               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
2                        HAWKINS V. FTB

                           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 apply. The panel remanded to the district
court for re-evaluation under that standard.

    Dissenting, Judge Rawlinson wrote that she would follow
the lead of the Tenth Circuit and affirm the bankruptcy court
ruling denying discharge of the debtor’s substantial tax
liability due to his willful attempt to avoid payment of those
taxes through profligate spending.


                            COUNSEL

Heinz Binder (argued) and Wendy Watrous Smith, Binder &
Malter, LLP, Santa Clara, California, for Appellant.

Kathryn Keneally, Assistant Attorney General, Kathleen E.
Lyon, Bruce R. Ellisen, William Carl Hankla, and Rachel I.

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                        HAWKINS V. FTB                              3

Wollitzer (argued), Attorneys, Tax Division, United States
Department of Justice, Washington, D.C., for Appellee
United States.

Lucy Wang, California Department of Justice, San Francisco,
California, for Appellee State of California.

A. Lavar Taylor, Attorney and Adjunct Professor of Law,
Chapman University School of Law, Santa Ana, California,
for Amicus Curiae A. Lavar Taylor.


                            OPINION

THOMAS, Circuit Judge:

    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


 1
   F. SCOTT FITZGERALD, The Rich Boy, in The Short Stories of F. Scott
Fitzgerald: A New Collection 317 (Matthew J. Bruccoli ed., Scribner
1989) (1926).
4                         HAWKINS V. FTB

Hemingway later rejoined, “Yes, they have more money.”2
As with many bankruptcy 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 ultimately became
Director of Marketing. He left Apple to co-found Electronic
Arts, Inc. (“EA”), which became the world’s largest supplier
of computer entertainment software. Hawkins owned 20% of
EA and served as its Chief Executive Officer. By 1996, his
net worth had risen to $100 million. That year, he divorced
his first wife, Diana, and married his second wife, Lisa.
Tripp and Lisa purchased a $3.5 million home, where she
cared for their two children and Tripp’s two children from his
first marriage. The IRS asserts they enjoyed the trappings of
wealth, such as a private jet, expensive private schooling for
the children, an ocean-side condominium in La Jolla, and a
large private staff.

    In 1990, EA created a wholly owned subsidiary, 3DO, for
the purpose of developing and marketing video games and

    2
    ERNEST HEMINGWAY, The Snows of Kilimanjaro, in THE SNOWS OF
KILIMANJARO AND OTHER STORIES 23 (Scribner 1961) (1936).
(Hemingway, quoting the critic Mary Colum without attribution, used
Fitzgerald’s name in the original magazine version of the short story, but
altered the name to “Julian” in the later published book. See Eddy Dow,
Letter to the Editor, The Rich Are Different, N.Y. TIMES, Nov. 13, 1988,
available at http://www.nytimes.com/1988/11/13/books/l-the-rich-
are-different-907188.html.)
                      HAWKINS V. FTB                        5

game consoles. Hawkins left EA to run 3DO, which went
public in 1993. Beginning in 1994, Hawkins sold large
amounts of his EA stock to invest in 3DO. The capital gains
from the sales were large: approximately $24 million in 1996,
$3.8 million in 1997, and $39 million in 1998. His
accountants, KPMG, advised him to shelter the gains in a
Foreign Leveraged Investment Portfolio (“FLIP”) and an
Offshore Portfolio Investment Strategy (“OPIS”). Both
strategies were designed to generate large paper losses to
shield the EA capital gain from taxation.

