UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Alexandria Division

In re:

Tyrone A. Conard and

Joyce L. Conard,

Debtors.

Case No. 14-10093-KHK

(Chapter 7)

Tyrone A. Conard and Joyce L. Conard,

Plaintiffs,

vs.

Internal Revenue Service,

Defendant.

Adv. Proc. No. 16-01121-KHK

MEMORANDUM OPINION

The Court must decide in this adversary proceeding whether Joyce L. Conard,

(“Mrs. Conard”) willfully attempted to evade her federal income tax liabilities for the

years 2003 through 2009 within the meaning of 11 U.S.C. § 523(a)(1)(C). A trial on the

issue was held on January 26, 2018 (the “Hearing”). For the reasons set forth below,

the Court holds that Mrs. Conard did not willfully attempt to evade her tax obligations

and therefore the taxes she owed for the years 2003 through 2009 are discharged.

Parties and Procedural History

Tyrone A. Conard (“Mr. Conard”) and Joyce L. Conard, (“Mrs. Conard”) filed a

voluntary petition for relief under chapter 7 of the Bankruptcy Code on January 8,

2014, and received a discharge on April 14, 2014. Among the debts listed on their

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schedules were tax liabilities owed to the IRS for a number of years. The Internal

Revenue Service (“IRS”) filed a proof of claim (Claim No. 2-1) in the amount of

$706,410.34, representing income tax liabilities for the years 2003 through 2013.

The present adversary proceeding was commenced on July 19, 2016. At the

conclusion of discovery, the IRS filed a Motion for Summary Judgment in its favor on

April 10, 2017. On December 13, 2017, the Court granted the IRS’ motion as to Mr.

Conard finding that he willfully attempted to evade payment of his taxes. The Court

denied the motion as to Ms. Conard finding that a genuine dispute of material fact

existed for trial on the issue of her willful evasion of payment. A trial on the merits was

held on January 26, 2018, and at the conclusion of the trial, the Court took the matter

under advisement. 

Jurisdiction and Venue

This Court has subject-matter jurisdiction under 28 U.S.C. §§1334(b) and 157(a)

and the general order of reference from the United States District Court for the

Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b)(2)(I), a

determination as to whether a particular debtor has been discharged is a core

proceeding in which a final judgment or order may be entered by a bankruptcy judge. 

Venue is proper in this district under 28 U.S.C. § 1409(a). Upon consideration of the

evidence and arguments presented by counsel and the pleadings submitted, the Court

makes the following findings of fact and conclusions of law pursuant to Federal Rule

of Bankruptcy Procedure 7052.

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Findings of Fact

Mr. & Mrs. Conard moved to northern Virginia in 2001 after he was promoted

to Director for the Virginia/Maryland/D.C. region for American Income Life Insurance

Company. IRS Ex. K, (Depo Tr. of Mrs. Conard) at 12-13. The Conards maintained a

strict division of responsibilities for the family finances. Mrs. Conard was responsible

for managing their household expenses, while Mr. Conard controlled the business

expenses. Id. at 18:3-5. Hrg. Tr. at 27:25-28:12. When she needed funds to pay the

household expenses, Mr. Conard would give her money. Id. at 35:2-5. See also IRS Ex.

K at 24:8-16. She understood that they were struggling financially. Id. at 18:12-14;

22:15-20. Sometimes when she asked for money to cover household expenses Mr.

Conard would tell her that some of those bills would have to be paid late. Id. at 24:8-

16. 

For several years, Mrs. Conard worked at her husband’s insurance firm, the

Conard Agency (the “Agency”), as a receptionist answering telephones and greeting

clients. Hrg. Tr. at 19:24-20:11. She had no role in tracking the finances at the

Agency. IRS Ex. K at 9:20-10:6. See also Hrg. Tr. at 20:1-6. She stopped working full

time in the office when her grandchild was born in May 2006. Id. at 20:7-11.

Before Mr. Conard opened the Agency, Mrs. Conard was responsible for ensuring

that their joint tax returns were timely filed. Hrg. Tr. at 26:19-27:3. She gathered the

necessary documents and engaged the services of a tax preparer. Id. When Mr.

Conard went into business for himself, he assumed full responsibility for their taxes

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because Mrs. Conard was not capable of handling their more complicated business tax

obligations. Id. at 30:19-25. See also IRS Ex. K at 12:11-17; 22:6-8. Thereafter, her

role was limited to gathering statements regarding their household expenses and

giving them to her husband. Hrg. Tr. at 28:13-29:2. Mr. Conard was responsible for

engaging and providing the tax preparer with the documents needed to prepare their

joint returns. IRS Ex. K at 12-14. 

Mrs. Conard knew she had a duty to file tax returns every year. Id. at 20:20-22. 

