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The United States Court of Appeals for the First Circuit issued judgments in the Department of Revenue’s (DOR) favor last month, finding that taxpayers in Bankruptcy proceedings cannot discharge late filed tax returns.

The court consolidated two similar cases brought before them involving a total of four taxpayers.  In one of the cases a lower court had found in favor of two taxpayers and in the other case a lower court had ruled in DOR’s favor.  In each of the cases, the taxpayers had filed their tax returns after the due dates and failed to pay their taxes. More than two years later, they filed for bankruptcy protection requesting their tax liability to be discharged.   Both cases were appealed and consolidated into one case and in a 2 – 1 decision, the 1st Circuit held that by bankruptcy law definition, a late filed tax return is not dischargeable in bankruptcy.

The tax and interest associated with the four taxpayers asking for relief totaled nearly $250,000.

Similar decisions in favor of other Departments of Revenue were also recently made in the Fifth and Tenth Circuit courts.

For taxpayers, this decision means that the tax liability related to late -filed tax returns, is no longer dischargeable in bankruptcy.

DOR’s Litigation Bureau will now review all pending cases with similar characteristics, totaling approximately $6 million, and expects to refer most to the Collections Bureau for payment.   The Collections Bureau will begin the collections process for any referred cases immediately.

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