§ 42.5     Tax Return Duties Seven Days before First Scheduled Meeting of Creditors
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 42.5, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

As amended by BAPCPA, § 521(e) mandates the following tax return duties:

(2)(A)The debtor shall provide—
(i) 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; and
(ii) at the same time the debtor complies with clause (i), a copy of such return (or if elected under clause (i), such transcript) to any creditor that timely requests such copy.
(B) If the debtor fails to comply with clause (i) or (ii) of subparagraph (A), the court shall dismiss the case unless the debtor demonstrates that the failure to so comply is due to circumstances beyond the control of the debtor.
(C) If a creditor requests a copy of such tax return or such transcript and if the debtor fails to provide a copy of such tax return or such transcript to such creditor at the time the debtor provides such tax return or such transcript to the trustee, then the court shall dismiss the case unless the debtor demonstrates that the failure to provide a copy of such tax return or such transcript is due to circumstances beyond the control of the debtor.1
[2]

This new Code section is implemented, in part, and exceeded in part, by Interim Rule 4002(b)(3):

(3) Tax Return. At least 7 days before the first date set for the meeting of creditors under § 341, the debtor shall provide to the trustee a copy of the debtor’s Federal income tax return for the most recent tax year ending immediately before the commencement of the case and for which a return was filed, including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist.2
[3]

There are many undefined words and ambiguous phrases in new § 521(e)(2). The debtor is instructed by both the statute and the Interim Rule to “provide” to the trustee a copy (or a transcript) of the specified federal income tax return. “Provide” is not defined. There are too many choices for its meaning.

[4]

Most simply, the debtor could mail or deliver a copy of the return (or transcript) to the Chapter 13 trustee. The debtor could give the trustee a power of attorney to access or request the return from the IRS.

[5]

What does “provide” mean if the debtor does not physically have the required federal income tax return? The Committee Comment to Interim Rule 4002(b) states that “the rule does not require that the debtor create documents or obtain documents from third parties.”3 Section 521(e)(2) is not limited that the debtor must provide only a tax return in the debtor’s possession.

[6]

Interim Bankruptcy Rule 4002(b)(3) adds the mandate: a written statement that the “documentation does not exist.” If no federal tax return has been filed that fits the description in § 521(e)(2), then the written statement in Interim Bankruptcy Rule 4002(b)(3) would translate that there is no such tax return. If the described tax return was filed but no copy retained by the debtor, then “does not exist” would be an ambiguous signal that the debtor just doesn’t have it. In either case, Interim Rule 4002(b)(3) goes beyond § 521(e)(2) to require a “written statement” that the tax return does not exist. This written statement entails potential prejudice for the debtor if it is inaccurate.

[7]

The magic seven-day deadline in § 521(e)(2)(A)(i) is counted from the “date first set for the first [sic] meeting of creditors.”4 The “date first set” for the meeting of creditors is typically printed on the notice of commencement of the case issued by the court. Debtors’ counsel can easily calendar “at least” seven days before that date. But what do you suppose the lobbyists who drafted BAPCPA meant by “the first meeting of creditors”? Prior to 1979, § 55 of the former Bankruptcy Act5 instructed the courts to convene a “first meeting of the creditors of a bankrupt” in most bankruptcy cases.6 There hasn’t been a “first meeting of creditors” in bankruptcy cases since October 1, 1979. Interim Rule 4002(b)(3) counts “7 days before the first date set for the meeting of creditors under § 341”—demonstrating that the rules drafters were aware of the Bankruptcy Reform Act of 1978.

