United States of America v. Stanley

Filing 97

Bench Opinion (Memorandum Opinion and Order) Signed by Honorable David C. Bramlette, III on 8/23/2013 (ECW)

IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
WESTERN DIVISION
UNITED STATES OF AMERICA
V.

PLAINTIFF(S)
CIVIL ACTION NO. 5:11cv117-DCB-RHW

MARKUS BRENT STANLEY

DEFENDANT(S)

MEMORANDUM OPINION AND ORDER
On August 11, 2011, the United States of America filed the
instant suit against Dr. Markus Brent Stanley to reduce to judgment
his outstanding federal income tax liabilities for tax years 19982010. In order to obtain this relief, it asked this court to find
that Dr. Stanley’s 1998-2008 tax liabilities were excepted from his
bankruptcy discharge granted pursuant to 11 U.S.C. § 727 in In Re
Markus Brent Stanley, No. 09-01727 (Bankr. S.D. Miss.). After more
than a year of discovery, the United States filed a motion for
summary judgment, claiming that there was no disputed issue of
material fact as to whether Dr. Stanley’s 1998-2010 tax liabilities
should be reduced to judgment. The court granted summary judgment
in part and denied it in part. As to Dr. Stanley’s 2009 and 2010
tax liabilities, which represent the tax liabilities assessed after
bankruptcy, the court determined that they should be reduced to
judgment because Dr. Stanley had not contested them. As to Dr.
Stanley’s

2005-2008

tax

liabilities,

which

represent

the

liabilities for which his tax returns were due to be filed less
than three years before his bankruptcy petition date of May 18,

2009, the court determined that they should be reduced to judgment
because they were not excepted from discharge pursuant to 11 U.S.C.
§§ 507(a)(8)(A)(I) and 523(a)(1)(A).1 But as to Dr. Stanley’s 19982004 tax liabilities, which represent the balance of his unpaid
taxes, the court determined that there was a genuine dispute of
material fact as to whether Dr. Stanley’s tax liabilities for those
years were discharged pursuant to 11 U.S.C. § 523(a)(1)(C).2
Following this decision, Dr. Stanley filed a litany of motions
for relief, each of which was subsequently denied. The relief
sought in those motions need not be recounted here, but one of Dr.
Stanley’s post-summary-judgment refrains is noteworthy. Starting
first in his motion for reconsideration and continuing up until the
last day of trial, Dr. Stanley asserted, at times enthusiastically,
that

the

bankruptcy

court

had

ruled

that

his

1998-2004

tax

liabilities were discharged pursuant to 11 U.S.C. § 523(a)(1)(C),
and that to have this issue determined by this court is essentially

1

In a June 18, 2013 Opinion and Order, the court noted that
its April 25, 2013 Opinion and Order was unclear as to whether Dr.
Stanley’s 2005 tax liability was discharged pursuant to 11 U.S.C.
§§ 507(a)(8)(A)(I) and 523(a)(1)(A) and clarified that it had not
been discharged. See June 18, 2013 Order at 1 n.1, docket no. 75.
2

For further clarification, the 2005-2008 tax liabilities are
included in the court’s 11 U.S.C. § 523(a)(1)(C) analysis even
though the court has already determined that those tax liabilities
are nondischargeable pursuant to 11 U.S.C. §§ 507(a)(8)(A)(I) and
523(a)(1)(A). Throughout this litigation, the court has focused on
the 1998-2004 tax liabilities because those are the only tax
liabilities that the parities agree could be discharged in
bankruptcy.
2

an untimely appeal of that decision. Dr. Stanley went so far as to
suggest that this court had undertaken the same analysis as the
bankruptcy judge but reached the opposite conclusion. Concerned by
this allegation, the court carefully considered it but found that
(1) Dr. Stanley waived this argument by not raising it by motion
before the summary-judgment disposition and, in the alternative,
(2) Dr. Stanley had not produced any evidence to support his
suggestion that the bankruptcy court had considered the issue, much
less decided it. See July 10, 2013, Opinion and Order. Finding
neither this nor any other of the arguments raised by Dr. Stanley
to be meritorious, the court determined to proceed with the
scheduled trial.
Therefore, this case came on for trial before the court
without a jury on July 23, 2013. Each side was represented by
exceedingly well prepared counsel. Because of the long period of
time involved in this tax case, together with the need to present
a complete record of the issues involved, the plaintiff offered 197
exhibits which were received into evidence. The core undecided
issues are, first, whether the 1998-2004 tax liabilities of debtor,
Dr. Marcus Brent Stanley, were discharged in bankruptcy, which
involves an inquiry as to whether Dr. Stanley attempted to evade or
defeat

income

tax

liability

and,

3

if

so,

whether

he

did

so

willfully.3

The

court

finds

that

these

liabilities

were

not

discharged and that there was a knowing, deliberate, and willful
violation of the taxpayer’s duty to pay.
JURISDICTION
As a preliminary matter, the instant suit for a judgment
reducing Dr. Stanley’s tax liabilities is proper in this court. The
court has “original jurisdiction of any civil action arising under
any Act of Congress providing for internal revenue