    To execute the FLIP transaction, Trip purchased shares of
the Union Bank of Switzerland (“UBS”) for $1.5 million and
an option to acquire shares of Harbourtowne, Inc., a Cayman
Islands corporation. Harbourtowne then contracted with UBS
to purchase shares of UBS for $30 million, with UBS
receiving an option to repurchase the shares before the sale
closed. UBS exercised the option, and the UBS shares were
never transferred to Harbourtowne. Hawkins then received
a letter from KPMG stating that he could add to the tax basis
of his UBS shares the $30 million that Harbourtowne had
contracted to pay for its UBS shares. The opinion letter
stated that UBS’s repurchase of its shares would likely be
considered a distribution to Harbourtowne (which was
nontaxable because Harbourtowne was a foreign
corporation), and that Harbourtowne’s basis in its UBS shares
should be treated as a transferred to Hawkins’s basis in his
UBS shares.

    OPIS worked in a similar way. Hawkins purchased
shares of UBS for $1.99 million and an option to acquire an
interest in Hogue, Investors LP, a Cayman Islands limited
partnership. Hogue contracted to purchase shares of UBS
treasury stock, with UBS retaining a call option to repurchase
6                     HAWKINS V. FTB

the shares before transfer. UBS exercised the option. KPMG
issued an opinion letter to Hawkins stating that he could add
the Hogue shares to his basis in the UBS stock.

    Over the next several years, Hawkins then sold various
quantities of the UBS stock and claimed losses of
approximately $6 million on his 1996 federal tax return,
$23.4 million on his 1997 return, $20.5 million on his 1998
return, $3.5 million on his 1999 return, and $8.2 million on
his 2000 return.

    In 2001, the IRS challenged the validity of the tax shelters
and commenced an audit of Hawkins’s 1997 return, which
later expanded to include the 1998–2000 tax years. In 2002,
the IRS sent Hawkins’s attorney a letter stating that the losses
from the FLIP and OPIS transactions would be disallowed.
The subsequent audit report indicated that Hawkins owed
additional taxes and penalties of $16 million for tax years
1997–2000.

    During this period, the financial fortunes of 3DO
deteriorated to the point where it needed a large capital
infusion. Hawkins loaned 3DO approximately $12 million,
but it was to no avail. 3DO filed a voluntary petition in
bankruptcy under Chapter 11 seeking reorganization in 2003.
It was later converted to a Chapter 7 liquidation, from which
Hawkins never received a significant distribution.

    Faced with these losses, Hawkins filed a motion in family
court in 2003 to reduce the child support payments he was
required to make to his first wife. He acknowledged that he
owed $25 million to the IRS, had limited income, and was
insolvent. The family court granted his request in part, but
required him to place his assets in trust. During the family
                      HAWKINS V. FTB                         7

court proceedings, Hawkins’s attorney testified that Hawkins
intended to discharge the tax debt in bankruptcy proceedings.

    In 2005, the IRS made an aggregate assessment of taxes,
penalties, and interest for tax years 1997–2000 that totaled
$21 million. The California Franchise Tax Board (“FTB”)
assessed $15.3 million in additional taxes, penalties, and
interest for the same tax years. Hawkins made an offer in
compromise to the IRS of $8 million, which was rejected.

    The bankruptcy court found that Hawkins and his wife
did very little to alter their lavish lifestyle after it became
apparent in 2003 that they were insolvent and that their
personal living expenses exceeded their earned income.

    In July 2006, Hawkins sold his primary residence and
paid the entire $6.5 million net proceeds to the IRS. A month
later, the FTB seized $6 million from various financial
accounts. In September of that year, the Hawkinses filed a
Chapter 11 bankruptcy petition, which the bankruptcy court
found was for the primary purpose of dealing with their tax
obligations. Shortly after filing, Hawkins sold the La Jolla
condominium for $3.5 million and paid the proceeds to the
IRS. Even after these payments and the seizure by the FTB,
the IRS filed a proof of claim for $19 million and the FTB
filed a claim for $10.4 million.

