United States v. Storey

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 11a0125p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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Plaintiff-Appellee, -

UNITED STATES OF AMERICA,

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No. 09-3848

BENEFICIAL MORTGAGE CORPORATION;

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STATE OF OHIO, Department of Taxation;

Defendants-Appellees, -

CITY OF TOLEDO, Division of Taxation,

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v.

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Defendant-Appellant. -

ANYSE J. STOREY,

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Appeal from the United States District Court

for the Northern District of Ohio at Toledo.

No. 07-00905—Jack Zouhary, District Judge.

Decided and Filed: May 16, 2011

Before: GRIFFIN and WHITE, Circuit Judges; MURPHY, District Judge.*

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COUNSEL

ON BRIEF: Mark R. McBride, Toledo, Ohio, for Appellant. John Schumann, Thomas

J. Clark, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.,

Washington, D.C., Suzana Kukovec-Krasnicki, KEITH D. WEINER & ASSOCIATES

CO., LPA, Cleveland, Ohio, for Appellees.

MURPHY, D. J., delivered the opinion of the court, in which GRIFFIN, J.,

joined. WHITE, J. (pp. 13–15) delivered a separate opinion concurring in part and

dissenting in part.

*

The Honorable Stephen J. Murphy, III, United States District Judge for the Eastern District of

Michigan, sitting by designation.

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No. 09-3848 United States, et al. v. Storey Page 2

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OPINION

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STEPHEN J. MURPHY, III, District Judge. For ten years of a twelve-year

period, Anyse Storey filed federal income tax returns that showed she owed taxes — but

she failed to pay them. The United States brought an action to reduce to judgment

Storey’s tax liabilities for the ten years, and to foreclose on its tax liens placed on real

property owned by Storey. Storey argued that her Chapter 7 bankruptcy petition

discharged her tax liabilities for some of the years preceding the filing. The district court

disagreed and entered judgment in favor of the United States, finding that Storey had

willfully attempted to evade paying taxes for those years, preventing discharge of the

obligations through her bankruptcy filing. Because the United States cannot carry its

burden on the issue of willfulness, we REVERSE.

I.

During all times relevant to the present appeal, Storey was a practicing physician

residing in Maumee, Ohio. For ten years out of a twelve-year span, she filed federal

income tax returns that showed she owed federal income taxes, but she did not pay any

of the taxes due. Specifically, Storey filed tax returns showing taxable income in 1994,

1995, 1996, 1997, 2000, 2001, 2002, 2003, 2004 and 2005, but has never paid any

federal income tax for those years.

On March 15, 2002, Storey filed a Chapter 7 bankruptcy petition in the Northern

District of Ohio. Neither Storey nor the United States filed an adversary complaint

seeking a determination regarding the dischargeability of her federal income tax

liabilities. In July 2002, the bankruptcy court entered an order of discharge pursuant to

11 U.S.C. § 727, and the bankruptcy case was closed on September 10, 2004.

Two and a half years later, on March 28, 2007, the United States brought the

present action seeking to reduce to judgment Storey’s federal income tax liabilities for

the years 1994 through 1997 and 2000 through 2005, and to foreclose on its tax liens on

No. 09-3848 United States, et al. v. Storey Page 3

real property acquired by Storey in 1994, referred to herein as “the Morningdew

Property.” The United States sued Storey and joined as defendants various other parties

that might claim an interest in the Morningdew Property, a number of whom defaulted

by not appearing in the action. Storey argued that her tax obligations for the years 1994,

1995, 1996, and 1997 were discharged in her bankruptcy proceedings.

The district judge held a telephonic status conference on November 5, 2007, at

which all parties not in default were present. Following the conference, the district judge

issued an order in which he ruled that Northern District of Ohio General Order No. 84

did not grant jurisdiction to the bankruptcy court on the dischargeability of debts in

Storey’s 2002 bankruptcy. The order also set a deadline of November 16, 2007 for

Storey “to file a brief with respect to the applicability of the discharge exception under

Section 523,” and directed the United States to respond by December 14, 2007, with no

replies permitted. R. 26.

