UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF OHIO 

EASTERN DIVISION 

UNITED STATES OF AMERICA, 

 Plaintiff, 

v. Case No. 2:12-cv-1034 

 JUDGE SMITH 

 Magistrate Judge Kemp 

JOHN D. ALLEN, individually and d/b/a 

ALLEN & ASSOCIATES, 

 Defendant. 

OPINION AND ORDER 

 This matter is before the Court upon Plaintiff United States of America’s Motion for 

Default Judgment (Doc. 41). Defendant John Allen has not filed a response. After reviewing the 

arguments presented by the United States, as well as the overall record of these proceedings, the 

Court GRANTS Plaintiff’s Motion for Default Judgment. 

I. BACKGROUND 

 In November 2012, Plaintiff United States of America (“Plaintiff”) initiated this action 

pursuant to 26 U.S.C. §§ 7402, 7407, and 7408, against Defendant John Allen (“Defendant”), 

individually and doing business as Allen & Associates, seeking to enjoin him from, among other 

activities, preparing federal tax returns for others, promoting any plan or arrangement that 

advises or helps taxpayers to violate internal revenue laws or unlawfully evade the assessment or 

collection of their federal tax liabilities, and engaging in any other conduct that is subject to 

penalty under the Internal Revenue Code or that interferes with the proper administration and 

enforcement of the internal revenue laws. (See Doc. 1, Compl.). Defendant filed an Answer to 

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the Complaint denying the allegations. (See Doc. 3, Answer (subsequently stricken by Doc. 40, 

Order)). He also filed two motions to dismiss—one on jurisdictional grounds and the other 

based on Plaintiff’s alleged failure to state a claim upon which relief could be granted—which 

were both ultimately denied. (See Docs. 4 and 21, Mots. Dismiss; Docs. 14 and 29, Orders 

Denying Mots. Dismiss). 

 The record reflects the discovery issues that have plagued this case from the beginning. 

(See Doc. 20, Mot. Compel; Doc. 34, Mot. Sanctions; Doc. 39, 2d Mot. Sanctions). In light of 

Defendant’s continued refusal to adequately respond to Plaintiff’s discovery requests, the Court 

granted Plaintiff’s Second Motion for Sanctions pursuant to Rule 37(b) of the Federal Rules of 

Civil Procedure. See United States v. Allen, No. 2:12-CV-1034, 2014 WL 3530850. After 

weighing the relevant factors, the Court found that striking Defendant’s Answer from the record 

and entering default judgment in favor of Plaintiff—although harsh—was a necessary and 

appropriate sanction under the circumstances. See id. at *5 (finding “all four factors weigh 

heavily in favor of the entry of a default as to Mr. Allen’s liability”). The Court then explained 

the implications of its decision: 

[U]nder these circumstances, the Court finds that the appropriate sanction is to 

strike Mr. Allen’s answer and enter a default as to liability. Accordingly, the wellpleaded factual allegations of the complaint pertaining to liability will be taken as 

true. . . . Whether the facts in the complaint indeed are well-pleaded or support the 

entry of a judgment for injunctive and other relief is a separate matter for the 

consideration by the District Judge. . . . That issue may be preserved by way of a 

motion for judgment on the complaint. 

Id. at *5-*6 (internal citations omitted). 

 Consequently, Plaintiff filed the Motion for Default Judgment now before the Court, 

asserting that it is entitled to judgment pursuant to Rule 55(b)(2) of the Federal Rules of Civil 

Procedure. (See Doc. 41, Mot. Def. J.). Defendant did not file a response. 

