Source: https://law.justia.com/cases/federal/appellate-courts/F3/226/334/540076/
Timestamp: 2019-04-21 09:02:07
Document Index: 359972689

Matched Legal Cases: ['§ 7201', '§ 1141', '§ 1141', '§ 523', '§ 523', '§ 507', '§ 523', '§ 523', '§ 4103', '§ 523', '§ 523', '§ 1141', '§ 523', '§ 1141', '§ 523', '§ 523', '§ 7201', '§ 523', '§ 7201', '§ 523', '§ 523', '§ 523', '§ 7201', '§ 523', '§ 523', '§ 523', '§ 507', '§ 507', '§ 523']

In the Matter Of: Paul A. Grothues; Marilyn Grothues, Debtors,paul A. Grothues; Marilyn Grothues, Appellees, v. Internal Revenue Service, Appellant, 226 F.3d 334 (5th Cir. 2000) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Fifth Circuit › 2000 › In the Matter Of: Paul A. Grothues; Marilyn Grothues, Debtors,paul A. Grothues; Marilyn Grothues, Ap...
In the Matter Of: Paul A. Grothues; Marilyn Grothues, Debtors,paul A. Grothues; Marilyn Grothues, Appellees, v. Internal Revenue Service, Appellant, 226 F.3d 334 (5th Cir. 2000)
U.S. Court of Appeals for the Fifth Circuit - 226 F.3d 334 (5th Cir. 2000)
In 1990, however, the IRS had begun a criminal investigation regarding those (the corporations') unpaid excise taxes. And, approximately a year after plan-confirmation, Marilyn Grothues pleaded guilty to one count of a multi-count indictment for evading payment of excise taxes, in violation of 26 U.S.C. § 7201 ("willfully attempt [] in any manner to evade or defeat" payment of tax). In her plea agreement, she agreed to pay all taxes, penalties, and interest owed by the corporations, stipulating, for sentencing purposes only, that the tax loss was approximately $716,000. (The Government claimed the corporations owed over $4 million.) Accordingly, in November 1993, the district court ordered, as a condition of sentence, that Ms. Grothues "pay all taxes, penalties and interest due and owed".
To stop the sale of their property, the Grothues filed this adversary action in bankruptcy court, maintaining that, pursuant to 11 U.S.C. § 1141(d) (1) (general discharge of pre-confirmation debts upon plan-confirmation), any personal liability they might have had for the excise taxes had been discharged in 1992, when their Chapter 11 plan was confirmed. They also challenged the legality and amount of taxes owed.
The IRS moved for summary judgment, asserting that, pursuant to 11 U.S.C. § 1141(d) (2) (debts listed in 11 U.S.C. § 523 non-dischargeable as to individual debtors), the taxes-owed were excepted from discharge. It relied upon subparts (A) and (C) of § 523(a) (1). The former is for taxes specified in 11 U.S.C. § 507(a) (8), including excise taxes; the latter, for taxes a "debtor ... willfully attempted in any manner to evade or defeat". In addition, the IRS moved to dismiss, for lack of jurisdiction, the Grothues' challenges to the legality and amount of taxes owed, asserting those issues were not properly before the bankruptcy court.
Following a hearing on the motions in April 1997, the bankruptcy court ruled in favor of the IRS. It held that, assuming the IRS had a bona fide pre-confirmation claim for the excise taxes, it would not have been discharged, because Ms. Grothues could not "oppose a [§ 523(a) (1) (C)] finding of willful evasion of tax, in the face of having pled guilty to evasion of paying a tax". The court dismissed, for lack of jurisdiction, the Grothues' challenges to the legality and amount of taxes owed. And, it denied their motion for reconsideration.
Subsequent to the bankruptcy court's ruling, and on a date not found in the record at hand, the IRS, based upon its alter ego liability-theory, filed a complaint to foreclose its liens on the Grothues' property. United States v. Marilyn Grothues, No. SA-99-CA-148-OG (W.D. Tex.) . (As discussed infra, the IRS contends the still-pending foreclosure action is the proper forum to determine the validity of that theory.)
