Opinion ID: 765093
Heading Depth: 2
Heading Rank: 2

Heading: dischargeability issue

Text: 7 A debtor who files successfully under Chapter 7 of the Bankruptcy Code generally receives a complete discharge from pre-petition debts. See 11 U.S.C. § 727(b) (1994). Certain debts are, however, excepted from discharge. See 11 U.S.C. § 523 (1994). In particular, 11 U.S.C. § 523(a)(1)(C) excepts from discharge any tax debt with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax. The government invokes this exception and claims that Tudisco's tax debt was not discharged in his prior Chapter 7 filing. The government does not argue that Tudisco filed a fraudulent return, but contends instead that he willfully evaded taxes. 8 Although this court has yet to interpret the willfulness exception under § 523(a)(1)(C), we benefit from the analysis of six other circuits. See United States v. Fegeley (In re Fegeley), 118 F.3d 979 (3d Cir. 1997); In re Birkenstock, 87 F.3d 947 (7th Cir. 1996); Dalton v. Internal Revenue Service, 77 F.3d 1297 (10th Cir. 1996); Bruner v. United States (In re Bruner), 55 F.3d 195 (5th Cir. 1995); Haas v. Internal Revenue Service (In re Haas), 48 F.3d 1153 (11th Cir. 1995); Toti v. United States (In re Toti), 24 F.3d 806 (6th Cir. 1994). The interpretations given to this exception by the other circuits, while not completely uniform, compare Haas, 48 F.3d at 1156, with Bruner, 55 F.3d at 200, see infra, all support the conclusion that the exception bars discharge of Tudisco's tax debt. 9 The willfulness exception consists of a conduct element (an attempt to evade or defeat taxes) and a mens rea requirement (willfulness). See Griffith v. United States (In re Griffith), 174 F.3d.1222, 1224 (11th Cir. 1999); In re Fegeley, 118 F.3d at 983; In re Birkenstock, 87 F.3d at 951. We address each of these in turn. 10 Most circuits have held that a simple nonpayment of taxes does not satisfy §523(a)(1)(C)'s conduct requirement. Thus, the Eleventh Circuit concluded that mere knowledge of a tax debt, accompanied by nonpayment, could not render a tax debt nondischargeable under the exception. See In re Haas, 48 F.3d at 1156. As the In re Haas court noted, the defining characteristic of all debtors -- honest and dishonest, alike -- [is] insufficient resources to honor all of [their] obligations. Id. A broad reading of the exception -- rendering nondischargeable any tax debts, except those discovered . . . in the course of . . . bankruptcy proceedings, id. at 1155 -- would eviscerate the basic fresh start policy of the Bankruptcy Code for the honest but unfortunate debtor. Id at 1156. The court buttressed this conclusion by contrasting the language of the Chapter 7 exception with that of provisions of the Internal Revenue Code, which penalize attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof. Id. at 1156-57 (quoting 26 U.S.C. § 7201 (1994) and also looking to language of 26 U.S.C. §§ 6531(2), 6653, 6672 (1994)). The omission of the words 'or payment thereof,' from the bankruptcy exception, the In re Haas court concluded, indicates that Congress did not intend that a failure to pay taxes, without more, should result in the nondischargeability of a debtor's tax liabilities in bankruptcy. In re Haas, 48 F.3d at 1157. Other courts have reached similar conclusions. See In re Fegeley, 118 F.3d at 983; In re Birkenstock, 87 F.3d at 951; Dalton, 77 F.3d at 1301. 11 In re Haas has, however, received some criticism. See In re Bruner, 55 F.3d at 200. After disapproving of the In re Haas court's analysis, insofar as it contrasted § 523(a)(1)(C) with provisions of the Internal Revenue Code, the Fifth Circuit in In re Bruner took the position that the bankruptcy exception surely encompasses both acts of commission as well as culpable omissions. Id. 3 12 To the extent that In re Haas and In re Bruner actually do conflict, we need not, however, decide between them. Because Tudisco engaged in more than mere nonpayment, his conduct constitutes an attempt to evade or defeat taxes under either standard. His failure to pay his taxes was accompanied by a failure to file his tax returns, at least until 1992. While he may not have transferred assets or created shell corporations, cf. In re Birkenstock, 87 F.3d at 952 (finding the conduct element satisfied based on a failure to pay, a failure to file, and the creation of a shell trust); Bruner, 55 F.3d at 200 (finding the conduct element satisfied based on a failure to pay, a failure to file, a resort to an inordinate number of cash transactions, and the creation of a shell entity), Tudisco did submit a patently false affidavit to his employer. On its face, the affidavit was clearly intended to establish Tudisco's exemption from income tax withholding. Under the circumstances, we conclude that the bankruptcy court's finding -- that Tudisco attempted to evade or defeat federal income taxes -- is not clearly erroneous. 13 Similarly, the finding that Tudisco willfully evaded taxes is not reversible. The mens rea requirement of § 523(a)(1)(C) mandates that the debtor's conduct be undertaken voluntarily, consciously or knowingly, and intentionally. Dalton, 77 F.3d at 1302; see also In re Bruner, 55 F.3d at 197; In re Toti, 24 F.3d at 809. 14 Tudisco himself conceded that he knew that he had to pay taxes. At his trial, he retracted this statement and instead claimed that several years of research had led him to believe that he was not obliged to pay taxes. When asked to identify the sources that supported this conclusion, he responded with evasive answers such as books or people that I met, travelers from different parts of the country, whose names he had long since forgotten. Given these facts, the bankruptcy court could reasonably have rejected his retraction. 15 There is sufficient evidence to support the conclusion that Tudisco willfully sought to evade his federal tax obligations. The district court therefore properly affirmed the bankruptcy court's finding on this issue.