FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES OF AMERICA, 

No. 07-56408 Plaintiff-Appellee,

D.C. No.

v.  CV-06-02136-GPS

MARTIN A. KAPP,

OPINION Defendant-Appellant. 

Appeal from the United States District Court

for the Central District of California

George P. Schiavelli, District Judge, Presiding

Argued and Submitted

December 10, 2008—Pasadena, California

Filed May 4, 2009

Before: Jerome Farris and Kim McLane Wardlaw, Circuit

Judges, and William W Schwarzer, District Judge.*

Opinion by Judge Schwarzer

*The Honorable William W Schwarzer, Senior United States District

Judge for the Northern District of California, sitting by designation. 

5135
COUNSEL

Alan F. Broidy, Esq., Law Offices of Alan F. Broidy, APC,

Los Angeles, California, for the defendant-appellant. 

Richard T. Morrison, Deputy Assistant Attorney General, Gilbert S. Rothenberg, Jonathan S. Cohen and Gretchen M. Wolfinger, Attorneys, Tax Division, U.S. Department of Justice,

Washington, D.C., for the plaintiff-appellee. 

OPINION

SCHWARZER, District Judge:

Martin A. Kapp appeals the district court’s entry of a permanent injunction preventing him from preparing or assisting

in preparing federal tax returns that assert the position that

mariners are entitled to an unreimbursed deduction for meal

expenses while working on board a ship, when no meal

expenses are actually incurred (the “mariner’s tax deduction”). He also appeals the grant of summary judgment for the

government and the denial of his cross motion for summary

judgment. We have jurisdiction of this timely appeal under 28

U.S.C. § 1291, and affirm the judgment of the district court.

I. Facts and Procedural History 

Kapp is a Certified Public Accountant who specializes in

preparing federal income tax returns for individuals employed

in the transportation industry. This case relates to his preparation of federal tax returns for mariners who work on oceangoing ships and who are at sea for long periods without

returning to port (“deep sea mariners”), and mariners who

work on tug boats and barges (“tug and barge mariners”),

which return to port more frequently. Deep sea mariners are

provided meals by their employer while working on board the

5140 UNITED STATES v. KAPP
ship. Tug and barge mariners also typically do not incur meal

related expenses. 

Between approximately January 1997 and February 2006

Kapp prepared tax returns for mariners who lived on vessels

in the course of their employment that claimed the mariner’s

tax deduction. Two of these returns were for Marin Johnson

and Jim Westling, who were employed as deep sea mariners

during the tax year in question. Both individuals were provided meals at no cost, but claimed a deduction based on the

number of days at sea multiplied by the full meals and incidental expenses (“M&IE”) rate. 

The Internal Revenue Service (“IRS”) disallowed the

deductions, and Johnson and Westling filed petitions in the

Tax Court. In 2000, the Tax Court held that although the mariners could deduct travel expenses while working away from

home, Johnson and Westling could not deduct the full M&IE

rate because they had not actually incurred meal expenses.

Johnson v. Comm’r, 115 T.C. 210, 215 (2000); Westling v.

Comm’r, 80 T.C.M. (CCH) 373, 373 (2000). They were permitted to deduct the incidental expenses portion of the M&IE

rate, however, because the mariners paid for items including

personal hygiene supplies and bottled water at the ship’s

store. Johnson, 115 T.C. at 215; Westling, 80 T.C.M. (CCH)

at 376. After these rulings, the IRS modified its Revenue Procedures and issued two Chief Counsel Advisories which concluded that the taxpayer may not claim the full M&IE rate

when only incidental expenses are incurred. See, e.g., Rev.

Proc. 2002-63 § 4.05, 2002-2 C.B. 691; I.R.S. Chief Counsel

Advisory 200242038 (October 18, 2002), 2002 WL

31341876, at *13; I.R.S. Chief Counsel Advisory 200343025

(October 24, 2003), 2003 WL 22422671, at *6. 

After the Johnson and Westling decisions, Kapp wrote several articles in a trade publication, The Professional Mariner,

discussing potential tax deductions available to mariners.