. . . .” 28

U.S.C. § 1340. Similarly, the court has “original jurisdiction of
all civil actions, suits or proceedings commenced by the United
States, or by any agency or officer thereof expressly authorized to
sue by Act of Congress . . . .” 26 U.S.C. § 1345. Finally, the
court has jurisdiction “to render such judgments and decrees as may
be necessary or appropriate for the enforcement of the internal
revenue laws.” 26 U.S.C. § 7402(a).

3

The pretrial order listed three contested issues of fact and
six contested issues of law. See Pretrial Order at 5. Of the three
contested issues of fact, however, the first pertained to the
dischargeablity of Dr. Stanley’s 2005 tax liability, which had been
previously clarified. See supra note 1. The other issue of fact,
whether Dr. Stanley’s bipolar disorder rendered him “non compos
mentis,” is only relevant insofar as it pertains to the court’s 11
U.S.C. § 523(a)(1)(C) analysis and therefore is best considered a
subcategory of that issue. In other words, that Dr. Stanley was
“non compos mentis” does not appear to be a legal justification for
preventing the United States from reducing his 2005-2010 tax
liabilities to judgment because the nondischargeability of those
debts has nothing to do with his mental state. As for the six
issues of law, each relates to the one contested issue of fact at
trial, with the exception of the fifth, which relates to Dr.
Stanley’s res judicata argument.
4

But as to whether this court has jurisdiction to apply 11
U.S.C. § 523(a)(1)(C), a word of clarification is in order. As
referenced above, Dr. Stanley continues to maintain that this court
cannot render a decision regarding his 1998-2004 tax liabilities
because the present suit, at least insofar as it pertains to these
liabilities, is an untimely appeal of the bankruptcy court’s
determination that those tax liabilities were discharged. To the
extent that Dr. Stanley maintained or continues to maintain that
Chief

Judge

Ellington

affirmatively

made

such

a

finding

and

therefore this court is barred by the doctrine of res judicata,
that objection was waived because Dr. Stanley waited until fewer
than thirty days before the scheduled trial to call it to the
court’s attention by motion for reconsideration. See L.U.Civ.R.
7(b)(2)(A); Brown v. Illinois Cent. R. Co., Inc., 480 F. App’x 753,
754 (5th Cir. 2010); see also Lafreniere Park Found. v. Broussard,
221 F.3d 804, 808 (5th Cir. 2000) (stating that a res judicata
defense should be asserted at a “pragmatically sufficient time”).
Alternatively, and more importantly, this court evaluated the
evidence in the record at the time this objection was raised and
found that it did not support the conclusion that the United States
should be estopped from pursuing a collection of his 1998-2004 tax
liabilities. No new evidence or argument presented at trial altered
the court’s conclusion on this issue.
Latent in Dr. Stanley’s objection is an undercurrent of

5

concern as to whether a suit regarding the dischargeability of his
tax liabilities can be or should be determined by a court other
than the bankruptcy court. This court touched on this issue by
reference to United States v. Coney, 689 F.3d 365 (5th Cir. 2012),
which unfolded procedurally in the same manner as the present case.
Although the Fifth Circuit was not asked to address explicitly the
basis for the district court’s jurisdiction over a § 523(a)(1)(C)
suit, the district court’s jurisdiction was certainly implied from
the Fifth Circuit’s decision to affirm on the merits. See also,
United States v. Storey, 640 F.3d 739 (6th Cir. 2011) (unfolding,
procedurally, like Coney). Further, this court also referenced the
Fifth Circuit’s unpublished opinion In re Range, 48 F. App’x 103
(5th Cir. Aug. 20, 2002), which, again, did not squarely address
jurisdiction but clearly held that the United States as creditor
was not required to take any action in the debtor’s bankruptcy
proceedings to prevent the debtor’s tax liabilities from being
automatically discharged under § 523(a)(1)(C), indicating that a §
523(a)(1)(C) analysis could be undertaken at a later date and,
presumably, in another court with jurisdiction. These cases taken
together indicate that this court has concurrent jurisdiction with
the bankruptcy court to determine whether Dr. Stanley’s taxes were
excepted from discharge under 11 U.S.C. § 523(a)(1)(C).
In addition to this case law, the Ninth Circuit has directly
stated that a district court has jurisdiction concurrent with the

