-07-13 17:01:02.587818+00
Date Added: 2024-06-11T12:50:49.808867
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

IN RE MARTIN SMITH,                      No. 14-15857
                        Debtor,
                                          D.C. No.
                                    4:13-cv-00871-YGR
MARTIN SMITH,
           Plaintiff-Appellant,
                                          OPINION
              v.

UNITED STATES INTERNAL
REVENUE SERVICE,
          Defendant-Appellee.

     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
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 non-
dischargeable 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.
                        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
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
                         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 nonbankruptcy 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
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
                             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.