Kapp theorized about the different deductions available to

UNITED STATES v. KAPP 5141
deep sea mariners, and acknowledged that “claiming this

additional meal deduction [when meals are provided] is considered double dipping.” He asserted that tug and barge mariners were entitled to claim the full M&IE deduction, reduced

by the amount of their grocery allowance.1 Although he temporarily stopped claiming deductions on behalf of deep sea

mariners, he continued to file returns claiming the deduction

on behalf of his tug and barge mariner clients. 

In November 2003 the IRS notified Kapp that he was under

investigation for conducting a tax shelter promotion. Attorney

Dennis Perez represented Kapp. Perez and Kapp met with

George Campos, the IRS agent in charge of the investigation,

several times in 2004 and 2005. In a March 2005 meeting, the

IRS informed Kapp that the mariner’s tax deduction was not

allowed under the Internal Revenue Code (“I.R.C.”). A memorandum dated April 18, 2005 drafted by an attorney in

Perez’s firm concluded that little authority supported Kapp’s

position that either deep sea mariners or tug and barge mariners were entitled to deduct the full M&IE amount, because

both types of mariners are typically provided meals by their

employer at no cost.2

On May 2, 2005 Perez wrote a letter to Campos detailing

Kapp’s position on deductions for tug and barge mariners. He

followed with a second letter on July 27, 2005 which stated

that “although Mr. Kapp does not necessarily agree with the

position you articulated for the first time in our meeting last

month . . . he has agreed to cease claiming meal deductions

as he has done previously.” Campos did not respond to the

1A per person grocery allowance is typically provided to the captain of

a ship to cover the costs of providing meals to the mariners while they are

working. The captain uses the money to obtain groceries for the entire

crew, and the food is cooked on board the ship. 

2Although Kapp may have been able to assert the attorney-client privilege and work product protection, the memorandum was produced by his

counsel during discovery. 

5142 UNITED STATES v. KAPP
letters. After completing his investigation, Campos prepared

a final report concluding that “Mr. Kapp is instrumental in

preparing erroneous returns and incorrectly interpreting the

Internal Revenue Code.” The government filed a complaint in

April 2006 seeking an injunction that would prevent Kapp

from claiming deductions for meals that are provided to an

employee without cost. 

During the course of the litigation, Kapp was deposed by

the government. He stated that he did not routinely ask mariners whether they were provided meals free of charge by their

employer before claiming a deduction on their behalf. Additionally, he acknowledged that while he stopped claiming the

full M&IE deduction for deep sea mariners after the Johnson

decision, he began claiming it again in late 2005 or early 2006

based on purported endorsement of his position by Campos,

and because he needed to be more aggressive in claiming

deductions to provide negotiating room with the IRS. 

Both parties moved for summary judgment in February

2007. Kapp asserted that he was entitled to summary judgment because his position regarding the deemed substantiated

deductions for mariners was legally correct and taken in good

faith. The government argued that an injunction was proper

because Kapp continued to claim the mariner’s tax deduction

even though he knew the deduction was improper. In August

2007 the district court granted summary judgment for the

government and permanently enjoined Kapp from preparing

tax returns that claim a deduction for meals that are provided

to mariners without cost. The injunction also required that

Kapp provide a list of clients for whom he prepared returns

claiming these deductions, post a link to the court’s order on

his websites, and explain to his clients that the court determined that he had incorrectly advised them about the mariner’s tax deduction. 

Subsequent to the judgment enjoining Kapp, the Tax Court

published two cases specifically addressing Kapp’s position

UNITED STATES v. KAPP 5143
regarding tug and barge mariners. See Zbylut v. Comm’r, 95

T.C.M. (CCH) 1172, 1175 (2008); Balla v. Comm’r, 95

T.C.M. (CCH) 1090, 1093 (2008). Relying on the Johnson

decision, both cases held that tug and barge mariners could

not use the regulations that permit deemed substantiated

deductions for meals when no expense was incurred by the

taxpayer. Zbylut, 95 T.C.M. (CCH) at 1175; Balla, 95 T.C.M.

(CCH) at 1093.

II. Statutory Overview

[1] The I.R.C. § 162 permits taxpayers to deduct reasonable

business expenses paid or incurred during the taxable year,

including travel expenses such as meals and lodging.3 I.R.C.

§ 162(a). However, § 274 disallows such deductions unless

the taxpayer meets strict substantiation requirements. I.R.C.

§ 274(d). Section 274(d) also contains a provision that allows

the Secretary of the Treasury (“Secretary”) to create regulations that eliminate some or all of the substantiation requirements when the expense is below a prescribed amount. I.R.C.