6

bankruptcy

court

to

determine

the

dischargeability

of

tax

liabilities pursuant to 11 U.S.C. § 523(a)(1)(C). In re Eber, 687
F.3d 1123, 1128 (9th Cir. 2012). It explained that there are two
major categories of discharge exceptions:
[D]ebts over which the bankruptcy court has exclusive
jurisdiction to determine dischargeability, and those
that it does not. See 11 U.S.C. § 523(c). Bankruptcy
courts
have
exclusive
jurisdiction
to
determine
dischargeability of debts under § 523(a)(2) (fraud or
deception); (a)(4) (fiduciary fraud, embezzlement, or
larceny); and (a)(6) (willful and malicious injury to
person or property). With respect to all other
subsections of § 523(a), bankruptcy courts have
concurrent rather than exclusive jurisdiction to
determine whether a debt is excepted from discharge.
Id. (internal citations and parenthetical explanations omitted).
This explanation reflects the same understanding of § 523 set forth
by the Fifth Circuit in In re Range. See Range, 48 F. App’x 103, at
*5 n.2. In sum, this court reiterates that Dr. Stanley’s tax
liabilities

for

the

years

1998-2004

were

not

discharged

in

bankruptcy and conclusivley finds that it does have jurisdiction to
determine

whether

these

tax

liabilities

were

excepted

from

discharge pursuant to 11 U.S.C. § 523(a)(1)(C).
FINDINGS OF FACT
At the close of trial, Dr. Stanley contended that his 19982004 tax liabilities were discharged in bankruptcy because the
United States could not and did not prove by a preponderance of the
evidence that his conduct with regard to his taxes was willful.
With the exception of his attempt to blame his accountant for his

7

decade long evasion of taxes, Stanley’s trial defense focused
exclusively on the fact that he suffered from type II bipolar
disorder during the relevant tax years. The argument presented was
that the effects of his bipolar disorder rendered him unable to
willfully evade or defeat his taxes. Pursuant to Federal Rule of
Civil Procedure 52, the court hereby makes findings of fact as it
relates to the failure to pay his taxes for the years 1998-2004,
focusing particularly on the effects of his bipolar disorder.4
This case represents a staggering amount of documentation
which evinces an enormous effort on behalf of the plaintiff in
preparation

not

only

for

this

case

but

for

the

accounting

difficulties encountered in dealing with an uncooperative taxpayer.
The

documentation,

which

totals

more

than

2000

pages

chronologically arranged in four trial binders, tells the story of
how, starting in 1998, and even before that date, Dr. Stanley
delayed reporting his taxable income and failed to pay his taxes.
The documentation also records the efforts to which the IRS went to
ensure that his tax liabilities were accurately reported and the
considerable time it devoted in attempting to collect payment of
those liabilities. Indeed, the trial exhibits, compositely, are a
testament to the enormous amount of time and effort expended by the

4

The court notes that because the dispute is over Dr.
Stanley’s intent, it is at times difficult to distinguish between
a factual and legal conclusion. These factual findings are
primarily devoted to determining, factually, whether Dr. Stanley
could have paid his 1998-2004 federal income taxes.
8

plaintiff and its agents as they have attempted to recover Dr.
Stanley’s taxes.
Nevertheless, to date, Dr. Stanley has failed to pay over
$1,316,354.66 he owes in federal taxes, penalties, and interest. In
the interest of expediency, the court will not recount the dates on
which Dr. Stanley filed his tax returns and the amount of his
unpaid liabilities for each tax year. This information is reflected
in plaintiff’s exhibits US-72 (representing dates the tax returns
were filed) and US-71 (representing the assessed amounts, unpaid
liabilities), which were admitted into evidence without objection
and were consistently referenced during the four-day trial. This
evidence shows, and the court hereby finds, that Dr. Stanley filed
his tax returns late for the years 1998, 1999, 2000, 2003, 2005,
2006, 2007, 2008, 2009, reported the wrong taxable income amount
for the years 1998, 1999, 2000, 2001, 2003, and has not paid his
tax liabilities in full for any of the eleven consecutive tax years
from 1998 through 2008 in spite of the IRS’s considerable efforts
to collect them. The court also notes that Dr. Stanley’s 1998 tax
return was filed in 2004, only after the IRS had begun its audit of
Dr. Stanley’s 1998, 1999, and 2000 liabilities.
Turning now to Dr. Stanley’s bipolar disorder, we begin with
defendant’s expert Dr. F. A. Steinberg, a qualified forensic
psychologist who testified in detail about bipolar disorders,
primarily bipolar II. Based on family history together with a study

9

of

the

lifestyle

and

activities

of

Dr.

