Certain tax liabilities can be discharged in bankruptcy provided they are not excepted from discharge pursuant to 11 U.S.C. §523. Section 523(a)(1)(C) excepts from discharge any tax debt “with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.”
Taxpayers or the IRS can file an adversary proceeding in bankruptcy court seeking an order determining whether the taxpayer’s tax obligations are discharged. The factual question in these cases is whether a taxpayer filed a fraudulent return or willfully attempted to evade or defeat a tax.
Who has the burden of proof: the taxpayer or IRS? That issue was addressed in In re Looft, 553 B.R. 910 (Bankr. N.D.GA 2015), citing Griffith v. United States (In re Griffith), 206 F. 3d 1389, 1396 (11th Cir. 2000). The Looft court found that the burden of proof is on the government to prove nondischargeability by a preponderance of the evidence. Exceptions to discharge are strictly construed in favor of the debtor. In determining whether the government has met its burden, the court considers the totality of the circumstances.
Practice Pointers: The taxing authority has the burden of proof, but the analysis is fact intensive. The bankruptcy court would be given wide discretion in determining whether the government met its burden.
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