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II. STANDARD OF REVIEW 

 As set forth above, the Court has already found Defendant in default pursuant to Rule 

55(a). “Once the default has been entered, the well-pleaded facts of the complaint relating to 

liability must be accepted as true.” United States v. Cunningham, No. 07-CV-212, 2009 WL 

112831 (S.D. Ohio Jan. 15, 2009) (Black, J.). This is not to say, however, that every allegation 

relating to liability in the Complaint is deemed true; facts not established by the pleadings, 

claims which are not well-pleaded, and unsupported conclusions of law are not binding and 

cannot support a judgment. Nishimatsu Construction Co., Ltd. v. Houston National Bank, 515 

F.2d 1200, 1206 (5th Cir.1975); see also In re Family Resorts of Am., Inc., 972 F.2d 347 (6th 

Cir. 1992) (“Upon entry of default, only those well-pleaded allegations relating to liability are 

taken as true.”). Thus, an entry of default does not automatically entail judgment in Plaintiff’s 

favor. Nishimatsu, 515 F.2d at 1206. Rather, the Court must review the pleadings as a whole to 

determine whether a “sufficient basis” exists entitling Plaintiff to judgment pursuant to Rule 

55(b). Id. 

III. DISCUSSION 

 Plaintiff moves for default judgment on all of its claims. Plaintiff argues that after all 

well-pleaded allegations in the Complaint are taken as true, the Court can find only in Plaintiff’s 

favor, and that judgment as a matter of law is warranted and appropriate. 

 The Court has, for all intents and purposes, already addressed this issue. In its October 

22, 2013 Order Denying Defendant’s Motion to Dismiss, the Court stated: 

In this matter, the United States seeks to enjoin Defendant from engaging in a 

variety of conduct that interferes with the enforcement of the internal revenue 

law. In particular, the United States’ Complaint sets forth sufficiently detailed 

factual allegations of Defendant’s conduct subject to penalty under 26 U.S.C. §§ 

6694, 6695, 6700, and 6701. The United States alleges that Defendant continually 

and repeatedly prepared federal tax returns that understated his customers’ tax 

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liabilities as a result of unreasonable and frivolous claims; that Defendant did not 

sign or otherwise identify himself as the preparer of tax returns that he prepared 

for his customers; that Defendant organized or assisted with the organization of a 

plan or arrangement and in doing so made or caused another person to make false 

and fraudulent statements with respect to the tax benefits of participating in the 

plan or arrangement which Defendant knew or had reason to know were false; 

and that Defendant prepared and/or aided or assisted in the preparation and filing 

of federal income tax returns and other documents that he knew would result in 

the understatement of his customers’ tax liabilities. Because the United States has 

set forth factual allegations that, if true, would entitle it to relief, Defendant’s 

argument that the Complaint fails to allege a claim upon which relief can be 

granted is unpersuasive. 

 (Doc. 29, Order Denying MTD at 5-6) (emphasis added). For purposes of completeness, 

however, the Court will briefly review each of Plaintiff’s causes of action once again. 

A. Injunction Pursuant to 26 U.S.C. § 7407 

 26 U.S.C. § 7407 allows the Court to grant an injunction against a tax return preparer 

from further engaging in (1) “fraudulent or deceptive conduct which substantially interferes with 

the proper administration of the Internal Revenue laws” or (2) conduct subject to penalty under 

section 6694 or 6695 if necessary and appropriate to “prevent the recurrence of such conduct.” 

Section 6694 states that, in preparing tax returns, tax preparers shall not willfully understate tax 

liabilities, recklessly or intentionally disregard rules or regulations, or understate tax liability due 

to an unreasonable position. Section 6695 assesses a penalty for tax preparers who fail to sign a 

tax return that they have prepared. If the Court finds a broader injunction, i.e. one that enjoins an 

individual from “acting as a tax return preparer” in general, is necessary, the Court may so order 

if it finds that the preparer “continually or repeatedly engaged” in the fraudulent or deceptive 

conduct and that a narrower injunction would be futile. See 26 U.S.C. § 7407. 

 Accepting as true all well-pleaded factual allegations set forth in the Complaint, the Court 

finds Plaintiff is entitled to default judgment against Defendant as to this cause of action. The 

detailed allegations in the Complaint establish that Defendant prepared several tax returns on 

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behalf of others in which he falsely claimed that they did not earn any taxable income based on 

unreasonable theories and a reckless disregard for IRS rules and regulations. (See, e.g., Doc. 1, 

Compl. at ¶¶ 10-17). Plaintiff does not rely on general accusations or legal conclusions; instead, 

Plaintiff details the various schemes utilized by Defendant and provides specific examples of his 

fraudulent conduct. (See, e.g., id. at ¶¶ 17, 19, 20, 23, 24, 27-29, 32). Finally, the Court notes 

that the IRS identified hundreds of returns that Defendant prepared in contravention of the IRS 

rules and regulations—a course of conduct that could only be described as “continual or 

repeated.” (Id. at ¶¶ 14, 36). 

