             United States Bankruptcy Appellate Panel
                                    FOR THE EIGHTH CIRCUIT



                                        No. 00-6054 WM


In re: JOSEPH A. MAY,                            *
                                                 *
                                                 *
             Debtor.                             *
                                                 *
                                                 *
JOSEPH A. MAY,                                   *       Appeal from the United States
                                                 *       States Bankruptcy Court for the
             Plaintiff Appellant,                *       Western District of Missouri
                                                 *
      v.                                         *
                                                 *
MISSOURI DEPARTMENT OF                           *
REVENUE AND THE UNITED STATES                    *
OF AMERICA                                       *
                                                 *
             Defendant Appellees.                *




                                      Submitted: July 31, 2000
                                       Filed: August 15, 2000


Before KRESSEL, SCOTT, and DREHER, Bankruptcy Judges.


SCOTT, Bankruptcy Judge
                                                      I.

         In 1979, Joseph May, D.D.S., decided that he was not subject to the tax laws, attempted to
revoke his social security number, and stopped filing tax returns. From 1980 to 1983, each April 15, May
would go to the Post Office in his home town and hold a flag and sign which said that taxes are not fair and
that there is nothing in the Internal Revenue Code that requires a person to file a tax return. He ceased this
activity only because he was ignored by persons filing their tax returns. In addition to his general
disagreement with the tax laws, he took many affirmative steps to evade the payment of any taxes. He
closed his bank accounts and made all payments to creditors, to the extent possible, using cash. He used
his secretary's bank account, opened bank accounts in the names of Basic Bible Church of America and
Phoenix Futures, and paid bills using checks written to him by his patients, endorsing them to third parties.
All of his property was held in the name of other persons and entities, including his wife,1 whom he
divorced in 1983, but with whom he continued to reside, after allegedly living apart for one to three months.
Following their divorce, the Mays had three children. They married again, in a religious ceremony, when
it appeared that his wife would be called to testify at his criminal trial.

        In 1993, May was arrested and incarcerated in connection with a pending criminal tax case. In
January 1994, May pleaded guilty to five counts of willful failure to file federal income tax returns. Pursuant
to the plea agreement, May was ordered to file his federal income tax returns no later than 180 days after
his release and to thereafter file all future tax returns in a timely manner. May filed his past due federal
income tax returns, although beyond the 180 days required by the district court. The return due on April
15 of that year was also filed late. May made four payments for past due taxes totaling $2,000 in 1995,
five payments totaling $2,200 in 1996, and one payment of $4,000 in 1999.2 May admits the only reason
that he filed the returns is because he was ordered to do so.

        On July 6, 1999, May filed a chapter 7 petition and, thereafter, a complaint to determine
dischargeability of the taxes owed to the United States and the State of Missouri for the 1985 through 1994


        1
         The United States District Court for the Western District of Missouri held in Scoville v. United
States, 1991 WL 1424995 (W.D. Mo. Dec. 3, 1999), that Glenda Scoville, May's “wife” was May's
nominee with respect to the farm property on which they resided.
        2
        Other credits were applied to the 1988 and 1989 taxable years but are the subject of an
appeal. See Scoville v. United States, No. 00-1787 (8th Cir.).

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taxable years. The United States and the State of Missouri each filed an answer to the complaint. Upon
the debtor filing a motion for summary judgment against both defendants, the United States filed a cross
motion for summary judgment, asserting that the taxes were nondischargeable pursuant to section
523(a)(1)(C). The State of Missouri did not respond to the motion. The bankruptcy court3 found the
evidence to be overwhelming that the debtor wilfully attempted to evade or defeat the taxes and, thus, the
taxes were not dischargeable. In addition, the bankruptcy court dismissed the State of Missouri as a party
defendant inasmuch as it was protected from suit by Eleventh Amendment sovereign immunity. The debtor
appeals only the nondischargeability determination for tax years 1990, 1991, 1992 and 1993, asserting that
the United States “did not prove any material facts disclosing civil fraud for those tax years.” The United
States does not dispute that the taxes for the 1994 taxable year are dischargeable and the debtor does not
dispute that the taxes for the years 1985 through 1989 are nondischargeable.4

                                                   I I.
        We review the grant of a motion for summary judgment, de novo, using the same standard under
Rule 56(c) of the Federal Rules of Civil Procedure applied by the bankruptcy court. Lager v. Chicago
Northwestern Transportation Co., 122 F.3d 523 (8th Cir. 1997). Under Rule 56(c), summary judgment
is appropriate when the evidence, viewed in the light most favorable to the nonmoving party, reveals no
genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Meyers v. Internal Revenue Service (In re Meyers), 196
F.3d 622 (6th Cir. 1999)(affirming summary judgment in section 523(a)(1)(C) dischargeability action).

