In re Myers, BAP No. 97-8059.

Decision Date11 February 1998
Docket NumberBAP No. 97-8059.
Citation216 BR 402
PartiesIn re Terrance J. MYERS, Debtor. Terrance J. MYERS, Appellant, v. INTERNAL REVENUE SERVICE, Appellee.
CourtU.S. Bankruptcy Appellate Panel, Sixth Circuit

Mark R. McBride, on brief, Toledo, OH, for Appellant.

Gerald C. Miller, U.S. Department of Justice, Tax Division, Washington, DC, for Appellee.

Before: LUNDIN, STOSBERG, and WALDRON, Bankruptcy Appellate Panel Judges.


The Debtor appeals the bankruptcy court's grant of summary judgment to the government on the issue of dischargeability of taxes under 11 U.S.C. § 523(a)(1)(C). The bankruptcy court correctly held that the government was entitled to judgment.


1) Whether the Debtor's voluntary submission to the federal tax system in 1985 is a defense to the Debtor's willful attempt to evade or defeat taxes between 1980 and 1983.

2) Whether the bankruptcy court properly applied summary judgment principles in finding the Debtor's federal tax liability nondischargeable under 11 U.S.C. § 523(a)(1)(C).


The United States District Court for the Northern District of Ohio has authorized appeals to the Bankruptcy Appellate Panel of the Sixth Circuit. 28 U.S.C. § 158(b)(6). The government timely elected to have this appeal considered by the United States District Court for the Northern District of Ohio. Subsequently, all parties agreed to the transfer of this case to the BAP.

The bankruptcy court's grant of summary judgment to the government is a final appealable order reviewed de novo. See Belfance v. Bushey (In re Bushey), 210 B.R. 95, 98 (6th Cir. BAP 1997). De novo means that the appellate court determines the law independently of the trial court's determination. Corzin v. Fordu (In re Fordu), 209 B.R. 854, 857 (6th Cir. BAP 1997).

Summary judgment is appropriate when "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 judgment as a matter of law." FED.R.BANKR.P. 7056 (incorporating FED.R.CIV.P. 56(c)). "In determining whether the non-moving party has raised a genuine issue of material fact, `the evidence of appellant is to be believed, and all justifiable inferences are to be drawn in its favor.'" PSI Repair Servs., Inc. v. Honeywell, Inc., 104 F.3d 811, 814 (6th Cir. 1997) (quoting Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456, 112 S.Ct. 2072, 2076, 119 L.Ed.2d 265 (1992) (citations omitted)). To preclude summary judgment, "the non-moving party . . . is required to present some significant probative evidence which makes it necessary to resolve the parties' differing versions of the dispute at trial." Gaines v. Runyon, 107 F.3d 1171, 1174-75 (6th Cir.1997) (citing First Nat'l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 288-89, 88 S.Ct. 1575, 1592-93, 20 L.Ed.2d 569 (1968)).


The Debtor filed Chapter 7 on January 27, 1993. The Debtor scheduled a debt for federal income taxes for 1980 through 1983. A discharge was entered on June 28, 1993. The bankruptcy court was not asked to rule on the dischargeability of the Debtor's tax liability during the Chapter 7 case.

After the Debtor's discharge, the IRS pursued the Debtor, including garnishment of his wages, to collect the 1980-1983 tax liability. The Debtor returned to the bankruptcy court to determine whether the government violated the discharge injunction of 11 U.S.C. § 524. The Debtor's complaint also sought return of all money seized by garnishment, interest on those funds, and attorney fees. The government responded that the taxes were not discharged in the bankruptcy case because of the Debtor's willful attempt to evade or defeat federal tax liabilities.

The government moved for summary judgment. The government stated as undisputed that the Debtor failed to timely file tax returns for 1980 through 1983 while having income that far exceeded the minimum necessary to trigger the statutory filing requirement; failed to pay his tax liability in full for those years; claimed an excessive number of withholding allowances on Forms W-4 submitted to his employers; and claimed that he was exempt from federal tax because he chose not to voluntarily submit himself to federal income taxation. The government argued that these facts justified a finding under Toti v. United States (In re Toti), 24 F.3d 806 (6th Cir.), cert. denied, 513 U.S. 987, 115 S.Ct. 482, 130 L.Ed.2d 395 (1994), that the Debtor willfully attempted to evade or defeat his tax liability for 1980 through 1983 within the meaning of § 523(a)(1)(C).