 Based on these well-pleaded factual allegations, the Court finds Plaintiff has set forth a 

sufficient basis in the pleadings warranting default judgment. Plaintiff’s motion as to Count I is 

therefore well-taken. 

B. Injunction Pursuant to 26 U.S.C. § 7408 

 26 U.S.C. § 7408 allows a court to enjoin an individual from engaging in conduct 

prohibited by sections 6700 and 6701 if doing so is “appropriate to prevent recurrence of such 

conduct.” Section 6700 precludes an individual from organizing a plan or arrangement and 

subsequently making or causing another person to make “statement[s] with respect to the 

allowability of any deduction or credit, the excludability of any income, or the securing of any 

other tax benefit by reason of holding an interest in the entity or participating in the plan or 

arrangement which the person knows or has reason to know is false or fraudulent as to any 

material matter.” Section 6701 assesses a penalty for any individual who aids, assists, or advises 

with respect to the preparation of any material portion of a tax return and knowingly understates 

another’s tax liability. 

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 Taking all allegations in the Complaint as true, the Court finds Plaintiff is entitled to 

injunctive relief based on Defendant’s conduct in contravention of sections 6700 and 6701. The 

well-pleaded factual allegations illustrate how Defendant aided, advised, and assisted others in 

preparing their tax returns in a plan designed to vastly understate their tax liabilities. (See, e.g., 

Doc. 1, Compl. at ¶¶ 21-24). Defendant did this knowing, or at least with reason to believe, that 

the IRS would materially rely on these false statements in issuing its returns. (Id. at ¶ 59). 

Further, in light of Defendant’s numerous fraudulent filings as well as a lack of any 

accountability or acknowledgement of impropriety on Defendant’s part, the Court finds 

injunctive relief is appropriate to “prevent recurrence of such conduct.” 26 U.S.C. § 7408. 

Accordingly, the Court finds Plaintiff’s well-pleaded allegations warrant default judgment in its 

favor as to Count II. 

C. Injunction Pursuant to 26 U.S.C. § 7402 

 26 U.S.C. § 7402 is essentially a catch-all provision that grants federal district courts the 

authority to issue any remedy that may be necessary and appropriate “for the enforcement of the 

internal revenue laws.” Plaintiff asserts the Court should exercise its authority in this case for 

several reasons: (1) Defendant substantially interfered with the enforcement of internal revenue 

laws by “promoting his tax-fraud schemes and preparing fraudulent and frivolous federal tax 

returns and other documents on behalf of his customers”; (2) Defendant exploited his customers 

and subjected them to civil liability; (3) Defendant caused the IRS to expend a significant 

amount of money investigating, remediating, and prosecuting his tax-fraud schemes; and (4) it is 

likely that Defendant will continue to promote and administer these schemes absent a permanent 

injunction. 

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 The Court finds Plaintiff’s arguments well-taken. Plaintiff’s 21-page Complaint is 

replete with specific facts, details, and examples of Defendant’s frivolous and fraudulent 

schemes, actions, and advice. When accepted as true and read together, these well-pleaded 

allegations form a sufficient basis for the issuance of an injunction. In promoting his various 

schemes, Defendant took advantage of his customers, blatantly disregarded the internal revenue 

laws, and cost the IRS significant amounts of time and money. For these reasons, the Court finds 

it necessary and appropriate to enjoin Defendant from further engaging in these activities and 

interfering with the proper enforcement of the internal revenue laws in the future. Accordingly, 

Plaintiff is entitled to default judgment as to Count III of its Complaint. 

