What’s a Taxpayer Thinking When S/he Tries to Evade a Tax?

 

If the government can prove that you “willfully attempted in any manner” to “evade or defeat” a tax, then you cannot discharge that tax debt in bankruptcy.  11 U.S.C. 523(a)(1)(c).   I’ve always seen this as a very low bar for the IRS to prove, because the elements are simple: 1) the taxpayer had a duty to pay a tax; 2) the taxpayer knew that he had this duty; and 3) the taxpayer voluntarily and intentionally violated that duty.  Payment of any expense beyond subsistence, such as a child’s college tuition, at a time when taxes remain unpaid could meet the standard.  That’s what the cases around the country teach.

The 9th Circuit, however, has changed the standard here in California and elsewhere in its domain.  In Hawkins v. FTB, Case No. 11-16276, decided on September 15, 2014, the court has held that the taxpayer needs to have a specific intent of evading tax for this discharge exception to apply.  Outside the 9th Circuit, a “willful attempt “ to intentionally violate the duty to pay tax means a deliberate act that results in nonpayment of tax.  Here in the 9th Circuit, the “willful attempt” means a deliberate act with the intent of evading tax.

 

The facts in Hawkins are rather shocking to this former IRS attorney.  The debtor-taxpayer made a fortune in Silicon Valley enterprises, and tried to shelter some of his capital gains through sophisticated yet dubious transactions.  A large tax bill ensued, and then his enterprises lost a great deal of money. Yet he continued to live large: in the face of of a $25 million tax bill, he continued to maintain two residences worth a total of more than $6 million, and bought a fourth family car (in a two-driver family) for $70,000.  The family spent between $17,000 and $78,000 more per month than its income for several years.

I think that the result in Hawkins is wrong.  This kind of spending by a taxpayer who knows he owes $25 million in taxes is dishonest.  As a taxpayer, I do not want my fellow Americans to get away with this by saying “gee, I wasn’t trying to avoid paying the taxes, but I just couldn’t stop myself from spending.”  But I do salute the attorneys who reached this result.  It is a good result for my clients, and I intend to use it until the Supreme Court reverses the 9th Circuit.

 

Dean Chemerinsky Speaking on the Future of Bankruptcy Courts

ORANGE COUNTY BAR ASSOCIATION
COMMERCIAL LAW & BANKRUPTCY SECTION

September Meeting
WEDNESDAY, September 24, 2014
11:45 a.m. to 1:30 p.m.
ONE TIME CHANGE IN DATE, TIME & LOCATION

Speaker:
Erwin Chemerinsky
Founding Dean, Distinguished Professor of Law
University of California Irvine, School of Law

Commentary and Questions:
Hon. Theodor C. Albert
U.S. Bankruptcy Court, Central District of California

Hon. Mark S. Wallace
U.S. Bankruptcy Court, Central District of California

Program Managers:
Richard Marshack, Esq.
Kelly Zinser, Esq.

The Supreme Court and the Future of Bankruptcy Courts
Join us for a discussion about what to expect in your practice and the bankruptcy courts now and in the future in light of the recent Supreme Court decisions in In re Bellingham Ins. Agency, Inc. (2014) and Stern vs. Marshall (2011).

PLEASE NOTE LOCATION
Hilton Orange County/Costa Mesa
3050 Bristol St., Costa Mesa, CA 92626
(Self-Parking Free with Validation)

MCLE CREDIT – 1.00
This activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour(s), as appropriate to the content of the activity. OCBA is a State Bar of California approved MCLE provider and certifies that this activity conforms to the standards for approved education activities prescribed by the rules and regulations of the State Bar of California governing MCLE.

Register by fax, mail or online at www.OCBar.org

Instructional Packet: Reopening Case to File Post Financial Management Course Certificate

Dear colleagues,

I have attached a copy of our recently revised instructional packet for debtors seeking to reopen cases that the court closed without a discharge because the debtors did not submit the financial management course certificate and/or Form B23. This version of the packet includes updated instructions, forms, and service information for judges.

Regards,

Christian Cooper

Staff Attorney
Consumer Law Project & Debtor Assistance Project

Public Counsel
610 S. Ardmore Ave. | Los Angeles, CA 90005
(213) 637-3825 | fax (213) 385-9089
ccooper@publiccounsel.org | publiccounsel.org

 

Dealing With Mortgage Owners Who Won’t Foreclose — A Possible Bankruptcy Option

Dealing With Mortgage Owners Who Won’t Foreclose — A Possible Bankruptcy Option

by Siu Yan Chan[1] and John Rao
NCLC eReports, July 2014, No. 4
Bankruptcy; Foreclosures and Servicing

Consumer advocates have struggled with finding ways to force mortgage holders to foreclose on property that their clients no longer wish to keep and in fact may have vacated. Homeowners having vacated a home may be better off expediting a foreclosure to stop the accumulation of fees and other expenses for which the homeowner continues to bear responsibility until the foreclosure. A recent bankruptcy court decision offers the possibility that the chapter 13 plan confirmation process might be used to obtain an order conveying the property to the mortgage holder.