The Debtor did not dispute the facts alleged by the government but opposed summary judgment, pointing to allegedly mitigating factors. First, the Debtor asserted that unlike Toti, he "saw the light" in 1985 and voluntarily submitted himself to the tax system. Second, the Debtor stated that he was assured by an IRS agent in late 1985 that he had met his obligation to file returns by executing Forms 4549 and 870. Third, the Debtor made payments to the IRS for several years and argued that he had reformed and should not be punished for his ultimate financial inability to cure his tax liability. He asserted that the bankruptcy code did not "forever preclude a rehabilitated taxpayer from the statutory relief available under Title 11." Alternatively, the Debtor urged the bankruptcy court to tap its equitable powers under 11 U.S.C. § 105 to discharge the taxes.

The bankruptcy court granted summary judgment to the government. Meyers v. IRS (In re Meyers), Case No. 93-30221, Adv. No. 94-3132 (Bankr.N.D.Ohio May 6, 1997). Applying the standard adopted by the Sixth Circuit in Toti, the bankruptcy court found that the Debtor's omissions — failure to file his tax returns and failure to pay taxes — and affirmative acts — claiming excessive exemptions on the Forms W-4 submitted to his employers — constituted a willful attempt to evade or defeat taxes within the meaning of § 523(a)(1)(C). The bankruptcy court observed it "unlikely in the extreme that the Debtor did not know that the law required everyone to file income tax returns notwithstanding his `belief' that such a law required voluntary compliance." Id. at 6. The Internal Revenue Code provides the remedy, the court reminded the Debtor, for those who believe a tax is imposed inappropriately. The bankruptcy court rejected the argument that the Debtor's subsequent conduct absolved him of his earlier malfeasance or "unrung" the § 523(a)(1)(C) bell. The court found that § 523(a)(1)(C) does not require continuous wrongful conduct. The bankruptcy court declined to invoke equitable powers to find the taxes dischargeable, observing that even if equity were available to relieve a debtor of the effects of § 523(a)(1)(C), this was not the appropriate case.

A. Dischargeability Under § 523(a)(1)(C).

Section 523(a)(1)(C) provides:

A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from 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). In Toti, the Sixth Circuit construed the phrase "willfully attempted in any manner to evade or defeat such tax" as "consistent with the definition found in other civil tax cases, which equates `willful' with voluntary, conscious, and intentional evasions of tax liabilities." Toti, 24 F.3d at 809 (citing Collins v. United States, 848 F.2d 740, 742 (6th Cir.1988); Domanus v. United States, 961 F.2d 1323, 1326 (7th Cir.1992)). Under that standard, "a plain reading of § 523(a)(1)(C) includes both acts of commission and acts of omission." Id. Toti's tax debt was nondischargeable because Toti "had the wherewithal to file his return and pay his taxes, but he did not fulfill his obligation . . . and those omissions were voluntary, conscious , and intentional ." Id.

A year later, in an unpublished decision, the Sixth Circuit cited Toti for the proposition that the phrase "in any manner" is "broad enough to encompass attempts to thwart payment of taxes." United States v. Sumpter (In re Sumpter), Nos. 94-1439 & 94-1440, 1995 WL 501947, at *3 (6th Cir. Aug. 22, 1995) (citations omitted). The Seventh Circuit summarized the § 523(a)(1)(C) precedent and concluded, consistent with Toti and Sumpter, that "nonpayment of tax alone is not sufficient to bar discharge of a tax liability, citation omitted" but "failure to pay a known tax duty is `relevant evidence which a court should consider in the totality of conduct to determine whether . . . the debtor willfully attempted to evade or defeat taxes.'" In re Birkenstock, 87 F.3d 947, 951 (7th Cir.1996) (quoting Dalton v. IRS, 77 F.3d 1297, 1301 (10th Cir.1996)).

Here, the Debtor's undisputed conduct went beyond the mere nonpayment of taxes. The Debtor failed to file tax returns for 1980, 1981, 1982 and 1983. During those years the Debtor received income ($43,099.23, $22,718.11, $21,615.49, and $27,129.87) that far exceeded the statutory minimum to trigger filing requirements. For each year the Debtor claimed excessive exemptions on the Forms W-4 that he provided to his employer. The bankruptcy court properly concluded that these omissions and commissions constituted a voluntary, conscious and intentional evasion of tax liability.

The Debtor's argument that nondischargeability punishes him for the mere nonpayment of taxes that resulted from his subsequent inability to meet the terms of repayment was rejected by the Seventh Circuit in Birkenstock:

Just as nonpayment of tax alone will not justify nondischargeability, an inability to pay debts in subsequent years is not a defense to previous intentional

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