According to Procedurally Taxing, in Golden v. United States (In re Golden), Bankr. E.D. Cal. Adv. Proc. No. 21‑2012, Docket No. 60 (Golden), the taxpayer‑debtors Nicole Golden and Stephen Alter (the Taxpayers) argued successfully that their return was an honest and reasonable attempt to satisfy the requirements of the tax law.
The bankruptcy court discharged their tax obligation even though the Taxpayers had filed their return after the IRS initiated the substitute‑for‑return process, issued a notice of deficiency (NOD), and assessed tax based on the NOD. (Hereinafter - SFR assessment)
Golden marked only the second time a court using a subjective‑test analysis discharged tax due on a return filed after an SFR assessment (and was not reversed on appeal).
Golden also extended the IRS’ streak of unsuccessfully arguing that the tax due on a document filed after an SFR assessment is per se nondischargeable.
At Golden p.20‑21, the Court explained why it thought the Taxpayers had made an honest and reasonable attempt to comply with the tax law.
- The Taxpayers did not “belatedly” accept responsibility for filing a return, and they did not “attempt to present inaccurate or fabricated information.”
- Taxpayers “provided solid and accurate information” to the IRS. Taxpayers used the “assistance of a tax professional” to present accurate information.
- Taxpayers did not try to “walk away” from the debt. They spent five years in “bankruptcy purgatory” in order to obtain a discharge.
- The Taxpayers’ “corrective actions were not merely filing a ‘me too’” 2008 return that “parroted the assessed tax” with a goal of two years later filing for bankruptcy and asserting the tax debt should be discharged.
- The IRS presented “no identifiable bad faith reason for the failure to file” the 2008 return sooner.
- Although “beset” with financial and marital problems, the Taxpayers acted properly to substantially pay their tax obligations.
Without discussion, the Court rejected the per se rule. Golden at p.3 (where the government argument is set forth) and p.19 (where the Court makes clear that the Hatton rule applies; the Court looked at the totality of circumstances to determine whether the Taxpayers acted honestly and reasonably in the filing of their return).
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