    Hawkins proposed a liquidating plan of reorganization,
which was confirmed by the bankruptcy court. The IRS
received a distribution of $3.4 million from the estate. The
confirmed plan discharged the Hawkinses from any debts that
arose before the date of plan confirmation, but provided that
the Hawkinses, IRS, or FTB could bring suit to determine
whether the tax debts should be excepted from discharge.
8                     HAWKINS V. FTB

The Hawkinses filed this declaratory action against the IRS
and FTB seeking a determination that the unpaid taxes were
covered by the discharge. The IRS and FTB counterclaimed,
alleging that the tax debts were excepted from discharge
pursuant to 11 U.S.C. § 523(a)(1)(c), which excepts from
discharge any debt “with respect to which the debtor . . .
willfully attempted in any manner to evade or defeat such
tax.” The primary, but not exclusive, theory of the IRS and
FTB was that the Hawkinses’ maintenance of a rich lifestyle
after their living expenses exceeded their income constituted
a willful attempt to evade taxes. The bankruptcy court
rejected most of the other government theories, but found that
the Hawkinses’ personal living expenses from January 2004
to September 2006 were “truly exceptional.” The court
estimated that the couples’ personal expenses exceeded their
earned income by $516,000 to $2.35 million during that
period. Given these facts, the bankruptcy court concluded
that, as to Trip Hawkins, the tax debts were excepted from
discharge. However, as to Lisa Hawkins, the court held that
the tax debts were discharged. The district court affirmed.
This timely appeal followed.

                               II

    Generally, a debtor is permitted to discharge all debts that
arose before the filing of his bankruptcy petition. 11 U.S.C.
§ 727(b). However, the Bankruptcy Code provides for
certain exceptions to that general rule. 11 U.S.C. § 523.
Relevant to our case, the Code provides that a debtor may
not discharge any 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)
(emphasis added). As the district court correctly observed,
                      HAWKINS V. FTB                          9

our Circuit has not yet construed this provision, nor
determined what mental state is required.

    We begin by using the usual tools of statutory
construction, the first step of which is to determine whether
the language has a plain and unambiguous meaning with
regard to the particular dispute. Robinson v. Shell Oil Co.,
519 U.S. 337, 340 (1997). In doing so, “we examine not only
the specific provision at issue, but also the structure of the
statute as a whole, including its object and policy.”
Children’s Hosp. & Health Ctr. v. Belshe, 188 F.3d 1090,
1096 (9th Cir. 1999). If the plain language is unambiguous,
that meaning is controlling, and our inquiry is at an end.
Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863,
877–78 (9th Cir. 2001) (en banc). If the statutory language
is ambiguous, then we consult legislative history. United
States v. Daas, 198 F.3d 1167, 1174 (9th Cir. 1999). “We
also look to similar provisions within the statute as a whole
and the language of related or similar statutes to aid in
interpretation.” United States v. LKAV, 712 F.3d 436, 440
(9th Cir. 2013).

     The key question in this case is the meaning of the word
“willful” in the statute. Unfortunately, the plain words of the
text do not answer that question because, as the Supreme
Court has observed, “willful . . . is a word of many meanings,
its construction often being influenced by its context.” Spies
v. United States, 317 U.S. 492, 497 (1943). Context matters
in this case. The Bankruptcy Code is designed to provide a
“fresh start” to the discharged debtor. United States v. Sotelo,
436 U.S. 268, 280 (1978). As a result, the Supreme Court has
interpreted exceptions to the broad presumption of discharge
narrowly. See Kawaauhau v. Geiger, 523 U.S. 57, 62 (1998).
As we have observed “exceptions to discharge should be
10                     HAWKINS V. FTB

limited to dishonest debtors seeking to abuse the bankruptcy
system in order to evade the consequences of their
misconduct.” Sherman v. SEC (In re Sherman), 658 F.3d
1009, 1015–16 (9th Cir. 2011), abrogated on other grounds
by Bullock v. BankChampaign, N.A., 133 S. Ct. 1754 (2013).