Stanley,

including

interviews and other research tools, Dr. Steinberg reached the
conclusion that this taxpayer suffers from a bipolar II disorder
manifested in various depressive episodes which can cause the
impairment of routine as well as occupational functioning. This
expert concluded that there would be intervals when Dr. Stanley,
and

presumably

other

patients

who

suffer

this

disorder,

can

function normally as well as periods of irresponsible conduct,
including failure to appear at work, the passing of overdraft
checks, as well as other irresponsible behavior. This expert,
moreover, opined that the failure to pay taxes is consistent with
the effects of this mental disorder.5
Dr. Stanley is a doctor of osteopathic medicine. He completed
his internship in or about 1996 and has subsequently worked in
various venues with a substantial part of his practice involving
work as an emergency room physician and family practitioner in
various hospitals. He testified that he was aware of his duty to
file returns as well as aware of his duty to pay his taxes, but in
support of the expert’s diagnosis of mood swings and periods of
inertia, the defendant testified that during his family medicine

5

At trial, the court allowed Dr. Steinberg to opine about how
Dr. Stanley’s bipolar disorder affected his ability to pay his
taxes but held in abeyance the plaintiff’s objection to Dr.
Steinberg’s expert report being admitted into evidence. The court
will admit the report into evidence but notes that it is the
testimony, not the report, which is most relevant to Dr. Stanley’s
defense.
10

practice at an establishment in Port Gibson, Mississippi, he
abandoned the normal and required procedure of placing a narrative
into the charts of various patients, and in lieu thereof, placed
small yellow, pre-glued reminders on numerous charts, filing them
in a cabinet. He was admonished by his supervisor, Dr. Pierce.
While

his

inattention

to

detail

appears

consistent

with

his

diagnosis, the court notes that he had the capacity over a period
of two weeks to review the charts which covered approximately two
years and to place in each the proper treatment analysis and
diagnosis. In 2004, he was involved in a contested divorce with his
wife Dana, and according to his lawyer Travis Vance, Dr. Stanley
entered into a property settlement agreement against the advice of
his counsel. The strain of the divorce from Dana, described by Mr.
Vance as, “the meanest woman I have ever known” was offered by Dr.
Steinberg as a contributing factor to the onset of the disease.
In 2004, the defendant married his current wife Connie Denise
Stanley. The marital domicile occupied by Dr. Stanley and Dana
Stanley was subject to a mortgage which fell into default and
which,

in

2005,

was

the

subject

of

a

foreclosure

sale.

The

plaintiff makes much of the fact that this house and lot on King
Arthurs Ridge in Vicksburg, Mississippi was purchased by Dr.
Stanley’s current wife Denise with title vesting in her name.
Consideration for the purchase was provided by a local bank with
Dr. Stanley as guarantor on the $195,587.50 note. It is the

11

contention of the plaintiff that by placing the property in the
name of Mrs. Stanley, the taxpayer could avoid a levy. There may be
merit in this contention, but the court does not find that the
primary reason for the absence of Dr. Stanley’s name on the deed
was to avoid seizure. Mrs. Stanley testified that the reason for
the title arrangement was to avoid the consequences of an ongoing
malpractice

lawsuit

against

her

husband.

What

is

noteworthy,

however, is the fact that the defendant was able to participate in
this transaction together with his involvement in a second mortgage
in 2006 which provided $50,000 that was utilized to shore up the
foundation of the house and for other repairs as well. This
mortgage was also guaranteed by the defendant who, together with
his

wife,

mortgages

has

managed

through

the

to

make

years

timely

and

payments

maintain

on

these

ownership

of

two
his

residence. Regardless of whether this home ownership and mortgage
arrangement had something to do with this federal tax liabilities,
the

Court

finds

that

Dr.

Stanley

exhibited

the

capacity

to

participate in these rather complex property transactions. The
court also finds that he had the ability to structure his mortgage
in such a way as to avoid the possibility of judgment liens which
could have resulted from damage suits against him.
The court finds that in addition to the disorderly keeping of
medical records which brought on the admonishment of Dr. Pierce,
his supervisor, the defendant, from the year 1998 forward, ignored

12

essentially all of the tax obligations and deadlines required by
law. The defendant testified that he put his mail, unopened, in a
box,

thus

turning

a

blind

eye

to

these

obligations

yet

simultaneously and timely servicing other debts. Belatedly filing
his 1998 income tax return in 2004, he had prior thereto bought an
Indian Chief motorcycle, and during the same time frame, a 2003
Jaguar automobile which was traded two years later for a newer
model.6 Moreover, during this long period of nonpayment he was able
to make approximately eight trips outside of the country, primarily
to Mexico, at a minimum cost of $3,000 each. He was able to
purchase a Jeep Wrangler for approximately $35,000, as well as an
Infiniti for roughly the same amount. The Jaguars were financed and
the defendant has been able to make timely payments and avoid
repossession. In 2004 he purchased a ring for his wife in the
amount of $16,000, together with an expensive necklace.7 The court
finds these purchases demonstrate not only that Dr. Stanley was
capable of making financial choices but also capable of supporting

6

His petition for bankruptcy was filed on the 18th day of
May, 2009, and in the proceeding he reaffirmed his obligation to
pay for the Indian motorcycle and his automobiles.
7