§ 274(d). The applicable § 274 regulations authorize the Commissioner of Internal Revenue (“Commissioner”) to create

optional methods of computing travel expenses, including a

per diem deduction for meals and incidental expenses, which

satisfy the substantiation requirements of § 274(d). Treas.

Reg. § 1.274-5(j)(1). 

[2] The Commissioner issued Revenue Procedures which

specify the Federal Travel Regulations M&IE rate as the

amount that a taxpayer may deduct in lieu of substantiating

the actual cost of meals.4 Rev. Proc. 90-60, §§ 3.02, 4.03,

3Unless otherwise indicated, all section references are to the Internal

Revenue Code in effect during the years at issue. 

4Revenue Procedure 90-60 § 4.03 provides in relevant part: 

“In lieu of using actual expenses, employees and self-employed

individuals, in computing the amount allowable as a deduction

5144 UNITED STATES v. KAPP
1990-2 C.B. 651. The Commissioner updates these Revenue

Procedures annually, but the relevant provisions have

remained substantially the same since 2000. See, e.g., Rev.

Proc. 2000-39, 2000-2 C.B. 340; 2001-47, 2001-2 C.B. 332;

2004-60, 2004-2 C.B. 682; 2005-67, 2005-2 C.B. 729. Travel

expenses below the threshold M&IE amounts are deemed

substantiated and the taxpayer is not required to provide documentation in order to deduct the expense. Rev. Proc. 90-60,

§ 4.03, 1990-2 C.B. 651.

[3] Additionally, the Federal Travel Regualtions provide

that the M&IE rate must be adjusted for a meal furnished to

the taxpayer (except as provided in § 301-11.17) by deducting

the appropriate amount. 41 C.F.R. § 301-11.18. However, “[a]

meal provided by a common carrier or a complimentary meal

provided by a hotel/motel does not affect your per diem.” 41

C.F.R. § 301-11.17. Ships are included within the definition

of common carriers. 41 C.F.R. § 301-10.100.

III. Standard of Review

A summary judgment granting a permanent injunction is

generally reviewed for abuse of discretion. Sprint Tel. PCS,

L.P. v. County of San Diego, 490 F.3d 700, 708 (9th Cir.

2007). However, we review “any determination underlying

the grant of an injunction by the standard that applies to that

determination.” Id. (quoting Ting v. AT & T, 319 F.3d 1126,

1134-35 (9th Cir. 2003)). “Thus, we review a district court’s

findings of fact for clear error and its determinations of law

. . . de novo”. Id.

for ordinary and necessary meal and incidental expenses paid or

incurred for travel away from home, may use an amount computed at the Federal M&IE rate for the locality of travel for each

calendar day . . . the employee or self-employed individual is

away from home.” Rev. Proc. 90-60, § 4.03, 1990-2 C.B. at 653.

UNITED STATES v. KAPP 5145
The determination that there are no genuine issues of material fact that preclude the entry of summary judgment is

reviewed de novo, viewing the evidence in the light most

favorable to the nonmoving party. See United States v. Alameda Gateway Ltd., 213 F.3d 1161, 1164 (9th Cir. 2000). 

IV. Entry of the Injunction

A. Standard for injunctive relief.

[4] The district court enjoined Kapp from preparing tax

returns claiming the mariner’s tax deduction under I.R.C.

§ 7407. An injunction is proper under § 7407 if the court finds

that the tax preparer has engaged in conduct subject to penalty

under § 6694, and an injunction is appropriate to prevent

recurrence of the violation. Section 6694 provides that a tax

return preparer is subject to penalty if he prepares a return

with understated liability due to an unreasonable position not

supported by substantial authority. I.R.C. § 6694. 

[5] The applicable regulations further define what conduct

is subject to penalty under § 6694. The regulations provide

that a person has a reasonable basis for his position “if a reasonable and well-informed analysis by a person knowledgeable in tax law would lead such a person to conclude that the

position has approximately a one in three, or greater, likelihood of being sustained on the merits . . .” Treas. Reg.

§ 1.6694-2(b)(1). Additionally, the substantial authority standard is objective, and is not affected by the taxpayer’s subjective belief in the correctness of his position. Treas. Reg.