Storey filed a brief identifying four issues she believed to be relevant to the

proceedings: 1) whether the district court had jurisdiction over the action as it pertains

to the bankruptcy discharge and its effect on the United States’ ability to obtain a

personal judgment against Storey; 2) whether the income tax obligations owing at the

time Storey filed her bankruptcy petition were discharged in the bankruptcy; 3) whether

Storey had an obligation to file a complaint in the bankruptcy action to determine

dischargeability of income tax obligations; and 4) whether the United States had violated

the injunction in effect by virtue of the discharge in bankruptcy. Storey argued that her

taxes for the years 1994 through 1997 were discharged by her 2002 bankruptcy under

11 U.S.C. § 507(a)(8) because she timely filed tax returns, the obligation was more than

three years old, and the Internal Revenue Service had not issued a notice of assessment

within 240 days immediately preceding the filing of the bankruptcy petition. In

response, the United States argued that the dischargeability of Storey’s tax debts is

governed not by 11 U.S.C. § 507(a)(8), but rather by 11 U.S.C. § 523(a)(1)(C), which

provides that a discharge under § 727 is not allowed for a tax liability with respect to

which the debtor made a fraudulent return or willfully attempted in any manner to evade

No. 09-3848 United States, et al. v. Storey Page 4

or defeat the tax. The United States argued, without elaboration, that its position in the

litigation was that Storey’s tax liabilities for those years were not dischargeable based

upon her willful attempt to evade or defeat her taxes.

After the government filed its brief, Storey sought leave to supplement her

previously filed memorandum in support of discharge and for an enlargement of time.

She argued that the district court should be afforded an opportunity to hear all arguments

regarding whether the tax liabilities were discharged or are now dischargeable and what

the appropriate forum should be for determining these issues. The district court denied

Storey’s motion in a marginal entry order and set the case for a telephonic status

conference.

Following the off-the-record status conference, the district court issued an order

ruling on the four points raised by Storey in her memorandum. On the question of

whether Storey’s income tax obligations were discharged in her 2002 bankruptcy, the

district court held that 11 U.S.C. § 523(a)(1)(C) exempts tax liabilities from bankruptcy

discharge when a debtor “willfully attempts in any manner to evade or defeat such tax,”

that Storey’s pattern of failing to pay income tax over a number of years was evidence

of a willful attempt to defeat the tax, and that the taxes therefore were not discharged in

her bankruptcy proceeding. R. 35. The district court concluded that the case could

proceed as to all tax years set forth in the complaint. On February 27, 2008, the district

court entered a partial judgment in favor of the United States against Storey for unpaid

federal tax liabilities for tax years 1994, 1995, 1996, 1997, 2000, 2001, 2002, 2003, 2004

and 2005 in the amount of $319,698.76.

Storey timely appealed the district court’s final judgment.

No. 09-3848 United States, et al. v. Storey Page 5

II.

Storey challenges the district court’s conclusion that her federal income tax

obligations for the years 1994 through 1997 were not discharged in her 2002 bankruptcy

proceedings. We agree with her position and reverse.1

A.

We address first the proper standard of review. The district court ruled in a

summary fashion, but did not specify the procedural mechanism it used to do so. The

order is titled “Order,” and mentions no rule of procedure. There were no factual

findings. The court simply stated that “Defendant’s tax obligations were exempted

under § 523(a)(1)(C) and were not discharged in her bankruptcy proceeding,” after

concluding that Storey’s “pattern of failing to pay income tax over a number of years is

evidence of a willful attempt to defeat the tax.” R. 35. The parties agree that the district

court’s decision resembles that of an entry of summary judgment sua sponte. This is a

fair characterization of the decision given that there was no trial or findings of fact.

Moreover, the parties agree that the material facts are undisputed and that whether

Storey’s tax obligations were discharged is a legal question.