[8]

To give meaning to the second “first” in § 521(e)(2)(A)(i), perhaps the drafters meant the first time a meeting of creditors is actually convened in a bankruptcy case. As discussed below,7 there is a new section of the Bankruptcy Code—§ 1308 as enacted by BAPCPA—which permits a Chapter 13 trustee to “hold open” a meeting of creditors to allow time for the filing of tax returns. Perhaps the “first” meeting of creditors has new meaning: when the § 341 meeting is held open by the trustee, the meeting that triggers the timing in § 521(e)(2)(A)(i) is the “first” setting of the “first” meeting without regard to meeting(s) after a hold-open period. By this logic, if the meeting of creditors in a Chapter 13 case is continued for any reason, the “not later than seven days” in § 521(e)(2)(A)(i) would still be counted from the date first set for the meeting.

[9]

Whatever Congress meant, debtors’ counsel should not assume that a change in the scheduling of the meeting of creditors also shifts the “seven days before the date first set” deadline in § 521(e)(2)(A)(i) and in Interim Rule 4002(b)(3). Always count this deadline from the earliest notice date for the § 341 meeting without regard to when it is actually held and without regard to other dates to which the meeting is moved, continued, held open or adjourned.

[10]

Section 521(e)(2)(A)(i) and Interim Rule 4002(b)(3) require the debtor to provide a “copy” or “a transcript” of the federal tax return described in that section. Copy is straightforward enough, but transcript is a term of art in tax practice that may not be familiar to all bankruptcy practitioners. A transcript of a tax return is a computer-generated summary of the information that appeared in a tax return that was filed and digested by the IRS. To obtain a transcript of a tax return from the IRS, the taxpayer may complete and file Form 4506-T or call (800) 829-1040 and follow the directions on the recorded message.8

[11]

There are good reasons for Chapter 13 debtors to opt for providing a transcript when possible. A transcript contains less detail than the tax return itself, minimizing confidentiality issues inherent in providing tax returns to trustees, courts and creditors.9 A transcript is physically condensed and can be more easily scanned and transmitted than the typical tax return. A transcript is not a document under oath or penalty of perjury. If there is time and if the required tax return has been filed, Chapter 13 debtors should get the transcript rather than provide the tax return. A little planning is necessary—debtor’s counsel will need the appropriate release (power of attorney) signed by the debtor in time to get a transcript from the IRS.

[12]

The Code and the Interim Rules are not consistent with respect to what documents must be provided to the trustee. Section 521(e)(2)(A)(i) describes a federal income tax return (or transcript) only. Interim Rule 4002(b)(3) describes that same tax return but adds “including any attachments.” This is another reason to provide a transcript rather than a copy of the actual return—there are no attachments to a transcript of a tax return though perhaps information from an attachment may appear on the transcript.

[13]

Exactly what tax return does § 521(e)(2)(A)(i) require a Chapter 13 debtor to provide? Sloppy draftsmanship obscures the answer. Section 521(e)(2)(A)(i) describes the federal income tax return “required under applicable law . . . for the most recent tax year ending immediately before the commencement of the case and for which a federal income tax return was filed.”10 Federal income tax returns are “required” by the Internal Revenue Code under many circumstances.11 There are statutory and regulatory provisions defining when a “required” tax return must be filed or it becomes past due.12 Depending on when during the calendar year the petition is filed, many Chapter 13 debtors will be “required” to file federal income tax returns that are not yet due.

[14]

The “most recent tax year ending immediately before commencement of the case” with the further modifier “for which a Federal income tax return was filed” will either be a moving target or an empty set, depending on your reading of the words and a particular debtor’s tax-filing history. Imagine a Chapter 13 case filed in January, 2006, for an individual debtor “required” to file a federal tax return for tax year 2005. The 2005 tax return was not past due until after April 17, 2006.13 There will be no federal income tax return “filed” for the “most recent tax year ending immediately before the commencement of the case” (2005 in this example). Does this mean that the Chapter 13 debtor does not have to provide any federal income tax return under § 521(e)(2)(A)(i)? Or do we proceed backward to tax year 2004 (or earlier?) until we find a tax year before the commencement of the Chapter 13 case for which the debtor has filed a federal income tax return? In the example, if the debtor did file a 2004 tax return, § 521(e)(2)(A)(i) could be read to require the debtor to provide the trustee a copy or transcript of the 2004 return. Of course, the 2004 return will provide little useful information to the Chapter 13 trustee in a case filed in January of 2006. The trustee would rather have the 2005 return when it is filed after the petition.14 Does this reading drain “immediately” of all meaning in § 521(e)(2)(A)(i)?

