Lead Opinion
MURPHY, D.J., delivered the opinion of the court, in which GRIFFIN, J., joined. WHITE, J. (pp. 747-49) delivered a separate opinion concurring in part and dissenting in part.
OPINION
For ten years of a twelve-year period, Anyse Storey filed federal income tax returns that showed she owed taxes — but she failed to pay them. The United States brought an action to reduce to judgment Storey’s tax liabilities for the ten years, and to foreclose on its tax liens placed on real property owned by Storey. Storey argued that her Chapter 7 bankruptcy petition discharged her tax liabilities for some of the years preceding the filing. The district court disagreed and entered judgment in favor of the United States, finding that Storey had willfully attempted to evade paying taxes for those years, preventing discharge of the obligations through her bankruptcy filing. Because the United States cannot carry its burden on the issue of willfulness, we REVERSE.
I.
During all times relevant to the present appeal, Storey was a practicing physician residing in Maumee, Ohio. For ten years out of a twelve-year span, she filed federal income tax returns that showed she owed federal income taxes, but she did not pay any of the taxes due. Specifically, Storey filed tax returns showing taxable income in 1994, 1995, 1996, 1997, 2000, 2001, 2002, 2003, 2004 and 2005, but has never paid any federal income tax for those years.
On March 15, 2002, Storey filed a Chapter 7 bankruptcy petition in the Northern District of Ohio. Neither Storey nor the United States filed an adversary complaint seeking a determination regarding the dis-chargeability of her federal income tax liabilities. In July 2002, the bankruptcy court entered an order of discharge pursuant to 11 U.S.C. § 727, and the bankruptcy case was closed on September 10, 2004.
Two and a half years later, on March 28, 2007, the United States brought the present action seeking to reduce to judgment Storey’s federal income tax liabilities for the years 1994 through 1997 and 2000 through 2005, and to foreclose on its tax liens on real property acquired by Storey in 1994, referred to herein as “the Mor-ningdew Property.” The United States sued Storey and joined as defendants various other parties that might claim an interest in the Morningdew Property, a number of whom defaulted by not appearing in the action. Storey argued that her tax obligations for the years 1994, 1995, 1996, and 1997 were discharged in her bankruptcy proceedings.
The district judge held a telephonic status conference on November 5, 2007, at which all parties not in default were present. Following the conference, the district
Storey filed a brief identifying four issues she believed to be relevant to the proceedings: 1) whether the district court had jurisdiction over the action as it pertains to the bankruptcy discharge and its effect on the United States’ ability to obtain a personal judgment against Storey; 2) whether the income tax obligations owing at the time Storey filed her bankruptcy petition were discharged in the bankruptcy; 3) whether Storey had an obligation to file a complaint in the bankruptcy action to determine dischargeability of income tax obligations; and 4) whether the United States had violated the injunction in effect by virtue of the discharge in bankruptcy. Storey argued that her taxes for the years 1994 through 1997 were discharged by her 2002 bankruptcy under 11 U.S.C. § 507(a)(8) because she timely filed tax returns, the obligation was more than three years old, and the Internal Revenue Service had not issued a notice of assessment within 240 days immediately preceding the filing of the bankruptcy petition. In response, the United States argued that the dischargeability of Storey’s tax debts is governed not by 11 U.S.C. § 507(a)(8), but rather by 11 U.S.C. § 523(a)(1)(C), which provides that a discharge under § 727 is not allowed for a tax liability with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat the tax. The United States argued, without elaboration, that its position in the litigation was that Sto-rey’s tax liabilities for those years were not dischargeable based upon her willful attempt to evade or defeat her taxes.
After the government filed its brief, Sto-rey sought leave to supplement her previously filed memorandum in support of discharge and for an enlargement of time. She argued that the district court should be afforded an opportunity to hear all arguments regarding whether the tax liabilities were discharged or are now discharge-able and what the appropriate forum should be for determining these issues. The district court denied Storey’s motion in a marginal entry order and set the case for a telephonic status conference.
