injunction we've flipped it around he's doing rebuttal your honor we'd like to reserve seven minutes for rebuttal time your your honour's there are three main issues which require reversal of the lower court's decision in this case to grant a permanent death penalty injunction against my client for life preventing him from any involvement whatsoever in any capacity whatsoever in a tax preparation business and forcing him to dischord nearly a million dollars in alleged ill gotten gains it could the lower court erred in finding that the united states of america proved that mr stenson engaged in fraud aided in it bedded fraud or encouraged fraud in any way there is no evidence on the record of that the lower court also erred in finding that the united states presented a reasonable approximation its case in chief of ill gotten gains earned by mr stints no approximation reasonable or otherwise was ever presented at trial because your quick question about the first of those two things before we talk about disgorgement answer is as i'm looking at the stats story hooks here for the injunction when is it necessary that there be proof of fraud yes your honor in this case yes because the united states government alleged fraud under all three counts count one was the seven four zero eight injunction which clearly requires fraud on  face count two was seven four o seven which on its face does not require fraud but the government alleged that the reason seven four zero seven requires an injunction in this case is because of mr repeated rampant business model of fraud rampant fraud in their complaint i understand but this isn't a criminal case and if you allege something not necessary to your case you can prove less of it and what's necessary to your case and still prevail in a civil case that's the difference between grim ones of a different your honor i don't disagree with you in general there but but in this case we have a case where the united states government over a one hundred fifty five times in its complaint that was published on its website and issued to end press releases issued all over the country branding our client a fraud a rampant fraud a thief if we issued an opinion saying we don't need to decide with that was proven or not should have been branded or not because it's not necessary as you really you can't say just because they allege he was they have to prove it that's not the way civil pleading works it perhaps you are but they didn't predated improve their requirements under the do anyway and while get into that minute i do you said you're going to focus on three and you've got to watch third the third the third issue your honor is the the lower court erred in failing to entertain stinson's claims for sanctions in this case the court issued no findings of fact no conclusions of the law with regard to our claim for sanctions we specifically laid out with references to the record instances where the government multiplied the proceedings and misled this court as to the law the facts i would definitely leave them and why i asked you want to proceed with the other  your honor regarding the evidence produced a trial there were four categories of evidence the government introduced one were summaries of audit's with audit reports underlying them as exhibits these were summaries of expert testimony of trained specially skilled i r s auditor's trained and knowledgeable in the area of tax law  to whether dependents are allowable earned income credit is appropriate commuter miles or business miles are appropriate they they stated in their joint trouble even throughout this case that they had no experts they're not allowed to air a stop from submitting these summaries of audits that contain expert opinion and when we asked to to depose the auditor the opinions of these auditors was irrelevant and again that's an egg another example where the where the where the government misled the court at the time that we challenged and asked for to depose these auditors the government was representing to the court that audits are relevant only the taxpayer testimony is relevant the audit's shed no light unprepared conduct they repeatedly made this representation their own witnesses at trial represented to the court that the summary of audit say nothing whatsoever about prepare conduct and this is  case not about inaccurate or accurate returns this is a case about preparer conduct for the government to admit that its own audits say nothing about prepare conduct and then submit these audit preparer knew about them or not will make that inference lighter i mean you've first got to show that the returns aren't accurate government can't prove its case any of its allegations they're all pointless unless there were conduct if the government doesn't prove that the returns were faults then that's the end of the case so they can prove the returns or fa and put in evidence to show the returns are false without having a problem about whether the preparer knew about it or not that's another aspect of the case yeah i would agree that your are but and if you a loss and the others reported profit in other words you have ninety seven and a half percent of the returns showing losses in two and a half percent showing gains are profits that's evidence that's relevant to whether or not the returns fall by his businesses were false is it not no your honor well yeah only seven and a half percent of businesses in this country lose money during that particular ta there's two two interesting points about that and i don't disagree with what your honor saying the first of all one of the allegations in this case is not that mr stinson's prepares understated the schedule c income but they overstated the schedule c income to to help these taxpayers get an earned income credit because you have to have earned income different different aspects of the case but if you have none and ninety seven and a half percent return on his you're complaining about shows that ninety  on the schedule c businesses schedule cs relating to the businesses showed a loss and that's a relevant fact and it relevant fact regardless of what you later show the preparer knew or it please the court randolph order for the united states your honors and granting the preliminary injunction in this case the district court and this court on appeal determined that the government was likely to prevail