      Thus, the “fresh start” philosophy of the Bankruptcy Code
argues for a stricter interpretation of “willfully” than an
expansive definition. Significantly, the Supreme Court
recognized the Code’s “fresh start” object and policy in
construing the word “willfully” in considering a related
discharge exception in Kawaauhau. In Kawaauhau, the
creditors requested the Bankruptcy Court to hold a medical
malpractice claim to be non-dischargeable under 11 U.S.C.
§ 523(a)(6), which provides that a “discharge [in bankruptcy]
. . . does not discharge an individual debtor from any debt . . .
for willful and malicious injury . . . to another.” 523 U.S. at
59–61. The Supreme Court noted that, because the word
“willful” modifies the word “injury” in § 523(a)(6), “a
deliberate or intentional injury, not merely a deliberate or
intentional act that leads to injury” was required to establish
non-dischargeability. Id. at 61. The Supreme Court
analogized “willful” as the mental state required for
intentional torts, not for negligent acts. Id.

     The structure of the statute also supports a narrow
construction of “willfully.” The discharge exception at issue,
§ 523(a)(1), lists tax and customs debts warranting exception
in three categories. Under § 523(a)(1)(A), numerous types of
debts are excepted from discharge on a strict liability basis.
Under § 523(a)(1)(B), tax debts for which a return was not
filed or was filed late may not be discharged. Section
523(a)(1)(C) is the grouping at issue here: no discharge is
permitted for tax debts “with respect to which the debtor
                      HAWKINS V. FTB                         11

made a fraudulent return or willfully attempted in any manner
to evade or defeat such tax.” 11 U.S.C. § 523(a)(1)(C). The
grouping of the fraudulent return offense with the evasion
offense in subsection (C)—rather than with the other offenses
involving tax returns in subsection (B)—suggests that it is
more akin to attempted tax evasion than to failing to file a
timely return. If a willful attempt to evade taxation requires
mere knowledge of the tax consequences of an act, and no
bad purpose, then it is difficult to see how such acts resemble
the filing of a fraudulent return. By contrast, if a willful
attempt requires bad purpose, then such acts are naturally
grouped with other acts requiring bad purpose, such as filing
a fraudulently false return.

    Not only does the structure of the statute as a whole,
including its “object and policy,” indicate that the term
“willfully” is to be narrowly construed, but that interpretation
is supported by legislative history. Section 523(a)(1) is
described in the Congressional Record as a “compromise”
between the House and Senate versions of a bill. 124 Cong.
Rec. 32,398 (1978). The House version contained the
“willfully” language, H.R. Rep. No. 95-595, at 363 (1977),
while the Senate version instead excepted tax debts for which
the debtor “fraudulently attempted to evade” the tax, S. Rep.
No. 95-989, at 78 (1978) (emphasis added). If the meaning
of the Senate’s language was so drastically reduced as to
remove any bad purpose from the exception for attempted tax
evasion, it is surprising that such a change was not thought
significant enough to warrant mention in the Congressional
Record.

    A narrow interpretation of “willfully” is also in accord
with case precedent that generally except tax debts from
discharge under § 523(a)(1)(C) only when the conduct
12                     HAWKINS V. FTB

amounting to attempted tax evasion is of a type likely to be
accompanied by an evasive motivation. Acts found by other
circuits to constitute “willful[] attempt[s]” include declining
to file tax returns, shifting assets to another person or a false
bank account, shielding assets, and switching all financial
dealings to cash. See, e.g., Vaughn v. Comm’r (In re
Vaughn), __ F.3d __, 2014 WL 4197347, at *6 n.5 (10th Cir.
2014) (purchase and transfer of a house to girlfriend;
establishment and transfer of funds to a trust for a step-
daughter); United States v. Coney, 689 F.3d 365, 377 (5th
Cir. 2012) (concealment of currency transactions); In re
Gardner, 360 F.3d 551, 558 (6th Cir. 2004) (concealment of
assets through special bank accounts); United States v. Fretz
(In re Fretz), 244 F.3d 1323, 1329 (11th Cir. 2001) (failure to
file tax returns); Tudisco v. United States (In re Tudisco),
183 F.3d 133, 137 (2d Cir. 1999) (failure to file returns);
United States v. Fegeley (In re Fegeley), 118 F.3d 979, 984
(3d Cir. 1997) (failure to file returns); In re Birkenstock,
87 F.3d 947, 951–52 (7th Cir. 1996) (failure to file returns
and attempt to conceal income); Dalton v. IRS, 77 F.3d 1297,
1302 (10th Cir. 1996) (concealment of asset ownership).
With the exception of the mere failure to file a return, these
same acts satisfy the conduct requirement for criminal tax
evasion in this Circuit. See United States v. Carlson,
235 F.3d 466, 468–69 (9th Cir. 2000).

