Reply Brief — John Paul Salvador, Petitioner v. United States

No. 24-108

In the Supreme Court of the United States

JOHN PAUL SALVADOR, PETITIONER,

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

REPLY BRIEF FOR THE PETITIONER

JOHN N. TEDFORD, IV

DANNING, GILL, ISRAEL

& KRASNOFF, LLP

1901 Avenue of the Stars,

Suite 450

Los Angeles, CA 90067

(310) 277-0077

ANDREW T. TUTT

Counsel of Record

ARNOLD & PORTER

KAYE SCHOLER LLP

601 Massachusetts Ave., NW

Washington, DC 20001

(202) 942-5000

andrew.tutt@arnoldporter.com

CATHERINE M. LANGHANS

CALEB THOMPSON

CLAIRE A. FAHLMAN

MAX GOULD

ARNOLD & PORTER

KAYE SCHOLER LLP

250 West 55th St.

New York, NY 10019

(212) 836-8000

TABLE OF CONTENTS

Page

Reply Brief for the Petitioner ............................................. 1

Argument .............................................................................. 3

I. The Government Concedes The Circuit Split............ 3

II. The Government Does Not Dispute That the

Question Presented is Exceptionally Important ....... 6

III. The Court Should Review this Question Now ........... 8

Conclusion ........................................................................... 10

(i)

TABLE OF AUTHORITIES

Page(s)

Cases

Colsen v. United States,

446 F.3d 836 (8th Cir. 2006) .......................................... 2

In re Giacchi,

856 F.3d 244 (3d Cir. 2017) ........................................ 4, 5

In re Justice,

817 F.3d 738 (11th Cir. 2016) ........................................ 4

In re Smith,

828 F.3d 1094 (9th Cir. 2016) .................................... 4, 6

Statutes

11 U.S.C. § 523(a) ................................................................. 5

Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005, Pub.

L. No. 109-8, § 714(2), 119 Stat. 128-29 ........................ 4

Other Authorities

John N. Tedford, IV, Dischargeability of

Nonpriority Taxes for Late-Filed Tax

Return, 38-SEP Am. Bankr. Inst. J. 14

(Sept. 2019) ..................................................................... 5

(ii)

iii

John N. Tedford, IV, Dischargeability of

Non-Priority Taxes for Which a Tax

Return Was Not Timely Filed, 2020

Norton Ann. Surv. of Bankr. L. 183

(2020 ed.) ......................................................................... 5

Kristi R. Sutton & Inan Uluc, If It Looks

Like a Duck, Swims Like a Duck, and

Quacks Like a Duck, It Is Probably a

Duck!—Whether Late-Filed Tax

Returns Constitute “Returns” for

Purposes of Discharge Under § 523, 93

Am. Bankr. L. J. 111, 138 (2019) ................................... 5

Nicholas J. Huffmon, Putting the Hanging

Paragraph Out to Pasture:

Reconciling the Mandates of

Bankruptcy and Tax Law, 103 Iowa L.

Rev. 1729 (2018) .............................................................. 5

Timothy M. Todd, Discharge of Late Tax

Return Debt in Bankruptcy: Fixing

BAPCPA’s Draconian Hanging

Paragraph, 24 Am. Bankr. Inst. L.

Rev. 433, 462 (2016) ........................................................ 5

In the Supreme Court of the United States

JOHN PAUL SALVADOR, PETITIONER,

v.

UNITED STATES OF AMERICA.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

REPLY BRIEF FOR THE PETITIONER

This case presents a significant conflict over a

recurrent question of federal law with profound

implications for millions of Americans. The government

concedes the existence of a circuit split and does not

dispute the exceptional importance of this issue. Further

percolation will not aid the Court in resolving the

question. The split has persisted for decades, and it will

not resolve itself: as the Ninth Circuit made clear below,

it will not revisit its position because doing so “would only

further entrench the existing inter-circuit split.” Pet. App.

