Summary
stating equitable considerations are a part of § 7402
Summary of this case from U.S. v. ClarksonOpinion
Case No. 2:04-cv-400-FtM-29SPC.
September 23, 2004
ORDER
This matter comes before the Court on plaintiff's Motion For Preliminary Injunction (Doc. #2) filed on July 28, 2004. Plaintiff has filed a Brief in Support of its motion (Doc. #9), along with declarations (Docs. #4-6) and exhibits (Doc. #10). Defendants have filed an Amended Brief in Support of its Opposition to plaintiff's motion. (Doc. #33).
Defendants Fred J. Anderson, Richard Alan Walters, and Deborah A. Martin are proceeding pro se in this matter. The Court has previously informed defendant Tax Strategies, Inc. that pursuant to Local Rule 2.03(d), a corporation cannot proceedpro se. Defendant Richard Alan Walters subsequently filed a Notice informing the Court that Tax Strategies, Inc. has been dissolved and no longer exists as a Florida corporation. (Doc. #35).
I.
Defendant Fred J. Anderson (Anderson) formed defendant Tax Strategies, Inc. (Tax Strategies) in October of 1997. Tax Strategies, which was located in Lehigh Acres, Florida, sold financial and tax services to the public. Defendant Richard Alan Walters (Walters) purchased all or part of Tax Strategies from Anderson in April of 2001 and served first as its vice president and then as its president. Defendant Deborah Martin (Martin) was the vice president of Tax Strategies and prepared tax returns for its customers.
The Complaint (Doc. #1) alleges that defendants promoted and marketed abusive tax schemes through seminars, the Internet, and promotional literature. According to plaintiff, those schemes involved the creation and use of sham entities, such as trusts, charitable foundations, and limited liability companies, to eliminate or reduce reported federal income and/or self-employment tax liability. From 1998 to June of 2003, Martin allegedly prepared federal tax returns for defendants' customers using these schemes, which resulted in these customers under-reporting and under-paying their federal taxes.
Plaintiff's three-count Complaint (Doc. #1) seeks (1) an injunction against Martin pursuant to 26 U.S.C. § 7407; and injunctions against all defendants pursuant to (2) 26 U.S.C. § 7408, and (3) 26 U.S.C. § 7402. Plaintiff seeks a preliminary injunction as to all three counts of the Complaint enjoining all defendants from further promoting their allegedly abusive tax schemes and enjoining Martin from preparing federal tax returns. (Doc. #2, p. 1).
II.
Section 7407 authorizes injunctions against income tax return preparers who, among things, (1) violate 26 U.S.C. §§ 6694 or 6695, (2) misrepresent their experience or education as a tax return preparer, or (3) engage in any other fraudulent or deceptive conduct that substantially interferes with the proper administration of the internal revenue laws. In addition, the Court must find that injunctive relief is appropriate to prevent the recurrence of such conduct. Section 6694 covers the understatement of a taxpayer's liability by an income tax return preparer. Section 6695 covers other assessable penalties with respect to the preparation of income tax returns, such as failing to (1) furnish a proper identifying number, (2) keep copies of returns prepared or list of customers for whom returns were prepared, or (3) turn over those copies of returns or list of customers to the Internal Revenue Service upon request. If a return preparer continually or repeatedly engaged in the prohibited conduct, a court can impose a lifetime return-preparation ban. Under § 7407, the Court need not "address directly the common law requisites for injunctive relief since Congress, in legislatively granting injunctive powers, has already taken these requirements into account." United States v. Ratfield, 2002 WL 31556427, at *3 (S.D. Fla. 2002), quotingU.S. v. Bailey, 789 F. Supp. 788, 812 (N.D. Tex. 1992).To obtain a preliminary injunction under § 7408, the United States must show that defendants engaged in conduct subject to penalty under 26 U.S.C. §§ 6700 or 6701, and that injunctive relief is appropriate to prevent the conduct from recurring. Section 6700 penalizes anyone who, among other things (1) participates, either directly or indirectly, in the sale of any shelter plan or arrangement; (2) makes false statements about tax benefits in connection with the sale; (3) knows or has reason to know that the statements are false; and (4) the false statements pertain to a material matter, such as a purported tax deduction or the exclusion of income. Section 6701 imposes penalties on any person who (1) aids, assists, or advises with respect to the preparation or presentation of any portion of a return, (2) knowing or having reason to believe that such assistance or advice will be used in connection with any material matter, and (3) who knows that such portion of the return, if used, would result in an understatement of another person's tax liability. Similar to § 7407, the Court need not address directly the common law requisites for injunctive relief.
