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Discharging tax debt from late filed returns: a quick look at some recent cases

Previously, we began looking at the topic of discharging tax debt in bankruptcy. As we noted last time, certain types of tax debt are dischargeable in bankruptcy, while others are not. Speaking generally, older tax debt is dischargeable in bankruptcy, while “fresh” tax debts are not. What, though, about tax returns that are filed late?

Two recent federal cases dealt with this issue. In one, it was decided that late filed tax returns do not satisfy the definition of “returns” under federal law. The basis for that decision was that late filed tax forms do not fulfill the requirement of being an honest or reasonable attempt to comply with tax law. 

A similar decision was reached in another recent federal case, which was decided on a similar basis, though without committing to a blanket rule that late filed tax returns do not constitute tax returns. While these cases are not binding on other federal circuits, including the 11th Circuit, they do show that there is a trend in the courts of not allowing discharge for late file tax returns. One area where questions remain is cases where taxpayers filed late tax returns shortly after the official due date. Should discharge be allowed for these debts?

Addressing tax debt is not always an easy matter, but an experienced tax attorney can help, not only by working with the IRS, but also by advising on the best course of action for handling tax debt when a bankruptcy filing is foreseeable. An experienced tax attorney can help determine in such cases what can be done, if anything, to increase the chances of discharging debt from late filed tax returns. 

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Located in Atlanta, The Peck Group, LC, represents clients nationwide. Regionally, we are committed to serving clients in Fulton County and throughout the state of Georgia.