Stein v. United States, 665 B.R. 320

Background

Matthew W. Stein, an attorney, failed to pay over $1 million in federal income taxes spanning 2002, 2003, 2005–2015, and 2017, despite consistently high income during those years.
Stein changed his financial practices after his businesses collapsed, using cash exclusively, titling assets in names of relatives or entities, and making significant discretionary expenditures (e.g., private school tuition).
He sought numerous extensions for filing tax returns, delayed payments, and made minimal actual payments to the IRS while honoring other significant financial commitments.
The IRS argued that Stein’s conduct constituted willful evasion of tax payment under 11 U.S.C. § 523(a)(1)(C), seeking to except these tax debts from discharge in his Chapter 7 bankruptcy.
The core issue was whether Stein’s behavior met the legal standard for non-dischargeability of tax debts due to willful evasion.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Stein’s tax debts are dischargeable under bankruptcy law	Stein argued that mere nonpayment is not sufficient for non-dischargeability and attributed his failure to pay taxes to personal financial pressures, not intent to evade.	The IRS contended Stein willfully attempted to evade payment through cash-only practices, concealing ownership of assets, and making large discretionary expenses while neglecting taxes.	The court held that Stein’s conduct met both the conduct and mental state requirements under § 523(a)(1)(C), making the tax debt non-dischargeable.
Whether adopting a cash-only lifestyle and titling assets in others' names constitutes evasion	Stein said these were for convenience and necessitated by poor credit, not intent to hinder the IRS.	The IRS argued these actions were intended to conceal assets and prevent collection.	The court found these were affirmative acts to evade payment and hinder tax collection.
Whether discretionary spending can justify nonpayment of taxes	Stein asserted tuition and other expenses were necessary for his family’s well-being and rooted in religious and familial tradition.	The IRS emphasized that discretionary expenses, especially private school tuition, were chosen over paying taxes.	The court determined that Stein’s discretionary expenditures, instead of paying taxes, evidenced willful evasion.
Whether extensions and promises to the IRS indicated cooperation or evasion	Stein claimed extensions and promised payments were signs of cooperation, not evasion.	The IRS showed Stein delayed the IRS through extensions and empty promises, repeatedly feigning cooperation.	The court agreed that these actions delayed assessment and collection, contributing to willful evasion.

Key Cases Cited

Stamper v. United States (In re Gardner), 360 F.3d 551 (6th Cir. 2004) (interprets the willfulness and conduct requirements for tax debt discharge exceptions)
In re Toti, 24 F.3d 806 (6th Cir. 1994) (sets forth test for willful evasion under § 523(a)(1)(C))
United States v. Storey, 640 F.3d 739 (6th Cir. 2011) (discusses strictly construing exceptions to discharge in favor of debtor)
In re Myers, 216 B.R. 402 (B.A.P. 6th Cir. 1998), aff’d, 196 F.3d 622 (6th Cir. 1999) (totality of conduct standard for evasive acts)
United States v. Mitchell (In re Mitchell), 633 F.3d 1320 (11th Cir. 2011) (discretionary spending relevant to intent for non-dischargeability)