loads of funds ok let's put it aside from this case and get away from the facts of this case but if you owe the i r s a one million dollars right  undisputed and you are generating i want to give you a crazy example to make the point and you're generating fifty million dollars of income a year and you're spending all of it on an exclusively lavish lifestyle so that you don't have the ability to pay the one million dollars owed to the i r s why should that not be enough to satisfy the conduct the conduct prong of payment towards their liability in effect you know but i don't want you to get away from the hypothetical into you answer it so which was one it's one thing to say in this case given what happened and given the feste backs dealings with the i r s and the installment payments in the offers of compromise and all of that all that going forward it's one thing to say in this case you can't just look at spending but we have to write an opinion in this case no matter how we come out and so i'm asking you whether or not in a given case that sort of spending i hypothesized would be enough to satisfy the conduct prong of section five hundred and twenty dollars so you can tell me why that principle doesn't apply in your client's case so i would in the extreme example that you give i think that would be more and more fairly viewed as abusive behavior  d although i would i would point out that there's been no case in the th circuit that is that is said spending by itself is sufficient to satisfy the conduct problem so it would in that hypothetical it would even there it would it would involve an expansion of eleven circuit precedent as to the discharge exception which has to be construed narrowly in a debtors favor however in that extreme example i think is i think is a different case and i could very well see that that the period that this case relates to during which he was generating sufficient income to be able to to make large payments towards the ninety nine to two thousand and one liability that his you know his entire life was focused on his business and that every everything that he did in his life was geared toward building his business in generating income in two to have money on hand to be able to pay the i r s so i wouldn't i wouldn't rule those expenses categorically out as as  unrelated to the generation of income but i would point out that most of the spending that the government in the bankruptcy court relied on in reaching its decision occurred in that five to seven period years of credit card statements bank statements similar financial documents and the agreement was approved by that i r s employees manager and the i r s had t to amend it to ask for further information to to get an updated status of the backs financial information or to simply terminated and the i r s was was on notice of the income the backs the to the extent that there are intimations of that in the record that was occurred in the context of the offers in compromise and it's very important to realize that offers and compromised offers and compromises are are very unique aspects of collections they are there is a baseline of expenses and the those expenses are only relevant in determining whether the offer submitted by the taxpayer is acceptable they are not generally applicable principles and i think that's evidenced by the fact that you've repeated statements from iris personnel revenue officer gear revenue officer goldsmith revenue officer morris saying that we don't care what they spend their money on it's not up to the i r s to tell taxpayers what they spend their money on whether that whether it whether their expenses prevent the acceptance of it of an oh i see that that's a different question they all thought  didn't value the assets correctly they didn't have an understanding of how a partnership interest should be valued they misinterpreted the amount of income the fresh best were earning for instance with respect to the twenty thousand and eighty i see revenue officer gear determine that the fed ex were earning something in the range of thirty thousand dollars a month this was in two thousand and nine when in fact on their two thousand and nine tax return which was accepted as true and correct by the i r s and has never been challenged they reported total income of thirty five thousand dollars a year so the offers in compromise evaluations performed by the i r s or riddled with errors and frankly i don't think should be afforded too much weight revenue officer morris looking at the fish backs expenses after doing an in depth review of them and determining this is the amount they could they could pay per month he repeatedly stated he was satisfied with it and he was content with it well on that put him with the bankruptcy court st of all the big report pointed out that it lacks language similar to the extent or some type of language that would be viewed as limiting but i think the back to court was mistaken on that point that to the extent it pointed out in subsection a two and a seven it was more towards the type of the debt as opposed to the amount and then the as to the the the language of five hundred and twenty three dollars a one c which is such tax which the bankruptcy court on in determining that it was not divisible are not subject to a partial discharge has been similar languages exist in section five thousand two hundred and thirty eight relating to student loan discharges its similarly binary appears black and white yet courts repeatedly order partial discharges were sometimes when there's no one to hardship sometimes when there is a new hardship so in those chords do that under their ethical power of section  a in this case the bankruptcy court correctly lamented that a an all or nothing approach to the partial discharge question leads to absurd results so if i can use my own extreme favor would be absurd to deny discharge to the other ninety nine thousand dollars based on one minor act of willful tax evasion but that's exactly what the bankruptcy courts approach  please the court paula liz appearing on behalf of the united states your honors in fact the law is that one attempt at tax evasion is sufficient to trigger the exclusion from discharge microphone a little closer i'm simply making the point your honor in that in fact eleven act of evasion is enough to trigger the exception in section five hundred and twenty three a one c there is no need to have a large collection of evasions over ten years evasions over twenty years if the government proves one type of ace of conduct that is enough to trigger the exception from discharge you might you may be right but as of so so far there are no reported cases holding that excessive and lavish spending it of itself