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IRS Provides Guidance Regarding Returns for Bankruptcy Purposes

December 01, 2005

IRS Notice CC-2006-002, dated November 22, from the Office of Chief,
provides the IRS's position in contesting the dischargeability of a tax debt
in bankruptcy on the basis that no return was filed, when a taxpayer has
signed and submitted a Form 870, Waiver of Restrictions on Assessment and
Collection of Deficiency in Tax and Acceptance of Overassessment.
The Notice states that the 4-part test from Beard v. Commissioner, a 1984
U.S. Tax Court decision, is the proper test for determining what constitutes
a valid return for purposes of the internal revenue laws or regulations. The
problem arose with Revenue Ruling 74-203, which held a signed Form 870, in
response to a proposed substitute for return, is a return for purposes of
Internal Revenue Code Section 6020(a). The notice said that some bankruptcy
courts have held that the execution of a waiver may constitute the filing of
a return for Bankruptcy Code Section 523(a)(1)(B) even though the document
is not executed under penalties of perjury. 74-203 was revoked by
September's Rev. Rul. 2005-59, which clarified when documents prepared or
executed by IRS under I.R.C. Section 6020, or waivers on assessment,
constitute valid returns. In finding that Rev. 74-203 was inconsistent with
Beard it also held that taxpayers are entitled to rely on the ruling prior
to its revocation.

The notice said for bankruptcy cases filed on or after Oct. 17, 2005, the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 amends the
Bankruptcy Code to provide that a return means a return that satisfies the
requirements of non-bankruptcy law.

David Goch
Washington Legislative Counsel
Commercial Law League of America
dgoch@wc-b.com
http://clla.org/newswire/Washington_Hot_News.cfm?newsID=238&month=12&year=2005