The district court reversed the bankruptcy court in part, holding the IRS' excise taxes claim had been discharged. Id.It reasoned that the IRS' "alter ego, nominee or related veil-piercing theory ... place [d] [its] claim outside of the context of ... [, inter alia,] § 523(a) (1)", because the IRS' claim was not for a tax, but for "an equitable remedy" in the nature of "a declaratory judgment that the Grothues' assets are available to satisfy" the corporations' tax debts. Id. at 832. (The court noted that, because of the non-retroactivity of the 1990 enactment of 26 U.S.C. § 4103, which provides for "responsible person" liability with respect to excise taxes, there was no such liability by which the Grothues could be held liable personally for the excise taxes, at the time the corporations incurred them. See id. at 831-32 & n.2.) The court affirmed the bankruptcy court's lack-of-jurisdiction-ruling regarding "the underlying tax liability". Id. at 830. (As discussed infra, that holding was not appealed by the Grothues.)
The principal issue is whether the IRS' underlying claim for the two corporations' unpaid excise taxes, made against the Grothues through an alter ego theory, falls within the § 523(a) (1) (C) discharge-exception, in the light of Ms. Grothues' pleading guilty to willful tax evasion, and her concomitant plea- agreement-promise to pay those taxes. And, if non-dischargeability applies for that reason to Ms. Grothues, is it equally applicable to Mr. Grothues?
The district court's analysis was fundamentally flawed, according to the IRS, because the alter ego theory is not an independent cause of action, but merely a remedy to enforce a claimed substantive right here, to payment of taxes owed and non-dischargeable under § 523(a) (1). In this regard, the IRS notes the discharge provisions make no distinction between taxes incurred directly by a debtor's corporation, and those incurred indirectly by a debtor operating through an ineffective corporate form. It asserts that, as a matter of common sense, a debtor who has pleaded guilty to evading a tax should not be allowed to use bankruptcy law to avoid paying it, especially where, as here, the debtor promises, in a post-confirmation plea agreement, to pay the tax.
Concomitantly, the IRS contends the district court erred in relying on In re Hurricane R.V. Park, Inc., 185 B.R. 610, 613-15 (Bankr. D. Utah 1995), which held the IRS violated Hurricane's discharge-injunction by filing post-confirmation tax liens against that corporate debtor's property (as the IRS did against the Grothues' property), based on, as here, an alter ego theory, and in an effort to collect taxes owed by an officer of the corporate debtor. The IRS reads Hurricane as inapplicable because, unlike the Grothues, Hurricane was a corporate debtor; the discharge-exception in 11 U.S.C. §§ 1141(d) (2) and 523(a) (1) (C), at issue here, applies only to individual debtors.
And, as for the weight to accord Hurricane, § 523(a) (1)'s discharge exceptions were not before that court. They do not apply to corporate debtors. 11 U.S.C. § 1141(d) (2) (plan confirmation "does not discharge an individual debtor from any debt excepted from discharge under section 523") (emphasis added); Fein v. United States, 22 F.3d 631, 633 (5th Cir. 1994) (as to "individual debtors, Congress consciously opted to place a higher priority on revenue collection than on debtor rehabilitation") (citation omitted).
Accordingly, the IRS has a claim for taxes. The Grothues challenge, on several fronts, the bankruptcy court's non-dischargeability holding, as well as asserting that, even if § 523(a) (1) (C) non-dischargeability applies to Ms. Grothues, the underlying reasoning is not applicable to Mr. Grothues.
Notwithstanding the IRS' underlying claim being "for a tax", the Grothues maintain the bankruptcy court erred by basing non-dischargeability on Ms. Grothues' criminal conviction alone. They assert In re Bruner, 55 F.3d 195 (5th Cir. 1995), mandates a more extensive analysis. To them, it requires, inter alia, determining whether they had the ability to pay the taxes; and, in that regard, they note the 11 U.S.C. § 523(a) (1) (C) non-dischargeability standard is different from that for criminal tax evasion under 26 U.S.C. § 7201. Likewise, they base error on the bankruptcy court's holding all the taxes non-dischargeable, despite Ms. Grothues' pleading guilty to evasion for only one of the subject tax periods. Finally, they complain that the IRS introduced no summary judgment evidence to support its alter ego theory.