We agree that the proper way to view the district court’s decision is as a sua

sponte entry of summary judgment. Accordingly, we will review the district court’s

decision de novo. See Schreiber v. Moe, 596 F.3d 323, 329 (6th Cir. 2010). “Summary

judgment is proper if the evidence, taken in the light most favorable to the nonmoving

party, shows that there are no genuine issues of material fact and that the moving party

is entitled to a judgment as a matter of law.” Id. (citation and internal quotation marks

omitted). Summary judgment must be entered against “a party who fails to make a

showing sufficient to establish the existence of an element essential to that party’s case,

1

Storey also challenges the district court’s decision to resolve the dischargeability issue in a

summary fashion without giving her notice of its intent to do so, as well as its decision not to refer the issue

of dischargeability to the U.S. Bankruptcy Court of the Northern District of Ohio. Because we reverse on

matters of substance, we do not reach the procedural challenges.

No. 09-3848 United States, et al. v. Storey Page 6

and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett,

477 U.S. 317, 322 (1986).

B.

A debtor filing a petition for bankruptcy under Chapter 7 of the Bankruptcy Code

generally is granted discharge from all debts (including tax debts) that arose before the

filing of the petition. 11 U.S.C. § 727(b); see Stamper v. United States (In re Gardner),

360 F.3d 551, 557 (6th Cir. 2004). Exceptions to the general rule do exist, however, and

they are to be strictly construed in favor of the debtor. United States v. Hindenlang (In

re Hindenlang), 164 F.3d 1029, 1034 (6th Cir. 1999). Relevant here:

(a) a discharge under section 727 . . . of this title does not discharge an

individual debtor from any debt—

(1) for a tax or 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). This exception “serves to limit the Bankruptcy Code’s

discharge of tax debts to the honest but unfortunate debtor.” Stamper, 360 F.3d at 557

(citing Grogan v. Garner, 498 U.S. 279, 286-87 (1991)). The government has the

burden of demonstrating by a preponderance of the evidence that the debtor willfully

attempted to evade the tax liability. Id.

The analysis under § 523(a)(1)(C) has two components: a conduct requirement

and a mental state requirement. Id. at 558. To satisfy the conduct requirement, the

government must demonstrate that the debtor avoided or evaded payment or collection

of taxes through acts of omission, such as failure to file returns and failure to pay taxes,

or through acts of commission, such as affirmative acts of evasion. Id. at 557. Non-

payment of tax alone is not sufficient to bar discharge of a tax obligation, but it is a

relevant consideration in the overall analysis. Myers v. IRS (In re Myers), 216 B.R. 402,

No. 09-3848 United States, et al. v. Storey Page 7

405 (6th Cir. BAP 1998), aff’d sub nom. Meyers v. IRS (In re Meyers), 196 F.3d 622 (6th

Cir. 1999); see also In re Birkenstock, 87 F.3d 947, 951 (7th Cir. 1996) (noting that

“mere nonpayment, without more, evidences not dishonesty but the defining

characteristic of all debtors — honest and dishonest, alike — insufficient resources to

honor all of one’s obligations” (citation, internal quotation marks, and alterations

omitted)).

Here, non-payment of Storey’s tax obligations is the only evidence relevant to

the conduct requirement. Storey filed federal tax returns for the years in question, and

there is no dispute that she did so timely and accurately. She simply failed to pay the

taxes she owed. This is not enough by itself to render her tax debt nondischargeable.

Unless her non-payment was “knowing and deliberate,” the tax obligations were

discharged in her bankruptcy. See Stamper, 360 F.3d at 557 (noting that “a ‘knowing

and deliberate’ nonpayment provides the basis for determining that the tax debt is

non-dischargeable”); but see Haas v. IRS (In re Haas), 48 F.3d 1153, 1158 (11th Cir.

