Opinion ID: 690346
Heading Depth: 2
Heading Rank: 2

Heading: Analogous Internal Revenue Code Provisions

Text: 15 Haas argues that, had Congress intended that the failure to pay, without more, would except tax liabilities from discharge, it could have written such a provision into section 523(a)(1)(C). In fact, using language almost identical to that found in section 523(a)(1)(C), Congress has on four other occasions previous to the enactment of section 523(a)(1)(C) shown itself capable of distinguishing between evasion of a tax and evasion of the payment of a tax. See I.R.C. Sec. 6531(2) (establishing periods of limitation on criminal prosecutions for various offenses arising under the I.R.C., including the offense of willfully attempting in any manner to evade or defeat any tax or the payment thereof ) (emphasis added)); I.R.C. Sec. 6653 (imposing a penalty upon any person who willfully attempts in any manner to evade or defeat any such [stamp] tax or the payment thereof  (emphasis added)); I.R.C. Sec. 6672 (imposing a civil penalty upon any person who willfully attempts in any manner to evade or defeat any such tax or the payment thereof  (emphasis added)); I.R.C. Sec. 7201 (providing that [a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall ... be guilty of a felony and subject to a maximum fine of $100,000, a maximum prison term of five years, or both (emphasis added)). 16 Where Congress knows how to say something but chooses not to, its silence is controlling. BFP v. Resolution Trust Corp., --- U.S. ----, ----, 114 S.Ct. 1757, 1761, 128 L.Ed.2d 556 (1994) ( '[I]t is generally presumed that Congress acts intentionally and purposely when it includes particular language in one section of a statute but omits it in another,' and that presumption is even stronger when the omission entails the replacement of standard legal terminology with a neologism.) (citation omitted) (quoting Chicago v. Environmental Defense Fund, 511 U.S. ----, ----, 114 S.Ct. 1588, 1593, 128 L.Ed.2d 302 (1994)); United States v. Jordan, 15 F.2d 622, 628 (11th Cir.1990) ( ' [W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposefully in the disparate inclusion or exclusion. '  (quoting Rodriguez v. United States, 480 U.S. 522, 525, 107 S.Ct. 1391, 1393, 94 L.Ed.2d 533 (1987) (per curiam))), cert. denied, 499 U.S. 979, 111 S.Ct. 1629, 113 L.Ed.2d 725 (1991). Cf. Andrus v. Glover Constr. Co., 446 U.S. 608, 616-17, 100 S.Ct. 1905, 1910, 64 L.Ed.2d 548 (1980) (Where Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of evidence of a contrary legislative intent.). We note, however, that in this case, the similar sections in the I.R.C. and section 523(a)(1)(C) are neither part of the same title, nor the same statute. Nevertheless, omissions or inclusions in the former are relevant to our construction of the latter because Congress is presumed to be aware of pertinent, existing law when it passes legislation. Miles v. Apex Marine Corp., 498 U.S. 19, 30, 111 S.Ct. 317, 325, 112 L.Ed.2d 275 (1990); Goodyear Atomic Corp. v. Miller, 486 U.S. 174, 184-85, 108 S.Ct. 1704, 1712, 100 L.Ed.2d 158 (1988). This presumption is particularly strong in the case of I.R.C. Sec. 7201. Section 7201 is not an obscure provision; it is the principal enforcement provision of the I.R.C.,  'the capstone of a system of sanctions which singly or in combination were calculated to induce prompt and forthright fulfillment of every duty under the income tax law and to provide a penalty suitable to every degree of delinquency.'  Sansone v. United States, 380 U.S. 343, 350-51, 85 S.Ct. 1004, 1010, 13 L.Ed.2d 882 (1965) (quoting Spies v. United States, 317 U.S. 492, 497, 63 S.Ct. 364, 367, 87 L.Ed. 418 (1943)). As such, section 7201 was certainly pertinent to any bankruptcy provision intended to delineate which unpaid taxes would be dischargeable in bankruptcy and which would remain with the debtor. 5 17 Therefore, we must presume that Congress was aware of both the language and the judicial interpretation of section 7201 when it drafted section 523(a)(1)(C). Jordan, 915 F.2d at 628 (Under accepted rules of statutory construction, it is generally presumed that Congress, in drafting legislation, is aware of well-established judicial construction of other pertinent existing statutes.). Moreover, that the language of section 523(a)(1)(C) is nearly identical to that used in section 7201 indicates that Congress was not only constructively but also actually aware of its I.R.C. precedents when it drafted the bankruptcy provision. 18 In determining the scope of section 7201, the Supreme Court has recognized that the statute includes the offense of willfully attempting to evade or defeat the assessment of a tax as well as the offense of willfully attempting to evade or defeat the payment of a tax. Sansone, 380 U.S. at 354, 85 S.Ct. at 1011. Whereas section 7201 penalizes a taxpayer who either willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof, section 523(a)(1)(C) excepts from discharge only those taxes with respect to which the debtor willfully attempted in any manner to evade or defeat such tax. The omission of the words or the payment thereof from section 523(a)(1)(C), in light of Congress's previous inclusion of these words on four previous occasions, 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 Gathwright, 102 B.R. 211, 213 (Bankr.D.Or.1989) (comparing section 523(a)(1)(C) to 26 U.S.C. Sec. 7201 and concluding that failure to pay taxes does not constitute a willful attempt to evade or defeat a tax under section 523(a)(1)(C)).C. Legislative History 19 The legislative history of section 523(a)(1)(C) supports this narrower reading of the statute. 