The Intersection of Tax and Bankruptcy: The McCoy Rule

The ability to discharge personal income tax liability has traditionally been allowed if the filer has filed a valid tax return and tried to follow the tax laws in “good faith.” In 2008 courts started changing and eradicating “good faith” due to amendments to 11 U.S.C. § 523 in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). This article discusses the McCoy case and how it relates to “good faith” and suggests that discharge of tax liability may be broadened using equity.