Mallo v. IRS, No. 13-1464 (10th Cir. 2014)
Annotate this CaseConsolidated appeals before the Tenth Circuit in this case shared a common issue, a matter of first impression: whether an untimely 1040 Form, filed after the Internal Revenue Service (IRS) has assessed the tax liability, is a tax return for purposes of the exceptions to discharge in section 523(a)(1)(B)(i) of the Bankruptcy Code. Edson and Liana Mallo did not file timely federal income tax returns for 2000 and 2001. As a result, the IRS issued statutory notices of deficiency. The Mallos did not challenge those determinations. The IRS began collection efforts in 2006. In 2007, the Mallos filed a joint Form 1040 for tax year 2000 and another joint Form 1040 for tax year 2001. Based on this information, the IRS assessed additional joint tax liability against them. In 2010, the Mallos filed a Chapter 13 bankruptcy petition for adjustment of debts with the United States Bankruptcy Court for the District of Colorado. Their case was converted to a liquidation proceeding under Chapter 7 in early 2011. After the bankruptcy court issued a general order discharging the Mallos’ debts, the Mallos filed an adversary proceeding against the IRS, seeking a determination that their income tax liabilities for 2000 and 2001 had been discharged. The IRS answered, denying the debts had been discharged. The parties agreed there were no issues of material fact in dispute and filed cross motions for summary judgment on the legal question whether the Mallos’ tax debt was excepted from discharge under section 523(a)(1)(B) of the Bankruptcy Code. In another case, Peter Martin did not file timely returns for tax years 2000 and 2001. The IRS issued statutory notices of deficiency, which Mr. Martin did not challenge. In 2004, the IRS began collection efforts. In May 2005, Mr. Martin filed a Form 1040 for 2000 and a Form 1040 for 2001. Based on his submissions, the IRS partially abated Mr. Martin’s 2000 and 2001 tax liabilities. The legal question was the same in Mr. Martin’s bankruptcy, but he obtained a more favorable result. Mr. Martin filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Colorado and received a general discharge order. Like the Mallos, Mr. Martin then filed an adversary proceeding against the IRS, seeking a determination that his 2000 and 2001 tax debts had been discharged. The parties filed cross motions for summary judgment, making substantially the same arguments as advanced in the Mallos’ case. Contrary to the decision in the Mallos’ bankruptcy proceeding, the judge in Mr. Martin’s case determined the tardy Form 1040s were tax returns and therefore Mr. Martin’s tax debt was not excepted from the order of discharge. The IRS appealed. After review, the Tenth Circuit concluded that the untimely forms were not tax returns under the statute, and the Court affirmed the district court’s decisions excluding the debtors’ tax liability from the general discharge orders of the bankruptcy courts.
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