U.S. v. Storey

Summarized by Michael Coury , Glankler Brown, PLLC
14 years 9 months ago

Citation:

___F3d. ___(6th Cir. 2011); Case No. 09-3848 (May 16, 2011)

Tag(s):

6th Circuit

Ruling:

The Sixth Circuit reversed the District Court's sua sponte summary judgment order which found the Debtor's taxes to be non-dischargeable under 11 U.S.C. Sec. 523 (a)(1)(C). The Sixth Circuit held that mere non-payment of taxes, by itself, is insufficient to bar discharge of tax obligations. The Court found that the government must prove a voluntary, conscious, and intentional evasion of taxes. The government must prove the Debtor (1) had a duty to pay taxes (2) knew she had a duty and (3) voluntarily and intentionally violated that duty. Given the absence of proof in the record to demonstrate a voluntary and intentional violation of duty, the Sixth Circuit, in a split decision, reversed the judgment of the District Court and entered judgment for the Debtor finding the taxes to be discharged. The Court further found that the fact that the bankruptcy court had denied the Debtor's request for a hardship discharge on student loans had no relevance to the tax dischargeability question. The dissenting judge agreed with the non-dischargeability analysis but would have remanded for further proof.

Procedural context:

The U.S. filed suit in District Court to obtain judgment on the Debtor's back taxes and foreclose on a tax lien. The District Court entered a sua sponte summary judgment against the Debtor based primarily on the Debtor's non-payment of taxes from 1994 through 2005. The Sixth Circuit reversed.

Facts:

The Debtor, a physician, filed tax returns from 1994 through 2005 but failed to pay any taxes. The Debtor filed Chapter 7 in 2002 and received a discharge. No dischargeability proceeding was brought in bankruptcy court. The case was closed in 2004. The U.S. filed suit in 2007 to collect the taxes and foreclose its tax lien. The District Court entered a sua sponte summary judgment finding the Debtor's taxes to be non-dischargeable The only proof in the record was the Debtor's non-payment of taxes. There was no proof of a lavish lifestyle or extravagant purchases which might demonstrate a voluntary and intentional violation of the duty to pay taxes.

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