Relying on In re Bruner, 55 F.3d at 197, the Grothues contend that, for § 523(a) (1) (C) willful evasion, the bankruptcy court must find the debtor: (1) had a legal duty to pay the tax; (2) knew of such duty; and (3) "voluntarily and intentionally violated" it, having preliminarily assessed the debtor's financial ability to pay the tax. Id. We disagree. (We note, however, the elements of the three-prong test duty; knowledge; and voluntary and intentional violation seem implicit in Ms. Grothues' § 7201 criminal conviction, which required a "willful [] attempt [] ... to evade or defeat" payment of taxes.)
The central issue in Bruner, 55 F.3d at 198-200, was whether § 523(a) (1) (C) willful evasion requires proof of an "affirmative act", a question on which the circuits are split. Compare In re Toti, 24 F.3d 806, 809 (6th Cir.) (§ 523(a) (1) (C) encompasses "both acts of commission and ... omission"), cert. denied, 513 U.S. 987 (1994), with In re Haas, 48 F.3d 1153, 1158 (11th Cir. 1995) (nonpayment of taxes "alone" not within scope of § 523(a) (1) (C)), abrogated in part by In re Griffith, 206 F.3d 1389, 1395-96 (11th Cir.), petition for cert. filed, 68 U.S.L.W. 3002 (U.S. 22 June 2000) (No. 99-2052). In Bruner, our court agreed with Toti, but did so in dictum, because Bruner ruled that resolution of the issue was not necessary, in the light of the Bruners having committed "acts of omission and ... commission". Bruner, 55 F.3d at 200.
willfully attempt [ing] to evade and defeat a tax ... by making and causing to be made false invoices for the sale of the fuel to be shown to the [IRS] auditors, and by collecting excise taxes from customers, and ... falsifying, and causing to be falsified, the books and records of [SWOJ] and indicating that certain of said sales were for purposes exempt from excise taxes, and all for the purpose of continuing the scheme to defeat the assessment of taxes and payment of the tax, in violation of Title 26, [U.S.C. §] 7201, and Title 18, [U.S.C. §] 2.
Because, with its summary judgment motion, the IRS submitted Ms. Grothues' plea agreement and a transcript of her sentencing hearing, including the above, describing acts of omission and commission (such as falsifying records), this evidence was more than sufficient. Moreover, Ms. Grothues is estopped from denying she engaged in the charged conduct. E.g., Johnson v. Sawyer, 47 F.3d 716, 722 n.13 (5th Cir. 1995) (§ 7201 conviction necessitates finding "defendant ... acted willfully and knowingly with specific intent to evade [a tax]" (citation and quotation marks omitted), estopping defendant from taking inconsistent position in civil action). See In re Goff, 180 B.R. 193, 199-200 (Bankr. W.D. Tenn. 1995) (debtor estopped from claiming discharge of certain taxes in the light of his plea bargain admission he willfully attempted to evade them). In short, Ms. Grothues "do [es] not qualify as the sort of 'honest debtor' the Bankruptcy Code is designed to protect". Bruner, 55 F.3d at 200 (emphasis added).
As to the lack of a finding that the Grothues had the ability to pay the taxes, the key § 523(a) (1) (C) determination is whether debtor's conduct is willful. Whether debtor has the ability to pay is, of course, an appropriate factor in making that determination, but it is not a litmus test. In any event, the Grothues have not asserted they could not pay the taxes.
Finally, all parties agree Ms. Grothues' plea agreement and guilty-plea conviction do not support § 523(a) (1) (C) non-dischargeability of Mr. Grothues' tax debt (if any). Nevertheless, the IRS urges holding its tax claim non-dischargeable for him as well, pursuant to the discharge exception for certain excise taxes under 11 U.S.C. §§ 523(a) (1) (A) and 507(a) (8). As discussed supra, the former is a discharge-exception for taxes specified in the latter. Under § 507(a) (8), excise taxes are a priority claim if they concern a "transaction occurring before the date of the filing of the petition for which a return, if required, is last due, under applicable law or under any extension, after three years before the date of the filing of the petition". 11 U.S.C. § 507(a) (8) (E) (i).
Accordingly, we need not address the IRS' alternative reliance on the discharge-exception in § 523(a) (7) (debts "for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit"). In any event, we would not consider it, because the IRS did not raise this issue in its opening brief here, thereby abandoning it. See infra.