§ 1.6662-4(d)(3)(i). The government bears the burden of

proving each element for enjoining a tax preparer by a preponderance of the evidence. See United States v. Estate Pres.

Servs., 202 F.3d 1093, 1102 (9th Cir. 2000). 

Thus, the district court properly enjoined Kapp if (1) he

prepared a return that understated liability, (2) due to an

unreasonable position, i.e., a position that objectively had a

5146 UNITED STATES v. KAPP
less than one in three chance of being sustained on the merits,

and (3) an injunction is appropriate to prevent recurrence. 

B. Kapp prepared returns that understated tax 

liability.

Kapp argues that mariners do not have to pay or incur meal

expenses in order to claim a deduction under the regulations

that allow certain expenses to be deemed substantiated without documentation. He notes that meals provided by common

carriers are not required to be subtracted from the allowed per

diem deduction amount, and that ships are included within the

definition of common carriers. C.F.R. § 301-11.17, -10.100.

Therefore, he reasons that mariners who are provided meals

while on board a ship should be allowed to claim the full

M&IE allowance for days at sea, even though no meal

expense is incurred. Kapp also creates several complicated

hypothetical examples to support his argument that under the

§ 274 regulations, certain travelers could claim a deduction

for deemed substantiated expenses when no actual costs are

incurred. 

[6] Kapp’s argument is based on a misunderstanding of the

regulations that create the deemed substantiated exception. He

essentially argues that Executive Branch agency regulations

can be manipulated to subvert provisions of the I.R.C. enacted

by Congress. The regulations are intended to interpret and

assist in the enforcement of the I.R.C., not to undermine it.

The I.R.C. gives the Secretary and the Commissioner discretionary authority to issue regulations to ease the burden on

taxpayers, who would otherwise have to meet the extensive

substantiation requirements of § 274 in order to claim deductions for business related travel. I.R.C. § 274(d); see additionally Balla, 95 T.C.M. (CCH) at 1092. The regulations,

however, do not eliminate the requirement in § 162 that

expenses must be paid or incurred in order to be deducted.5

5Kapp points to an opinion issued by the General Counsel for the Office

of the Inspector General at the Department of Justice that examines the per

UNITED STATES v. KAPP 5147
[7] The regulations reflect the requirements of § 162. In the

first section outlining their purpose, the regulations state that

they “provide[ ] an optional method for employees and selfemployed individuals who pay or incur meal costs to use in

computing the deductible costs of business meal and incidental expenses paid or incurred while traveling away from

home.” Rev. Proc. 90-60, §1, 1990-2 C.B. 651 (emphasis

added). After the Johnson decision, the regulations were

altered to provide a method for computing the applicable

deduction for incidental expenses when no meal costs are paid

and incurred. See, e.g., Rev. Proc. 2002-63 § 4.05, 2002-2

C.B. 691. 

[8] Therefore, a meal provided by a common carrier need

not be deducted from the per diem M&IE rate under 41

C.F.R. § 301-11.17, but a taxpayer cannot take the per diem

deduction if he does not incur any meal related expenses. Rev.

Proc. 90-60, §1, 1990-2 C.B. 651. Additionally, Kapp’s

examples of individuals who may attempt to manipulate the

regulations to claim impermissible deductions when they do

not incur expenses does not alter the requirement in § 162 that

expenses must be paid or incurred in order to be deducted.

Because Kapp claimed deductions on behalf of mariners who

did not pay or incur meal expenses, he prepared returns that

understated liability.

C. Kapp’s position was unreasonable.

Kapp argues that even if he incorrectly claimed the mariner’s tax deduction for taxpayers who incurred no meal costs,

his position was not unreasonable and was supported by subdiem travel allowances paid to border patrol agents. He claims that the

opinion supports his position that expenses need not be paid or incurred

to be deducted. The opinion concludes that border patrol agents can accept

complimentary meals provided by their hotel without affecting their per

diem. However, the border patrol agents, unlike mariners, incur other meal

related expenses while traveling. 

5148 UNITED STATES v. KAPP
stantial authority. The analysis of the reasonableness of his

position differs slightly for deep sea and tug and barge mariners, and we discuss each group separately. 