During much of the time period involved, the defendant’s
record keeping was abysmal. There were some 999 plus overdraft
obligations resulting in fees charged to Dr. Stanley totaling over
$25,000. Moreover, he failed his medical board exams on a number
of occasions, and he suffered some degree of suicidal ideation. In
or about 2007, he sought medical treatment, spent time at Pine
Grove Recovery Center of Forest General Hospital in Hattiesburg in
a psychiatric unit, underwent therapy, and presently takes lithium
twice a day in treatment of the bipolar disorder.
13

those choices by making the necessary payments.
In or about 2005, he established a corporation under the name
of Vicksburg Primary Care Team, Inc., a requirement, he testified,
precedent to employment with Mission Primary Care Clinic, PLLC, at
Vicksburg. He made numerous cash withdrawals from Vicksburg Primary
Care Team, Inc., and made intermittent payments to his wife, with
regard to which Denise Stanley testified that she did no work for
Vicksburg Primary Care Team, Inc., and was not otherwise entitled
to receive the payments from this corporation that was wholly-owned
by Dr. Stanley. Following negotiations with the IRS, Dr. Stanley
entered into an Installment Agreement regarding his 1998, 1999,
2000, 2001, 2002, and 2003 income tax liabilities, under which he
agreed to pay $100 per month for April through July of 2005,
increasing to $5,000 for August of 2005, and $5,000 per month
thereafter.

Although

he

was

able

to

take

the

out-of-country

vacation trips mentioned above, and to meet all of the obligations
set

forth,

Dr.

Stanley

ignored

his

obligations

under

the

Installment Agreement set forth in detail in a letter to him of
July 8, 2005, from the IRS, save the payment of $100 in April of
2005 and $5,000 in August of 2005.8 The court finds that the

8

Around the same time that Dr. Stanley was representing to
the IRS agent that he would not have sufficient income to initially
pay more than $100 per month for the four months from April of 2005
through July of 2005 under the Installment Agreement due to his job
change, he took a vacation to Cancun, Mexico, at the cost of over
$3,000 in March of 2005.
14

plaintiff through its agents, particularly Agent McCullough, worked
with the taxpayer over a period of years in an effort to establish
a reasonable Installment Agreement. However, once the Installment
Agreement was in place, the defendant continued his evasive and
fugitive behavior, willfully neglecting his obligation. The court
further finds that his breach of this agreement, particularly his
failure to withhold employee taxes from Vicksburg Primary Care
while at the same time making non-business related payments to his
wife

and

withdrawing

thousands

of

dollars

in

cash

from

its

operating account, exhibits an active attempt to avoid paying
federal income taxes.
Finally, the plaintiff devoted substantial time at trial to
show that Dr. Stanley’s monthly income reported in his bankruptcy
schedules was false. Indeed, it is difficult to reconcile a gross
monthly income of $5,760.00, the gross monthly income reported on
his bankruptcy schedule, with his yearly income of $329,000, an
amount that Dr. Stanley admitted to making in 2009. Because all
other

evidence

indicates

that

Dr.

Stanley’s

tax

evasion

was

willful, the court need not find whether the seemingly discrepant
amounts are attributable to a sizable dip in Dr. Stanley’s yearly
income for the month reported in his bankruptcy schedules, or
whether it is due to some other intentional or unintentional
misrepresentation

on

Dr.

Stanley’s

unaccounted-for mistake).

15

part

(or

due

to

some

CONCLUSIONS OF LAW
Conduct Requirement
As noted in the court’s April 25, 2013 Order, United States v.
Coney, 689 F.3d 365, 371 (5th Cir. 2012), is the Fifth Circuit’s
most recent published opinion on the interpretation and operation
of 11 U.S.C. § 523(a)(1)(C). In that opinion, the Fifth Circuit
stated that § 523(a)(1)(C) contains a conduct requirement and a
mental state requirement. To satisfy the conduct requirement, the
United States must show by a preponderance of the evidence that the
debtor “attempted in any manner to evade or defeat [a] tax.” Id.
Elaborating on the phrase “in any manner,” the Fifth Circuit
explained that the debtor can attempt to evade or defeat a tax by
either avoiding its assessment or thwarting its collection. Id. at
372-73. This distinction can be relevant, as it was in Coney, when
a debtor timely files accurate tax returns but fails to pay his
liabilities once they have been assessed. Id. at 375-76. Here, this
distinction is irrelevant because Dr. Stanley failed to file his
tax returns in a timely manner and, by the time he filed for
bankruptcy, he successfully avoided collection of the substantial
liabilities and penalties assessed by the IRS.
Because the evidence shows Dr. Stanley filed his tax returns
late for the years 1998, 1999, 2000, 2003, 2005, 2006, 2007, 2008,
2009, reported the wrong taxable income amount for the years 1998,
1999, 2000, 2001, 2003, and has not paid his tax liabilities in
16