[15]

An alternative interpretation of § 521(e)(2)(A)(i) is that no tax return must be provided to the trustee in the example above. The most recent tax year ending immediately before the petition is 2005, and no federal income tax return had been filed for 2005. Tax year 2004 did not end immediately before the January 2006 commencement of the Chapter 13 case, and no earlier year fits the statute even if a return was filed.

[16]

At the “same time” that the debtor provides to the trustee the required tax return described in § 521(e)(2)(A)(i), the debtor is instructed by § 521(e)(2)(A)(ii) to provide a copy or transcript “to any creditor that timely requests such copy.” “Timely” is not defined by BAPCPA, but Interim Bankruptcy Rule 4002(b)(4) fills this gap with a 15-day requirement:

(4) Tax Returns Provided to Creditors. If a creditor, at least 15 days before the first date set for the meeting of creditors under § 341, requests a copy of the debtor’s tax return that is to be provided to the trustee under subdivision (b)(3), the debtor shall provide to the requesting creditor a copy of the return, including any attachments, or a transcript of the tax return, or provide a written statement that the documentation does not exist at least 7 days before the first date set for the meeting of creditors under § 341.15
[17]

Fifteen days before the first date set for the meeting of creditors will pass quickly in a Chapter 13 case.16 Under Bankruptcy Rule 2003(a), the meeting of creditors in a Chapter 13 case must be called by the U.S. trustee “no fewer than 20 and no more than 50 days” after the petition.17 Fifteen days before the first date set for the meeting of creditors could be as few as 5 and at most 35 days after the petition in a Chapter 13 case.

[18]

Under Interim Rule 4002(b)(4), the tax return, transcript or written statement must be provided to the requesting creditor at least seven days before the first date set for the § 341 meeting. This is consistent with the “same time” provision of the statute18 but does create a narrow window for the debtor to comply with the new statute and rule. There could be as little as eight days between a “timely request” and seven days before the first date set for the meeting of creditors.

[19]

What does “requests” mean in § 521(e)(2)(A)(ii) and in Interim Rule 4002(b)(4)? Does the Code or Rule contemplate filing a motion with the bankruptcy court? Sending a letter to the debtor or debtor’s counsel? A phone call? Are there grounds or a procedure for contesting a creditor’s request for a copy of the tax return provided to the Chapter 13 trustee? Given the serious consequences when a timely request is not satisfied,19 it would be helpful to have a clear statement of what triggers this new obligation to provide tax returns to creditors.

[20]

Consistent with an uncodified provision of BAPCPA,20 the Director of the Administrative Office of the United States Courts has published Guidelines for safeguarding the confidentiality of tax returns in bankruptcy cases. Those guidelines require a written request in the form of a motion when a party in interest wants access to tax information filed with the court.21 A similar rule should be considered for tax information requested from the debtor.

[21]

Interim Rule 4002(b)(4) goes beyond the statute to require that attachments to a tax return be provided to timely requesting creditors. If the documentation does not exist, a “written statement” must be provided in lieu of the return or transcript.22

[22]

Detailed below,23 if the debtor fails to provide the trustee or a timely requesting creditor a copy or transcript of the federal income tax return described in § 521(e)(2)(A)(i) not later than seven days before the first date set for the meeting of creditors, the court “shall dismiss the case” unless the debtor demonstrates circumstances “beyond the control of the debtor.” The procedure for this mandatory dismissal and the content of “beyond the control of the debtor” are uncertain.24 A debtor not required to file tax returns would be an obvious candidate for excuse from the tax return filing or providing requirement in § 521(e)(2)(A)(i).25 It is clear that significant jeopardy attaches to a failure to provide the appropriate tax return on the strict schedule in § 521(e)(2)(A)(i) and (ii) and Interim Rule 4002(b)(4).