isn't of the satisfied section  is that is correct your honor although there are several cases in which it is clear that the lavish spending the excessive lifestyle was the main determining factor in the analysis but it your honor is correct that in all of the cases they've been reported there has been more than one form of conduct and in this case the government argued and presented evidence of multiple forms of conduct as well that the bankruptcy court found it unnecessary to rely upon those other types of in its opinion which is the effort by the best backs to consistently submit in adequate offers in compromise over multiple times over multiple periods of time which worked as a de lay of the i r s as collection efforts the bankruptcy court specifically referred to that campaign of the lay when it analyzed the mental element prong of the section five hundred and twenty three a one c exception  facts council argues that it would be improper for this court to look to that conduct in deciding whether they had in fact satisfied the conduct of the exception because the bankruptcy court didn't mention those things specifically in the portion of its opinion in which it discussed conduct but the opinion is clear that the bankruptcy court was making factual findings about their offer in compromise efforts and the fact that they were inadequate the feste backs should have known that they were woefully inadequate and that the effort in making those obvious and compromise was an effort at delay in order to stop the i r s from engaging in unforced collections what was the other one the instances for example when the fest back submitted their two thousand and one offer in compromise they submitted a collection information statement that reflected lower income than they actually had reported on that collection information statement which is known as a form four hundred and thirty three dollars a a monthly income of fifteen thousand dollars but the i r s agent who examined it determined that their income must have been forty three thousand dollars per month based on information on the two thousand and two return and that comes from plaintiff's exhibit sixteen similarly the back submitted a collection information statement in two thousand and eight in connection with the offer in compromise that they made that year in that collections information statement they indicated a monthly income of eight hundred and thirty three dollars but they indicated expenses of twelve thousand dollars the agent expressed some discomfort in that how could somebody have eight hundred dollars of income but had twelve thousand dollars of expenses and they indicated no source for the funds to pay those extra expenses the agent conducted an analysis of their expenditures and ultimately determined through that analysis expenditures that their income was more likely to be something like twenty five thousand dollars per month and in fact at the end of that year for two thousand and eight the feste backs reported one hundred and ninety three thousand dollars of income which is vastly more than they should have had if they were only earning the eight hundred and thirty three dollars per month that they reported on the collection information statement and so the bankruptcy court didn't address those facts in its opinion at all but the government certainly presented that evidence at court and the government argued that issue in its post briefing and so we would submit that if this court concludes that the evidence of their asset dissipation by itself is not adequate to support a finding that the exception to discharge has been triggered then the course should remain for the court for the bankruptcy court in the st instance to analyze whether these other factors the in accurate information provided to the i r s as well as the camp the delay occasioned by their offers in compromise the bankruptcy court should be allowed to reconsider again whether those factors in conjunction with the asset dissipation would be adequate to meet the conduct wrong can i ask you a question about the intent prong of course you are there have been various different formulations of it even in this circuit  obviously is both sides know from the brief the th circuit or to q late a sort of higher at least at least in terms of verbiage a higher standard in the franchise tax case of specific intent yes your honor what do you think the correct formulation of the intent prong of five hundred and twenty three is the correct formulation is as this court and many other courts besides the th circuit has stated and that is whether the whether the debtor taxpayer had a duty to pay their taxes whether they knew of that duty and whether they voluntarily and intentionally violated that duty that's the highest up one second i think i understand that answer and that's what i expected that seems to be a formulation of the specific intent standard required in tax cases right knowing the violation of a known legal duty correct which is a very verge and of specific intent so how does the formulation with the three prongs you just laid out differ if at all from the th circuit's vision of a specific intent well your honor than the th circuit in fact in the hawkins opinion expressly rejected application of that three part test and the th circuit in that opinion said we are applying something different than that three part test and with the th circuit said is that it must be demonstrated that the taxpayer engaged in the conduct with the specific intent to ensure that they were invaded their taxes with these different having a duty knowing about the duty and knowingly violating the duty if you have a duty to pay you know you have the duty to pay and you are knowingly breaching that duty how is that different than the specific intent that the th circuit talked about well you know the th circuit equated that type of specific intent to fraudulent intent to two bad intent to an effort to defraud the government and the supreme court even in discussing the criminal the criminal version of the formulation has said that it is possible to commit even criminal willful evasion of taxes without having a fraudulent intent towards the government and in doing that the supreme court specifically talked about nonpayment cases and i think that your honor this case provides a perfect example of that  the fact is that the question is whether they were making a knowing voluntary choice to not pay their taxes and that is in fact what happened here every single time that the feste pac spent money on the house in aspen every single time that they spent money to go on an on another trip that they spent money on their chef on their made every single time they were doing those things they