Section 521(e)(2)(A)(i) requires a debtor to turn over a tax return to the trustee “for the most recent tax year ending immediately before the commencement of the case.”
It follows, does it not, that the court must dismiss the petition if the chapter 7 debtor has not filed tax returns for 10 years?
Bankruptcy Judge Paul Baisier of Atlanta decided in substance that a debtor who has not filed tax returns is excused from compliance with Section 521(e)(2)(A)(i).
The debtor explained that she had most recently filed a tax return in 2007, but she did not have a copy and did not know who had prepared it. For 2008 through 2014, the debtor said no return was required because she had only non-taxable income. For 2015, she said her income was below the threshold requiring a tax return.
For 2016, the year “immediately before” filing, the debtor also had not filed a return. A creditor who sought dismissal contested the assertion that her income in 2016 was too low to require a return. The trustee was satisfied with an affidavit by the debtor explaining why she had no tax returns to turn over.
Citing cases going both ways, Judge Baisier denied the dismissal motion in his February 26 opinion.
Judge Baisier noted that Section 521(e)(2)(A)(i) contains a condition to the debtor’s requirement for turning over a tax return: It must be the return for the most recent year “for which a Federal income return was filed.” He therefore agreed with a court interpreting the statute to mean that a debtor must produce a tax return for “‘the most recent year for which a return has been filed.”
For the debtor at bar, the most recent year with a tax return was 2007. Judge Baisier forgave the debtor for failing to produce her 2007 return because Sections 521(e)(2)(B) and (C) provide that the debtor can avoid dismissal if “the failure to so comply . . . is due to circumstances beyond the control of the debtor.”
The debtor qualified for lenience because the last tax return was filed 10 years earlier, and the debtor did not recall who prepared the return. In addition, the old tax return would have no information pertinent to the debtor’s 2017 bankruptcy.
The debtor and the creditor disagreed on whether her 2016 income was high enough to require a tax return. In a footnote, Judge Baisier said that the dispute over 2016 “is not relevant.” In another footnote, he said the debtor was not required to turn over a tax return that had not been filed.