In rе: GARY LOUIS GARDNER, Debtor. JEFFREY D. STAMPER, Executor of the Estate of Gary Louis Gardner, Appellant, v. UNITED STATES OF AMERICA, Appellee.
No. 02-5523
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
March 12, 2024
2004 FED App. 0077P (6th Cir.)
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206. File Name: 04a0077p.06. Argued: September 16, 2003. Decided and Filed: March 12, 2004.
COUNSEL
ARGUED: David M. Cantor, SEILLER & HANDMAKER, Louisville, Kentucky, for Appellant. Marion E.M. Erickson, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: David M. Cantor, C. Shawn Fox, SEILLER & HANDMAKER, Louisville, Kentucky, for Appellant. Marion E.M. Erickson, Edward T. Perelmuter, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
OPINION
KRUPANSKY, Circuit Judge. This proceeding seeks to decide if appellant-debtor Gary Gardner (“Gardner“) may discharge his income tax liability for the years 1990 and 1991 pursuant to
The United States instituted an adversary proceeding against Gardner in the bankruptcy court by filing a complaint seeking a determination that his unpaid tax liabilities for 1990 and 1991 were excepted from discharge in bankruptcy under
During the relevant period, appellant worked as a personal injury attorney. He was a partner in the law firm of Gardner, Ewing & Souza. On August 19, 1991, Gardner filed his 1990 federal income tax return showing an unpaid tax liability of $90,989. After appellant fаiled to satisfy that liability, Revenue Officer Keith Thomas contacted debtor to make demand for payment. Thomas informed Gardner that if he did not pay the liability, the Internal Revenue Service (“IRS“) would commence collection efforts and on April 27, 1992, Thomas caused a federal tax lien to be filed against debtor.
On June 2, 1992, Gardner, his accountant, and Thomas met to discuss debtor‘s tax delinquencies. The discussion addressed the debtor‘s unpaid tax liabilities for 1990 and 1991. At the meeting, Gardner informed Thomas that his 1991 tax return would be filed showing a tax liability
Thomas requested that Gardner provide him with certain financial information, noting that failure to provide the requested information would result in levies on appellant‘s bank accounts and seizure of his partnership interest. Gardnеr provided the requested financial information, which included a required Collection Information Statement (“CIS“) and an analysis of his pending cases. Gardner‘s CIS listed only two bank accounts: First National Bank with a balance of $26.24; and Pennyrile Bank with a balance of $7.75.
Gardner and Thomas met twice in July, and on September 28, 1992, appellant submitted an offer to compromise his tax liabilities for $21,539. Thomas recommended the compromise offer to the IRS personnel responsible for processing offers in compromise, indicating that he believed the amount offered represented the maximum amount likely to be collected through normal collection procedures. The IRS rejected the offer in May 1993.
Along with the offer in compromise, appellant submitted an updated CIS listing the same two bank accounts detailed on his prior statement, except now one bank account reflected a zero balance and the other disclosed that it was overdrawn. Significantly, Gardner did not list a nominee account, in the name of his secretary and her husband. Gardner used this account for his personal banking needs, depositing $90,000 between August 31 and September 10, 1992.2
In May 1993, Gardner received a $500,000 distribution from his law firm attributable to the settlement of a case (the Victor Robinson case). The appellant did not inform Thomas about the settlement nor apply any portion of the funds to his 1990 or 1991 tax liabilities. Gardner did, however, use $209,000 of the distribution to make an estimated federal tax payment for 1993, and used another part (as much as $60,000) to pay State tax obligations.
On October 7, 1993, Gardner again submitted to the IRS an offer to compromise his tax liabilities, this time for $100,000. Appellant accompanied the offer with an updated CIS form, which failed to list an escrow account at Gardner‘s law firm that debtor used for his personal banking needs. Between December 1993 and May 1995, Gardner deposited more than $115,000 into that account. In early 1995 the IRS rejected Gardner‘s second compromise offer.
Shortly after the IRS rejected Gardner‘s second compromise offer, Thomas mailed appellant a final notice of intent to levy against real and personal property unless the appellant paid the full amount of his past-due tax liabilities within 30 days. The levy notice listed Gardner‘s total liability, including penalties and interest, as $343,467.33.
On April 14, 1995, Gardner and his accountant met with Thоmas to discuss satisfying his tax obligations. Gardner assured Thomas that his law firm expected to receive a fee in the near future from the settlement of a case (the Cordis case), and that appellant‘s share of that fee would satisfy his tax liabilities. Gardner advised Thomas to issue a levy on the law firm to collect debtor‘s share of the fee at the appropriate time. On October 10, 1995,
Subsequent to the IRS levy, Gardner‘s firm received its fee from the Cordis case on December 6, 1995, forwarding none of the appellant‘s share of the $170,000 fee tо the IRS, and instead distributing the fee to appellant in January 1996. In response, Gardner deposited $36,000 in another nominee account maintained in his wife‘s former married name and made a $25,073 contribution to his retirement plan.
