974 F.3d 1320
11th Cir.2020Background
- Matthew and Kathleen Feshbach incurred a $1,950,827 tax liability for 1999 and, after liquidating securities in 2001, owed $3,247,839 for 2001 — a combined 1999/2001 liability of over $5 million by the 2001 return.
- From 2002–2010 the Feshbachs earned ~ $13.06 million but spent about $8.5 million on personal expenses and charitable gifts while making only modest payments toward the 2001 tax debt, leaving a $3.8 million balance.
- They submitted multiple offers-in-compromise (2001, 2002, 2008) and temporary installment arrangements; the IRS determined the offers were unrealistically low given their actual income and lifestyle and concluded they could pay the debt.
- After defaulting on an installment plan, the Feshbachs filed Chapter 7 in 2011 and sought a determination that the 2001 tax liability was dischargeable; the government argued nondischargeability under 11 U.S.C. § 523(a)(1)(C) for willful attempt to evade/defeat tax.
- The bankruptcy court found (bench trial) that the Feshbachs willfully attempted to evade the 2001 tax debt through excessive discretionary spending and misuse of the offer-in-compromise process; the district court affirmed; Eleventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Feshbachs) | Defendant's Argument (Gov't/IRS) | Held |
|---|---|---|---|
| Whether 2001 tax debt is nondischargeable under § 523(a)(1)(C) | Denied willful attempt; offers-in-compromise and payments show good faith | Willful attempt shown by lavish spending, lowball OICs, misleading disclosures and delay tactics | Affirmed nondischargeable — court found attempted evasion and willfulness |
| Whether excessive personal spending alone can satisfy conduct prong | Excessive spending alone cannot constitute evasive conduct; de novo review required | Discretionary spending is relevant and, combined with other conduct, supports evasion finding | Court did not decide the broad legal question but found sufficient additional conduct (abusive OICs, inconsistent disclosures) to support the conduct prong |
| Proper mens rea standard for § 523(a)(1)(C) | Requires specific/criminal intent to evade taxes | Civil willfulness suffices: voluntary, conscious, intentional violation of duty to pay | Applied civil willfulness standard; criminal intent not required |
| Whether partial discharge of tax debt is available under § 523(a)(1)(C) | Sought partial discharge if full nondischargeability could not be shown | Court concluded full capacity to pay made partial discharge unnecessary; questioned availability of partial discharge | Court declined to resolve the legal question; no partial discharge awarded because record showed capacity to pay |
Key Cases Cited
- In re Jacobs, 490 F.3d 913 (11th Cir. 2007) (sets two‑prong test for conduct and willfulness under § 523(a)(1)(C))
- In re Fretz, 244 F.3d 1323 (11th Cir. 2001) (discusses broad scope of evasive acts and totality-of-conduct approach)
- Spies v. United States, 317 U.S. 492 (U.S. 1943) (historic principle that evasive acts may be inferred from conduct)
- In re Griffith, 206 F.3d 1389 (11th Cir. 2000) (three‑prong civil willfulness test: duty, knowledge, voluntary violation)
- In re Mitchell, 633 F.3d 1319 (11th Cir. 2011) (confirming civil willfulness standard and that offer pendency halts IRS collection)
- In re Fegeley, 118 F.3d 979 (3d Cir. 1997) (distinguishes criminal fraud from civil willfulness under § 523)
- United States v. Coney, 689 F.3d 365 (5th Cir. 2012) (rejects requirement of criminal intent for nondischargeability and relies on Fretz)
- Anderson v. Bessemer City, 470 U.S. 564 (U.S. 1985) (standard for reviewing factual findings for clear error)