Opinion
Civil Action No. 3:01CV-514-H
March 20, 2002
MEMORANDUM AND ORDER
Appellant, Gary Gardner ("Gardner"), appeals from the bankruptcy court determination that his 1990 and 1991 tax liabilities are nondischargeable under 11 U.S.C. § 523(a)(1)(C) because Gardner willfully attempted to evade or defeat collection and payment of those taxes. This Court reviews issues of law de novo and issues of fact for abuse of discretion.
The Court has carefully reviewed the opposing memoranda and has heard extensive argument of counsel. Gardner's central argument is that he and IRS Agent Keith Thomas ("Thomas") had established an understanding of how Gardner would repay his past due taxes. Viewed in the context of that understanding, Gardner contends, the government fails on legal and factual grounds to establish willful evasion.
As to the law, Gardner argues that the government and the bankruptcy court rely upon an overly broad interpretation of the willful evasion standard. Gardner says that simply because he failed to repay his taxes, it is not enough to support a finding of willful evasion. The Court agrees with Gardner's view of the law. It would be improper to base a claim of willful evasion upon conduct condoned by a government agent. Moreover, the Court concludes that the taxpayer must do something more than simply not pay his taxes in order to meet the willful evasion test.
After reviewing the bankruptcy court decision, however, the Court concludes that it was not grounded upon a mistake of law. The bankruptcy court took into account the latitude and flexibility which Thomas allowed Gardner. The Court found that despite this understanding, "Gardner forsook his duty to pay the taxes and elected to lavishly spend his money, conceal his assets in nominee bank accounts, and violate his tacit agreement to pay taxes from settlement funds." Throughout the opinion, the bankruptcy court concluded that Gardner deceived Thomas and concealed various kinds of vital information from him. The Court must decide whether such factual conclusions were clearly erroneous.
From the evidence, one must conclude that Gardner and Thomas had a cooperative relationship. Their mutual understandings may well explain and absolve Gardner of all acts which the government claims were part of the willful evasion. Gardner and his counsel certainly made a persuasive and reasonable case for that conclusion. However, most of the evidence is subject to a variety of reasonable inferences. Thomas may not have known about all Gardner's trips. It strains the imagination to believe that all Gardner's trips were necessary business expenses. Moreover, another view of the evidence is that Thomas probably did not know of all Gardner's nominee accounts and the precise deposits to each. The bankruptcy court chose to draw negative inferences against Gardner from this evidence. Finally, the precise transactions concerning Gardner's large settlements are subject to differing reasonable inferences. In essence, the bankruptcy court concluded that Gardner's pattern of nonpayment went well beyond any understanding with Thomas. The Court concludes that reasonable and fair inferences from the evidence support this conclusion.
The bankruptcy court heard three days of evidence and is in the best position to evaluate the credibility of conflicting testimony and to apply the proper inferences from it. This Court might have decided the case differently. However, this Court's role is to review for error, not to decide de novo. The Court cannot completely discount the bankruptcy court's conclusions and, therefore, cannot say that those conclusions are erroneous.
Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that the judgment of the Bankruptcy Court dated May 22, 2001, in this case is AFFIRMED.
This is a final order.