       The United States was required to demonstrate that the taxes are nondischargeable by a
preponderance of the evidence, Grogan v. Garner, 498 U.S. 279 (1991), not by clear and convincing
evidence, as asserted by the appellant May. See In re Griffith, 206 F.3d 1389, 1396 (11th Cir. 2000);
Brackin v. United States (In re Brackin), 148 B.R. 953 (Bankr. N.D. Ala. 1992). The debtor did not and
does not contest the facts established by the United States, either below or on appeal.




        3
          The Honorable Frank W. Koger, Chief United States Bankruptcy Judge for the Western
District of Missouri.
        4
         Indeed, since the debtor pleaded guilty to criminal tax charges regarding those years,
contesting the dischargeability would be futile.

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       Inasmuch as we, too, find the evidence to be overwhelming, and the conclusion that May wilfully
attempted to evade or defeat his taxes, inescapable, we affirm.

                                                III.
        Section 523(a)(1)(C) of the Bankruptcy Code provides that a discharge in bankruptcy does not
discharge an individual debtor from any debt with respect to which the debtor “wilfully attempted in any
manner to evade or defeat such tax.” Thus, there is a conduct element as well as intent element to the
statute. Matter of Birkenstock, 87 F.3d 947 (7th Cir. 1996). If a debtor is aware of the duty to pay his
taxes, has the wherewithal to pay the taxes5 and takes steps to avoid paying them, there is a willful attempt
to evade or defeat the tax. Factors which indicate an intent to evade tax obligations include
understatements of income, failure to file tax returns, implausible or inconsistent behavior by the taxpayer,
the failure to cooperate with the tax authorities, concealment of assets, dealing in cash, shielding income and
otherwise frustrating collection efforts. Teeslink v. United States (In re Teeslink), 165 B.R. 708, 716
(Bankr. S.D. Ga. 1994). A finding under section 523(a)(1)(C) may encompass various schemes, including
concealment by which tax evasion may be accomplished. Conduct aimed at concealing income and assets
constitutes a willful attempt to evade or defeat taxes. Bruner v. United States (In re Bruner), 55 F.3d 195
(5th Cir. 1995). Moreover, a taxpayer's later conduct does not nullify earlier willful attempts to defeat or
evade the taxes. Meyers v. Internal Revenue Service (In re Meyers), 196 F.3d 622 (6th Cir. 1999); see
Badaracco v. Commissioner, 464 U.S. 386, 394 (1984)(“[A] taxpayer who submits a fraudulent return
does not purge the fraud by subsequent voluntary disclosure; the fraud was committed, and the offense
completed, when the original return was prepared and filed.”).

        May engaged in so many evasive tactics, structuring all of his personal and business transactions
and even his marital status to that end, that the only possible conclusion is that May wilfully attempted to
evade or defeat payment of his taxes. May was aware of his duty to pay taxes as demonstrated by the fact
that he filed federal income tax returns until 1979 and, as evidenced by the documentation appended to the
United States motion for summary judgment, May's failure to deny any of the statements of fact. May had
the ability to pay his taxes for the years at issue. Moreover, the record evidence overwhelmingly confirms



        5
         A subsequent inability to pay is not a defense to previous intentional attempts to evade or
conceal tax liabilities. Matter of Birkenstock, 87 F.3d 947, 953 (7th Cir. 1996)(“An inability to pay
one's debts is the defining characteristic of almost all debtors who file for bankruptcy....[E]ven the most
dishonest bankrupt can demonstrate an inability to pay his debts.”)

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that May took steps to evade paying his federal income taxes. Indeed, May does not seriously dispute the
essential issue before the bankruptcy court: that he wilfully attempted to evade or defeat the taxes.

         Rather than disputing the facts, arguing that summary judgment is improper, or even that the
bankruptcy court's legal conclusion of nondischargeability was in error, May ignores the statutory
requirements at issue under section 523(a)(1)(C) and instead argues that his fraud was not material because
it did not deceive the Internal Revenue Service. Looking to section 6651 of the Internal Revenue Code
which imposes a fraud penalty, May asserts that he appeals only the determination as to the findings of
fraud. An element of fraud, he posits, is the materiality of the conduct. Materiality, under United States
v. Neder, 527 U.S. 1 (1999), exists only if it is capable of influencing the IRS, i.e., affects its ability to
collect the income tax liability.

        May's argument is not well taken. United States v. Neder was a criminal case in which defendant
was charged with filing a false federal income tax return, 26 U.S.C. § 7206, in which materiality was an
element under the statute, and mail fraud, wire fraud, and bank fraud, 18 U.S.C. §§ 1341, 1343, 1344.
The Supreme Court held that materiality was also an element of those criminal counts and thus the trial
court erred in failing to submit the issue of materiality to the jury on each of the offenses. Neder does not
require, as May appears to argue, that the common law elements of fraud be considered in determining
whether the tax debts are nondischargeable. The case has no application to section 523(a)(1)(C) and,
indeed, section 523(a)(1)(C) does not even require a falsehood as an element.