Following the off-the-record status conference, the district court issued an order ruling on the four points raised by Storey in her memorandum. On the question of whether Storey’s income tax obligations were discharged in her 2002 bankruptcy, the district court held that 11 U.S.C. § 523(a)(1)(C) exempts tax liabilities from bankruptcy discharge when a debtor “willfully attempts in any manner to evade or defeat such tax,” that Storey’s pattern of failing to pay income tax over a number of years was evidence of a willful attempt to defeat the tax, and that the taxes therefore were not discharged in her bankruptcy proceeding. R. 35. The district court concluded that the case could proceed as to all tax years set forth in the complaint. On February 27, 2008, the district court entered a partial judgment in favor of the United States against Storey for unpaid federal tax liabilities for tax years 1994, 1995, 1996, 1997, 2000, 2001, 2002, 2003, 2004 and 2005 in the amount of $319,698.76.
Storey timely appealed the district court’s final judgment.
II.
Storey challenges the district court’s conclusion that her federal income tax obli
A.
We address first the proper standard of review. The district court ruled in a summary fashion, but did not specify the procedural mechanism it used to do so. The order is titled “Order,” and mentions no rule of procedure. There were no factual findings. The court simply stated that “Defendant’s tax obligations were exempted under § 523(a)(1)(C) and were not discharged in her bankruptcy proceeding,” after concluding that Storey’s “pattern of failing to pay income tax over a number of years is evidence of a willful attempt to defeat the tax.” R. 35. The parties agree that the district court’s decision resembles that of an entry of summary judgment sua sponte. This is a fair characterization of the decision given that there was no trial or findings of fact. Moreover, the parties agree that the material facts are undisputed and that whether Storey’s tax obligations were discharged is a legal question.
We agree that the proper way to view the district court’s decision is as a sua sponte entry of summary judgment. Accordingly, we will review the district court’s decision de novo. See Schreiber v. Moe,
B.
A debtor filing a petition for bankruptcy under Chapter 7 of the Bankruptcy Code generally is granted discharge from all debts (including tax debts) that arose before the filing of the petition. 11 U.S.C. § 727(b); see Stamper v. United States (In re Gardner),
(a) a discharge under section 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 debt- or made a fraudulent return or willfully attempted in any manner to evade or defeat such tax
11 U.S.C. § 523(a)(1)(C). This exception “serves to limit the Bankruptcy Code’s discharge of tax debts to the honest but unfortunate debtor.” Stamper,
The analysis under § 523(a)(1)(C) has two components: a conduct requirement and a mental state requirement. Id. at 558. To satisfy the conduct requirement, the government must demonstrate that the debtor avoided or evaded payment or collection of taxes through acts of omission, such as failure to file returns and failure to pay taxes, or through acts of commission, such as affirmative acts of evasion. Id. at 557. Nonpayment of tax alone is not sufficient to bar discharge of a tax obligation, but it is a relevant consideration in the overall analysis. Myers v. IRS (In re Myers),
Here, non-payment of Storey’s tax obligations is the only evidence relevant to the conduct requirement. Storey filed federal tax returns for the years in question, and there is no dispute that she did so timely and accurately. She simply failed to pay the taxes she owed. This is not enough by itself to render her tax debt nondischargeable. Unless her non-payment was “knowing and deliberate,” the tax obligations were discharged in her bankruptcy. See Stamper,
There is little evidence to support a finding that Storey voluntarily and intentionally violated her known duty to pay taxes. The only argument made to the district court on this issue was in response to the court’s request for briefing, where the United States asserted: “[t]he United States maintains that Storey’s tax liabilities are nondischargeable based upon her willful attempt to evade or defeat her taxes.” United States Resp. Br. 5 (R. 32). The United States alleged no facts to support its position, despite being yoked with the burden of proof on this issue. On appeal, the United States adds that Sto-rey’s purchase of the Morningdew Property in 1994 — the very year she stopped paying taxes — demonstrates a voluntary and intentional choice to evade her tax obligations. Not so. There is no indication that the property is more lavish than Storey’s previous residence or that the home was an unnecessary expense, purchased as an alternative to paying future tax obligations. Nor is there any evidence that when Storey purchased the home, she was even aware she would later become unable to pay her taxes. If the purchase were made in the years after Storey stopped paying taxes, there might be reason to suspect an intent to evade her tax obligations. See, e.g., United States v. Mitchell (In re Mitchell),
We note also that there is no evidence that Storey lived lavishly during the years she did not pay her taxes, or that she chose to engage in recreational or philanthropic activities instead of paying her taxes. See, e.g., Mitchell,
The United States relies heavily on the decision of the bankruptcy court denying
The Debtor, who is presently 50 years of age, is a licensed physician. The Debtor has practiced medicine for the past 15 years, and presently specializes in the field of urology. At some time in the not too distant future, the Debtor will become “board certified” in this specialty. At the present time, the Debtor practices solo, employing three part-time staff.