    A specific intent construction of “willfully” in the
bankruptcy tax context is also supported by the Internal
Revenue Code. In language almost identical to that used in
§ 523(a)(1)(C), the Internal Revenue Code makes it a felony
to “willfully attempt[] in any manner to evade or defeat any
tax.” 26 U.S.C. § 7201. The specific intent required for
felonious tax evasion “requires the Government to prove that
the law imposed a duty on the defendant, that the defendant
                       HAWKINS V. FTB                           13

knew of this duty, and that he voluntarily and intentionally
violated that duty,” United States v. Bishop, 291 F.3d 1100,
1106 (9th Cir. 2002) (internal quotation marks omitted); that
is, a “voluntary, intentional violation of a known legal duty,”
Cheek v. United States, 498 U.S. 192, 201 (1991) (internal
quotation marks omitted). See also Edwards v. United States,
375 F.2d 862, 867 (9th Cir. 1967) (interpreting the provision
to require “willfulness in the sense of a specific intent to
evade or defeat the tax or its payment”). The Supreme Court
has clarified that such an attempt “almost invariably” will
“involve[] deceit or fraud upon the Government, achieved by
concealing a tax liability or misleading the Government as to
the extent of the liability.” Kawashima v. Holder, 132 S. Ct.
1166, 1175, 1177 (2012). If attempted evasion under
§ 523(a)(1)(C) is interpreted in a similar manner, then it
would require fraudulent, or at least specific, intent.

    Similarly, in Spies, the Court considered the difference
between the misdemeanor of willfully failing to pay a tax or
file a timely return (§ 7203) with the felony of willfully
attempting to evade or defeat a tax or its payment (present
§ 7201). 317 U.S. at 498. The Supreme Court rejected the
government’s contention, which is similar to the one it takes
in this case, that a willful failure to file a return, coupled with
a willful failure to pay the tax, constituted a willful attempt to
evade or defeat a tax in violation of § 7201. Id. at 499.
Rather, it interpreted the statute as requiring some “willful
commission in addition to willful omissions.” Id. It then
provided some examples of qualifying acts, including keeping
double books, making false bookeeping entries, destruction
of records, concealment of assets, along with “any kind of
conduct, the likely effect of which would be to mislead or
conceal.” Id. Applying the logic of Spies, which was
construing language almost identical to the phrase at issue,
14                     HAWKINS V. FTB

simply spending beyond one’s income would not qualify as
a “willful[] attempt[] in any manner to evade or defeat such
tax.”

     Given the structure of the statute as a whole, including its
object and policy, legislative history, case precedent, and
analogous statutes, we conclude that declaring a tax debt non-
dischargeable under 11 U.S.C. § 523(a)(1)(C) on the basis
that the debtor “willfully attempted in any manner to evade or
defeat such tax” requires a showing of specific intent to evade
the tax. Therefore, a mere showing of spending in excess of
income is not sufficient to establish the required intent to
evade tax; the government must establish that the debtor took
the actions with the specific intent of evading taxes. Indeed,
if simply living beyond one’s means, or paying bills to other
creditors prior to bankruptcy, were sufficient to establish a
willful attempt to evade taxes, there would be few personal
bankruptcies in which taxes would be dischargeable. Such a
rule could create a large ripple effect throughout the
bankruptcy system. As to discharge of debts, bankruptcy law
must apply equally to the rich and poor alike, fulfilling the
Constitution’s requirement that Congress establish “uniform
laws on the subject of bankruptcies throughout the United
States.” U.S. Const., art. I, § 8, cl. 4.

