William Hawkins, III v. the Franchise Tax Board of Cal

Opinion by Judge THOMAS; Dissent by Judge RAWLINSON.

OPINION

In this case, we consider what mental state is required in order to find that a bankruptcy debtor’s federal tax liabilities should be excepted from discharge under 11 U.S.C. § 523 (a)(1)(c) because he “willfully attempted in any manner to evade or defeat such tax.” Consistent with similar provisions in the Internal Revenue Code, 26 U.S.C. § 7201 , we conclude that specific intent is required for the discharge exception to apply and remand to the district for re-evaluation under that standard.

I

F. Scott Fitzgerald observed early in his career that the very rich “are different from you and me,” 1 to which Ernest Hemingway later rejoined, ‘Yes, they have more money.” 2 As with many bankruptcy *664 cases involving the wealthy, our saga reads ■like a Fitzgerald novel, telling the story of acquisition and loss of the American dream, and the consequences that follow.

William M. “Trip” Hawkins designed and received an undergraduate degree in Strategy and Applied Game Theory from Harvard University, and an M.B.A. from Stanford University. After college, he became one of the earliest employees at Apple Computer, where he…

dissenting:

I respectfully dissent. I agree with the majority that the rich are different in many ways, but that difference should not include an unfettered ability to dodge taxes with impunity.

There is little doubt, if any, that William Hawkins deliberately decided to spend money extravagantly rather than pay his duly assessed state and federal taxes. Hawkins now seeks to discharge these taxes in bankruptcy.

The Bankruptcy Code precludes discharge of tax debts “with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax.” 11 U.S.C. § 523 (a)(1)(C). We must now decide whether Hawkins’ actions avoiding payment of the taxes was “willful.” I disagree with the majority on this point.

The proceedings before the bankruptcy court are telling. There is no question that Hawkins was aware of the substantial sums he owed in taxes as early as 2004. See Bankruptcy Court Memorandum Decision, p. 7 (noting that during family court proceedings to reduce child support payments, Hawkins acknowledged owing $25 million in taxes). Even after acknowledging the tax debt, Hawkins maintained a home worth well over $3.5 million, and an…

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

WILLIAM M. HAWKINS, III, AKA No. 11-16276 Trip Hawkins, Appellant, D.C. No. 3:10-cv-02026- v. JSW

THE FRANCHISE TAX BOARD OF

CALIFORNIA; UNITED STATES OF OPINION

AMERICA, INTERNAL REVENUE

SERVICE,

Appellees.

Appeal from the United States District Court for the Northern District of California Jeffrey S. White, District Judge, Presiding

Argued and Submitted November 6, 2013—San Francisco, California

Filed September 15, 2014

Before: Andrew J. Kleinfeld, Sidney R. Thomas, and Johnnie B. Rawlinson, Circuit Judges.

Opinion by Judge Thomas; Dissent by Judge Rawlinson SUMMARY*

Bankruptcy

The panel reversed the district court’s affirmance of the bankruptcy court’s judgment that a chapter 11 debtor’s tax debts were excepted from discharge on the basis of his willful attempt to evade or defeat taxes under 11 U.S.C. § 523(a)(1)(C).

The panel held that, consistent with similar provisions in the Internal Revenue Code, 26 U.S.C. § 7201, specific intent is required for the discharge exception set forth in § 523(a)(1)(C) to…