She also assumed that they owed taxes because of the business. Hrg. Tr. at 30:2-6. 

After she relinquished responsibility for having the returns prepared, she knew they

were not being filed on time, but was not concerned because when she endorsed the

returns she also signed requests for extensions. Id. at 60:1-12. She admitted not

reading the returns when they were presented to her. Id. at 45:20-46:5; 48:3-7; 56:12-

20. She did not know how long an extension could last. IRS Ex. K at 21:1-11. She did

not understand that she and her spouse were obligated to pay estimated taxes

throughout the year because of the business. Hrg. Tr. at 19-21. 

Mrs. Conard knew that they were having problems with the IRS. Mr. Conard

told her the problems occurred because their returns were prepared improperly, but

he assured her he was seeking professional help to resolve the issues. Id. at 29:3-19;

44:8-13. Although she knew that they owed taxes, Mrs. Conard was not aware of the

amount owed. Id. at 29-30; 41:21-24; 47:18-48:7; 49:6-9. Mr. Conard also told her that

they had paid taxes, but he did not tell her how much had been paid. Id. at 35:13-15;

46:6-11; 55:21-23; 56:9-20. At some point, Mr. Conard told his spouse that they were

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on a payment plan to pay taxes. She took him at his word believing he had no reason

to lie. Id. at 46:13-17. 

Between 2004 and 2009, the IRS mailed at least 30 notices to the Conards

regarding their outstanding tax debt. Id. at 72:16-18. Id. at 43:1-5. Mrs. Conard

admitted receiving the notices, but she gave them to her spouse without reading them. 

Id. at 31:10-32:6. The notices upset her, but she believed her spouse was trying to

address their tax problems and she knew she was not capable of addressing the issues. 

Id. When she discussed the taxes with Mr. Conard, he would tell her not to worry. Id. 

She took him at his word when he said he was handling the taxes. Id. at 31:19-22;

46:10-21. When she found a tax notice on the front door she gave it to him and believed

he took care of the matter. Id. at 32:7-14. They did not discuss paying off the debt. Id.

at 30:17-25; 53:12-20; 54-55.

According to the IRS’ proof of claim, the Conards incurred income tax obligations

in the total amount of $337,513.87 for the tax years 2004-2009 (excluding interest,

penalties). During this period, the Conards failed to file any of their tax returns on

time and failed to make any estimated tax payments toward these obligations. When

this bankruptcy was commenced, the Conards had paid a total of $4,932 in taxes for

the relevant years. Despite their failure to pay, the Debtors made the following

discretionary purchases of non-essential items during and after the tax periods under

review:

• A $86,281 Mercedes Benz SL500, purchased in 2005 (IRS Ex. L at 81:4-

16; IRS Ex. O at p.1; IRS Ex. E at p. 9);

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• A $47,590 2012 BMW 640i coupe (IRS Ex. L at 81:21-82:3; IRS Ex. P. at

p. 1; IRS Ex. K at 38:12-14);

• A $50,613.44 Buick Lacrosse, which Mr. Conard owned simultaneously

with his BMW coupe and purchased because the BMW was difficult to

drive in the snow (IRS Ex. L at 81:18-20; IRS Ex. Q at p. 1; IRS Ex. K at

38:1-5; IRS Ex. N at p. 5);

• A Harley Softail motorcycle, purchased in 2008 or 2009 for $4,000 (IRS

Ex. L at 90:2; IRS Ex. N p. 5);

• $48,000 worth of tuition for the Conards’ son (IRS Ex. L at p. 85:14- 87:8;

IRS Ex. K at 28:13-29:13);

• A new Optima (IRS Ex. L at 82:4-8; IRS Ex. N at p. 5);

• Membership in a boat club for $360/month (IRS Ex. L at 93:21-95:4; IRS

Ex. K at 38:15-41:6);

• At least $4,210 worth of expenditures at Saks Fifth Avenue (IRS Ex. K at

50:19-51:2; IRS Ex. R;

• Whole life insurance policies with a cash surrender value of $7,932.67 at

the time the Conards filed for bankruptcy (IRS Ex. L at 100:5-104:20; IRS

Ex. S at p. 3);

• Golf once a week (IRS Ex. L at 95:5-17; IRS Ex. N at p. 7);

• Golf trips to Florida to attend events put on by unions (IRS Ex. L at 90:6-

14);

• A vacation to the Bahamas that was paid for partially by American

Income, with the remainder funded by the Conards (IRS Ex. L at 90:15-

19; 92:3-93:16; IRS Ex. K at 34:2-18);

• Two large-screen televisions for their home ($3,130) (IRS Ex. L at 114:20-

115:2; 116:21- 117:2);