4a. This case is a clean vehicle to resolve the question

presented. The Court should grant the petition for

certiorari and resolve the substantial, entrenched,

decades-long circuit conflict in this case.

The government concedes the significant circuit split

over the dischargeability of tax debts in bankruptcy cases

and admits that the IRS takes its own “different

approach.” Opp. 6, 9, 15. Unable to deny the obvious

circuit conflict, the government suggests waiting for the

Eighth Circuit to “revisit” its precedent. Opp. 15. But

nearly 20 years have passed since the Eighth Circuit’s

(1)

2

decision in In re Colsen, 446 F.3d 836 (8th Cir. 2006), and

Congress’s enactment of the hanging paragraph at the

end of 11 U.S.C. § 523(a). If the Eighth Circuit has not

revisited it by now, it is unlikely to do so in the near future.

Moreover, even if the Eighth Circuit were to revisit

Colsen and adopt a new position, it would still leave intact

the deep and enduring split between the “one-day-late”

circuits and the “Beard test” circuits. Opp. 8-9. It would

also leave the IRS using its own separate approach that,

like Colsen, treats the timeliness of a Form 1040 as

irrelevant to whether it constitutes a “return.” Opp. 9-10.

The government does not contest the critical

importance of this issue. The impressive array of amicus

briefs from tax and bankruptcy scholars, practitioners,

and professional associations underscores the immense

importance of this issue to ordinary people as well as the

tax and bankruptcy bars. See Brief of Profs. Nicholas L.

Georgakopoulos, et al. as Amici Curiae 1-3 (Law

Professors Amicus Br.); Brief of the American College of

Tax Counsel as Amicus Curiae 1-3 (College Amicus Br.);

Brief of the Center for Taxpayer Rights as Amicus

Curiae 1-4 (Center Amicus Br.); Brief of A. Lavar Taylor

as Amicus Curiae 1-4 (Taylor Amicus Br.); Brief for

Central District Consumer Bankruptcy Attorney

Association as Amicus Curiae 1-3 (CDCBAA Amicus

Br.). That the government does not anywhere in its brief

contest this issue’s critical national importance speaks

volumes.

Finally, the government does not dispute that there

are no obstacles to this Court’s review of the question

presented or that this case is an ideal vehicle to resolve it.

Nor does the government contest that petitioner would

prevail under the Eighth Circuit’s approach from Colsen.

This case presents the ideal opportunity to address this

important question that is critical to the dischargeability

3

of tax debts for millions of Americans. The Court should

grant certiorari and reverse.

ARGUMENT

I.

THE GOVERNMENT CONCEDES THE CIRCUIT SPLIT

This is the rare remarkable case where a party

opposing the petition for certiorari readily admits that a

circuit split exists. The government acknowledges that

the Third, Ninth, and Eleventh Circuits “have concluded

that the Beard test applies when determining whether a

filing” is a “return” for purposes of discharge, Opp. 7,

while “three other courts of appeals” apply the “one-daylate rule.” Opp. 8.

The government also concedes that “the IRS does not

treat filing deadlines as ‘applicable filing requirements’

that must be ‘satisfie[d]’ to count as a ‘return’ defined by

Section 523(a)(*).” Opp. 10. The government admits that

under the IRS’s view of the law, whether a Form 1040 is

filed late is irrelevant to whether it is a “return.” Opp. 10

(explaining that, even if a Form 1040 is filed postassessment, the IRS will treat “the portion of the tax that

was not previously assessed” as “potentially

dischargeable”).1

The government provides a lengthy explanation of the IRS’s

official position, but misses an important nuance. The IRS’s view is

that when the IRS assesses a tax with respect to which no return

has been filed at the time of the assessment, the debt is based on the

assessment, not a return. Pet. App. 36a. Thus, according to the

IRS, even if a return confirming the accuracy of the assessment is

filed and accepted by the IRS, the debt still is one “with respect to

which a return was not filed” and, pursuant to section

523(a)(1)(B)(i), is not dischargeable. Id. The IRS therefore tries to

frame the question as being whether a tax debt is based on an

assessment instead of a later-filed return. Courts have consistently

rejected the IRS’s position because, among other things, federal tax

debts are created by the Internal Revenue Code, not the assessment

process that calculates and records the liability, and under the

1

4

The government’s only dispute with petitioner is over

whether In re Colsen is still the law in the Eighth Circuit.

