Even if Debtor did Not Review Tax Returns that her Ex-Husband Filed, She Willfully Violated her Duty Under 11 USC 523 and Could Not Discharge Taxes

Even if Debtor did Not Review Tax Returns that her Ex-Husband Filed, She Willfully Violated her Duty Under 11 USC 523 and Could Not Discharge Taxes

Chapter 7 Debtor filed an adversary proceeding against the Internal Revenue Service (IRS) to discharge her 2009 and 2010 federal income tax liabilities of about $375,000.00.  The Debtor claimed that she did not review the 2009 or 2010 tax returns that her ex-husband prepared and filed for the then-married couple. The Debtor argued that these taxes should be discharged.

The Debtor and her ex-husband ran a travel club, which scammed their customers by not delivering promised benefits to them. The state of New Jersey indicted the couple and the Debtor pled guilty to theft by deception.

After she filed her adversary proceeding to discharge the income tax liabilities, the IRS moved for summary judgment. The IRS averred that the Debtor could not discharge these taxes since she failed to report over $500,000.00 in income that she received from the travel club. The IRS contended that the Debtor was collaterally estopped from asserting that these debts were dischargeable.

The Debtor opposed the motion for summary judgment, claiming that she pled guilty to theft only because her lawyer told her it was the best way to avoid a trial.

The Court entered an order granting the IRS’ motion for summary in part and denying it in part. The Court noted that because the Debtor pled guilty in state court, collateral estoppel applied to show that she did not properly report her income on her tax returns. However, the Court found material issues of fact to try: namely, whether she voluntarily and intentionally tried to evade paying taxes.

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