full for any of the eleven consecutive tax years from 1998 through
2008 in spite of the IRS’s considerable efforts to collect them,
Dr. Stanley’s behavior satisfies the conduct requirement of §
523(a)(1)(C). See In re Fretz, 244 F.3d 1323 (11th Cir. 2001)
(“[O]mitting to file tax returns, when coupled with the failure to
pay

taxes,

does

satisfy

the

conduct

requirement

of

§

523(a)(1)(C).”) (citing In re Fegeley, 118 F.3d 979, 984 (3d Cir.
1997)); In re Toti, 24 F.3d 806, 809 (6th Cir. 1994)); see also
Coney, 689 F.3d at 371 (drawing from Fretz and Fegeley to conclude
that

the

“willfully

attempted”

exception

contains

a

conduct

requirement). Therefore, the court will focus its analysis on the
mental state requirement of § 523(a)(1)(C), paying particular
attention to the effects of Dr. Stanley’s bipolar disorder.9
Mental State Requirement
To evaluate whether a debtor had the requisite mental state
for his debts to be excepted from bankruptcy discharge, the Fifth

9

The court has stated in two previous orders that it is
difficult precisely to distinguish the conduct requirement from the
mental state requirement if the conduct requirement is viewed to
incorporate the word “attempted” into its inquiry. The point of
highlighting this inherent overlap is to avoid a rigid application
of the evidence. Indeed, the majority, if not all, of the evidence
cited as probative of the issue of willfulness is also directly
linked to whether Dr. Stanley tried to evade or defeat his taxes.
Viewed in that light, the subsequent analysis of Dr. Stanley’s
mental state underscores the court’s conclusion that his behavior
satisfies the conduct requirement of § 523(a)(1)(C). No matter how
the court considers the evidence, a preponderance of it establishes
that Dr. Stanley “willfully attempted in any matter to evade or
defeat” his taxes.
17

Circuit uses a three-part test. Id. at 376. (citing In re Bruner,
55 F.3d 195 (5th Cir. 1995)). That test is whether the debtor “(1)
had a duty to pay taxes under the law, (2) knew he had that duty,
and (3) voluntarily and intentionally violated that duty.” Coney,
689 F.3d at 376 (citing Bruner, 55 F.3d at 197; Fretz, 244 F.3d at
1330). Because most debtors concede the first two prongs, e.g., In
re Mitchell, 633 F.3d 1319, 1327 (11th Cir. 2011), as Dr. Stanley
has done in his summary judgment briefing and during the bench
trial, an understanding of the third prong is critical to any §
523(a)(1)(C) inquiry.
There

is

considerable

guidance

on

what

it

means

to

“voluntarily and intentionally violate[]” one’s duty to pay taxes.
Starting with the Fifth Circuit’s instruction, the inquiry under
the third prong is not whether the debtor had a specific intent to
defraud the United States. Coney, 689 F.3d at 376. Instead, the
inquiry

is

whether

the

debtor

“voluntarily

and

intentionally

commit[ed] or attempt[ed] to commit an affirmative act or culpable
omission that, under the totality of the circumstances, constituted
an attempt to evade or defeat the assessment, collection, or
payment of a tax.” Id. (alteration in original). Although the Fifth
Circuit declined to expand on what would constitute a “culpable
omission”, id. at 373 n.3, the Sixth Circuit has suggested that a
taxpayer can run afoul of the willfulness requirement simply by
knowing about his duty to pay taxes but deliberately choosing not

18

to fulfill that duty. See Storey, 640 F.3d at 744.
To elaborate, a taxpayer’s failure to timely report his
taxable income to the IRS in any given year, without more, is not
evidence of a culpable omission. See In re Birkenstock, 87 F.3d
947, 951 (7th Cir. 1996) (stating that this evidence simply
indicates that the debtor, like all other debtors, did not meet his
obligations). But evidence indicating that this same taxpayer knew
about his duty to file his tax returns but did not fulfill that
duty, particularly absent a credible alternative explanation,
certainly suggests a culpable omission. See Storey, 640 F.3d at 744
(6th Cir. 2011) (stating that a knowing nonpayment of taxes
“provides the basis” for nondischargeability). Likewise, a debtor
who timely files his tax returns (thereby demonstrating a knowledge
of his reported liabilities) but makes no effort to pay his taxes
when he has the ability to pay them indicates some degree of
culpability. Coney, 689 F.3d at 378 n.4 (citing In re Grothues, 226
F.3d 334, 339 (5th Cir. 2000)); see also, Birkenstock, 87 F.3d at
953 (noting that a bankrupt who is unable to pay his debts could
also have his tax liabilities excepted from discharge).
Two

other

lines

of

persuasive

authority

are

helpful

to

understanding the mental state requirement. First, the Eleventh
Circuit, a circuit that has confronted more than its fair share of
§

523(a)(1)(C)

intentional

and

disputes,
willful

has

illustrated

evasion

19

by

what

constitutes

contrasting

it

with

an
an

inadvertent error or a mistake. In re Jacobs, 490 F.3d 913, 923-34
(11th

Cir.