[23]

The strict time periods in the statute and Interim Rule can cut against a creditor that requested but did not receive the tax return described in § 521(e)(2)(A)(i). As explained by the bankruptcy court in In re Ring,26 dismissal is the remedy when a debtor fails to respond to a creditor’s request for a tax return, but to have standing to seek dismissal, the creditor must have made a timely request:

In order to be aggrieved, the creditor must have made a request to be provided the return “at the same time” they are provided to the trustee. . . . As that request must have been “timely” made, . . . it must have been made in time for the debtor to provide the return to the creditor “no later than” seven days before the § 341 meeting. Thus, there is no opportunity for a creditor to lie in the weeds and surprise the debtor with an unanticipated dismissal motion.27
[24]

What about a tax return for the tax year that ended immediately before the petition that is filed with the IRS after the Chapter 13 petition? In the example above, assume the petition was filed on January 10, 2006 and that the meeting of creditors was first scheduled for March 1, 2006. The most recent tax year ending immediately before the petition with respect to which the debtor was required to file a tax return was 2005. At the petition, the debtor had not yet filed the 2005 tax return, and it was not past due until after April 17, 2006.

[25]

What statutory obligation would the debtor have under § 521(e)(2) if the debtor filed a 2005 tax return on February 15, 2006? Seven days before the first date set for the meeting of creditors would be February 22, 2006. On February 22, 2006, the 2005 tax return “was filed” and the mandate that the debtor provide the 2005 tax return to the trustee seems to apply under § 521(e)(2)(A)(i). The debtor would also have to provide the 2005 return to any creditor that timely requested a copy under § 521(e)(2)(A)(ii).

[26]

What if the 2005 return were filed on February 25? It looks like the opposite result applies: because the federal income tax return for 2005 was not filed when the seven-day deadline (February 22 in the example) arrived, the 2005 tax return did not meet the statutory description and need not be provided to the trustee or to a timely requesting creditor. This, of course, leaves open the possibility that a filed tax return for the 2004 tax year would be subject to the statutory requirements.

[27]

There is something of a strategy buried here with respect to the postpetition filing of returns for the tax year ending immediately before a Chapter 13 petition. If, in the example, the 2005 tax return is filed after seven days before the first date set for the meeting of creditors and before one day before the first scheduled meeting of creditors, the new statutory mandate for filing tax returns in § 130828 would be satisfied, but the debtor avoids the statutory mandate to provide the 2005 tax return to the trustee or to a timely requesting creditor under § 521(e)(2)(A). In the scramble to satisfy too many new tax return filing and providing responsibilities in BAPCPA, just this sort of game playing is likely.

[28]

On a different track altogether, one bankruptcy court attacked the filing and providing problems in § 521(e)(2)(A) indirectly. As explained in In re Guidry,29 by local rule and “initial order” in Chapter 13 cases in the Southern District of Texas, the IRS is required to “send a tax transcript to the chapter 13 trustee, the debtors and the debtor’s counsel, with delivery to occur not later than 7 days prior to the initial date set for the § 341 meeting of creditors.”30 In other words, without relieving debtors of the obligation to file and provide the tax return described in § 521(e)(2)(A), the Bankruptcy Court for the Southern District of Texas orders the IRS to send a tax transcript to the debtor, to the Chapter 13 trustee and to debtor’s counsel not later than seven days before the initial date set for the meeting of creditors.