1995) (holding that mere non-payment is not sufficient to satisfy the conduct element of

§ 523(a)(1)(C), and thereby the government’s burden, without regard to debtor’s mental

state), overruled in part by Griffith v. United States (In re Griffith), 206 F.3d 1389, 1396

(11th Cir. 2000) (en banc); see also United States v. Fretz (In re Fretz), 244 F.3d 1323,

1328-29 (11th Cir. 2001).2 Accordingly, we turn now to the mental state requirement.

2

We recognize that our statement in Stamper regarding a knowing and deliberate non-payment

is potentially dictum given that the debtor’s conduct in that case went beyond mere non-payment to include

the use of nominee bank accounts to conceal from the IRS large deposits of income. 360 F.3d at 559.

Absent our statement in Stamper, we are left only with our holding in Toti v. United States (In re Toti),

24 F.3d 806, 809 (6th Cir. 1994), that a failure to pay taxes coupled with a failure to file tax returns can

support a finding of non-discharge under § 523(a)(1)(C). See also Birkenstock, 87 F.3d at 951-52. We

have never squarely addressed in a published decision whether “voluntary, conscious, and intentional”

non-payment (absent also a failure to file tax returns) is enough to prevent discharge of a tax obligation

under § 523(a)(1)(C). The Eleventh Circuit has, however, and concluded that willful non-payment is not

enough. See Haas, 48 F.3d at 1155, 1158. We have addressed Haas in the past, but instead of agreeing

or disagreeing with its holding, we distinguished it on its facts. See Meyers, 196 F.3d at 625 (“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.”). Rather than trying to determine whether our statement in Stamper was dictum, we assume here that

it is not, because doing so does not change the end result in the case: since the United States has not carried

its burden to show willfulness, see infra, Storey’s tax obligations were discharged in her bankruptcy even

assuming her non-payment satisfied the conduct requirement. We find this approach preferable to creating

dictum on the issue of whether non-payment by itself can satisfy § 523(a)(1)(C)’s conduct requirement.

No. 09-3848 United States, et al. v. Storey Page 8

Non-dischargeability under 523(a)(1)(C) requires a “voluntary, conscious, and

intentional evasion.” Stamper, 360 F.3d at 557. The government must prove that the

debtor 1) had a duty to pay taxes, 2) knew she had a duty, and 3) voluntarily and

intentionally violated that duty. Id. at 558. Storey concedes that she had a known duty

to pay taxes, but argues that there is no evidence that she voluntarily and intentionally

violated that duty. Thus, only the third element of the willfulness requirement is at issue

here.

There is little evidence to support a finding that Storey voluntarily and

intentionally violated her known duty to pay taxes. The only argument made to the

district court on this issue was in response to the court’s request for briefing, where the

United States asserted: “[t]he United States maintains that Storey’s tax liabilities are

nondischargeable based upon her willful attempt to evade or defeat her taxes.” United

States Resp. Br. 5 (R. 32). The United States alleged no facts to support its position,

despite being yoked with the burden of proof on this issue. On appeal, the United States

adds that Storey’s purchase of the Morningdew Property in 1994 — the very year she

stopped paying taxes — demonstrates a voluntary and intentional choice to evade her tax

obligations. Not so. There is no indication that the property is more lavish than Storey’s

previous residence or that the home was an unnecessary expense, purchased as an

alternative to paying future tax obligations. Nor is there any evidence that when Storey

purchased the home, she was even aware she would later become unable to pay her

taxes. If the purchase were made in the years after Storey stopped paying taxes, there

might be reason to suspect an intent to evade her tax obligations. See, e.g., United States

v. Mitchell (In re Mitchell), 633 F.3d 1319, 1328 (11th Cir. 2011). But the home was

purchased at the beginning of (and perhaps before — we cannot be sure) Storey’s

financial difficulties. Without facts or evidence — materials the United States had the

burden of producing — there is only speculation. “Mere speculation is insufficient to

create a preponderance of the evidence.” United States v. Burke, 252 F. App’x 49, 54

(6th Cir. 2007).