Opp. 13-15. As an initial matter, whether Colsen remains

the law or not, the split between the Third, Ninth, and

Eleventh Circuits, on the one hand, the First, Fifth, and

Tenth, on the other hand, and the IRS on still another

hand, would still warrant review. And the government

does not dispute that the one-day-late rule has

considerable bite for taxpayers compared to the more

lenient rule that permits discharge until the IRS assesses

the tax.

In any event, the Eighth Circuit will almost certainly

treat Colsen as binding if that Circuit ever revisits it. In

the years since the hanging paragraph was added to 11

U.S.C. § 523(a) by the Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005 (BAPCPA), Pub. L. No.

109-8, § 712(2), 119 Stat. 128-29, three Circuits have

continued to use the Beard test to determine whether a

late-filed Form 1040 is a return, See In re Smith, 828 F.3d

1094, 1097 (9th Cir. 2016); In re Justice, 817 F.3d 738, 74647 (11th Cir. 2016); In re Giacchi, 856 F.3d 244, 248-49 (3d

Cir. 2017). And at least one court has said that, with an

exception not relevant to this case, the definition of

“return” added by BAPCPA “effectively codified the

Beard test.” In re Martin, 542 B.R. at 489-90. No Circuit

has jettisoned its pre-BAPCPA reliance on the Beard test

Bankruptcy Code the debt exists regardless of whether the tax has

been assessed. See In re Mallo, 774 F.3d 1313, 1326 (10th Cir. 2014);

In re Martin, 542 B.R. 479, 491-92 (B.A.P. 9th Cir. 2015).

The government’s opposition may give the impression that the

IRS’s position has a relationship to the Beard test (Opp. 10-11) but

it does not. The Beard test is used exclusively to determine whether

a document filed with the IRS is a “return.” Opp. 3. At base, the

government does not treat timeliness as a relevant factor in

determining whether a Form 1040 is a return. See Opp. 9-11; see

also Pet. App. 31a-37a.

5

in favor of the one-day-late approach, and there is no

reason to think that the Eighth Circuit would do so.

The Eighth Circuit’s rule in Colsen is just a different

approach to applying the Beard test, a test that three

Circuits hold still applies even after BAPCPA.2 See In re

Giacchi, 856 F.3d at 248 (recognizing that Colsen applies

a version of the Beard test). The government’s position

that the Eighth Circuit could reverse course and reject

the Beard test in its entirety is bewildering given that the

And Colsen’s approach is a persuasive one, as numerous

commentators have recognized. See Kristi R. Sutton & Inan Uluc,

If It Looks Like a Duck, Swims Like a Duck, and Quacks Like a

Duck, It Is Probably a Duck!—Whether Late-Filed Tax Returns

Constitute “Returns” for Purposes of Discharge Under § 523, 93

Am. Bankr. L. J. 111, 138 (2019) (endorsing for the Eighth Circuit’s

approach); Nicholas J. Huffmon, Putting the Hanging Paragraph

Out to Pasture: Reconciling the Mandates of Bankruptcy and Tax

Law, 103 Iowa L. Rev. 1729, 1751 (2018) (proposing a legislative

amendment that “expressly adopts the view of Judge Easterbrook

and the Eighth Circuit, which most closely aligns with the rationale

in Beard.”); Timothy M. Todd, Discharge of Late Tax Return Debt

in Bankruptcy: Fixing BAPCPA’s Draconian Hanging

Paragraph, 24 Am. Bankr. Inst. L. Rev. 433, 462 (2016) (the “notime-limit approach from Colsen” is the better interpretation of

Beard because it “comports with the various construction canons,

provides a sensible balance between tax enforcement and discharge,

and honors the goal of giving the debtor a fresh start.”); John N.