2007)

(explaining,

however,

that

contrasting

an

“inadvertent mistake” with a voluntary or intentional act does not
alter the overall standard of evaluation); see also Coney, 689 F.3d
at

374

(quoting

Birkenstock,

87

F.3d

at

952).

While

this

illustration is not entirely apposite to the case at bar because
Dr. Stanley has not argued inadvertence or mistake, it provides at
least one picture of how the § 523(a)(1)(C) exception is more than
a mere “empty letter.” See Bruner, 55 F.3d at 200 (rejecting but
quoting In re Haas, 48 F.3d 1153, 1156 (11th Cir. 1995), overruled
in part by In re Griffith, 206 F.3d 1389 (11th Cir. 2000)). That
liability either incurred or left unpaid through taxpayer error
would

be

dischargeable

in

bankruptcy

is

consistent

with

the

bankruptcy code’s offer of a “fresh start” only to “honest but
unfortunate” debtors. See Coney, 689 F.3d at 371.
Second, a number of courts, either explicitly or implicitly as
a part of their totality-of-the-circumstances analysis, have looked
to the debtor’s other financial activity during the years in
question when reaching a determination as to the debtor’s intent
with regard to his tax liabilities. E.g., In re Bryen, 449 F. App’x
165, 168 (3rd Cir. 2011); In re Zimmerman, 262 F. App’x 943, 947
(11th Cir. 2008); In re Gardner, 360 F.3d 551, 560-61 (6th Cir.
2004). Instances of lavish living have been consistently cited as
probative

of

the

debtor’s

mental

20

state

and

are

universally

interpreted—at least as far as the court’s survey of the case law
has revealed—to be unfavorable to the debtor’s claim that he is
simply an honest and unfortunate debtor seeking a fresh start.
E.g., Storey, 640 F.3d at 745; United States v. Clayton, 468 B.R.
763, 772 (M.D.N.C. 2012); In re Mixon, 2008 WL 2065895, at * 6
(Bkrtcy. N.D. Tex. May 13, 2008); In re Peterson, 317 B.R. 556, 564
(Bankr. N.D. Ga. 2004). Each debtor’s mental state should be
evaluated on an individual basis, which in this case requires the
court

to

account

for

Dr.

Stanley’s

bipolar

disorder,

but

considering what a debtor could and did pay for during the years in
which he ignored his federal tax obligations—particularly when the
debtor is aware of his obligations—is material to the court’s
evaluation as to whether the debtor’s tax evasion was willful.
Unquestionably,

this

taxpayer

has

exhibited

symptoms

consistent with the diagnosis of Dr. Steinberg and apparently,
under medication, he is now more observant of his obligations. In
explanation of his extended habit of nonpayment, he testified that
he

did

not

understand

taxes

and

that

he

relied

upon

his

accountants.10 These sporadic periods of ineptness and/or neglect

10

There is some suggestion by the defendant that his woes are
attributable to the oversight of his accountants. In response to
questions by the court, answers were provided which lead to the
conclusion that any suggestion of failure on behalf of these
representatives has no merit. First, as the United States stressed,
Dr. Stanley signed every document and agreement for which he was
responsible. Dr. Stanley is an intelligent individual, and while he
may not have understood all the terms therein, he did understand
the difference between a 1099 and W-2 wage earner. Second, the
21

may well be attributable, at least in part, to the underlying
disease, but the consistent election not to pay taxes over a long
period of time when other financial requirements were being met,
belies the suggestion that this decision not to pay was anything
other than willful. The proposition that he was unable to meet his
tax obligations because of a type II bipolar disorder is gainsaid
by his ability to service all of his other debts, many of which
arose from non-necessities, such as vacations, expensive vehicles,
motorcycles, and jewelry, all at a time when tax obligations were
outstanding. To say it another way, the court concludes that this
defendant purposely subordinated his income tax obligations to
pleasurable pursuits in the form of vacations and other amenities.
Throughout these extended periods, the IRS afforded this taxpayer
due process, together with an opportunity to pay over time under
the

terms

of

an

installment

agreement

which

was

reasonable,

considering the income stream earned by Dr. Stanley.
Perhaps even more telling has been his ability to function as
a physician in family practice and in the demanding environment of
an emergency room, throughout most of the period which is the
subject of this suit. Indeed it would be incongruent to find that

