Home / Uncategorized / How Do You Determine Whether You Have Willfully Evaded the Payment of Income Tax?

How Do You Determine Whether You Have Willfully Evaded the Payment of Income Tax?

Two recent Court of Appeals decisions took different approaches in determining whether a debtor’s nonpayment of a tax liability was “willful” for the purpose of Code § 523(a)(1)(C), which renders a tax debt nondischargeable if the debtor “willfully attempted in any manner to evade or defeat such tax.” The Tenth Circuit, in In re Vaughn, — F.3d —-, 2014 WL 4197347 (10th Cir. Aug. 26, 2014) (case no. 13-1189), held that the debtor’s depletion of funds that could have been used to pay a substantial pending tax delinquency demonstrated the mental state element of the provision. In Hawkins v. Franchise Tax Bd. of California, — F.3d —-, 2014 WL 4494845 (9th Cir. Sept. 15, 2014) (case no. 11-16276), however, the Ninth Circuit concluded that a showing of willfulness under § 523(a)(1)(C) requires a showing of specific intent to evade the tax; a mere showing of spending in excess of income is not sufficient to establish the required intent to evade tax.