Storey v. Nat’l Enter. Sys. (In re Storey),
We think it inappropriate to consider the bankruptcy court’s decision here. The treatment of student loans in bankruptcy is distinctive, and differs significantly from the treatment of tax obligations. For one, there is a presumption that student loan debts are non-dischargeable and therefore the burden of establishing a discharge of student loans is on the debtor, by a preponderance of the evidence. Barrett v. Educ. Credit Mgmt. Corp. (In re Barrett),
But even indulging the United States’ request that we consider the facts contained in the bankruptcy court’s decision does not change the result here. While it was undisputed that Storey’s income was in the $50,000 range and that she had in the past made as much as $96,000 per year, no evidence was offered regarding why or when her pay decreased. Storey declined the offer for a job paying $110,000 per year, but did so because the job required relocation, to her son’s detriment. Furthermore, no reason was provided'for why Storey’s husband did not contribute to
Thus, we conclude that the district court should not have effectively granted summary judgment to the United States on the dischargeability issue. The United States failed to offer sufficient evidence to rebut the presumption that the tax obligations were discharged in Storey’s bankruptcy proceedings, or that she is anything other than “the honest but unfortunate debtor.” Grogan,
III.
Evidence did not support the district court’s entry of partial judgment against Storey on the issue of willful evasion of her federal income tax obligations for years 1994 through 1997. The record does not support a finding that Storey willfully attempted to evade or defeat her federal income taxes for these years. The presumption that the obligations were discharged in bankruptcy thus remains unre-butted. Accordingly, partial judgment must be entered in favor of Storey with respect to her tax obligations for years 1994 through 1997. We REVERSE and REMAND to the district court for proceedings consistent with this opinion.
Notes
. Storey also challenges the district court’s decision to resolve the dischargeability issue in a summary fashion without giving her notice of its intent to do so, as well as its decision not to refer the issue of discharge-ability to the U.S. Bankruptcy Court of the Northern District of Ohio. Because we reverse on matters of substance, we do not reach the procedural challenges.
. We recognize that our statement in Stamper regarding a knowing and deliberate non-payment is potentially dictum given that the debt- or’s conduct in that case went beyond mere non-payment to include the use of nominee bank accounts to conceal from the IRS large deposits of income.
Concurrence Opinion
(concurring in part and dissenting in part).
To render Storey’s tax debt nondis-chargeable, the government must prove by a preponderance of the evidence that she attempted a “voluntary, conscious, and intentional evasion” of her responsibility to pay taxes. Stamper v. United States (In re Gardner),
As the majority observes, “[n]onpayment alone is insufficient to bar discharge of a tax obligation.... ” Stamper,
Cases construing § 523(a)(1)(C) look to all the circumstances surrounding the debtor’s nonpayment of taxes to assess whether that nonpayment was voluntary, conscious, and intentional. Relevant considerations include whether the debtor attempted to conceal income and assets from the IRS, Stamper,
Because neither party established an entitlement to summary judgment, and the parties did not submit the ease to the court for judgment on the facts, I would remand for further proceedings. The government should be permitted to present evidence of how much Storey earned and what she did with her earnings, as well as other evi