Feshbach v. Dep't of Treasury, 594 B.R. 495

Matthew and Kathleen Feshbach reported $8,601,748 taxable income for 2001, producing a $3,247,839 tax liability; they later filed Chapter 7 in 2011 after partial payments and rejected offers-in-compromise.
The Feshbachs used investment strategies that deferred recognition of income and maintained a high-income, high-expenditure lifestyle (vacation home, travel, clothing, entertainment) while tax liabilities mounted.
Over the nine years before bankruptcy they earned about $13 million and spent over $8.5 million on personal/household and charitable expenditures; they paid about $1.2 million toward the 2001 debt before defaulting after the 2008 downturn.
The IRS sued in bankruptcy court to except the 2001 tax liability from discharge under 11 U.S.C. § 523(a)(1)(C) (willful attempt to evade or defeat tax); the bankruptcy court found the debt nondischargeable based principally on excessive discretionary spending.
The district court reviewed the appeal (bench de novo on legal questions, clear error for factual findings) and affirmed the bankruptcy court’s judgment denying discharge in full.

Issue	Plaintiff's Argument (Feshbachs)	Defendant's Argument (IRS)	Held
Whether excessive discretionary spending alone can constitute affirmative evasive conduct under § 523(a)(1)(C)	Spending alone cannot satisfy the conduct element	Large nonessential expenditures while owing known taxes are affirmative evasive acts	Held that excessive discretionary spending can constitute evasive conduct
Whether the Feshbachs acted willfully (mental state)	They did not act with an intent to evade taxes; spending served business purposes	Knowing, deliberate prioritization of lifestyle over tax obligations shows willfulness	Held that facts supported a finding of willful, knowing, deliberate conduct
Whether partial discharge of tax debt is available under § 523(a)(1)(C)	Statute permits partial discharge similar to other exceptions	Statute’s language is absolute; if the subsection applies the entire tax is nondischargeable	Held § 523(a)(1)(C) does not allow partial discharge; entire tax is excepted
Whether bankruptcy court’s factual findings were clearly erroneous	Findings were allegedly unsupported and speculative	Findings were supported by record (income, spending, payments, rejected OICs)	Held factual findings not clearly erroneous; affirmed judgment

In re Jacobs, 490 F.3d 913 (11th Cir.) (describes conduct and mental-state elements for § 523(a)(1)(C))
In re Mitchell, 633 F.3d 1319 (11th Cir.) (defines willfulness and conduct requirements under § 523(a)(1)(C))
In re Fretz, 244 F.3d 1323 (11th Cir.) (interprets phrase "in any manner" in § 523(a)(1)(C))
Price-Davis v. United States, 549 B.R. 537 (S.D. Fla. 2015) (excessive lifestyle spending can constitute evasive conduct and willfulness)
Law v. Siegel, 571 U.S. 415 (2014) (bankruptcy courts cannot contravene clear statutory provisions)
In re Griffith, 206 F.3d 1389 (11th Cir.) (discusses prioritization of other debts and limits of nonpayment alone)
In re Kight, 460 B.R. 555 (Bankr. M.D. Fla.) (contrast: modest spending patterns insufficient to show evasive conduct)