COURTS, CONGRESS AND TAX DEBTS: AN ANALYSIS OF THE DISCHARGE OF TAX DEBTS BEFORE AND AFTER THE ENACTMENT OF THE BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005, THE

Fordham Journal of Corporate & Financial Law, 2007 by Power, Brian

These requirements must all be met before a tax debt will be discharged. A plain reading of the statute reveals that the rules appear to be aimed at preventing abuse of the bankruptcy system. Courts have also analyzed what Section 523 is meant to address. Courts have noted that Section 523 seems to serve two purposes.49 The two-year waiting period after filing but before petitioning for relief will prevent debtors who have ignored their filing requirements "from waiting until the eve of bankruptcy, filing a delayed but standard tax return form, and seeking discharge the next day."50 This waiting period provides "notice and an opportunity to act, giving the 1RS time to seek payment by levy or court proceeding."51 Also, the fact that discharge is denied if a debtor has filed fraudulent returns, or attempted to evade taxes, "corresponds with the notion that 'good faith and candor are necessary requisites to obtaining a fresh start.'"52

Inescapable is the observation that the term "return" is used quite frequently in these code sections.53 Even though every individual subject to the tax code must file a return, the term is not defined. If an individual files for bankruptcy, what constitutes a "return" can often play an important role in deciding whether a debt is or is not discharged. Whether a document constitutes a "return" can make it more difficult to evaluate whether a taxpayer has met all of the above requirements. The next part of this Note will discuss how courts have grappled with the issue of how to define a "return" for the purposes of both the IRC and the Bankruptcy Code.

III. WHAT CONSTITUTES A RETURN

As stated above,54 the IRC and the Bankruptcy Code do not define "return;"55 courts, in evaluating whether a document is a return, have found it "appropriate to look to the IRC to determine the proper definition of return."56

A good starting point comes from Black's Law Dictionary, which defines a "tax return" as:

[t]he form on which an individual, corporation, or other entity reports income, deductions, and exemptions and calculates their tax liability. A tax return is generally for a one year period, however, in some cases, the period may be less than a year. A federal tax return is filed with the Internal Revenue Service, and a state return is filed with the revenue department of the state.57

Although some courts will mention this definition, most courts then go on to apply a four-prong test to determine whether a filing with the 1RS constitutes a "return."58 This test was developed from two Supreme Court cases, Germantown Trust Co. v. Commissioner,59 and Zellerbach Paper Co. v. Helvering.60

The Tax Court, in Beard v. Commissioner^ combined the principles laid out in Germantown and Zellerbach.62 The Beard court stated that:

The Supreme Court test to determine whether a document is sufficient for statute of limitation purposes has several elements: First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.63