[29]

In Guidry, when the IRS failed to comply, a battle broke out between the bankruptcy court and the IRS. In response to the IRS’s argument that it was not a party to the Chapter 13 case and could not be bound by an “initial order” or local rule, the bankruptcy court cited Supreme Court authority31 and 11 U.S.C. § 105 for the proposition that it can “issue orders to individuals that are not formal parties to the proceeding.”32 With respect to the confidentiality requirements in 26 U.S.C. § 6103, the bankruptcy court held that the Chapter 13 case was a “federal judicial proceeding pertaining to tax administration” that fit the permitted disclosure provisions in 26 U.S.C. § 6103(h)(4). Then turning to the meat of the matter, the Guidry court held its local rule and initial order were not inconsistent with § 521(e)(2)(A) but merely supplemented the debtor’s responsibilities while addressing timing problems inherent in § 521(e)(2)(A):

The Code requires the debtor to provide a tax return to the trustee. There is no language of exclusion in § 521(e)(2)(A), i.e. the Code does not forbid another party from also providing a tax return. [Local rule] requires the IRS to provide a tax transcript to the chapter 13 trustee. The local rule does not release the debtor from the requirements of the Code. In essence, the Code requires one thing and the local rule requires something different; neither interferes with the other. . . .  [T]he debtor’s failure to provide a tax return prior to the § 341 meeting of creditors has no immediate consequence. Congress mandated that the failure to provide a number of documents (those identified in 11 U.S.C. § 521(a)(1)), would result in the automatic dismissal of a bankruptcy case effective as of the 46th day after the petition. See 11 U.S.C. § 521(i). However, the requirement that a tax return be provided is not contained within § 521(a)(1). Instead, it is set forth in § 521(e)(2). . . . A motion to dismiss must be filed in order for the Court to consider dismissing a case on these grounds. However, § 521(e)(2)(B) allows a debtor to defeat a motion to dismiss if the debtor demonstrates that the failure to provide the return was due to circumstances beyond the debtor’s control. . . . Inasmuch as the confirmation hearing is to occur within 20–45 days after the § 341 meeting, the confirmation hearing will often occur prior to the dismissal hearing. . . . Requiring a tax transcript from the IRS is not inconsistent with the Code. Rather, it is one aspect of a belt and suspenders approach that implements Congressional intent.33
[30]

Guidry recognizes that § 521(e)(2)(A) is a mess that requires debtors and creditors to perform an intricate dance on a difficult timetable. Inserting the IRS into the middle of that fray is a novel approach to the problems created by the statute. The Guidry solution is certain not to sit well with the IRS.


 

1  11 U.S.C. § 521(e)(2).

 

2  Interim Bankr. R. 4002(b)(3).

 

3  Committee Comment, Interim Bankr. R. 4002(b).

 

4  11 U.S.C. § 521(e)(2)(A)(i).

 

5  11 U.S.C. § 91 (repealed).

 

6  See also Fed. R. Bankr. P. 203 (repealed).

 

7  See 11 U.S.C. § 1308, discussed in § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

8  A transcript may be obtained free of charge. Form 4506-T may be obtained by the taxpayer or a person authorized to obtain tax information. Proper authorization for disclosure includes Form 2848 (Power of Attorney and Declaration of Representative), or Form 8821 (Tax Information Authorization). The Internal Revenue Manual states that a Form 4506-T may be “signed by someone other than the taxpayer who demonstrates material interest. Examples may include beneficiaries of trusts or administrators of estates.” I.R.M. 3.5.20.7 (Jan. 1, 2005).

 

9  See § 394.1 [ Tax Return Confidentiality Issues ] § 42.9  Tax Return Confidentiality Issues.

 

10  11 U.S.C. § 521(e)(2)(A)(i) (emphasis added).

 

11  See 26 U.S.C. § 6001 (“Every person liable for any tax imposed by this title, or for the collection thereof, shall . . . make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.”); 26 U.S.C. § 6011 (a) (“When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, shall make a return or statement according to the forms and regulations prescribed by the Secretary.”); 26 U.S.C. § 6012(a) (“[e]very individual having for the taxable year gross income which equals or exceeds the exemption amount” is required to file a federal income tax return); 26 U.S.C. § 6013 (joint returns of income tax by husband and wife); 26 U.S.C. § 6017 (self-employment returns); 26 U.S.C. § 6031 (returns of partnership income).