THE ZOMBIE MORTGAGE PROBLEM

Homeowners who vacate their homes in response to a pending foreclosure often hope the foreclosure sale will put an end to certain of their financial problems. Until the property is sold at a foreclosure sale, they remain responsible as owner for the property taxes and homeowners’ association (HOA) fees. They are also responsible for maintenance of the property, and can face potential liability for local housing code violations and any personal injuries occurring on the property.

SIMPLY FILING BANKRUPTCY MAY NOT BE THE SOLUTION

Simply filing bankruptcy may not speed up a foreclosure sale or eliminate the homeowner’s continued liability for various fees and expenses. Although the debtor’s mortgage debt (but not the lien on the home) may be discharged, as well as any prepetition HOA fees, an exception to the discharge obtained in a chapter 7 case provides that the debtor remains liable for any postpetition HOA fees that come due until the property is sold.[2]

Read more…

Bellingham-Stern Issues Continue at the Supreme Court

The Supreme Court yesterday issued cert in a 7th Circuit case called Wellness International Network v. Sharif.  It looks like a much more direct attack on the powers of bankruptcy courts than Bellingham.

In Wellness, the creditor sued the chapter 7 debtor to deny the discharge and also for declaratory relief asking the bankruptcy court to find that a certain trust was the alter ego of the debtor and therefore the assets were property of the estate.  The creditor won.  The debtor appealed for the first time saying that the bankruptcy court could not enter final judgment because this was a Stern-type claim.  The district court said, too late buddy, you waived the argument i.e. you consented to the bankruptcy court.  The 7th Circuit reversed saying that the bankruptcy court could not enter final judgment on the alter ego issue and that that could not be waived.

I am sure we will discuss this at the July 19 cdcbaa with Prof. Pottow and Judges Paez and Jury.

We have about 50 rsvps for the July 19 program.  I am going to send out the flyer today or tomorrow and expect many more sign ups.  We can only allow 130 persons to attend so please rsvp if you are coming. Remember, telling me you’re coming does not do you any good.  You have to rsvp.

July 19, 2014 – CDCBAA – In re Bellingham

On July 19 the Central District Consumer Bankruptcy Attys (cdcbaa) will hold our First Annual James T. King Bankruptcy Symposium. The topic is In re Bellingham, the new Supreme Court case dealing with core/non-core distinctions and the power of Congress to give power to non-Article III Judges (as you all know).

The panel will be Judge Richard Paez who wrote the opinion for the 9th Circuit Court of Appeals that was appealed to the Supreme Court; Prof. John Pottow from the University of Michigan School of Law who argued the case successfully for the appellees at the Supreme Court. He is really a fun guy to listen to. And Judge Meredith Jury who sits on the BAP and follows these issues carefully. I will be the moderator and try to stay out of their way.

Besides Bellingham, there will be some discussion generally about appeals process. This is really an exceptional panel!

The program will be at Southwestern Law School on July 19 from 11am to 1pm and will be free to members of cdcbaa as always. We will permit non-members to attend for $95. We will invite the local judges as well.

ONE PROBLEM. The room holds only 130 persons and the law school is adamant that we not permit more than that many to attend.

So we are going to require RSVPs. There is a button on the cdcbaa website for the program to RSVP – www.bklawyers.org. We will cut it off when it gets to 130 persons. So please go to the website and RSVP if you want to attend. You can pay the $95 fee on that website as well. We will allow persons who have not been members of the cdcbaa for the past 3 years to join for the rest of the year 2014 now at the reduced price of $175.00 which includes the Ashland Dinner, this program and the two remaining programs for the year.

Our administrator is Linda Righi at cdcbaa@aol.com.

June 25, 2014 – Bankruptcy Program; San Fernando Valley Bar Association; the Metrocraft Program

One of the crucial points in a successful chapter 11 case, whether the debtor is a large business or a homeowner in chapter 11, is getting the court to approve the disclosure statement. The Central District has a form disclosure statement for practitioners to use so the process would seem to be simple. However, when one peruses the bankruptcy court tentative rulings, the judges constantly point out multiple deficiencies in the disclosure statements they are considering. The result? Attorneys have to incur the expense of re-doing deficient disclosure statements, losing time and having an unhappy client.

When judges review disclosure statements, they usually work from a list of factors culled together by a Georgia bankruptcy court some 30 years ago, In re Metrocraft. These factors help our judges determine if your client’s disclosure statement contains adequate information. The Bankruptcy Section has brought together Ron Bender, one of Southern California’s top attorneys in chapter 11 practice and Russell Clementson, one of the U.S. Trustee’s most experienced chapter 11 attorneys to talk about the Metrocraft factors, how the judges locally apply them and how the U.S. Trustee applies them. Any presentation including Ron Bender and Russell Clementson will have a lot of useful tips and guidance.