IV. CONCLUSION 

 For reasons set forth above, the Court finds that Plaintiff is entitled to default judgment 

pursuant to Rule 55(b) of the Federal Rules of Civil Procedure as to all counts set forth in the 

Complaint. Plaintiff’s motion is therefore GRANTED. 

 The Court specifically ORDERS that: 

A. Pursuant to 26 U.S.C. §§ 7402 and 7407, John D. Allen is enjoined from acting 

as a federal tax return preparer and from engaging in conduct subject to penalty 

under 26 U.S.C. §§ 6694 and 6695; 

B. Pursuant to 26 U.S.C. §§ 7402 and 7408, John D. Allen is enjoined from 

engaging in conduct subject to penalty under 26 U.S.C. §§ 6700 and 6701; 

C. Pursuant to 26 U.S.C. §§ 7402 and 7407, John D. Allen is permanently 

enjoined from acting as a federal tax return preparer and from preparing or 

filing federal tax returns or forms for others, from representing others before 

the IRS, and from advising or assisting anyone concerning federal tax matters. 

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D. Pursuant to 26 U.S.C. §§ 7402, 7407, and 7408, John D. Allen and anyone in 

active concert or participation with him are permanently enjoined from 

engaging in the conduct listed below, either directly or indirectly: 

(1) Preparing or filing, or assisting in, or directing the preparation or filing 

of any federal tax return, amended return or other federal tax 

documents or forms for any other person or entity; 

(2) Directly or indirectly organizing, promoting, marketing, or selling any 

plan or arrangement that advises or helps taxpayers to violate internal 

revenue laws or unlawfully evade the assessment or collection of their 

federal tax liabilities, including promoting, selling, or advocating the 

misuse of Internal Revenue Service Forms including Forms 1040, 

1099, W-2, and W-4, under the false claims that his customers’ wages 

do not qualify as income under 26 U.S.C. § 3401(a) or 26 CFR 1.861-

8(f)(1); 

(3) Engaging in conduct subject to penalty under 26 U.S.C. § 6694; 

(4) Engaging in conduct subject to penalty under 26 U.S.C. § 6695, 

including failing to sign federal tax returns as the preparer or failing to 

otherwise identify himself as the paid preparer; 

(5) Engaging in conduct subject to penalty under 26 U.S.C. § 6700, 

including organizing or selling a plan or arrangement and making or 

furnishing a statement regarding the excludability of income or 

securing any other tax benefit that he knows or has reason to know is 

false or fraudulent as to any material matter; 

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(6) Engaging in conduct subject to penalty under 26 U.S.C. § 6701, 

including preparing and filing or assisting in the preparation and filing 

of tax returns and other documents that understate the tax liabilities of 

others; 

(7) Filing, providing forms for, or otherwise aiding or abetting the filing of 

frivolous Forms 1040, 1040X, 1099, W-2, W-4, and other IRS forms 

for himself or others; 

(8) Filing, preparing notices or other forms, or otherwise aiding or abetting 

the filing of frivolous liens against the United States and its officers, 

employees, and agents; 

(9) Representing anyone other than himself before the Internal Revenue 

Service; 

(10) Engaging in any other conduct that is subject to penalty under the 

Internal Revenue Code or that interferes with the proper administration 

and enforcement of the internal revenue laws. 

 In its Complaint, Plaintiff also requested this Court to order Defendant to “contact by 

mail and email all persons for whom he has prepared federal tax returns since 2006” and to 

“provide the United States a list of all persons for whom he has prepared federal tax returns since 

2006.” While the United States may engage in post-judgment discovery to ensure compliance 

with the terms of this Order and Judgment, the Court notes that Defendant is currently 

incarcerated and that these remedies may not be feasible. However, to the extent practicable, the 

Court orders Defendant to comply with Plaintiff’s reasonable post-judgment remedial requests. 

 The Clerk shall remove Document 41 from the Court’s pending motions list. 

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 The Clerk shall remove this case from the Court’s pending cases list. 

 IT IS SO ORDERED. 

 

 /s/ George C. Smith 

GEORGE C. SMITH, JUDGE 

UNITED STATES DISTRICT COURT

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