• $6,900 worth of new furniture for their home (IRS Ex. K at 50:3-18).1

Conclusions of Law

1 See Memorandum Opinion, Doc. No. 38, p.5-6.

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Under section 523(a)(1)(C) of the Bankruptcy Code, a discharge in bankruptcy

“does not discharge an individual debtor from any debt for a tax or customs duty with

respect to which the debtor made a fraudulent return or willfully attempted in any

manner to evade or defeat such tax.” 11 U.S.C. § 523(a)(1)(C). Although there appears

to be no Fourth Circuit precedent interpreting section 523(a)(1)(C), other courts have

determined that the willful evasion of tax debts under section 523(a)(1)(C)

encompasses “both a conduct requirement (that the debtor sought ‘in any manner to

evade or defeat’ his tax liability) and a mental state requirement (that the debtor did

so ‘willfully’).” United States v. Clayton, 468 B.R. 763, 770 (M.D.N.C. 2012) quoting In

re Birkenstock, 87 F.3d 947, 951 (7th Cir.1996); see also Tudisco v. U.S. Dept. of

Treasury (In re Tudisco), 183 F.3d 133, 136 (2d Cir. 1999); United States v. Fegeley (In

re Fegeley), 118 F.3d 979, 983 (3d Cir. 1997); Griffith v. United States (In re Griffith),

206 F.3d 1389, 1396 (11th Cir. 2000). The IRS contends that both of these elements

are present in this case.

In order to prevail, the IRS must prove by a preponderance of the evidence that

Mrs. Conard knew her taxes were due and not paid and that she chose not to pay them.

The Court will first address the conduct element. A failure to file returns coupled with

nonpayment of taxes can satisfy the conduct requirement. Clayton, 468 B.R. at 770. In

this case, Mrs. Conard admitted that she and her spouse failed to timely file their tax

returns for the years in question. She also admitted that she and her spouse made the

expenditures listed above during and after the years that the tax debts were incurred. 

Therefore, the IRS has established the presence of the conduct element of section

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523(a)(1)(C). 

To satisfy the mental state requirement, the IRS “must prove that the debtor (1)

had a duty to file income tax returns; (2) knew that he had a such a duty: and (3)

voluntarily and intentionally violated that duty.” Clayton, 468 B.R. at 771 quoting

United Sate v. Fretz (In re Fretz), 244 F.3d 1223, 11330 (11) Cir. 2001). The court in

Clayton also found that “lavish spending coupled with the knowledge of tax debts is

a[n] ... indication that a debtor act[ed] willfully in the evasion of his tax obligations.”

468 B.R. at 772. Other courts have also held that payment of discretionary

expenditures instead of paying tax debts known to be owed amounts to the voluntary

and intentional violation of the debtor’s duty to pay taxes. See, e.g., Petersen v. United

States (In re Petersen), 2012 WL 1906335, at *3 (Bankr. S.D. Fla. May 25, 2012); see

also Stamper v. United States (In re Gardner), 360 F.3d 551, 561 (6th Cir. 2004) (a

debtor who acknowledged his legal responsibility to pay taxes and could have used

some of his earnings to do so, but consciously decided not to, willfully avoided his tax

liabilities).

Mrs. Conard was a credible witness. At trial she testified that her husband told

her he was paying the taxes and that she believed him. Hrg. Tr. at 35:13-14; Tr. at

55:22-23; Id. at 56:9. All of her testimony substantiated that she had no control over

Mr. Conard’s expenditures and that she depended on her husband to fulfill all of their

tax obligations. Further, and importantly, her testimony established that she did not

know that the taxes were not being paid. The IRS failed to present any evidence to

show Mrs. Conard intended not to meet her tax obligations. Having heard Mrs.

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Conard’s testimony, the IRS’s evidence, and after reviewing the record in this case, this

Court is satisfied that Mrs. Conard did not know that the taxes were not being paid

and therefore, did not have the requisite mental state to willfully evade her taxes

under 11 U.S.C. §523(a)(1)(C). 

For the reasons stated above, this Court finds that Mrs. Conard is discharged

from her debt to the IRS for tax years 2004 through 2009. 

A separate order will be issued.

______________________________

Klinette H. Kindred

United States Bankruptcy Judge

Date:

Copies to:

Tyrone A. Conard

Joyce L. Conard

15581 Andover Heights Drive

Woodbridge, VA 22193

Robert R. Weed

Law Offices Of Robert Weed

300 Garrisonville Road, Suite 201

Stafford, VA 22554

Nelson D. Wagner

U.S. Department of Justice, Tax Division

P O Box 227

Washington, DC 20044

.HYLQ50F&DUWK\

3LQQDFOH'ULYH6XLWH

0F/HDQ9$

9

Jul 6 2018 /s/ Klinette Kindred

Entered on Docket: July 6, 2018

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