You should attend this program. The tips and guidance you will receive will improve your work product and will make your clients happier. The price is inexpensive, lunch is included and parking is free. No other bar association gives you so much for such little cost.

By the way, if you do not practice in chapter 11, perhaps you practice in chapter 7 or 13, the program is important for you. Learn what individual debtors in oversized chapter 11 cases (cases to big for chapter 13) go through so that you can better advise them.

If you are a creditor’s attorney, learn what the other side has to do and what you can do to protect your client’s rights.

Here are the particulars:
Date: Wednesday, June 25, 2014
Time: 12 noon to 1:15 p.m
Where: 5567 Reseda Boulevard, Suite 200, Tarzana, CA 91356

Cost:
Member $30.00
Non-Members $40.00
Member at Door $40.00
Non-Member at Door $50.00

Reservations: Contact Linda Temkin at the San Fernando Valley Bar Association
events@sfvba.org; Tel: 818-227-0490; Fax: 818-227-0499

First Annual James T. King Bankruptcy Symposium, In re Bellingham

On July 19 the Central District Consumer Bankruptcy Attorneys Assn (cdcbaa) will have our First Annual James T. King Bankruptcy Symposium.  The topic is In re Bellingham, the new Supreme Court case dealing with core/non-core distinctions and the power of Congress to give power to non-Article III Judges.

Judge Paez wrote the opinion for the 9th Circuit Court of Appeals that was appealed to the Supreme Court.  Prof. John Pottow from the University of Michigan School of Law argued the case successfully for the appellees at the Supreme Court.  He is really a fun guy to listen to.  Of course, Judge Jury sits on the BAP and follows these issues carefully.  Besides Bellingham, there will be some discussion generally about appeals process.  This is really an exceptional panel!

The program will be at Southwestern Law School and will be free to members of cdcbaa as always.  We are going to permit non-members to attend for $95.  We will invite the local judges as well.

ONE PROBLEM.  The room holds only 130 persons and the law school is adamant that we not permit more than that many to attend.

So we are going to require RSVPs.  There is a button on the cdcbaa website for the program to RSVP.  We will cut it off when it gets to 130 persons.  So please go to the website and RSVP if you want to attend.

If you have forgotten your password, send an email to our administrator Linda Righi at cdcbaa@aol.com.  We cannot allow guests unless they pay $95.  We will allow persons who have not been members for the past 3 years to join for the rest of the year 2014 now at the reduced price of $175.00 which includes the Ashland Dinner.

See you there.  JOn

Filings continue to fall

Central District of California
2008 2009 2010 2011 2012 2013 2014
Jan 3,694 6,004 9,013 10,868 8,835 6,552 -26% 4,917 -25%
Feb 3,787 6,971 9,659 10,631 9,307 6,614 -29% 4,779 -28%
March 4,381 8,529 12,840 13,543 10,108 7,684 -24% 5,611 -27%
April 5,023 8,512 12,114 12,087 9,034 7,515 -17% 5,526 -26%
May 5,177 8,967 11,906 11,669 9,620 7,170 -25% 5,659 -21%
June 5,351 9,595 12,190 11,718 8,165 6,202 -24%
July 5,983 9,894 12,737 10,418 8,201 6,404 -22%
Aug 6,195 9,748 12,720 11,496 8,779 6,235 -29%
Sept 6,290 9,214 12,412 10,006 7,222 5,407 -25%
Oct 6,364 10,322 11,753 9,887 8,438 6,169 -27%
Nov 6,029 9,462 10,900 9,099 7,192 4,829 -33%
Dec 6,615 9,864 10,925 9,089 6,187 4,516 -27%
64,889 107,082 139,169 130,511 101,088 75,297 -26%
% of total 0.059 0.075 0.089 0.095 0.852

Foreclosed Homeowner Goes to Jail for Stripping Home on Way Out the Door

Thanks to Mike Avanesian for this:

People v. Acosta
California Court of Appeal, Fourth District, Division 3 (Ikola, J.)
May 12, 2014
2014 WL 1878105

Penal Code section 502.5 defines larceny to include a defaulted or foreclosed borrower’s stripping a house of its fixtures or destroying them with intent to harm the lender or buyer at the foreclosure sale. Though the statute was enacted 91 years ago, this is the first decision interpreting it. The borrowers were real estate brokers and they thoroughly trashed a very high-end house, carting away kitchen appliances, destroying the pool, stripping rock facing off the house, and more. They were convicted and sentenced to 5 years probation including 270 days of actual imprisonment. The decision upholds the constitutionality of the statute as well as the conviction and most of the conditions of probation.