were choosing to spend their money on those excesses rather than spending their money on their taxes and i would just point out to the court that this court in in jacobs specifically cited with approval gardener from the rd circuit  and the way that this court when discussing this willfulness element and this is how this court described that the court's decision and gardener the debtor willfully avoided payment of his tax liabilities when he acknowledged that he was aware of his legal responsibility to pay the taxes and could have used some of his earnings to do so but made a conscious decision not to apply the money she earned towards the debt and that's what we have here every single time they made one dollar of these expenditures they were making a conscious decision not to apply their millions of dollars in income against their outstanding tax debt and iran or i know that counsel has has indicated that most of the conduct that the bankruptcy court focused on was during the period of the installment agreement it's not true there's there is and there's plenty of this type of excessive spending outside the installment agreement simply looking at the year two thousand and two in the year two thousand and two that's the year in which the tax payers filed their tax returns for two thousand and one in which they reported a three million two hundred thousand dollars liability they reported that three million two hundred thousand dollars liability for two thousand and one in may of two thousand and two when they when they file their tax return in september in that here they reported six hundred and eleven thousand dollars of income they spent seven hundred and sixty four thousand dollars on personal expenses and they paid zero dollars towards their nine hundred and ninety nine dollars liability and their two one thousand and one dollars liability when they reported their tax liability on their two thousand and one return in two thousand and two they made zero payment with the return and yet that same year they spent seven hundred and sixty four one thousand dollars on personal expenses now your honor also it asked the question whether there could be some expenses that were relevant towards generating business in mr feste backs investment company in order to earn more income with which to pay the fines back backs separately categorized business expenses in an all of their expenses and so if you subtract out what they categorize categorized as business expenses in two thousand and two the number six hundred and sixty nine thousand dollars spent on personal income and so that that that pattern repeats itself over and over and over again this is not one piece of conduct in two thousand and three the feste back reported seven hundred and thirty eight thousand dollars of income they spent six hundred and seventy seven thousand dollars after subtracting out their business expenses they paid zero dollars towards the nineteen million nine hundred and ninety two thousand and one liabilities the same thing again in two thousand and four that now in two thousand and five the fest backs alternately did enter into an installment agreement with the internal revenue service that installment agreement require them to pay one hundred and twenty thousand dollars per quarter towards their two thousand and one liability and this is another point that doesn't come out in the briefs the backs in their briefs often conflate the one thousand nine hundred and nine and the two thousand and one liabilities and they say well we paid substantially more than the total dollars tax liabilities and while they did in fact make payments pursuant to the installment agreement it's important to understand the context in which those payments were being made that installment agreement was entered after they had failed to pay for multiple years and their operas and compromise had been rejected and their case was being sent out for enforced collection and so it was under the threat of enforced collection the possibility of seizure of assets the possibility of enforcement of means that was the context in which they came to the table and after the installment agreement now regarding the amount of the installment agreement the agent that entered into that agreement with the fast facts testified at trial that part of the reason why he agreed to the number it is true he took into account their expenses one of the expenses that he thought that the feste backs had was paying back a loan that he thought that they had taken out to pay the one thousand nine hundred and nine taxes but it trial mr fest back it's like to point out a couple things that my colleague mentioned st of all to the spending between twenty million fifty two thousand and seven was absolutely crucial to the decision of the bankruptcy court and it cannot fairly be said that at that absent that spending it would have reached the same decision so at the very least it would be necessary to to remand this case to determine whether absent the spending that that occurred during the period of the if that were excluded whether the bankruptcy court would have reached the same conclusion coke or opposing counsel also pointed out activity occurring between two dozen twenty three dollars and four dollars well the fact is in two c the opposing counsel points out that that installment agreement was made under threat of force collection well that's the reality of every installment agreement reached with every tax that are in this country and same with with  they're only ever reach or they're only ever made when the threat of inforce collection is out there that's the simply that the nature of the system so if that's a factor in determining that discharge not appropriate in this case then that factor has to be taken into account in every case that occurs using force collection is part of every single one of those cases and the the fact that the feshbach submitted these oh i c's should not be used against him it was it was not reasonable for the bankruptcy court to conclude that mr fresh back had sufficient knowledge of the underlying regulations to overrule the advice that he received from counsel on each of the three oases he submitted if he had such knowledge  then then he would also know that the i r s internal revenue manual dictates that we don't know why c is to mid soley for purposes of delay the i r s agent that receives it is instructed to return and that's all he would also know that the regulations that govern oases indicate that when oh i see is frivolous it should be reject none of those things ever happened so he was knowledgeable but about the under lying regulations really into oases he would have known that the failure of the i r s to return or reject