Tedford, IV, Dischargeability of Non-Priority Taxes for Which a

Tax Return Was Not Timely Filed, 2020 Norton Ann. Surv. of

Bankr. L. 183 (2020 ed.) (“If the Supreme Court accepts review, it

should hold that the No-Time-Limit Approach adopted by the Eight

Circuit in Colsen is correct.”); John N. Tedford, IV,

Dischargeability of Nonpriority Taxes for Late-Filed Tax Return,

38-SEP Am. Bankr. Inst. J. 14, 15 (Sept. 2019) (“The no-time-limit

approach adopted by the Eighth Circuit in Colsen … gives full effect

to § 523(a)(1) and (*), and maintains the balance struck more than

50 years ago between the debtor’s need for a fresh start and the

government’s need for sufficient time to conduct its auditing,

assessment and collection functions.”).

2

6

United States has consistently and repeatedly argued

that the Beard test remains the correct test for

determining whether a Form 1040 is a “return” even after

BAPCPA. See id. at 247 (explaining the United States’s

argument that the Beard test governs after BAPCPA); In

re Smith, 828 F.3d at 1096 (same); see U.S. Br. at 20, In

re Justice, No. 15-10273 (11th Cir.), Dkt. 20,

https://bit.ly/3YheXCj (arguing the post-BAPCPA test

“remains the Beard test”).

Thus, if the Eighth Circuit takes the position the

United States has consistently advocated for, and holds,

as the Third, Ninth, and Eleventh Circuits have, that

BAPCPA did not abrogate the Beard test in

nondischargeability proceedings, Colsen will remain the

law in the Eighth Circuit notwithstanding BAPCPA’s

addition of § 523(a)(*). The government’s suggestion that

the Court should wait for the Eighth Circuit to “revisit its

pre-BAPCPA precedent in light of the intervening

amendments,” Opp. 15, contradicts the government’s own

longstanding position that BAPCPA did not displace the

Beard test.

At bottom, the circuit split at issue in this case,

whether it is two-ways, three-ways, or four-ways, is

longstanding, deeply entrenched, and ripe for the Court’s

review. This split has persisted for decades and will not

resolve without this Court’s intervention. Only this Court

can bring uniformity to federal law on this important

issue.

II.

THE GOVERNMENT DOES NOT DISPUTE THAT THE

QUESTION PRESENTED IS EXCEPTIONALLY

IMPORTANT

The government does not dispute the exceptional

importance of the question presented. Nor does it dispute

that this issue recurs frequently for individuals facing

bankruptcy across the nation. This question impacts

millions of Americans who file for bankruptcy each year,

7

dictating whether they can discharge old tax debts and

secure the “fresh start” central to bankruptcy law. The

divergent rulings among the courts of appeals create a

situation where a debtor’s ability to discharge tax debts

hinges solely on where the debtor files—an arbitrary

distinction that flies in the face of the Constitution’s

requirement for uniform bankruptcy laws. This

inconsistency also hampers the IRS’s ability to administer

tax laws and collect revenue effectively. The government’s

silence on these critical points is deafening.

And as the amici explain, a decision from this Court

endorsing Colsen and holding that late filed tax returns

are always potentially dischargeable in bankruptcy would

have a massive positive impact on debtors nationwide. See

College Amicus Br. 18-20; Center Amicus Br. 18-19; Law

Professors Amicus Br. 24; CDCBAA Amicus Br. 12.