No. 09-3848 United States, et al. v. Storey Page 9

We note also that there is no evidence that Storey lived lavishly during the years

she did not pay her taxes, or that she chose to engage in recreational or philanthropic

activities instead of paying her taxes. See, e.g., Mitchell, 633 F.3d at 1329 (“[W]illful

intent is further shown by Mitchell’s discretionary spending, which included purchasing

vacation timeshares, purchasing stock, repaying a $30,000 personal loan, and donating

approximately $81,000 to his church.”); Stamper, 360 F.3d at 560-61 (finding

willfulness where debtor engaged in twenty golfing and vacation trips over span of

nearly three years, expending substantial sums, instead of paying taxes); Volpe v. IRS (In

re Volpe), 377 B.R. 579, 589 (Bankr. N.D. Ohio 2007) (finding willfulness where debtor

spent his money on vacations and private schooling for children instead of paying taxes,

noting that “when the debtor used his disposable income for leisure activities, knowing

that he had a significant tax liability, the debtor made a voluntary decision to spend the

money on himself rather than to pay his taxes”; “[t]he debtor’s decision to spend his

money on vacations and private school tuition weighs in favor of a finding that he

willfully evaded his tax liability”).

The United States relies heavily on the decision of the bankruptcy court denying

Storey’s request for a discharge of her student loan obligations. The published decision

was not expressly considered by the district court. The bankruptcy court set forth the

following facts as undisputed:

The Debtor, who is presently 50 years of age, is a licensed physician.

The Debtor has practiced medicine for the past 15 years, and presently

specializes in the field of urology. At some time in the not too distant

future, the Debtor will become “board certified” in this specialty. At the

present time, the Debtor practices solo, employing three part-time staff.

Storey v. Nat’l Enter. Sys. (In re Storey), 312 B.R. 867, 870 (Bankr. N.D. Ohio 2004).

The bankruptcy court further found that “the Debtor’s present annual income is in the

$50,000.00 range. In the past, however, the Debtor earned as high as $96,000.00 per

year.” Id. at 873. It found that Storey had recently declined to take a job that paid

$110,000 per year, and Storey stated that she could work longer hours if needed. Id. at

872-73. The court also noted that Storey’s husband lived with her but did not contribute

No. 09-3848 United States, et al. v. Storey Page 10

significantly to the household expenses, choosing instead to maintain a separate

residence for his own family members, where the members resided rent-free. Id. at 874.

The bankruptcy court found that Storey was capable of earning at least double her then-

current salary, but simply chose not to. Id. Finding that Storey had options available

that would permit her to pay her student loan obligations, and that her present inability

to pay her obligations would later subside, the court concluded that she had failed to

meet her burden of demonstrating an “undue hardship” by a preponderance of the

evidence. Id.

We think it inappropriate to consider the bankruptcy court’s decision here. The

treatment of student loans in bankruptcy is distinctive, and differs significantly from the

treatment of tax obligations. For one, there is a presumption that student loan debts are

non-dischargeable and therefore the burden of establishing a discharge of student loans

is on the debtor, by a preponderance of the evidence. Barrett v. Educ. Credit Mgmt.

Corp. (In re Barrett), 487 F.3d 353, 358-59 (6th Cir. 2007). On the other hand, in the

case of pre-petition tax debts, the presumption is that such debts are dischargeable, and

therefore the government bears the burden of establishing otherwise by a preponderance

of the evidence. Stamper, 360 F.3d at 557. Additionally, in determining whether student

loan debts are dischargeable, a court must determine whether repayment of the loans

would cause undue hardship, which is forward-looking. See Tenn. Student Assistance

Corp. v. Hornsby (In re Hornsby), 144 F.3d 433, 437 (6th Cir. 1998) (discussing the

widely-accepted three-part test for undue hardship). On the other hand, the question of

whether the failure to pay taxes was willful looks backwards in time to the conduct and

state of mind of the debtor at the time he or she failed to pay the taxes. Storey’s failure

to carry her burden to show an undue hardship in the student loan context cannot create

a windfall to the United States by establishing willful evasion as a matter of law.