1. Deep sea mariners

[9] Kapp’s assertion that deep sea mariners were permitted

to take the mariners tax deduction is patently unreasonable in

light of the ruling in the Johnson case. In that case, which

arose from conduct nearly identical to the conduct that is the

basis of the injunction, the court stated “[w]e do not read the

revenue procedures to allow a taxpayer to use the full M&IE

rates when he or she incurs only incidental expenses.” Johnson, 115 T.C. at 227. Kapp unsuccessfully attempts to distinguish Johnson, but the clear implication of the holding is that

taxpayers may not deduct meal expenses when no such

expenses are incurred. Id. Kapp acknowledged as much himself in his The Professional Mariner articles. 

Kapp claims that he recently resumed the practice of taking

a deduction on behalf of his deep sea mariner clients based on

alleged approval of the position by Campos. In his declaration

submitted in opposition to the government’s summary judgment motion Kapp stated that: 

I had a long meeting with IRS Agent George Campos on August 12, 2005, during which I reviewed

my legal position with him in detail . . . . At the end

of the meeting, Mr. Campos sort of threw his arm

around me and stated ‘Now I understand.’ Since Mr.

Campos at no time during or after the . . . meeting

stated that he disagreed with my position, or that my

position was frivolous, I interpreted Mr. Campos’[s]

statement as an endorsement of my legal position . . .

[10] Even accepting the accuracy of Kapp’s description of

his interaction with Campos, the conduct is not an affirmation

of Kapp’s position allowing him to claim the deduction on

UNITED STATES v. KAPP 5149
behalf of deep sea mariners, especially in light of the Johnson

ruling. Because a well-informed analysis of the issue by a person knowledgeable in tax law would not lead to the conclusion that Kapp’s position had at least a one in three chance of

being sustained on the merits, his position was unreasonable

and not based on substantial authority.

2. Tug and barge mariners

[11] Kapp argues that claiming the mariner’s tax deduction

for tug and barge mariners was reasonable because Johnson

applied only to deep sea mariners. He contends that taking the

deduction on behalf of tug and barge mariners, who return to

port more frequently, presented novel issues. Although the

Johnson case arose from a slightly different factual situation,

the principles of the Tax Court’s holding clearly extend to tug

and barge mariners. The essence of the court’s holding is that

individuals may not deduct the full M&IE rate when they do

not incur meal expenses. Johnson, 115 T.C. at 227. By extension, if tug and barge mariners do not incur meal expenses,

they may not take a deduction. The frequency of a mariner’s

return to port is irrelevant to the holding of the case. 

[12] A memorandum prepared by an associate of Kapp’s

lawyer Perez concluded there was little support for Kapp’s

position that tug and barge mariners could deduct meal

expenses when no cost was incurred. Although Kapp claims

that he asked Perez to play “devil’s advocate” and draft a

memorandum that laid out the arguments in opposition to his

position, the memorandum presents an even-handed examination of the issues and states that “little if any authority relied

on by Mr. Kapp supports the position that he takes.” After

thoroughly analyzing a host of Tax Court cases and IRS publications, the memorandum concludes that although the “analysis does not foreclose the possibility that Mr. Kapp could

ultimately be successful on the issue . . . . it appears to me that

the weight of authority favors the Government on this issue.”

Shortly after the date of this memorandum, Perez wrote a let5150 UNITED STATES v. KAPP
ter to Campos stating that although Kapp did not agree with

the position taken by the IRS, he agreed to stop claiming the

deduction. 

[13] Additionally, in two rulings issued after the district

court entered the injunction against Kapp, the Tax Court

rejected the contention that tug and barge mariners were entitled to deduct the full M&IE allowance when no meal costs

were incurred. Zbylut, 95 T.C.M. (CCH) at 1175; Balla, 95

T.C.M. (CCH) at 1093.6 While we cannot evaluate the reasonableness of Kapp’s position in light of these rulings issued

after the IRS investigation, it is worth noting that the Tax

Court stated that the issues presented were not novel, and

relied heavily on the reasoning in Johnson to reach its conclusion. Zbylut, 95 T.C.M. (CCH) at 1175; Balla, 95 T.C.M.

(CCH) at 1093. 

[14] Although there was no precedent at the time Kapp prepared the returns that specifically stated tug and barge mariners may not claim the mariner’s tax deduction, a wellinformed analysis by a person knowledgeable in tax law

would have led to the conclusion that Kapp’s position had less

than a one in three chance of being sustained on the merits.