in seeking a permanent injunction call any taxpayers to testify in this case quite a few your honor there are eighteen the eighteen witnesses that the government called a trial and there i believe around forty or fifty depositions as well and the taxpayers one after another testified that they looked at their returns at the trial they did not recognize numbers that were on them they don't know where the preparers got those numbers they testified that the preparers basically made those numbers up over and over and over again as the district court said on return after return the evidence of fall schedule a's and schedule cs and education credit claims and filing status and charitable deductions we can go on and on the evidence just piled up  piled up that that there was at a minimum total incompetence here and we can get an injunction for total incompetence under seventy four o two because this is interfering with the enforcement of the laws of the internal revenue code and through his argument that because you laid fraud you've got to prove it regardless of what the statute says we proved everything every all of the factors in those statutes of course seventy four o two is very broad and does not require that any fraud be be shown and we alleged a cause of action under seventy four zero two under seventy four zero eight  alleged in response to his argument that because you allege fraud you must prove it well if yes based on our allegations of fraud we have to prove fraud sure and we did but we also allege if we seventy four zero seven the causes of action the the statements there we said they prepared incompetent returns we said that they didn't know what they were doing and that they prepared these returns or argument is in that part of the complaint you didn't allege fraud when we yes your honor in in in alleging yes that's your argument yes in alleging a cause of action there seventy four seven we allege a cause of action under all of seventy four zero seven we didn't say we have a cause of action under seventy four of seven just because of fraud we said we have a cause of action because you also violated the due diligence requirements of sixty six ninety five because under seventy four zero seven you also violated the requirements under the statute of sixty six ninety four those are elements of the statute and we we alleged and we argued and we proved that we that all of those elements were meant that these people  e get an injunction under seventy four zero two of course for very broad reasons you get an injunction and are seventy four zero seven if you show knowingly understatement of tax even reckless understatement of tax  does and we prove fraud and on page thirty three of the district court's opinion the badge is a fraud are listed out that the district court of found and i would say that there are even additional badges of fraud that the district court didn't mention such as the fact that the preparers there's evidence in the case that the prepares he had the fees they were charging to the taxpayers did not inform them at a minimum of the fees they were they were charging and also that the preparers who were working on a commission based on how many how much in the way of fees were obtained by the stores and basically this was run as largely a pyramid scam just so i'm clear on under oath to no seven setting aside zero two and zero seven there are some aspects of those statutes that do not require you to prove fraud absolutely your honor and you can travel under those alone yes absolutely yes but we broadly prove fraud as well the district court found there was fraud and there is widespread fraud they testified that taxpayer customers testified that they  had no idea where the numbers on the returns came from that the preparer simply made them up the defense mr stenson did not present any of the preparers with returns and say where did these numbers come from except t ask them did you make up any numbers no well all they can say is the purpose of the taxpayers provided the numbers the district court correctly believe the taxpayers went over and over and over again the taxpayers came in they know nothing about tax returns they don't know it is just and mr stenson put on a handful of three or four preparers to testify that they were not trained to produce fraudulent returns that they had no intent of producing fraudulent returns and that those those three he was in even those witnesses he presented did they testify we  didn't make up any numbers those were the numbers given me by the taxpayers yes they testified that yes they did but didn't have to believe the judge did not have to believe that and very importantly mr st did not bring into evidence any returns that were properly prepared not a single one you would think that he's got all the case files of all the customers that he's ever done he's got copies of all of the returns and yet the numbers bear out what the district court found is that return after return has these abuses and that mr stenson didn't produce returns rebutting that he could have perhaps come up with an equal number of returns that we put in the file in the record saying that these are perfectly correct and when there's there's there's really not rampant fraud here but or misconduct but he didn't do that and of course we didn't have to prove that it was on absolutely every return we proved that it was on every return that we audited pretty much exhibit seventy seventy one shows that the audit results show that over a million dollars in  tax liabilities is missing should have been paid understated on only around two hundred thirty returns so the numbers are overwhelming and they did not read that rebut that evidence with evidence of their own  you know i was about to shift subjects me made to about good discourse yeah i want to talk about discords absolute and specifically the calculation issue and i'm not so much concerned the disgorgement maybe the chief is isn't available remedy but i do i do have some concern about the calculation of it even under the reasonable approximation standard can you help us with that yes the numbers that the district court found in our favor came from the returns that mr stenson and eleven and that included schedules a schedule c and i believe education credits and we showed as the district court said there on return after return there were abuses