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February 03, 2008

Discharging Taxes in Bankruptcy Thwarted by Claims/Evidence of Willful Attempt to Evade or Defeat Tax - Tax Liabilities and Collection Alternatives

In a recent Eleventh Circuit decision (Zimmerman v. IRS, CA 11, 101 AFTR 2d ¶2008-390 ), the Court affirmed the bankruptcy court’s decision that a Chapter 7 debtor/CPA's decades-old tax debts were subject to 11 USCS 523(a)(1)(C) 's discharge exception and therefore not dischargeable. The record showed that taxpayer engaged in numerous and willful attempts to evade tax. According to the Court, examples of affirmative act evidence included that the taxpayer repeatedly failed to pay known tax obligations even while supporting lavish lifestyle, which included oceanfront living and luxury cars; and engaged in substantial asset transfers for no consideration to long-time girlfriend and family. In addition, the Court stated that willfulness was shown by facts of his education/profession and that he engaged in foregoing transfers and other acts to defeat collection of taxes that he knew were due and owing.

This case highlights the government’s best tool in combating a taxpayer’s ability to discharge old tax debts in bankruptcy. But, the fact remains that if you meet the bankruptcy provisions for discharging taxes, discharging your taxes remains a good collection alternative. (See my outline below on discharging taxes in bankruptcy) And, the government’s burden is not easily met to establish the "willful attempt to evade tax" exception. Read the entire Zimmerman v. IRS, CA 11, 101 AFTR 2d ¶2008-390 opinion below. 

Download discharging_taxes_in_bankruptcy.PDF

Outline on discharging taxes in bankruptcy is attached below.

Download outline_bankruptcy.PDF

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February 03, 2008

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