In re: Michael J. Moroney

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 In Re: MICHAEL J. MORONEY,
Debtor.
MICHAEL J. MORONEY
Plaintiff-Appellant, No. 02-2417 
v.
UNITED STATES OF AMERICA;
INTERNAL REVENUE SERVICE,
Defendants-Appellees. 
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
James C. Cacheris, Senior District Judge.
(CA-02-1062-A, BK-00-11276-SSM, AP-01-1194)
Argued: October 30, 2003
Decided: December 19, 2003
Before WILKINSON and TRAXLER, Circuit Judges, and
Robert E. PAYNE, United States District Judge for the
Eastern District of Virginia, sitting by designation.
Affirmed by published opinion. Judge Wilkinson wrote the opinion,
in which Judge Traxler and Judge Payne joined.
COUNSEL
ARGUED: Marla Lynn Howell, DECARO & HOWELL, P.C.,
Upper Marlboro, Maryland, for Appellant. Kenneth L. Greene, Tax

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Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellees. ON BRIEF: Thomas M. DeCaro, Jr.,
DECARO & HOWELL, P.C., Upper Marlboro, Maryland, for Appel-
lant. Eileen J. O’Connor, Assistant Attorney General, Paul J.
McNulty, United States Attorney, Ellen Page DelSole, Tax Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellees.
OPINION
WILKINSON, Circuit Judge:
The question in this case is whether delinquent personal income tax
filings, submitted years after the Internal Revenue Service has already
prepared its own assessments, constitute "returns" for purposes of the
Bankruptcy Code. A debtor in bankruptcy is permitted to discharge
personal income tax liabilities, but only if he has filed a return with
the IRS reporting those tax liabilities. In the present case, because the
debtor’s eventual submissions were neither honest nor reasonable
attempts to comply with the tax laws, both the bankruptcy and district
courts found that no returns had ever been filed. We affirm that judg-
ment.
I.
The basic facts in this case are not in dispute. Debtor Michael J.
Moroney did not submit timely personal income tax filings for either
the 1990 or 1992 tax years. Moroney never offered any evidence to
the bankruptcy or district courts to explain his late filing. When asked
before the district court, Moroney’s attorney said that Moroney "just
didn’t get around to filing his tax returns," because he had been "ex-
tremely busy" with his job. Filing tax statements "was just something
that got pushed to the back burner."
As a result of Moroney’s failure to file, in 1994 the IRS began to
examine Moroney’s income tax liabilities. The IRS then indepen-
dently prepared "Substitutes for Returns" ("SFRs") to determine the
amounts that Moroney owed for the 1990 and 1992 tax years. On the
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basis of the SFRs, the IRS assessed taxes against Moroney of
$23,197.00 for the 1990 tax year and $45,567.00 for the 1992 tax
year.
At some point thereafter, Moroney submitted income tax state-
ments for 1990 and 1992. The IRS contends that Moroney did not file
his forms until November 1998. Moroney, however, points to com-
munications between his accountants and the IRS that indicate the
forms were filed two years earlier in November 1996. Regardless,
Moroney concedes that his forms postdated by at least two years the
SFRs prepared by the IRS, and that his forms postdated the original
filing deadlines by at least four and six years, respectively. Because
Moroney’s forms reported tax liabilities that were less than the IRS’s
assessments, the IRS lowered Moroney’s unpaid assessments. Specif-
ically, the IRS abated $8,330 of the 1990 tax year assessment and
$14,980 of the 1992 tax year assessment.
On March 23, 2000, Moroney filed a voluntary petition for Chapter
7 bankruptcy in the United States Bankruptcy Court for the Eastern
District of Virginia. Moroney listed his 1990 and 1992 tax liabilities
as nonpriority claims, subject to discharge in a Chapter 7 proceeding.
