In Re: Meyers

• Decision Date: 26 January 1999
• Docket Number: No. 98-3169,98-3169
• Citation: 196 F.3d 622
• Parties: (6th Cir. 1999) In re: Terrance J. Meyers, Debtor. Terrance J. Meyers, Appellant, v. Internal Revenue Service, Appellee. Argued:
• Court: U.S. Court of Appeals — Sixth Circuit

Page 622

196 F.3d 622 (6th Cir. 1999)

In re: Terrance J. Meyers, Debtor Terrance J. Meyers, Appellant, v. Internal Revenue Service, Appellee.

No. 98-3169

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

Argued: January 26, 1999

Decided and Filed: November 17, 1999

On Appeal from the Bankruptcy Appellate Panel of the Sixth Circuit, No. 93-30221--Richard L. Speer, Chief Bankruptcy Judge.

Mark R. McBride, Toledo, Ohio, for Appellant.

Curtis C. Pett, Laurie Snyder, Gary D. Gray, U.S. DEPARTMENT OF JUSTICE, APPELLATE SECTION, TAX DIVISION, Washington, D.C., for Appellee.

Before: RYAN and GILMAN, Circuit Judges; SARGUS, District Judge^*.

OPINION

RYAN, Circuit Judge.

Terrance J. Meyers obtained a bankruptcy discharge in 1993. Thereafter, the Internal Revenue Service attempted to collect back taxes from Meyers for the taxable years 1980-1983. Believing that this tax obligation was discharged in his bankruptcy proceeding, Meyers asked the bankruptcy court to declare that the tax liability was discharged and to forbid the IRS from further collection efforts. The IRS objected, claiming that the tax debt was excepted from discharge pursuant to 11 U.S.C. §523(a)(1)(C) because Meyers attempted to "willfully" evade tax liability. The bankruptcy court granted summary judgment in favor of the IRS, and the Bankruptcy Appellate Panel for the Sixth Circuit affirmed. This appeal followed.

I.

To understand the bankruptcy court's judgment, we must go back to the taxable years in question, 1980-1983, more than 10 years before Meyers filed for bankruptcy relief. Meyers did not file any tax returns for those years. In addition, during those years, he claimed exemptions in excess of those to which he was entitled on W-4 forms he gave to his employer. As a result, only about 5% of Meyers's tax liability was withheld. Meyers's tax liability for these years, had the taxes been timely paid, would have exceeded $36,000. According to Meyers, he then believed that only those individuals who volunteered to pay taxes had to file returns.

In 1985, Meyers had an apparent change of heart and met with an IRS representative regarding the delinquent taxes. He completed IRS Forms 4549 and 870, indicating the total amount of taxes and penalties owed. Meyers began making partial payments to the IRS for the back taxes, but after paying about $1,500, he stopped.

In 1993, two years after his last payment, Meyers filed for bankruptcy relief. At that time, his annual income was about $43,000. He listed his tax debt ($150,000) on his schedule of liabilities. The court issued a judgment of discharge on June 28, 1993.

After that, the IRS attempted to collect the tax debt. In 1994, Meyers asked the bankruptcy court to prevent the IRS from continuing its collection efforts, arguing that these efforts violated the discharge injunction. The IRS moved for summary judgment, arguing that the taxes were nondischargeable, pursuant, inter alia, to section 523(a)(1)(C) of the Bankruptcy Code. 11 U.S.C. § 523(a)(1)(C). The bankruptcy court granted the IRS's motion, finding that Meyers willfully attempted to evade the taxes. Meyers claimed his conduct was not willful, because he voluntarily cooperated with the IRS in an attempt to correct his past mistakes. The bankruptcy court was unpersuaded that Meyers's subsequent repentant conduct vitiated the willfulness of his refusal to file tax returns and pay the taxes owed for 1980-1983. The court concluded that section 523(a)(1)(C) did not allow a debtor to undo a willful attempt to evade a tax after such an evasion occurred.

Meyers appealed to the Bankruptcy Appellate Panel for the Sixth Circuit. The BAP found that Meyers's conduct went beyond the mere nonpayment of taxes because he failed to file returns and claimed excessive exemptions on his W-4 forms. The BAP affirmed the judgment of the bankruptcy court, finding that Meyers voluntarily, consciously, and intentionally evaded tax liability. It is from this decision that Meyers now appeals.