As the American College of Tax Counsel writes, this

case warrants the Court’s review because “debtors whose

tax debts are not dischargeable are made demonstrably

worse off by going through bankruptcy.” College Amicus

Br. 18. “[C]ourts are misapplying the exception” and

“harming debtors in ways that are significant and

unjustified.” Id. “Tax debts significantly impinge on

debtors’ financial and personal well-being.” Id. at 13. And

ending uncertainty over the question presented “would

benefit taxing authorities by ensuring they only expend

resources collecting debts that are warranted by the law.”

Id. at 20.

As observed by the Center for Taxpayer Rights,

reversal in this case would “put an end to the excessively

harsh consequences [for low- and moderate-income

taxpayers who are also bankruptcy debtors] doled out by

most circuits.” Center Amicus Br. 18-19 (noting that this

issue “most gravely affects those least equipped to endure

the financial implications of being denied a clean slate”).

8

As the Professors of Tax and Bankruptcy Law aptly

highlight, “[t]he holdings of the majority of Circuits that

late-filed returns do not, or may not, constitute valid

returns for purposes of discharge clearly contradict the

policy that discharge provisions are to be liberally

construed. Not only has Section 523(a) not been liberally

construed in favor of debtors, it has been construed so

narrowly that it has created an absurd result.” Law

Professors Amicus Br. 24.

And finally, as the CDCBAA emphasizes: “A

definitive ruling, one that follows the objective simplicity

of Colsen, would allow the CDCBAA members to properly

advise their debtor clients who have filed their tax returns

late whether those taxes may be discharged in

bankruptcy. It would also achieve the uniformity that the

Bankruptcy Code is intended to bring to bankruptcy

courts around the country.” CDCBAA Amicus Br. 12.

The importance of the question presented to millions

of Americans is undeniable and undisputed in this case.

Given the conceded split in authority, it is hard to imagine

case more suitable for the Court’s review than this one.

III. THE COURT SHOULD REVIEW THIS QUESTION NOW

The Court should review this question now. The

arguments on all sides have been fully aired over decades

of litigation, and additional percolation will not benefit the

Court’s consideration of this issue. As the American

College of Tax Counsel notes, “[a]fter decades of rulings

on this issue, further legal development is unlikely to aid

in this Court’s consideration or bridge the divides

between the circuits.” College Amicus Br. 3. As A. Lavar

Taylor, a distinguished tax practitioner and lecturer on

federal tax procedure explains: “Taxpayers generally do

not choose to resolve their existing tax liabilities by

signing up to litigate a test case for years, all the way to

the Supreme Court.” Taylor Amicus Br. 4. Thus, “the

existing uncertainties could very well persist for years if

9

this Court does not grant review in the present case.” Id.

at 17. And the CDCBAA stresses that “[o]nly” this Court

can intervene to bring uniformity to federal law on this

important issue. CDCBAA Amicus Br. 12.

The government points to no vehicle problems that

would impede the Court’s review of the question

presented, nor are there any. The outcome of this case

turns entirely on the purely legal question presented, a

question that was outcome-determinative in the Ninth

Circuit below. This split is deeply entrenched and will not

resolve itself. As the Ninth Circuit made clear in declining

to revisit its precedent, doing so “would only further

entrench the existing inter-circuit split.” Pet. App. 4a.

Only this Court can resolve this circuit conflict and bring

uniformity to this important area of federal law. It should

do so in this case.

10

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

JOHN N. TEDFORD, IV

DANNING, GILL, ISRAEL

& KRASNOFF, LLP

1901 Avenue of the Stars,

Suite 450

Los Angeles, CA 90067

(310) 277-0077

ANDREW T. TUTT

Counsel of Record

ARNOLD & PORTER

KAYE SCHOLER LLP

601 Massachusetts Ave., NW

Washington, DC 20001

(202) 942-5000

andrew.tutt@arnoldporter.com

CATHERINE M. LANGHANS

CALEB THOMPSON

CLAIRE A. FAHLMAN

MAX GOULD

ARNOLD & PORTER

KAYE SCHOLER LLP

250 West 55th St.

New York, NY 10019

(212) 836-8000

OCTOBER 2024