    Some of our sister circuits have read 11 U.S.C.
§ 523(a)(1)(C) differently, interpreting the statute to require
the government to show that the debtor “(1) had a duty to pay
taxes under the law, (2) knew he had that duty, and
(3) voluntarily and intentionally violated that duty.” Vaughn,
2014 WL 4197347 at *6; Coney, 689 F.3d at 371; Gardner,
360 F.3d at 558; Fretz, 244 F.3d at 1330; Fegeley, 118 F.3d
at 984; Birkenstock, 87 F.3d at 952; Dalton, 77 F.3d at 1300.
                      HAWKINS V. FTB                         15

     To the extent that these cases can be construed, as the
government does, as holding that a tax debt can be considered
dischargeable if the acts were committed intentionally, but
not necessarily for the purpose of evading taxation, we
respectfully disagree. However, most of the cases involve
intentional acts or omissions designed to evade taxes, such as
criminal structuring of financial transactions to avoid
currency reporting requirements (Coney, 689 F.3d at 369);
concealing assets through nominee accounts (Vaughn, 2014
WL 4197347 at *6; Gardner, 360 F.3d at 559; Birkenstock,
87 F.3d at 952); concealing ownership in assets (Vaughn,
2014 WL 4197347 at *6; Dalton, 77 F.3d at 1302); and
failing to file tax returns and pay taxes (Fretz, 244 F.3d at
1329; Fegeley, 118 F.3d at 984). These actions are not
inconsistent with a specific intent requirement. And, although
lavish lifestyle and ability to pay taxes have been mentioned
by some Circuits, see, e.g., Vaughn, 2014 WL 4197347 at *6,
no Circuit has held that living beyond one’s means alone
constitutes willful tax evasion, and no circuit has held that
failure to pay taxes, by itself, constitutes willful tax evasion
within the meaning of that clause in § 523(a)(1)(C).

                              III

    Absent circuit law on this question, the district and
bankruptcy courts held that specific intent to evade taxes was
not required in order to except a tax debt from discharge
under 11 U.S.C. § 523(a)(1)(C) and relied in large part on the
Hawkinses’ spending beyond their income as the basis for
denying tax debt discharge. Aside from the KPMG
transactions, most of the expenditures on which the
government relies were made consistent with Hawkins’s past
spending practices, and investments were made in property
that would be subject to tax liens. As far as the record
16                     HAWKINS V. FTB

discloses thus far, there were no financial transfers into
nominee accounts or concealment of assets, although the
government claims that some funds ordered paid into trust by
the family court were done so with the intent of tax evasion.

    The government rightly points out that there were other
facts that supported a finding of a willful failure to evade
taxes that were cited as part of the decisions. However, given
the heavy reliance on lifestyle choices in the decisions, it is
not possible for us to determine if the district or bankruptcy
court decisions would have been different without that
consideration, and we decline to evaluate the other evidence
tendered by the government in the first instance on appeal.
Because neither the district court nor the bankruptcy court
had the benefit of our conclusion that denial of discharge for
“willfully attempt[ing] in any manner to evade or defeat” a
tax debt requires that the acts be taken with the specific intent
to evade the tax, we vacate the judgment and remand so that
the courts can reanalyze the case using the specific intent
standard. We need not, and do not, reach any other issue
urged by the parties. Each party shall bear its or their own
costs on appeal.

     REVERSED AND REMANDED.