6 Prior to 1966, taxes were not dischargeable in bankruptcy. See Bankruptcy Act of 1898, ch. 541, Sec. 17a(1), 30 Stat. 544, 550 (1898) (codified as amended at 11 U.S.C. Sec. 523(a)(1)(C)). In 1966, using language nearly identical to that found in the I.R.C., Congress first allowed debtors to discharge certain taxes. Excepted from discharge were any taxes with respect to which the bankrupt ... willfully attempted in any manner to evade or defeat.... See Act of July 5, 1966, Pub.L. No. 89-496, 80 Stat. 270 (1966) (amending the Bankruptcy Act with respect to the priority and nondischargeability of taxes) (codified as amended at 11 U.S.C. Sec. 523(a)(1)(C)). 20 Congress adopted the current language of 523(a)(1)(C) in 1978. See Bankruptcy Act of 1978, Pub.L. No. 95-598, Sec. 523, 92 Stat. 2549, 2590 (1978). As reported by one of the bill's sponsors, the final wording of section 523(a)(1) represented a compromise between the original House bill and its Senate amendments. See 124 Cong.Rec. 32,398 (1978) (statement of Rep. Edwards). The House had proposed a version that was essentially unchanged from the 1966 amendment; the bill, H.R. 8200, would have excepted from discharge taxes with respect to which the debtor ... willfully attempted in any manner to evade or defeat. 123 Cong.Rec. 35,655 (1977). The Senate version, however, proposed to narrow the exception of section 523(a)(1)(C) by striking the words in any manner and imposing a more stringent mens rea standard. Senate bill S. 2266 would have excepted from discharge those taxes with respect to which the debtor ... fraudulently attempted to evade or defeat. Senate Comm. on the Judiciary, 85th Cong., 1st Sess., Comparison of H.R. 8200, as Reported, and S. 2266, as Introduced 106 (Comm. Print 1978), reprinted in Bankruptcy Reform Act of 1978: Hearings Before the Subcomm. on Improvements in Judicial Machinery of the Senate Comm. on the Judiciary, 95th Cong., 1st Sess. 3, 108 (1978) (red-lined text of H.R. 8200 omitted). 21 Although the current provision retains the willfulness standard and the broad phrase in any manner contained in H.R. 8200, it qualifies the exception by limiting it to attempts to evade or defeat such tax. That Congress added the words such tax and not such tax or payment thereof, as it had four times previously in the I.R.C., reflects congressional recognition that honest debtors may fail to pay their properly acknowledged taxes. We must give effect to Congress's decision to omit the words or payment thereof in section 523(a)(1)(C), where it has shown itself capable of including such language. See, e.g., NLRB v. Bildisco and Bildisco, 465 U.S. 513, 522-23, 104 S.Ct. 1188, 1194, 79 L.Ed.2d 482 (1984) (holding that the failure of Congress to draft an exclusion for certain collective bargaining agreements in 11 U.S.C. Sec. 365(a) indicates that the provision applies to all such agreements, in light of the previous use of such an exclusion by Congress in 11 U.S.C. Sec. 1167). Therefore, we hold that a debtor's failure to pay his taxes, alone, does not fall within the scope of section 523(a)(1)(C)'s exception to discharge in bankruptcy. D. Government Counterarguments 22 The government raises three principal challenges to this reading of section 523(a)(1)(C). First, it argues that the plain meaning of the words in any manner is broad enough to include a debtor's failure to pay a properly acknowledged tax. This view finds support in a number of bankruptcy court decisions. See, e.g., In re Griffith, 161 B.R. 727, 732-33 (Bankr.S.D.Fla.1993) ([T]he modifying phrase ... 'in any manner,' is sufficiently broad to include willful attempts ... to evade taxes by concealing and transferring assets to protect them from execution or attachment.); In re Fridrich, 156 B.R. 41, 43 (D.Neb.1993) ([T]he language 'in any manner' is sufficiently broad to include attempts by a debtor to evade the payment of taxes previously assessed....); cf. In re Toti, 24 F.3d at 809 (holding that section 523(a)(1)(C) excepts both acts of commission and acts of omission, such as where debtor voluntarily, consciously, and intentionally failed to file tax returns or to pay taxes). 23 Congress, however, has consistently used the words in any manner and the words or the payment thereof in the same section, see Secs. 6531(2), 6653, 6672, and 7201; to adopt the government's interpretation of in any manner would render or the payment thereof superfluous in each of these four provisions. The better view is that the phrase in any manner in those sections may modify either attempts to evade or defeat a tax, or attempts to evade or defeat payment thereof, or both, but that its use does not erase the distinction between the assessment and the collection of taxes. Absent explicit language, therefore, the phrase attempt[s] in any manner to evade or defeat such tax does not imply attempts to evade or defeat payment thereof. 