However, the IRS notified Moroney that, given his delinquency in fil-
ing for those years, it did not consider his tax liabilities subject to dis-
charge. The IRS and Moroney filed cross-motions for summary
judgment before the bankruptcy court, seeking a determination of
whether Moroney’s tax liabilities were excepted from discharge under
Section 523 of the Bankruptcy Code. The bankruptcy court held that
Moroney had not filed a "return" within the meaning of Section 523
and therefore that Moroney’s tax liabilities were not dischargeable in
bankruptcy. On appeal, the United States District Court for the East-
ern District of Virginia affirmed the bankruptcy court’s grant of sum-
mary judgment. Moroney now challenges the decisions of the
bankruptcy and district courts.
II.
In general, a debtor filing for relief under Chapter 7 of the Bank-
ruptcy Code is discharged from all pre-petition debt, subject to the
exceptions enumerated in Section 523. In relevant part, Section 523
provides:
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(a) A discharge under section 727 . . . does not discharge
an individual debtor from any debt—
(1) for a tax or a customs duty —
* * *
(B) with respect to which a return, if required
—
(i) was not filed; or
(ii) was filed after the date on which such
return was last due . . . and after two
years before the date of the filing of the
petition; or
(C) with respect to which the debtor made a
fraudulent return or willfully attempted in
any manner to evade or defeat such tax.
11 U.S.C. § 523 (2000). The exception at issue here, set forth in Sec-
tion 523(a)(1)(B)(i), excludes from discharge taxes "with respect to
which a return, if required[,]" "was not filed."1 The question is
whether Moroney’s late-filed forms constitute returns, thus rendering
his tax liabilities dischargeable.
A.
Neither the Bankruptcy Code nor the Internal Revenue Code
defines the term "return." The Internal Revenue Code generally
requires that those owing taxes "make a return or statement" on the
necessary forms, without specifying how timely the forms must be in
1Section 523(a)(1)(B)(ii) excludes from discharge taxes for which a
return was filed both after its original due date and within two years of
the filing of the debtor’s bankruptcy petition. Because we hold that
Moroney never filed a "return" for purposes of Section 523(a)(1)(B)(i),
the disputed date of his filing for purposes of Section 523(a)(1)(B)(ii) is
unimportant.
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order to qualify as returns. 26 U.S.C. § 6011(a) (2000). However, our
sister circuits have uniformly held that in order for a document to be
considered a "return," under either the bankruptcy or the tax laws, it
must (1) purport to be a return; (2) be executed under penalty of per-
jury; (3) contain sufficient data to allow calculation of tax; and (4)
represent an honest and reasonable attempt to satisfy the requirements
of the tax laws. See, e.g., In re Hindenlang, 164 F.3d 1029, 1033 (6th
Cir. 1999) (citing Beard v. Commissioner, 82 T.C. 766 (1984), aff’d,
793 F.2d 139 (6th Cir. 1986)); In re Hatton, 220 F.3d 1057, 1060-61
(9th Cir. 2000) (citing Hindenlang and Beard).
Moroney and the IRS agree that Moroney’s late-filed statements
purported to be returns; that they were executed under penalty of per-
jury; and that they contained sufficient data to permit calculation of
Moroney’s taxes, although of course the IRS had already determined
Moroney’s taxes using SFRs. Moroney and the IRS’s disagreement
concerns whether Moroney’s statements were honest and reasonable
attempts to satisfy the filing requirement imposed by the bankruptcy
and tax laws.
More fundamentally, they disagree about the relevant time frame
in which to assess the honesty and reasonableness of Moroney’s
belated statements. Moroney contends that his purported returns sat-
isfy the filing requirement, because — at the time they were filed —
they were accurate on their face and intended to comply with the tax
laws. Moroney notes that some courts in determining good faith have
focused on the debtor’s intent at the time the returns are filed, rather
than on the debtor’s intent during the delay prior to filing. See, e.g.,
In re Nunez, 232 B.R. 778, 783 (B.A.P. 9th Cir. 1999);2 In re Craw-
ley, 244 B.R. 121, 128 (Bankr. N.D. Ill. 2000).