II.

This court reviews a grant of summary judgment de novo. See Rowley v. United States, 76 F.3d 796, 799 (6th Cir. 1996). Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Moreover, we construe the evidence and draw all reasonable inferences in the light most favorable to the nonmoving party. See White v. Turfway Park Racing Ass'n, 909 F.2d 941, 943-44 (6th Cir. 1990). We will affirm a grant of summary judgment when "the record taken in its entirety could not convince a rational trier of fact to return a verdict in favor of the nonmoving party." Cox v. Kentucky Dep't of Transp., 53 F.3d 146, 150 (6th Cir.1995).

III.

The Bankruptcy Code excepts from discharge any debt (1)for a tax or a customs duty--

(C)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). The creditor, here the government, bears the burden of proving by a preponderance of the evidence that a debt is excepted from discharge under section 523(a) of the Bankruptcy Code. See Grogan v. Garner, 498 U.S. 279, 290-91 (1991). As a general matter, exceptions to discharge are narrowly construed to promote the central purpose of the discharge: relief for the "'honest but unfortunate debtor.'" See id. at 286-87 (citation omitted).

Nondischargeability is reserved for debtors who deliberately evade tax liability, rather than those who make inadvertent mistakes. See In re Birkenstock, 87 F.3d 947, 952 (7th Cir. 1996). This court addressed the section 523(a)(1)(C) exception from discharge in Toti v. United States (In re Toti), 24 F.3d 806 (6th Cir. 1994), and concluded that "'voluntary, conscious, and intentional'" acts are willful. Id. at 808. Additionally, this court noted that the discharge exception includes acts of omission as well as acts of commission. See id. at 809.

In his brief on appeal, Meyers advances one argument to support his contention that his failure to file returns and pay taxes was not willful. He claims that because he voluntarily went to the IRS and admitted liability and made some payments, his conduct could not have been willful. Meyers cites cases from other circuits to support his contention that subsequent conduct negates the willfulness of his failure to file returns. However, an examination of these cases indicates that they do not stand for the proposition for which Meyers cites them. The Eleventh Circuit held that failure to pay taxes, without more, does not except those taxes from discharge under section 523(a)(1)(C). See Haas v. IRS (In re Haas), 48 F.3d 1153, 1158 (11th Cir. 1995). In that case, the debtor accurately filed all of his tax returns, but did not pay the taxes. See id. at 1154. The court concluded that because the debtor did not try to avoid the tax liability, the debt was discharged. See id. at 1161. Haas is distinguishable from this case: Meyers did not file any tax returns for the years at issue, and claimed exemptions to which he was not entitled on his employer's W-4 forms. Meyers did more than fail to pay.

Meyers also cites In re Birkenstock, 87 F.3d 947, for the proposition that this court must consider his later conduct in determining whether his failure to file the returns constituted a willful attempt to evade tax liability. In Birkenstock, the Seventh Circuit considered, over the debtors' objections, that the debtors failed to file tax returns in years other than those directly at issue in the case. The court concluded that this evidence was relevant to show that the failure to file for the years in question was not due to a mistake, but was part of a continuous pattern of deliberate evasion. See id. at 951. In other words, the subsequent conduct was relevant to the debtors' states of mind at the time they failed to file the returns at issue. Meyers's subsequent repentant conduct, however, does not tell us anything that would be favorable to him about his state of mind during the years in which he failed to file tax returns.

The Supreme Court addressed the issue of purging tax fraud by filing a later, amended return in Badaracco v. Commissioner, 464 U.S. 386 (1984). Badaracco involved the IRS's attempt to assess a penalty for a fraudulent return even though the taxpayer had already filed an amended return correcting the fraud. The Court allowed the IRS to assess the penalty and stated:

It is established that a taxpayer who submits a fraudulent return does not purge the fraud by subsequent voluntary disclosure; the fraud was committed, and the offense completed, when the original return was prepared and filed. Any other result would make sport of the so-called fraud penalty. A taxpayer who had filed a fraudulent return would merely take his chances that the fraud would not be investigated or discovered, and then, if an investigation...