on those and  also with regard to the other tax years the court found that there were over eight hundred thousand in fees with regard to other returns concerning schedules and schedule c and  we showed those fees related to those returns and those were a specific amount of fees that we could get from the service that they used to process the fees and if there's anything missing in the calculation then as i referred to earlier it was incumbent upon mr stenson to come forward with returns and say oh no no no no you can't possibly include fees for returns that included a schedule a because here are sixty fifty one hundred one hundred fifty returns that include schedule a that have no incorrect statements at all so it was their burden to come forward and say there's at least something wrong here and they didn't do that they simply challenge the methodology so you say and i understand this that look we don't have to prove fraud for purposes of discouragement on our return by return basis but but are you essentially shifting the burden to him to disprove fraud on a return by return basis what exactly happens when you've shifted the burden to him what does he come back with and say he says here fifty returns that what that show that we prepared return correctly we came forward with as much in the way i mean we could have had a trial go on for six months where we introduced every tax return every customer that ever came into the shops and every pair that ever did return and that of course would go on for four and into some out of time practically and the district court had had enough cumulative evidence there and in our summaries and our audit reports to say ok there are these many schedule a's and all of these returns and these many schedule c's and these are all abusive now mr stenson please come forward with something tell us that where where the defendant didn't keep records are kept such obscure records you couldn't figure out what's going on when we held i think correctly and as though all the circuit regardless we held it where the defendant had so obscured matters that calculating it was impossible you don't have to calculate the actual loss or fraudulent amount what you calculate instead is the gross proceeds but you're taking that a step father further and saying that even if they haven't obscured it it's too big a hassle and would take too long to go through fourteen thousand returns and i think that was the district courts call and i don't think that's an abuse of discretion to say that i'm going to stop this after a certain point and say i don't need all this cumulative evidence from one side let me see something from the something other really cumulative evidence if it's if it's evidence of what some of the unlawful gain was that's not cumulative right it's you haven't heard evidence about what the rest of the on off again loss that's true i think we introduced a perfectly versed representative sample of what was going on and no we didn't introduce every taxpayer was it randomly drawn sample i mean perfectly legitimate sample says to me took every fourteen return are the twenty seventh return are you took one return and then skip twenty seven and then scamped an even number etc that's how statisticians do it but that's not what you did it wasn't no that's not exactly what we did well how the returns that we used to extrapolate how did you select them the iris number one knows what to look for because this is a rampant problem among preparers they know that where the abuses are going to occur the abuses are going to occur on schedule a schedule c and with various types of credit and all and didn't tell you did you find some schedules c selected randomly randomly but for the fact they had those schedules and and then find out what the loss statement fraud whatever you want call it was on those and then multiply that by the number of returns that you could tell had an a or a c n it is that how you calculated well yes but this this discourse award is based on fees charged yeah i think yes but we did recalculate but if you pick one hundred a and c returns yes and it's obvious that and ninety percent of them there was overstatement of fraud or something like that as then you take that ninety percent figure and you multiply it by the total fees and the a n c cases yes and that's how you get the proceeds of the ones that arguably were overstated invalid or fraudulent is that what was done are did you just take the total amount of returns he got and multiply by that we took the total number of term returns we found with those errors but also the feed the fee records for absolutely every return were incomplete and also are you going back count them that and also the district  court found this was replete on return after return i would also like to emphasize that are there evidence was geared toward meeting the terms of seventy four zero eight seventy four and seventy four to seventy four seven and seventy four right exactly i was just i was just trying to put it in context of how we gathered evidence but we also analyze the evidence to see how one particular witness or was is just as part of your argument well the summaries are contained in the record and exhibit seven six seven seven six eight seven six nine and seven seven one i believe through revenue agent pool ricky pool who who sort of oversaw the audi suid done that were done by the technical compliance officers and tabulated the results and put together the exhibits that showed that how much in the way of overstatement underpayment of liability  was due to these particular problems on the returns these particular schedules yes he did yes he did it he explained that i see my time is up if i could just quickly say that it's february it's tax season again this is a problem that is going on even as we speak and discouragement and injunction are very important tools that the government must use in order to try to curtail this behavior thank you john pompous morning may please the court my name is john pappas first dischord human there with absolutely no testimony absolutely no exhibits introduced by the plaintive government of any ill gotten gains in this case period the only calculation of any ill gotten gain was presented over objection of course by opposing counsel during closing paid for those hundred returns preparation you know gotten gains not probably