On October 30, 1995, soon after the IRS served the levy on his law firm, Gardner filed a petition for relief under Chapter 7 of the Bankruptcy Code. Gardner did not list any cash on hand or bank accounts and he did not list the Cordis case on a list of pending cases at his law firm that he submitted to the trustee. Gardner‘s bankruptcy case closed on September 23, 1998.
On March 12, 1999, the United States sought to reopen the appellant‘s bankruptcy proceeding, which the court granted. On May 5, 1999 the government instituted an adversary proceeding against Gardner by filing a Complaint to Determine Dischargeability of his federal income tax liabilities.
The bankruptcy court conducted a trial on the complaint that featured testimony by appellant, his accоuntant, and IRS officials involved in the case. At the trial, Gardner admitted that he used nominee accounts to hide his assets from the State of Kentucky. Debtor also testified that he was aware of his obligation to pay his 1990 and 1991 federal income taxes, and that he could have used some of the income he earned between 1990 and 1996 to pay those taxes.
Keith Thomas testified that he did not become aware of debtor‘s nominee accounts until December 1999, when Gardner provided a deposition in connection with the instant litigation. Thomas also testified that he would not have considered debtor‘s original offer in compromise to be bona fide had he known, at the time, that debtor had deposited $90,000 in the nominee account belonging to Gardner‘s secretary and her husband shortly before submitting his first compromise offer. Additionally, John Brandon, the IRS Offer Specialist responsible for evaluating debtor‘s second offer in compromise, testified that he did not know about Gardner‘s use of the nominee account belonging to his secretary at the time he evaluated the offer. Brandon testified that he learned of nominee accounts at Gardner‘s law firm (the former escrow account) and Gardner‘s accountant‘s firm while considering the offer in compromise, but had been unable to obtain any information about those accounts even after requesting such information.
The United States submitted evidence conсerning Gardner‘s profligate lifestyle after he incurred the tax liabilities for 1990 and 1991. That lifestyle included numerous golfing junkets throughout the United States, vacations to Europe and the Caribbean and the yearly expenditure of over
The bankruptcy court determined that the United States had met its burden of proving that Gardner had willfully attempted to evade his tax liabilities within the meaning of
On appeal from a bankruptcy court, a district court applies the clearly erroneous standard of review to findings of fact, and reviews questions of law de novo. On appeal of a bankruptcy decision from a district court, this court employs the same standards, evaluating the bankruptcy court‘s decision directly, without being bound by the district court‘s legal determinations. In re M.J. Waterman & Associates, Inc., 227 F.3d 604, 607 (6th Cir. 2000); In re Lawrence S. Charfoos, 979 F.2d 390, 392 (6th Cir. 1992). Pursuant to Chapter 7 of the Bankruptcy Code, a debtor is generally granted discharge from debts that arose prior tо the filing of the bankruptcy petition. See
(a) a discharge under
§ 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 wilfully attempted in any manner to evade or defeat such tax.
The Sixth Circuit has interpreted the Code‘s phrase “wilfully attempted in any manner to evade or defeat such tax” as requiring a voluntary, conscious, and intentional evasion. In re Toti, 24 F.3d 806, 809 (6th Cir.), cert. denied, 513 U.S. 987 (1994). This court‘s opinion in Toti cast a wide net, concluding that
The case law has divided the analysis into two segments--a conduct requirement and a mental state requirement. United States. v. Fretz (In re Fretz), 244 F.3d 1323, 1327-29 (11th Cir. 2001). The government satisfies the conduct requirement when it proves the debtor engaged in affirmative acts to avoid payment or collection of the taxes. Placing assets in the name of others, as Gardner did in this case by using nominee accounts for depositing large sums of his income, amounts to an affirmative act of tax evasion. See United States v. McGill, 964 F.2d 222, 230 (3d Cir. 1992). Under the mental state requirement, the govеrnment must prove the debtor voluntarily, consciously, and knowingly evaded payment. Toti, 24 F.3d 809. The mental state requirement is proven when the debtor:
- had a duty to pay taxes;
- knew he had such a duty; and
- voluntarily and intentionally violated that duty
The bankruptcy court concluded that the government had proved Gardner‘s intent to evade payment of the taxes by proving (1) that the debtor lived lavishly during the period of time the IRS sought to collect the tax liability, (2) that Gardner used nominee bank accounts to conceal from the IRS large deposits of income not reflected on the required financial statements, and (3) that the aрpellant had the ability to pay the taxes.