          Although the willful attempt to evade taxes may be a similar issue, and include many of the same
indicia, fraud is not at issue. Indeed, the United States conceded early in the proceeding that the civil fraud
penalties were dischargeable in this chapter 7 case. The focus of the statute pertinent to the adversary
proceeding filed in the bankruptcy court is whether May wilfully attempted to evade or defeat the taxes.
The bankruptcy court reviewed extensive facts submitted by the United States and those facts were not
controverted. The inescapable conclusion is that May wilfully attempted to evade and defeat the taxes such
that the taxes are nondischargable pursuant to 11 U.S.C. § 523(a)(1)(C).

                                                     IV.
         In addition to determining that the taxes were nondischargeable, the bankruptcy court, sua sponte,
raised the issue of whether the State of Missouri was immune from suit under the Eleventh Amendment.
On appeal, the debtor does not expressly contest any determination that sovereign immunity may be

                                                      5
applicable. Rather, the debtor challenges the bankruptcy court's determination that the State of Missouri
did not waive sovereign immunity.

         Courts are obligated to examine their own jurisdiction and subject matter jurisdiction may be raised
at any time, by a party or the court, sua sponte. Thus, it is well settled that a court may raise the issue of
a state's immunity from suit at any juncture of the proceeding. See California Franchise Tax Board v.
Jackson(Inre Jackson), 184 F.3d 1046, 1048 (9th Cir. 1999); cf. Florida Department of State v. Treasure
Savlors, 458 U.S. 670, 683, n.18 (1982)(“[T]he Eleventh Amendment defense sufficiently partakes of the
nature of a jurisdictional bar that it may be raised at any point of the proceedings.”); Patsy v. Board of
Regents, 457 U.S. 496, 515 n.19 (1982)(“Eleventh Amendment sovereign immunity is jurisdictional in the
sense that it must be raised and decided by the Court on its own motion.”)(emphasis added). Thus, the
bankruptcy court properly raised the issue.

         Having raised the issue, the bankruptcy court determined that, indeed, the state was immune from
suit since it had not waived its Eleventh Amendment sovereign immunity. It is uncontroverted that the state
did not file a proof of claim in the bankruptcy case. The only possible inference that there is a waiver arises
from the fact that the state filed an answer in response to the complaint. Of course, if the state asserted
sovereign immunity as a defense in its answer, there is no waiver. However, the answer is not in the record
and we have only before us the fact that an answer was filed.

        In order for a wavier to exist, the state must unequivocally express its consent to federal jurisdiction.
For example, a state may waive sovereign immunity by filing a proof of claim in the bankruptcy case. See
Rose v. United States Department of Education (In re Rose), 187 F.3d 926 (8th Cir. 1999). The Eighth
Circuit Court of Appeals has opined, in dicta, that “active participation” in a dischargeability proceeding
and belated assertion of sovereign immunity are factors which may be relevant to the issue of waiver, citing
Hill v. Blind Indus. & Servs., 179 F.3d 754, 759-60 (9th Cir. 1999), amended on denial of reh'g, 201 F.3d
1165 (9th Cir. 2000). In re Rose, 187 F.3d at 930 n.7. Further, the rule that may be derived from the
case authority cited by May is that for there to be a waiver of sovereign immunity in a proceeding, there
must be an affirmative request for relief, such as a counterclaim or third-party complaint, Paul N. Howard
Co. v. Puerto Rico Aqueduct Sewer Authority, 744 F.3d 880, 885 (1st Cir. 1984), or state intervention
in the lawsuit, Cobb Coin Co., Inc. v. Unidentified Wrecked and Abandoned Sailing Vessel, 549 F. Supp.
540, 556 & n.16 (S.D. Fla. 1982). In this instance, however, the state apparently did no more than file
an answer; the state did not respond to May's motion for summary judgment. The mere filing of an answer

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may not be an express waiver of sovereign immunity, even if the answer fails to raise sovereign immunity
as a defense or admits to the dischargeability of a claim. Mitchell v. Franchise Tax Board (In re Mitchell),
209 F.3d 1111, 1118 (9th Cir. 2000). Accordingly, the bankruptcy court did not err by dismissing the
State of Missouri as a party defendant to the adversary proceeding.

        For the foregoing reasons, the decision of the bankruptcy court is affirmed in all respects.

        A true copy.

                Attest:

                          CLERK, U.S. BANKRUPTCY APPELLATE PANEL FOR THE EIGHTH
                          CIRCUIT




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