suggestion that Steve Sessums, his accountant, was responsible for
his late or inaccurate tax returns was not proven at trial and is
doubtful in any case, since all evidence suggests that the
information needed by Sessums in order to accurately prepare his
returns could likely be found in the unread mail lying in Dr.
Stanley’s cardboard discard box.
22

this taxpayer possessed the ability to provide health care for
patients and was yet unable to process the need to pay taxes at a
time when he was also able to enjoy a lifestyle outside of his
practice which, despite interludes of disruption and abnormality,
was in large part rather routine. As would a sophist, the defendant
offers seemingly clever but fallacious reasons for the nonpayment
of taxes at a time when he had the capacity to practice a demanding
profession which involves issues of life and death. It is simply
implausible to conclude that he was able to carry on with the most
ordinary and routine demands and vicissitudes of life, was able to
practice his demanding profession, and yet was unable to meet his
tax obligations notwithstanding a very handsome income stream. A
decision favorable to the defendant would require the court to find
that Dr. Stanley made logical decisions for his personal benefit
and gratification and yet suffered impulsive motivations which
centered on his election not to pay taxes. Cf. Fretz, 244 F.3d at
1331 (“Put bluntly, someone who can control his drinking enough to
perform medical procedures during twelve to twenty-four hour shifts
can control his drinking enough to file tax returns and pay taxes
during that same period.”); In re Hamer, 328 B.R. 825, 835 (Bkrtcy.
N.D. Ala. 2005) (concluding from the debtor’s spending habits and
ability to practice medicine that he could form the intent to evade

23

his taxes, despite suffering from alcoholism).11
Not only is such a conclusion implausible, a decision holding
that Stanley’s type II bipolar disorder during the years in
question rendered him incapable of paying taxes would be contrary
to the evidence. Lost in the thousands of pages of documents and
the four days of testimony is the fact that Stanley did willfully
and intentionally pay certain taxes during the decade before he
filed for bankruptcy. Stanley testified at trial that when the
state authorities showed up at his office and threatened to throw
him in jail for not paying his state taxes, he immediately took out
a loan to satisfy those obligations. Again, in 2007 shortly after
Dr. Stanley checked out of Pine Grove rehabilitation facility in
Hattiesburg, Stanley personally wrote a $411 check to the Warren
County Tax Collector to pay for a licence plate for one of his
aforementioned vehicles. Asked by counsel for the United States
whether his bipolar disorder affected his ability to pay taxes at
that time, Dr. Stanley responded, “I don’t think so, apparently I
did it.”
CONCLUSION

11

Dr. Steinberg’s distinguishes the effects of alcoholism and
bipolar disorder in order to distinguish this case from Fretz. The
court does not doubt Dr. Steinberg’s assertion that the conditions
of the debtors are distinguishable. The court, however, rejects the
conclusion of Dr. Steinberg’s expert report insofar as it concludes
that the fact that Dr. Stanley has practiced medicine for the last
decade cannot be considered pertinent as to whether he had the
ability to pay his taxes.
24

This case exhibits many of the hallmarks of a debtor who
willfully attempted to evade or defeat his taxes. To start, Dr.
Stanley failed to timely file his tax returns and failed to pay his
taxes. For many of the years for which Dr. Stanley chose to file
his tax returns, he reported the wrong taxable income amount. Once
the

IRS

discovered

Dr.

Stanley’s

failures,

he

indicated

a

willingness to cooperate with the IRS, only to default on the
installment agreement as soon as the IRS closed its case. Not only
did he fail to make more than three or four monthly payments
pursuant to his agreement, he failed to withhold employee taxes
from

his

business

account

while

at

the

same

time

regularly

withdrawing cash from this account for no identifiable purpose.
See, e.g., Bruner, 55 F.3d at 198, 200 (noting that unexplained
cash transactions can indicate attempts to hide income). The
suggestion that his bipolar disorder controlled his ability to
willfully evade his taxes is contradicted by the facts that (1) he
admitted that he had the mental capacity to avoid other potential
liabilities;

(2)

he

participated

in

other

complex

financial

transactions; (3) he operated as a family physician and emergency
room doctor; and (4) he voluntarily paid taxes, including a small
portion of his federal income taxes. In sum, the Court finds that
the United States has proven by a preponderance of the evidence
that Dr. Stanley “willfully attempted in any manner to evade or
defeat” his tax liabilities for the years 1998-2004 and therefore

25

those liabilities should be reduced to judgment along with the
liabilities

for

the

tax

years

2005-2010.

See

11

U.S.C.

§

523(a)(1)(C).
Having now determined all issues of liability, IT IS HEREBY
ORDERED that the plaintiff submit a proposed final judgment as to
the amount of liabilities, penalties, and interest owed by the Dr.
Stanley as of the date on which the final judgment is submitted.
So ORDERED, this the 23rd day of August, 2013.

/s/ David Bramlette
UNITED STATES DISTRICT JUDGE

26