IRS-Prepared Form 4549 Was "Return" for Bankruptcy Code Purposes

From 1983–1990, real estate consultant M failed to file tax returns. The IRS audited M; for a year and a half, he met with an agent every two or three weeks (for a total of 15 to 20 meetings).

Through these sessions, M provided the Service with the information needed to determine his substantially correct tax liability. As a result, the IRS agent reconstructed M's income and expenses and calculated his tax liability. The Service prepared Form 4549, Income Tax Examination Changes, for each year, and M signed them. The forms were filed, and the IRS accepted them.

In 1997, M filed for bankruptcy, listing the U.S. as a creditor. Asserting that the Forms 4549 were returns, he sought to have his unpaid tax obligations discharged. The government objected. Because the Forms 4549 did not include a penalty-of-perjury clause, it argued that no returns had been filed and that, under Section 523(a)(1)(B) of the Bankruptcy Code, these tax obligations were not subject to discharge.

The bankruptcy court agreed with the government, but the District Court (opinion Hurley, J.) reverses; Form 4549 constitutes a return for purposes of Section 523(a)(1)(B).

Sec. 6020(a) states:

If any person shall fail to make a return required by this title or by regulations prescribed thereunder, but shall consent to disclose all information necessary for the preparation thereof, then, and in that case, the Secretary may prepare such return, which being signed by such person, may be received by the Secretary as the return of such person.

M did not file timely tax returns. However, he cooperated fully with the IRS by disclosing all necessary information, which permitted the Service to prepare Forms 4549 for the missing years. In turn, the IRS prepared the forms, which M signed and adopted. Finally, the Service filed and accepted the forms. Thus, every requirement of Sec. 6020(a) was satisfied and, consequently, the signed Forms 4549 qualify as valid tax returns for Code purposes.

The IRS has expressly acknowledged that documents other than a Form 1040 may constitute a valid tax return. In Rev. Rul. 74-203, the Service stated that Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Over Assessment; Form 1902E, Report of Individual Income Tax Audit Changes, and Form 4549, Income Tax Audit Changes, if signed by a debtor, qualify as tax returns within the meaning of Sec. 6020(a). Although none of the forms specified in the revenue ruling require the taxpayer to sign under penalty of perjury, they are all executed under circumstances in which the Service has computed the taxpayer's liability. By signing the form, the taxpayer consents to the amounts as computed and permits the taxes to be immediately assessed without requiring the IRS to file a deficiency notice. In this important respect, the effect of the taxpayer's signing these forms is the same as the effect of a debtor's filing a return.

The remaining question is whether the signed Forms 4549 are "returns" within the meaning of the Bankruptcy Code. Section 523(a)(1)(B)(i) prohibits the discharge of an unpaid tax obligation when a return, if required, was not filed. Section 523(a)(1)(B), however, does not define "return."

Without question, Congress could have placed limiting definitions in the Bankruptcy Code (e.g., "timely returns," or "returns submitted on Form 1040"). Instead it used the generic term "return." This court concludes that a Form 4549 that satisfies all of the requirements set forth in Sec. 6020(a) (i.e., it was (1) completed in concert with the IRS after the taxpayer cooperated by providing full and truthful information, (2) signed by the taxpayer, and (3) thereafter filed and accepted by the Service) constitutes a "return" for Section 523(a)(1)(B) purposes.

In re J.H. Mathis, Jr., DC Fla., 5/22/00