460 B.R. 555
Bankr. M.D. Fla.2011Background
- Plaintiffs are attorneys who previously operated a law practice and faced tax, credit, and income challenges beginning in 1995.
- They filed for Chapter 13, converted to Chapter 7, and received a discharge in 2008 for debts arising before filing.
- The IRS asserted that 2000 tax liabilities were not discharged because of §523(a)(1)(C) willful evasion/defeat, requiring a mental state and conduct showing evasion.
- Plaintiffs’ 2000 tax return was filed late (Nov. 15, 2001) with substantial unpaid liability; they had limited income thereafter and used funds for living expenses and other obligations.
- Contemporaneously, Plaintiffs used contingency fees to pay debts, fund living expenses, and invest in mutual funds and a bar; they transferred real property to parents to avoid mortgage foreclosure.
- Plaintiffs alleged post-discharge IRS collection efforts violated the discharge injunction under 11 U.S.C. § 524, but they did not file an administrative claim before pursuing damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 2000 taxes were discharged under §523(a)(1)(C). | Kight argues they did not willfully evade taxes. | IRS asserts affirmative evasion conduct and wrongful mental state. | Taxes not excepted; no willful evasion proven |
| Whether IRS post-discharge collection violated the discharge injunction. | IRS actions post-discharge improperly collected discharged taxes. | Not addressed; focus on whether discharge applicable. | Discharge injunction violated for the 2000 taxes |
| Damages and attorney’s fees availability for § 7433/§ 7430 claims; exhaustion of administrative remedies. | Plaintiffs seek damages and fees for IRS conduct. | Administrative claims required; remedies exclusive under § 7433(e)(2)(A). | Damages/fees denied for failure to exhaust administrative remedies |
Key Cases Cited
- In re Fretz, 244 F.3d 1323 (11th Cir.2001) (conduct requirement for § 523(a)(1)(C) defined)
- In re Jacobs, 490 F.3d 913 (11th Cir.2007) (conduct includes affirmative acts; not mere nonpayment)
- In re Griffith, 206 F.3d 1389 (11th Cir.2000) (transfers of property can satisfy conduct requirement)
- In re Haas, 48 F.3d 1153 (11th Cir.1995) (awareness and present ability to pay not enough; must be willful)
- In re Mitchell, 633 F.3d 1319 (11th Cir.2011) (mental state requires willfulness in evasion)
- In re Hardy, 97 F.3d 1384 (11th Cir.1996) (discharge protection and its limits in context of tax debts)