Section 7402(a) provides district courts the jurisdiction to issue injunctions in civil actions "as may be necessary or appropriate for the enforcement of the internal revenue laws." Unlike §§ 7407 and 7408, "the decision to issue an injunction under § 7402(a) is governed by the traditional factors shaping the district court's use of the equitable remedy." United States v. Ernst Whinney, 735 F.2d 1296, 1301 (11th Cir. 1984). In the Eleventh Circuit the issuance of "a preliminary injunction is an extraordinary and drastic remedy that should not be granted unless the movant clearly carries the burden of persuasion on each of [four] prerequisites." Suntrust Bank v. Houghton Mifflin Co., 252 F.3d 1165, 1166 (11th Cir. 2001), reh'g reh'g en banc denied, 275 F.3d 58 (11th Cir. 2001); see also Four Seasons Hotels Resorts, B.V. v. Consorcio Barr, S.A., 320 F.3d 1205, 1210 (11th Cir. 2003); McDonald's Corp. v. Robertson, 147 F.3d 1301, 1306 (11th Cir. 1998). The four prerequisites for a preliminary injunction are: (1) a substantial likelihood of succeeding on the merits; (2) a substantial threat of irreparable injury if relief is denied; (3) an injury that outweighs the opponent's potential injury if relief is not granted; and (4) an injunction would not harm or do a disservice to the public interest. Four Seasons Hotels Resorts, 320 F.3d at 1210;Suntrust Bank, 252 F.3d at 1166; American Red Cross v. Palm Beach Blood Bank, Inc., 143 F.3d 1407, 1410 (11th Cir. 1998);Gold Coast Pub'ns, Inc. v. Corrigan, 42 F.3d 1336, 1343 (11th Cir. 1994), cert. denied, 516 U.S. 931 (1995).
"A showing of irreparable injury is the sine qua non of injunctive relief." Siegel v. Lepore, 234 F.3d 1163, 1176 (11th Cir. 2000), quoting Northeastern Fla. Chapter of the Ass'n of Gen. Contractors v. City of Jacksonville, 896 F.2d 1283, 1285 (11th Cir. 1990) (internal quotation omitted). As the Eleventh Circuit has stated on numerous occasions, the asserted irreparable injury "must be neither remote nor speculative, but actual and imminent." Siegel, 234 F.3d at 1176, quoting City of Jacksonville, 896 F.2d at 1285 (internal quotation omitted). Further, because injunctions regulate future conduct, "a party has standing to seek injunctive relief only if the party alleges, and ultimately proves, a real and immediate — as opposed to a merely conjectural or hypothetical — threat of future injury."Church v. City of Huntsville, 30 F.3d 1332, 1337 (11th Cir. 1994), citing City of Los Angeles v. Lyons, 461 U.S. 95, 102 (1983) (emphasis original). Past exposure to illegal conduct is not sufficient to show an entitlement to injunctive relief "if unaccompanied by any continuing, present adverse effects."Church, 30 F.3d at 1337, quoting Lyons, 461 U.S. at 102.
III.
Defendants contend that plaintiff has not shown an entitlement to preliminary injunctive relief under any of the relevant sections of the Internal Revenue Code. Specifically, defendants argue that plaintiff has not met its burden of showing that defendants are currently engaged in any of the alleged activities detailed in the Complaint or that there is a threat of recurrence of such activities. (Doc. #33, pp. 1-2). The Court agrees. To the extent the Complaint alleges specific dates for defendants' conduct, such conduct allegedly occurred from 1998 through June of 2003. (Doc. #1, ¶¶ 23, 25, 30). In addition, the only evidence offered by plaintiff in support of its motion suggests that such conduct continued in 2002 and through the first half of 2003. (Doc. #6, ¶ 21). If anything, plaintiff's evidence suggests that defendants are waiting for the present matter to be resolved before engaging in any of the alleged conduct. (Id., ¶ 20). In short, plaintiff has neither alleged nor offered evidence that defendants' alleged conduct is continuing or that there is a threat of recurrence. Therefore, under §§ 7407 and 7408, plaintiff has failed to meet its burden of showing that injunctive relief is appropriate to prevent the alleged conduct from recurring; under § 7402, plaintiff has not met its burden of showing a real and immediate threat of future injury from defendants' alleged conduct. Thus, the Court concludes that plaintiff's motion for an injunction is due to be denied.
Accordingly, it is now
ORDERED:
United States' Motion For Preliminary Injunction (Doc. #2) is DENIED.
DONE AND ORDERED.