Bryen v. US (In re Bryen)
- Case No. 11-1616 (3d Cir. Nov. 4, 2011) (Not Precedential)
- A debtor who willfully evades a tax is not entitled to the discharge of that debt, as indicated in Bankruptcy Code § 523(a)(1)(C), as such benefit is reserved for the “honest but unfortunate debtor.” The Government, as Defendant, met its burden of showing that (1) the Debtor’s conduct, in the totality of the circumstances, demonstrated he was attempting to evade a tax; and (2) the Debtor had a duty to file tax returns, knew he had such duty, and voluntarily and intentionally violated that duty, and therefore the Debtor’s tax evasion was willful. The Circuit Court specifically pointed out that despite the Debtor being aware of a Tax Court judgment against him, he made no payments to the IRS, did not save in anticipation of paying the debt, and continued to live an exorbitant lifestyle. Also, the Circuit Court considered that the Debtor dealt only in cash to avoid having other creditors attach to bank accounts, which the Circuit Court determined applied as to the IRS as well. The Circuit Court found no merit in the Debtor’s argument that he did not willfully evade the assessed tax because the actual amount of the tax was not assessed until 2002. The Circuit Court pointed out that Section 523 references “taxes,” not “assessed taxes,” and the statute could be triggered by a debtor attempting to evade a debt to the IRS, even if no tax has yet been assessed. Thus, the District Court properly affirmed the Bankruptcy Court’s ruling that the Debtor willfully attempted to evade a tax and that the Tax Debt (defined below) was not dischargeable.
- Procedural context:
- The Third Circuit Court of Appeals affirmed the U.S. District Court for the Eastern District of Pennsylvania's ruling that the Debtor willfully attempted to evade a tax and the Tax Debt was not dischargeable in bankruptcy.
- The Appellant, Bruce Bryen (the “Debtor”), is a licensed CPA with more than 35 years of experience. The Debtor owes approximately $19 million in taxes (the “Tax Debt”), stemming from a 1996 U.S. Tax Court ruling disallowing certain of the Debtor’s deductions related to tax shelters and employee leasing partnerships. Despite this, and despite his bankruptcy filing several years later, the Debtor lived lavishly, paying half (along with his wife) for home renovations and oversea vacations in expensive hotels, while simultaneously making no payments and saving no money to pay the Tax Debt. By 2002, after negotiating with the IRS, the Debtor stipulated to owing approximately $13 million in taxes. The Debtor filed a Chapter 7 petition in 2004, but no complaint to determine the dischargeability of the Tax Debt was raised. In late 2004, the bankruptcy case was closed. In 2007, the IRS commenced an action to collect the Tax Debt. The bankruptcy case was reopened to allow the Debtor to bring an adversary proceeding seeking discharge of the Tax Debt. The Bankruptcy Court held that the Debtor willfully attempted to evade his tax liability under Bankruptcy Code § 523(a)(1)(C), the Tax Debt was not discharged in the initial bankruptcy proceeding, and the adversary complaint failed to set forth sufficient grounds for dischargeability.
- McKee, Fuentes, Greenberg
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