 

12  See 26 U.S.C. § 6072 (“In the case of returns under section 6012, 6013, 6017, or 6031 (relating to income tax under subtitle A), returns made on the basis of the calendar year shall be filed on or before the 15th day of April following the close of the calendar year and returns made on the basis of a fiscal year shall be filed on or before the 15th day of the fourth month following the close of the fiscal year, except as otherwise provided in the following subsections of this section.”); 26 U.S.C. § 7508 (authorizes regulations to extend filing deadlines by reason of service in a combat zone); 26 U.S.C. § 7508A (authorizes regulations to extend filing deadlines for those affected by Presidentially declared disasters, terrorism or military action); Treas. Reg. § 301-7508-1; Treas. Reg. §  301.7508A-1; Rev. Proc. 2005-27, 2005-20 I.R.B. 1050 (“provides an updated list of time-sensitive acts the performance of which may be postponed under section 7508 and 7508A of [the IRC]”). See also 26 U.S.C. § 6151(a) (“Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return).”).

 

13  Assume no extensions. April 15, 2006, was a Saturday.

 

14  See 11 U.S.C. § 1308, discussed in § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

15  Interim Bankr. R. 4002(b)(4).

 

16  See § 42.1 [ Timing and Procedure ] § 43.1  Timing and Procedure.

 

17  Fed. R. Bankr. P. 2003(a).

 

18  See 11 U.S.C. § 521(e)(2)(A)(ii), quoted above.

 

19  See below in this section, and see § 393.1 [ Consequences of Failure to File or Provide Tax Returns ] § 42.8  Consequences of Failure to File or Provide Tax Returns.

 

20  See Pub. L. No. 109-8, § 315(c), discussed in § 394.1 [ Tax Return Confidentiality Issues ] § 42.9  Tax Return Confidentiality Issues.

 

21  See § 394.1 [ Tax Return Confidentiality Issues ] § 42.9  Tax Return Confidentiality Issues.

 

22  See Interim Bankr. R. 4002(b)(4).

 

23  See § 393.1 [ Consequences of Failure to File or Provide Tax Returns ] § 42.8  Consequences of Failure to File or Provide Tax Returns.

 

24  See § 393.1 [ Consequences of Failure to File or Provide Tax Returns ] § 42.8  Consequences of Failure to File or Provide Tax Returns.

 

25  See, e.g., In re Ring, 341 B.R. 387, 390 (Bankr. D. Me. 2006) (Debtors with only social security income who have not filed tax returns for more than 10 years have circumstances beyond their control that excuse compliance under § 521(e)(2)(B). “The Rings . . . have established that their failure to provide tax returns to the trustee is due to circumstances beyond their control within the meaning of § 521(e)(2)(B). They have not filed returns in over 10 years, and the returns are not available from the I.R.S.”).

 

26  341 B.R. 387 (Bankr. D. Me. 2006).

 

27  341 B.R. at 391. See § 393.1 [ Consequences of Failure to File or Provide Tax Returns ] § 42.8  Consequences of Failure to File or Provide Tax Returns for further discussion of the consequences of failing to file or provide tax returns.

 

28  See 11 U.S.C. § 1308, discussed in § 391.1 [ Tax Return Duties One Day before First Scheduled Meeting of Creditors ] § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors.

 

29  354 B.R. 824 (Bankr. S.D. Tex. 2006).

 

30  354 B.R. at 826.

 

31  See United States v. New York Tel. Co., 434 U.S. 159, 98 S. Ct. 364, 54 L. Ed. 2d 376 (1977).

 

32  354 B.R. at 829.

 

33  354 B.R. at 832–33.