But even indulging the United States’ request that we consider the facts

contained in the bankruptcy court’s decision does not change the result here. While it

was undisputed that Storey’s income was in the $50,000 range and that she had in the

past made as much as $96,000 per year, no evidence was offered regarding why or when

No. 09-3848 United States, et al. v. Storey Page 11

her pay decreased. Storey declined the offer for a job paying $110,000 per year, but did

so because the job required relocation, to her son’s detriment. Furthermore, no reason

was provided for why Storey’s husband did not contribute to the household. None of

these undisputed facts contributes to a finding of willful evasion by a preponderance of

the evidence. The bankruptcy court also concluded that Storey had options that would

enable her to repay her student loans. Civil Rule 52(a)(6) does not require that we defer

to this ultimate conclusion of fact since it is not the bankruptcy court’s decision under

review here. Regardless, the ultimate finding demonstrates only that as of July 29, 2004

(the date the decision issued) Storey would soon have the ability to repay her student

loans. It does not touch upon what is relevant here: whether Storey voluntarily and

intentionally avoided paying her taxes.

Thus, we conclude that the district court should not have effectively granted

summary judgment to the United States on the dischargeability issue. The United States

failed to offer sufficient evidence to rebut the presumption that the tax obligations were

discharged in Storey’s bankruptcy proceedings, or that she is anything other than “the

honest but unfortunate debtor.” Grogan, 498 U.S. at 286-87 (citation and internal

quotation marks omitted). Moreover, we see no reason to remand so the United States

can offer additional evidence. For one, the United States has not requested a remand as

an alternative to affirming. More importantly, by arguing on appeal that the district

court provided both parties “a fair opportunity to present their positions on this critical

legal issue,” United States Br. 24-25, the United States is foreclosed from arguing that

the district court did not give the United States ample opportunity to meet its burden

under § 523(a)(1)(C). See White v. Wyndham Vacation Ownership, Inc., 617 F.3d 472,

476 (6th Cir. 2010) (“The doctrine of judicial estoppel generally prevents a party from

prevailing in one phase of a case on an argument and then relying on a contradictory

argument to prevail in another phase.” (citation and internal quotation marks omitted)).

We are permitted to presume that the United States can present no additional facts or

evidence to support its position. A remand for discovery and a trial would therefore

serve no purpose.

No. 09-3848 United States, et al. v. Storey Page 12

III.

Evidence did not support the district court’s entry of partial judgment against

Storey on the issue of willful evasion of her federal income tax obligations for years

1994 through 1997. The record does not support a finding that Storey willfully

attempted to evade or defeat her federal income taxes for these years. The presumption

that the obligations were discharged in bankruptcy thus remains unrebutted.

Accordingly, partial judgment must be entered in favor of Storey with respect to her tax

obligations for years 1994 through 1997. We REVERSE and REMAND to the district

court for proceedings consistent with this opinion.

No. 09-3848 United States, et al. v. Storey Page 13

______________________________________________________

CONCURRING IN PART AND DISSENTING IN PART

______________________________________________________

HELENE N. WHITE, Circuit Judge (concurring in part and dissenting in part).

To render Storey’s tax debt nondischargeable, the government must prove by a

preponderance of the evidence that she attempted a “voluntary, conscious, and

intentional evasion” of her responsibility to pay taxes. Stamper v. United States (In re

Gardner), 360 F.3d 551, 557 (6th Cir. 2004) (citing Toti v. United States (In re Toti), 24

F.3d 806, 809 (6th Cir. 1994)); 11 U.S.C. § 523(a)(1)(C). I agree with the majority that

the government has not established that it is entitled to summary judgment on this issue,

and therefore concur in the reversal of the district court’s judgment. I do not, however,

agree that the government failed to meet its burden of showing that there is a genuine

issue of material fact whether Storey willfully attempted to evade payment of the taxes.

I would remand to allow the parties to present factual evidence and arguments.