not the entire fee it depends upon what portion of that fees ill gotten whether was received by the particular defendant involved and would have to be tabulated but would that be a reasonable approximation sufficient to shift the burden to you to disprove it when is a may it has to be made in the evidence it was not done but the chief question is if it were open in the evidence or stipulated or you're bound by the finding sure if hypothetically speaking they introduce an evidence and said these twelve tracks are turned we contend are fraudulent and theoretically they put in proof that they were fraudulent then they could calculate usually by expert testimony summaries more project mation actually they might not even need a reasonable approximation is to say this the supreme court can tell me that i can't consider the perspective that this was a fraudulent return then i think every penny in every dollar of the proceeds ought to be discoursed of the fees charged for that were that return ok i understood you to say you got a portion it oh come on well there's there's some cases that say that but just so you understand judge your hypothetical has nothing to do with this case and the term ethically thank you  thing was absolutely absolutely we were entitled to dismissal as a matter of all going to quickly six seven o two and i mean  seven zero two and seven zero four so into a for the non fraud statutes every element of those statutes they pleaded and argued repeatedly were violated whether they call that reckless and kompany unreasonable position or whatever because of the fraud of my client they pleaded it and argue earned income tax credit was fraught wasn't incompetence it was a when they came before you your honor the whole don't just wait i guess claim to us now in response to the chief question your brother why that matters as a matter of law the statute doesn't it's important to understand they did not do this accidentally if they pleaded all these returns are found on tuesday they'd have to prove that if it was because of the case yes well it's not material we've already gone over that progs not required under those of the two statutory provisions but as interior of the case you know other than the fact i understood you to argue that if they pleaded it's material the fact and smile that a call again if they played it all happened on tuesday they have to prove that because it's material because they plated it that doesn't make sense well your honor with due respect i believe their judicial missions it let me explain why it's material it goes to discovery it goes to the  at trial we actually asked one of their i r s agents shields question ok by need to follow up since apparently something did come out now how do you determine whether a particular return is grossly negligent negligently prepared by even t c due diligence requirements without reviewing the customer file opposing counsel trial objection your honor relevance the court sustain the objection is sustained we were not allowed to ask questions about what they are now back during in in this fraud case they got a problem or you junction is only on fraud the peculiar thing in this case is on the  mischief that over pleading does often is it gets heard by the jury and it's hard to belmont a jury and then you have jury instructions and you've got to confront the issue about whether to include it in the instructions or not but when you've got a pure bench trial none of that really matters because we have a strong presumption that judges decide the case according t law and a judge doesn't have to do jury instructions when the judge is doing the findings of fact and conclusions of law if we're defending a case based upon fraud for two and a half two years or more and we're asking questions at trial just in case they're trying to backdoor a non fraud case and then today the government says that's not relevant to the case what choice do we have will they put our hands are tied they put you to a lot of work and you had to write a letter complaining but that doesn't mean that they don't get the remedy the law entitles them to even if they don't prove fraud if i respectfully disagree your honor i would like to go to the third element and i have only a few seconds left we'll give you a men thank you first of all just so the court understands all the audits we're totally into miscible of one of the reasons they have misrepresented the courts numerous times material facts and law first example the shield's testimony and her non official audience they got that six seven months after discovery was close the micheel testified these are not r s documents these are not the legal process of the i r s they argued successfully in the court relied upon it that these were business records prepared in a more normal course of virus business  own witnesses testified that is not true the only reason why we did this was because the attorneys for the plaintiff against mr stenson in the litigation needed to obtain a random sample date they did not have and we want to gather this double hearsay of taxpayers and this expert testimony of her and other auditor's that never testified at trial to be used against mr stenson completely totally for the litigation against mr stenson that is a deliberate intentional misrepresentation the facts in the law they actually argued and he argue an appeal that form forty five forty nine that she used was used in a normal legal process of the i r s she testified that's absolutely untrue she testified at trial that's untrue she wrote rough draft you she didn't want anyone to think that form was being used as legal process in the normal business practice  to all the other audit's commission by mr pool they argue that they were poor not primarily done motivated or conducted to gather evidence against mr stenson or any relation to litigation whatsoever well that's a false statement a material fact mr mcclelland a supervisor a mr paul testified no mr poole's only job is to investigate tax preparers not tax payers sought they audits for one purpose and one purpose only primarily to gather evidence if not soley but he used the word primarily to gather evidence against mr stenson and yet they falsely argue that all those auditor miscible evidence as a business record are trustworthy trustworthy business record not in any way they say related to the litigation