24 The government also challenges our narrower reading of willfully attempted in any manner to evade or defeat such tax by suggesting that such an interpretation renders the entire phrase superfluous. The government reasons that if one cannot evade or defeat a tax by refusing to pay a properly acknowledged tax, then the only possible way to evade or defeat a tax is by filing a false return. Because filing a false return is covered already in section 523(a)(1)(C), the government argues that Haas's reading of the provision violates the statutory canon that a provision should be interpreted such that every word is given meaningful effect. See In re Jones, 116 B.R. 810, 815 (Bankr.D.Kan.1990) (noting in dicta that [i]f evading or defeating collection or payment of a tax does not count, this court is hard-pressed to conceive how a debtor might willfully attempt to evade or defeat a tax without also filing a fraudulent return). 25 We do not find this argument persuasive. Congress has demonstrated that language prohibiting fraudulent returns is not redundant with language proscribing attempts in any way to evade or defeat the assessment of a tax. As already noted, section 7201 makes it a felony for any person to willfully attempt[ ] in any manner to evade or defeat any tax imposed by this title or the payment thereof. Sec. 7201. At the same time as it enacted section 7201, Congress also enacted I.R.C. Sec. 7207, which makes it a misdemeanor for any person to willfully deliver[ ] or disclose[ ] to the Secretary any ... return ... known by him to be fraudulent or to be false as to any material matter. Sec. 7207. Since Congress purposely devoted separate sections of the I.R.C. to penalize evasion of a tax or payment thereof and to penalize filing a fraudulent return, it clearly did not consider the scope or effect of these two provisions to be identical. 7 Mindful of the different judicial interpretations of sections 7201 and 7207, Congress evidently chose to proscribe only selected elements of the conduct described in each provision when drafting section 523(a)(1)(C). 26 The government also argues that Haas's reading of section 523(a)(1)(C) defeats the statute's purpose of preventing the use of the Bankruptcy Code as a tax evasion device. Congress was well aware of the potential for tax evasion when it debated the Bankruptcy Reform Act of 1978: 27 In business cases ... it is a frequent occurrence that the business will stop paying its taxes before it stops paying its other creditors, because the officers of the business know that detection of nonpayment is more difficult for the taxing authority than it is for a supplier or lender, and that an unpaid supplier quickly stops shipping goods, though an unpaid taxing authority is usually unable to take collection action for months. 28 H.R.Rep. No. 595, 95th Cong., 1st Sess. 193 (1977), reprinted in 1978 U.S.C.C.A.N., 5787, 6153-54. However, the provision Congress drafted to prevent this form of tax evasion was not section 523(a)(1)(C) but sections 523(a)(1)(A) 8 and 507(a)(8). 9 See. H.R.Rep. No. 595 at 190 & nn. 97, 98, 1978 U.S.C.C.A.N., at 6151 nn. 97, 98. Explaining the policy behind these provisions, Congress noted that 29 [b]ecause it takes a taxing authority time to locate and pursue delinquent tax debtors, taxes are made nondischargeable if they become legally due and owing within three years before bankruptcy. An open-ended dischargeability policy would provide an opportunity for tax evasion through bankruptcy, by permitting discharge of tax debts before a taxing authority has an opportunity to collect any taxes due. 30 Id. at 190, 1978 U.S.C.C.A.N., at 6150 (footnote omitted) (emphasis added). Congress enacted section 523(a)(1)(A) and section 507(a)(8) to give taxing authorities time to pursue delinquent income tax debtors and to obtain secured status before the debtor can discharge his tax liability in bankruptcy. See id. 31 Congress did not intend to grant the IRS an absolute priority in bankruptcy for delinquent taxes, however. Instead, sections 507(a)(8) and 523(a)(1)(A) except from discharge income and employment tax liabilities only for those taxable years ending within three years of the filing of a debtor's bankruptcy petition. See Secs. 507(a)(8), 523(a)(1)(A). Congress imposed this three-year limit on the nondischargeability of income and employment taxes because the taxing authority should not be given priority for taxes that are unassessed or uncollected through a lack of due diligence. H.R.Rep. No. 595, at 191, 1978 U.S.C.C.A.N., at 6151. The government's interpretation of section 523(a)(1)(C) effectively would eliminate the three-year time limit imposed by sections 523(a)(1)(A) and 507(a)(8)(A) and would give the IRS an open-ended priority for tax liabilities regardless of that agency's lack of due diligence in collecting properly reported tax liabilities. Thus, the government correctly notes that Congress intended to prevent businesses from paying their other creditors ahead of the IRS. The government is mistaken, however, when it seeks to remedy this situation by excepting from discharge the whole of Haas's tax liability, per section 523(a)(1)(C), rather than only that portion of Haas's tax debt attributable to the three taxable years preceding his bankruptcy petition, per section 523(a)(1)(A). 10