New rulings on the McCoy rule

[kcjenkins]

TWO MASSACHUSETTS BANKRUPTCY JUDGES HAVE REJECTED THE McCOY RULE AND FOUND TAXES DISCHARGEABLE NOTWITHSTANDING THE RETURNS WERE FILED LATE

In re Brown, --- B.R. ----, 2013 WL 951797 (Bankr. D. Mass., March 11, 2013); In re Perkins, Case No. 3:10-bk-31470, Adv. Proc. No. 3:12-ap-3030 (Bankr. D. Mass., April 8, 2013).

These cases were brought to our attention by Robin Miller, whose online case reporting system CBAR.pro is a valuable tool for keeping up on emerging issues.

Writes Robin:

In Brown Judge Melvin S. Hoffman rejected the McCoy rule. I've just discovered that two other judges at the same court are hearing cases presenting the same issue, and one of them, Judge Henry J. Boroff, has issued a short order adopt[ing] in its entirety the reasoning of the Brown decisio n. See In re Perkins, Case No. 3:10-bk-31470, Adv. Proc. No. 3:12-ap-3030 (Bankr. D. Mass., April 8, 2013).

The other judge is Judge William C. Hillman, who has the issue pending in three cases: Fahey, Case No. 1:12-ap-1204; Segnitz, Case No. 1:12-ap-1214; and Pendergast, Case No. 1:12-ap-1215. He hasn't yet rendered a decision.

The Massachusetts Department of Revenue has stated that it may be appealing one or more of these decisions but is waiting for Judge Hillman to rule before deciding what to do. The other two judges have accommodated MDOR by withholding final judgment in their cases. I'll be watching to see whether there is an appeal, and, if there is one, I'll be tracking it.

Said the court in In re Brown (not to be confused with the recent Brown case that followed the McCoy rule);

"I believe the MDOR’s interpretation of § 523(a) is ill-conceived and unjustified. Interpreting the definitional paragraph of § 523(a) to mean that all late-filed Massachusetts tax returns are not returns renders virtually meaningless § 523(a)(1)((ii), arguably the most frequently resorted-to subsection of § 523(a)(1).

"The interpretation of the definitional paragraph advanced by the MDOR and the decisions upon which it relies, rewrites § 523(a)(1)((ii) so that it no longer covers late-filed returns filed more than two years prior to bankruptcy but merely covers late filed returns prepared pursuant to § 6020(a) of the Internal Revenue Code or similar statutes.

"The IRS Chief Counsel Notice CC–2010–016, 2010 WL 3617597 (Sept. 10, 2010), refers to the number of § 6020(a) returns as “minute” and observes that taxpayers do not even have the right to demand that the IRS prepare such returns on their behalf.

"For all practical purposes, therefore, the interpretation advocated by the MDOR renders § 523(a)(1)((ii) a nullity".

Click Here For Full Text of Brown Opinion

Click Here For Full Text of Perkins Order

click here For more on the fight against the McCoy rule or go to the web page LateFiledReturn.com.

KING SAYS: THE McCOY RULE VIOLATES OBVIOUS CANONS OF STATUTORY CONSTRUCTION Morgan King's third essay on the flaws in the 5th Circuit's McCoy rule (that a late-filed return is by definition not a return for discharge purposes) appeared in March 2013 in the NACBA newsletter and also the newsletter for the National Consumer Bankruptcy Rights Center. The article is reprinted here in its entirety.

___________________

WHAT’S WRONG WITH MCCOY?

By Morgan D. King, Esq.,1

of the California Bar

King, King & King; Pleasanton, Calif.

The Bankruptcy Code explicitly provides for the discharge of tax debts even when a taxpayer files a late return. Section 523(a)(1)((ii) states that tax debts may be dischargeable if the taxpayer files a timely tax return, or if a late return is filed more than two years prior to the petition date.2

Despite the plain language of the Code, in In re McCoy the Fifth Circuit Court of Appeals held that a late filed tax return is not a “return” for purposes of the Bankruptcy code (the “McCoy Rule”). The result is that a tax debt for which a late return was filed can never be discharged. This major departure from past practice is not warranted by either the plain language of the Code or the legislative history of BAPCPA, neither of which suggests that Congress intended to make tax debts related to late filed returns non-dischargeable in all circumstances.4

The McCoy Decision

The McCoy Rule completely disregards section 523(a)(1)((ii), which according to the Fifth Circuit plays no role in the dischargeability analysis. Instead, the court in McCoy relied exclusively on the hanging paragraph of section 523(a)(19). In relevant part, the hanging paragraph states:

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CLICK HERE FOR FULL TEXT OF THIS ARTICLE