RAWLINSON, Circuit Judge, 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.
                      HAWKINS V. FTB                        17

    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
ocean-view condominium worth well over $2.6 million. See
id., pp. 9–10. Although there were only two drivers in the
family, Hawkins purchased a fourth vehicle that cost
$70,000.00. See id., p. 10. At the family court hearing,
Hawkins’ bankruptcy attorney “testified that Hawkins’ intent
was not to pay the tax debt, but to discharge it in
bankruptcy. . . .” Id., p. 19. This testimony is a strong
indication of a willful intent to avoid the payment of taxes by
hook or by crook. Indeed, the bankruptcy court noted that the
personal living expenses of the Hawkins family during the
period in question were “truly exceptional.” Id., p. 20.
Incredibly, the family “spent between $16,750 and $78,000
more” each month than their income. Id. The bankruptcy
court determined that the wasting of assets through profligate
18                     HAWKINS V. FTB

spending indicated willful evasion of tax payments. See id.,
p. 27. Ultimately, the bankruptcy court relied upon the
following “badges of evasion”: 1) Hawkins’ “exceptional
business sophistication”; 2) his “open acknowledgment of his
tax debt and insolvency”; 3) the lengthy period of wasteful
spending; 4) the amount of wasteful spending; and 5) “the
extent to which the wasteful expenditures exceeded . . .
earned income.” Id., p. 29.

    The majority opinion gives Hawkins a pass by focusing
on the Bankruptcy Code’s purpose of providing a “fresh
start” to debtors.       However, this overly expansive
interpretation of the “fresh start” policy could easily eclipse
all discharge exceptions. The majority’s conclusion, in my
view, creates a circuit split and turns a blind eye to the
shenanigans of the rich.

    I am persuaded by the reasoning of a recent decision in
the Tenth Circuit involving similar circumstances, Vaughn v.
IRS (In re Vaughn), No. 13-1189, 2014 WL 4197347 (10th
Cir. Aug. 26, 2014). In that case, the Tenth Circuit cited to
the district court decision in this case to support its ruling.
See id. at *6 (citing Hawkins v. Franchise Tax Bd., 447 B.R.
291, 300 (N.D. Cal. 2011). In Vaughn, as in Hawkins, a
wealthy taxpayer sought to discharge through bankruptcy a
substantial amount of taxes owed. See id. at *4.

    The Tenth Circuit held that the determination of “whether
or not a debtor willfully attempted to evade or defeat a tax
under 11 U.S.C. § 523(a)(1)(C) is a question of fact
reviewable for clear error. . . .” (citation, footnote, reference
and alterations omitted). Id. at *6. The court articulated the
following elements required to satisfy the mental state
requirement: “1) the debtor had a duty under the law; 2) the
                         HAWKINS V. FTB                             19

debtor knew he had the duty; and 3) the debtor voluntarily
and intentionally violated the duty.” Id. (citing Vaughn v. IRS
(In re Vaughn), 463 B.R. 531, 546 (Bankr. D. Colo. 2011);
Hawkins, 447 B.R. at 300).

    The Tenth Circuit incorporated a number of findings from
the bankruptcy court to support the conclusion that Vaughn
acted willfully to evade taxes, including failure to preserve
assets despite knowledge of substantial tax liability, and
“numerous large expenditures.” Id. n.5.1 The Tenth Circuit
also adopted the observation made in Hawkins that
“nonpayment of a tax can satisfy the conduct requirement
when paired with even a single additional culpable act or
omission.” Id. (quoting Hawkins, 447 B.R. at 301).

    I would follow the lead of the Tenth Circuit and affirm
the bankruptcy court ruling denying discharge of Hawkins’
substantial tax liability due to his willful attempt to avoid
payment of those taxes through profligate spending. The
bankruptcy court’s findings were not clearly erroneous and
were consistent with the persuasive rationale articulated by
the Tenth Circuit in Vaughn. Providing a fresh start under the
Bankruptcy Code should not extend to aiding and abetting
wealthy tax dodgers. I respectfully dissent.




  1
    Notably, these same findings also were made by the bankruptcy court
in this case.
