Bankruptcy

ND Ga - Chapter 7 Case Not Dismissed Merely Because Debtor Had Not Filed Tax Returns In Several Years

By Scott Riddle

In re Stevens, 2010 Bankr. LEXIS 463 (Bankr. N.D. Ga. Jan. 28, 2010) (Bonapfel).  The United States Trustee filed a Motion to Dismiss the Chapter 7 case on the grounds that the Debtor had not provided a copy of his tax return within 7 days before the first meeting of creditors, and Debtor testified at the meeting that he had not filed a return for 15 years.   The parties submitted a consent order dismissing the case, but Judge Bonapfel declined to enter the order or dismiss the case.

11 U.S.C. § 521(e)(2)(A)(i) provides that the Debtor shall provide not later than 7 days before the date first set for the first meeting of creditors, to the trustee a copy of the Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) for the most recent tax year ending immediately before the commencement of the case and for which a Federal income tax return was filed. If the debtor fails to comply with this requirement, the next subparagraph provides that the court "shall dismiss the case unless the debtor demonstrates that the failure to comply is due to circumstances beyond the control of the debtor." 11 U.S.C. § 521(e)(2)(B).

The Motion's request for dismissal under these provisions is problematic because it does not clearly articulate the basis for dismissal. The Motion appears to assume that, because the Debtor was required to file federal tax returns for recent years, § 521(e)(2)(A)(i) requires the debtor to produce a tax return for a recent year. This is not what the statute says. Rather, it states that the debtor must produce the return for the most recent tax year that was filed. Nothing requires that the Debtor file a tax return...

Admittedly, the Debtor here has provided no explanation for the absence of his most recent tax return (whatever year that is), so he has arguably failed to carry the burden that § 521(e)(2)(B) expressly places on him. One could reasonably expect that a debtor seeking to avoid dismissal should advise the United States Trustee and the Court of the last tax return that he filed. Because the Debtor has not done so on the record before the Court, the Court could possibly grant the Motion on technical pleading grounds.

The Court declines to reach such an absurd result on the undisputed facts that the present record reflects. Had the Debtor stated, "The last tax return I filed was around 1993 and I no longer have it," the Court would conclude without hesitation (no other evidence being presented) that the passage of 15 years from the date of filing of the return established cause for not producing it. And absent something else in the record, that is exactly what the Court thinks the Debtor meant in his declaration... And the Court does wonder what relevance the debtor's 1993 tax return could possibly have to his current financial situation.
 

 The U.S. Trustee also sought dismissal under § 707(a), contending that the Debtor failed to submit necessary documents, and the trustee is not required to speculate about or reconstruct the Debtor's financial history.

(after the jump...)

The Motion's sole ground for dismissal under § 707(a), then, is the Debtor's failure to file tax returns for 15 years. The Bankruptcy Code does not, however, ground eligibility for chapter 7 relief on the filing of prepetition tax returns. When Congress wanted to condition bankruptcy relief on the filing of tax returns, it knew how to do so. For example, in chapter 13 cases a debtor must file tax returns, 11 U.S.C. § 1308, failure to do so results in dismissal, 11 U.S.C. § 1307(e), and the Court cannot confirm a plan unless required tax returns have been filed. 11 U.S.C. § 1325(a)(9). The absence of comparable provisions in chapter 7 demonstrates that the failure to file tax returns, standing alone, is not "cause" for dismissal under § 707(a).

In short, the bare allegation of a failure to file tax returns without further factual allegations connecting that failure in any way to the need for information in this case does not constitute "cause" for dismissal under § 707(a).

The Motion to Dismiss was denied without prejudice.

Full post as published by Georgia Bankruptcy Blog on February 28, 2010 (boomark / email).