If You Want to Have a Chance to Discharge your Income Tax Liability, You Must File your Tax Returns On Time
In some circumstances, it is possible to discharge in bankruptcy certain income tax liabilities, including the taxes themselves, penalties and interest. However, in a decision handed down on December 29, 2014 by the United States Court of Appeals for the Tenth Circuit (which is binding precedent for bankruptcy courts in Kansas), the court ruled that under an amendment added to the bankruptcy code in 2005, tax returns that are not filed timely do not qualify as “return[s],” and, therefore, do not qualify for discharge relief under the bankruptcy code.
The Tenth Circuit’s decision was rendered in In re Mallo, 774 F.3d 1313 (2014) and was consistent with the only other federal circuit to consider the issue thus far, In re McCoy, 666 F.3d 924 (5th Cir. 2012). Since the Tenth Circuit’s ruling, one bankruptcy court has criticized the circuit courts’ reasoning and ruled to the contrary. See, In re Maitland, 531 B.R. 516 (Bankr. D.N.J. 2015). However, unless the Supreme Court resolves the issue or Congress amends the bankruptcy code to clarify the issue, people who file bankruptcy in Kansas and expect to discharge delinquent income taxes must have their returns filed timely to achieve the relief they seek.