As the majority observes, “[n]onpayment alone is insufficient to bar discharge

of a tax obligation . . . .” Stamper, 360 F.3d at 557; see also Myers v. IRS (In re Myers),

216 B.R. 402, 405 (6th Cir. BAP 1998), aff’d sub nom. Meyers v. IRS (In re Meyers),

196 F.3d 622 (6th Cir. 1999); In re Birkenstock, 87 F.3d 947, 951 (7th Cir. 1996). To

render the tax debts nondischargeable, the government must make the additional

showing that Storey had the requisite mental state: that she “voluntarily, consciously,

and knowingly evaded payment.” Stamper, 360 F.3d at 558. There was little evidence

or argument on this element in the proceedings below. The majority concludes that

Storey’s buying the Morningdew Property and the findings of the bankruptcy court in

the student-loan-discharge matter are insufficient to raise a genuine issue of material fact

regarding the mental-state element of § 523’s tax-debt-discharge provision. I agree that

the findings of the bankruptcy court in the student-debt-discharge decision are not

preclusive here, but the same facts are enough to raise a genuine issue of fact as to

Storey’s intent in not paying her taxes. See Storey v. Nat’l Enter. Sys. (In re Storey), 312

B.R. 867, 870 (Bankr. N.D. Ohio 2004). Similarly, the purchase of the Morningdew

No. 09-3848 United States, et al. v. Storey Page 14

property is relevant evidence on the question of Storey’s mental state, notwithstanding

the timing of the purchase.

Cases construing § 523(a)(1)(C) look to all the circumstances surrounding the

debtor’s nonpayment of taxes to assess whether that nonpayment was voluntary,

conscious, and intentional. Relevant considerations include whether the debtor

attempted to conceal income and assets from the IRS, Stamper, 360 F.3d at 558 (debtor

placed income and assets in the names of others); Griffith v. United States (In re

Griffith), 206 F.3d 1389, 1396 (11th Cir. 2000) (en banc) (debtor fraudulently conveyed

property to wife); Birkenstock, 87 F.3d at 952-53 (debtors “attempted to attribute their

personal income to their family trust”), whether the debtor spent excessively on

nonessential expenses instead of paying taxes, Stamper, 360 F.3d at 558, 560 (“[T]he

debtor lived lavishly during the period of time the IRS sought to collect the tax

liability . . . . [including] twenty golfing and vacation trips upon which appellant lavished

substantial sums.”); United States v. Mitchell (In re Mitchell), 633 F.3d 1319, 1329 (11th

Cir. 2011) (“[W]illful intent is further shown by Mitchell’s discretionary spending,

which included purchasing vacation timeshares, purchasing stock, repaying a $30,000

personal loan, and donating approximately $81,000 to his church.”), whether the debtor

had the ability to pay taxes, Stamper, 360 F.3d at 558; Toti, 24 F.3d at 809, and whether

the debtor had the sophistication and wherewithal to understand her tax responsibilities,

United States v. Fretz (In re Fretz), 244 F.3d 1323, 1331 (11th Cir. 2001) (“Put bluntly,

someone who can control his drinking enough to perform medical procedures during

twelve- to twenty-four hour shifts in an emergency room over a period of years can

control his drinking enough to file tax returns and pay taxes during that same period.

Instead of doing that, as Dr. Fretz himself put it, he ‘just totally ignored’ his tax

responsibilities.”).

Because neither party established an entitlement to summary judgment, and the

parties did not submit the case to the court for judgment on the facts, I would remand for

further proceedings. The government should be permitted to present evidence of how

much Storey earned and what she did with her earnings, as well as other evidence

No. 09-3848 United States, et al. v. Storey Page 15

relevant to her mental state. Storey, in turn, should be permitted to put on evidence that

she failed to pay her taxes only because she could not afford to. I would reverse the

district court’s order finding that Storey’s tax obligations were not discharged by the

bankruptcy proceeding and would remand for additional proceedings on issues relevant

to Storey’s mental state.