On appeal, Gardner has argued that this court should decline to follow its own precedent enunciated in In re Toti. Gardner has urged this court to find Toti inapplicable because it involved an attempt to defeat the assessment of a tax and not an attempt to defeat the payment of a tax. Instead, Gardner has suggested adopting the reasoning of In re Haas, 48 F.3d 1153 (11th Cir. 1995), concluding that
Gardner‘s argument fails for several reasons. First, the court in Toti refused to distinguish between the payment and assessment of a tax liability for purposes of discharge under
Moreover, Gardner‘s reliance on In re Sonnenberg, 148 B.R. 35 (N.D. Ill. 1992), and In re McDonald, 249 B.R. 312 (E.D. Mo. 1999), is misplaced. In those two casеs the bankruptcy courts held that the government failed to meet its burden of proving the debtors had willfully attempted to evade or defeat payment of their taxes. Unlike appellant‘s conduct in the
The evidence in the record supports the bankruptcy court‘s determination that Gardner attempted to evade or defeat payment of his tax liabilities. The debtor concealed assets from the IRS by using several nominee accounts and by failing to disclose his use of those accounts in a рrompt manner to agency officials. See In re Birkenstock, 87 F.3d at 951 (“where nonpayment is coupled with . . . measures to conceal assets from the IRS . . . a court may reasonably find that the debtor sought to ‘evade or defeat’ his tax liabilities“); Dalton v. IRS, 77 F.3d 1297, 1302 (10th Cir. 1996). See also United States v. McGill, 964 F.2d 222, 230 (3d Cir. 1992) (finding that nominee accounts are well known devices to shield assets from the tax authorities). In the instant case, appellant used a checking account belonging to his secretary and her husband into which he deposited approximatеly $90,000 during August and September 1992. Gardner also used a client escrow account at his law firm into which he deposited more than $200,000 between December 1993 and October 1995. Debtor additionally used an account set up by his accountant in 1993. Finally, in 1995 and 1996 Gardner used an account in his wife‘s former married name into which he deposited more than $100,000.
On appeal, Gardner has asserted that the United States should be equitably estopped from challenging the dischargeability of his 1990 and 1991 tax liabilities. This argument lacks merit. First, the Supreme Court has left open the question of whether equitable estoppel may ever lie against the government. Office of Personnel Management v. Richmond, 496 U.S. 414, 419 (1992). Second, even assuming that estoppel may lie against the government in some circumstance, “[a]t the very minimum, some affirmative misconduct by a government agent is required as a basis of estoppel.” United States v. Guy, 978 F.2d 934, 937 (6th Cir. 1992). The record has provided no evidence of affirmative misconduct by IRS agents handling Gardner‘s case.5
Debtor has further contended that the IRS “did not care about the inconsequential sums of money” in those accounts and never intended to collect his liabilities from those accounts. This contention finds no support in the record. These accounts held nearly $400,000 between 1992 and 1995, a not inconsequential sum. Moreover, the notion that the IRS would not have looked to the nominee accounts to satisfy Gardner‘s outstanding tax liabilities had it known of the large sums deposited defies common sеnse and garners no support from the testimony of IRS officials involved in the case. Keith Thomas, for
Gardner has also maintained that the financial forms he submitted to the government did not require him to disclose the existenсe of the nominee accounts because those forms sought only information about accounts held in appellant‘s own name. Contrary to appellant‘s assertion, the CIS form does not provide taxpayers with the kind of loophole suggested by Gardner, but requests instead all information relevant to a person‘s financial condition, including “cash” and “recent transfers of assets for less than full value” -- categories that encompassed the money Gardner was depositing into the nominee accounts.
Moreover, Gardner not only used the nominee accounts to shield his assets from the IRS, he additionally failed to honor his commitment to the IRS to use funds obtained from the settlements of large cases to satisfy his liabilities. Gardner‘s receipt of $500,000 in May 1993, attributable to the settlement of the Robinson case was not used to pay his outstanding 1990 or 1991 taxes.6 Indeed, debtor did not even inform the government of the Robinson settlement. Gardner‘s failurе to apply any monies from that settlement, or from the Cordis settlement,7 to his outstanding liabilities in question constituted an “omission” that demonstrated the conduct element of
Finally, Gardner had the financial means to meet his outstanding tax liabilities. In reviewing Gardner‘s expenditures during the collection period, between September 1992 and June 1995, the bankruptcy court noted twenty golfing and vacation trips upon which appellant lavished substantial sums. Gardner has contended on
The evidence in the record also supports the mental state requirement of
Consequently, this court affirms the bankruptcy court‘s determination.