2Although Moroney relies heavily on Nunez, it is not clear that Nunez
remains controlling. The Bankruptcy Appellate Panel’s decision in
Nunez relied heavily on its prior decision in In re Hatton, 216 B.R. 278
(B.A.P. 9th Cir. 1997), which was later reversed by the Ninth Circuit.
See In re Hatton, 220 F.3d 1057, 1061 (9th Cir. 2000). Whether the
Ninth Circuit implicitly overruled Nunez in Hatton is uncertain. Contrast
In re Hetzler, 262 B.R. 47, 53 (Bankr. D.N.J. 2001), with In re Rushing,
273 B.R. 223, 227 (Bankr. D. Ariz. 2001).
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The IRS, however, rejoins that most courts have not ignored a
debtor’s delinquency in filing, especially where the IRS’s interim
preparation of a SFR renders the debtor’s filing unnecessary. Accord-
ing to these courts, forms filed after an involuntary assessment do not
serve the purposes of the tax system, and thus rarely, if ever, qualify
as honest and reasonable attempts to comply with the tax laws. See,
e.g., Hindenlang, 164 F.3d at 1034; In re Sgarlat, 271 B.R. 688, 696
(Bankr. M.D. Fla. 2001); In re Hetzler, 262 B.R. 47, 54 (Bankr.
D.N.J. 2001); In re Walsh, 260 B.R. 142, 151 (Bankr. D. Minn.
2001); In re Pierchoski, 243 B.R. 267, 271 (W.D. Pa. 1999); In re
Prince, 240 B.R. 261, 263-64 (Bankr. N.D. Ohio 1999).
We agree with the weight of authority that a debtor’s delinquency
is relevant to determining whether the debtor has filed a return. The
very essence of our system of taxation lies in the self-reporting and
self-assessment of one’s tax liabilities. See Commissioner v. Lane-
Wells Co., 321 U.S. 219, 223 (1944). Timely filed federal income tax
returns are the mainstay of that system. A reporting form filed after
the IRS has completed the burdensome process of assessment without
any assistance from the taxpayer does not serve the basic purpose of
tax returns: to self-report to the IRS sufficient information that the
returns may be readily processed and verified. See id.; United States
v. Boyle, 469 U.S. 241, 249 (1985). Simply put, to belatedly accept
responsibility for one’s tax liabilities, only when the IRS has left one
with no other choice, is hardly how honest and reasonable taxpayers
attempt to comply with the tax code. See Hatton, 220 F.3d at 1061.
Here, there is no question that Moroney failed to file timely
returns, and that as a result of his failure, the IRS had to assume the
onerous task of estimating Moroney’s taxes without his assistance.
Moroney did not explain to the bankruptcy or district courts why his
eventual filings were anything other than self-serving attempts to
reduce his tax liabilities. And he never attempted to explain why his
statements, which were submitted at least four to six years after the
original deadlines, should be considered honest and reasonable
attempts at compliance with the tax laws. To consider Moroney’s
statements "returns" would thus be to render that word a ghost of its
true self. In fact, by Moroney’s own admission, he simply did not "get
around to filing his tax returns." As the district court correctly
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observed, such nonchalance falls well short of satisfying the statutory
standard.
B.
However, Moroney argues that his late-filed statements, despite
their extreme delinquency, functioned no differently from timely filed
tax returns. His statements, like timely filed returns, self-reported his
tax liabilities. And although the IRS had prepared SFRs before
Moroney filed, Moroney contends that his statements still were not
purposelessly duplicative. Rather, because his statements showed
lesser liabilities than the IRS had estimated, the IRS abated portions
of its prior assessments. In Moroney’s view, his statements must be
considered honest and reasonable attempts to comply with the tax
laws — after all, the IRS credited them enough to reduce his assess-
ments.
