J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

The Matter of McCoy case from Jan. 2012 caused a lot of controversy among tax and bankruptcy lawyers, particularly here in the 5th Circuit. The U.S. Court of Appeals for the 5th Circuit is a federal court with appellate jurisdiction over the states of Louisiana, Mississippi and Texas. In re McCoy, 666 F. 3d 924 - Court of Appeals, 5th Circuit 2012

It's rulings are binding precedent on the federal courts in those states. Anyhow, Ms. McCoy filed her Mississippi tax returns late for the years in question. Mississippi argued that since they were filed late, they did not qualify as "returns" under Sec. 523(a)(*), a provision added to the Bankruptcy Code as part of the 2005 amendments to the Bankruptcy Code. And since they did not qualify as returns for bankruptcy discharge purposes, Mississippi argued that her taxes for those years were not discharged in bankruptcy.

The 5th Circuit agreed with Mississippi, holding that a state income tax return that is filed late (presumably even one day late) is not a "return" for bankruptcy discharge purposes under the Bankruptcy Code. But the part that really upset the practitioners is the implications to federal taxes. Does this now mean that if you file a federal tax return one day late, you can never discharge the tax in bankruptcy? The I.R.S. does not even take that position.

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