Moroney’s argument, however, misses the point. The relevant
inquiry is whether Moroney made an honest and reasonable effort to
comply with the tax laws, and not whether Moroney’s eventual effort
had some effect on his tax liability. Under Moroney’s approach, the
availability of discharge would turn on the IRS’s accuracy in assess-
ing taxes, rather than on Moroney’s sincerity and diligence in com-
plying with the tax code. In effect, Moroney failed to provide the IRS
with the very information it needed to accurately assess his taxes, and
now he seeks to benefit from the IRS’s resulting imprecision (which
was hardly surprising, given Moroney’s lack of assistance).
Moroney’s approach would only discourage the IRS from abating
debtors’ tax liabilities — especially when any adjustment, no matter
how small, would lead to a discharge of the entire tax liability, no
matter how large.
C.
Moroney also argues that any inquiry into his honesty and reason-
ableness in filing late should occur not under Section 523(a)(1)(B)(i),
which excepts from discharge taxes for which returns were never
filed; but instead under Section 523(a)(1)(C), which excepts from dis-
charge taxes "with respect to which the debtor has made a fraudulent
return or willfully attempted in any manner to evade or defeat such
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tax." In Moroney’s view, Section 523(a)(1)(B)(i) requires only that a
statement be filed. To the extent that the statement is inaccurate,
incomplete or untimely, that is the purview solely of Section
523(a)(1)(C). In other words, Section 523(a)(1)(C) alone is designed
to police debtors’ bad faith conduct. Accord Nunez, 232 B.R. at 783.
Moroney is wrong to conclude that the Bankruptcy Code implicitly
condones any conduct that does not rise to the level of outright fraud
or evasion. A "return" is not reasonably understood to mean any tax
form — whatever its defects — submitted to the IRS, but rather a
form that in good faith reports required information like income,
deductions, exemptions, and taxes due. Delinquency, no less than
fraud or willful evasion, can result in tax forms not naturally thought
of as returns.
Section 523(a)(1)(B)(i)’s filing requirement governs debtors pre-
cisely like Moroney: debtors whose inaction or inaccuracy, even if
not sufficiently malodorous to be deemed fraudulent or evasive, dis-
qualifies them from the fresh start that bankruptcy provides. The
Bankruptcy Code allows honest debtors to discharge the taxes they
cannot pay. It does not permit them to discharge the obligation owed
by all taxpayers, whatever their financial condition, to file timely
returns. Debtors like Moroney cannot seek the safe haven of bank-
ruptcy by failing to file tax returns, waiting to see if the IRS assesses
taxes on its own, and then submitting statements long after the IRS
has been put to its costly proof. See Walsh, 260 B.R. at 149.
III.
We hold then that income tax forms unjustifiably filed years late,
where the IRS has already prepared substitute returns and assessed
taxes, do not constitute "returns" for purposes of 11 U.S.C.
§ 523(a)(1)(B)(i). For its part, the government urges a broader rule
than we adopt here, namely, that any post-assessment filing can never
qualify as a return for purposes of Section 523(a)(1)(B)(i). This sim-
ply goes too far. Circumstances not presented in this case might dem-
onstrate that the debtor, despite his delinquency, had attempted in
good faith to comply with the tax laws. See Rushing, 273 B.R. at 227;
Hetzler, 262 B.R. at 54. For instance, a post-assessment filing might
actually increase a taxpayer’s liabilities. See Hindenlang, 164 F.3d at
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1034 n.5. Of course, the taxpayer would still have to demonstrate that
his filing was an honest and reasonable attempt at self-assessment,
rather than merely an effort to increase his odds of discharging his
taxes in bankruptcy.
Here we face only a debtor who was apparently too busy, for no
less than six years, to file returns, and whose ultimate filing was
merely an attempt to lessen the liability that he never wanted to
assume. Under these circumstances, we cannot hold that Moroney
filed a return in any meaningful sense of that word. We thus affirm
the judgment of the district court.
AFFIRMED
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