Therefore, his position was unreasonable and not supported

by substantial authority. 

6Kapp argues that these cases are distinguishable because the court

found that neither taxpayer worked on board a common carrier. Therefore,

they could not benefit from the provisions of 41 C.F.R. § 301-11.17,

which provides that common carrier meals are not counted against the federal M&IE rate. As explained above, however, the common carrier exception only comes into play if the taxpayer is entitled to a per diem

deduction for travel expenses in the first place, i.e., pays or incurs some

travel related expenses. 

UNITED STATES v. KAPP 5151
D. The injunction was necessary to prevent 

recurrence.

The district court’s finding that an injunction is necessary

is a fact sensitive determination which we review for clear

error. See Sprint Tel. PCS , 490 F.3d at 708. 

[15] Kapp acknowledged that although he stopped claiming

the mariner’s tax deduction for deep sea mariners after the

Johnson case, he later began claiming it based on a purported

endorsement of his position by Campos, and because he

needed negotiating room with the IRS. Kapp’s weak justification for claiming the deduction in light of clear precedent to

the contrary supports the issuance of an injunction as to deep

sea mariners. 

[16] The injunction is also appropriate as to deductions for

tug and barge mariners. Kapp asserts that he would never

claim the deduction after the Balla and Zbylut cases, unless

they are overturned on appeal, and that an injunction is not

warranted. Kapp’s conduct, however, suggests that an injunction is necessary. Although his attorney represented that Kapp

would stop claiming the deduction for tug and barge mariners,

he continued to claim these deductions. Given that Kapp acted

in a manner contrary to the assurances he provided to the government, and continued to claim deductions for deep sea mariners in spite of clear authority to the contrary, the district

court did not abuse its discretion in issuing the injunction. 

E. Good faith defense

[17] A tax preparer who prepares a return that understates

liability due to an unreasonable position may still avoid a penalty under § 6694 if he can show that there is reasonable cause

for the understatement and he acted in good faith. I.R.C.

§ 6694(a)(2)(B), (a)(3). The associated § 6694 regulations list

five factors to consider in evaluating whether the tax preparer

can assert the good faith defense: (1) the nature of the error,

5152 UNITED STATES v. KAPP
(2) the frequency of the errors, (3) the materiality of the

errors, (4) the preparer’s normal office practice, and (5) reliance on advice of another preparer. Treas. Reg. § 1.6694 2(d).

The taxpayer bears the burden of establishing a good faith

defense. I.R.C. § 6694(a)(3); Treas. Reg. § 1.6694-2(e)(2). 

Kapp argues that he is not subject to a penalty because he

acted in good faith by seeking the advice of numerous government officials and attorneys. He asserts that he contacted several attorneys at the main IRS office in Washington, D.C. to

seek comment on his Professional Mariner articles, and to

discuss the ability of tug and barge mariners to take the mariner’s tax deduction in light of the Johnson ruling. He also

contacted a high ranking General Services Administration

(“GSA”) employee responsible for administering the Federal

Travel Regulations, to confirm his understanding that meals

provided by a common carrier need not be deducted from the

per diem M&IE amount. Additionally, he claims to have

relied on the advice of Steven Stolar and Ellin Palmer, two

private sector attorneys. Finally, he asserts that he is entitled

to assert a good faith defense because several of the returns

he prepared claiming the mariner’s tax deduction were

audited by the IRS, and the agency did not require any

changes. 

[18] Although Kapp made efforts to seek comment on and

support for his position, his efforts do not allow him to claim

the good faith defense. The government employees contacted

by Kapp do not qualify as preparers under the regulations, and

he was not entitled to rely on their advice. See Treas. Reg.

§ 301.7701-15(a); 301.7701-15(a)(6) (defining a “preparer” as

a person who prepares returns for compensation and specifically excluding IRS employees performing official duties).

Even if the government employees qualified as preparers

under the regulations, Kapp is not entitled to rely on their

advice unless he can demonstrate that they were aware of all

the relevant facts. Treas. Reg. § 1.6694-2(d)(5)(ii). The correspondence between the GSA employee and Kapp does not

UNITED STATES v. KAPP 5153
demonstrate that the GSA employee was aware that the taxpayers in question do not pay or incur any meal expenses.

Additionally, the IRS attorneys contacted by Kapp informed

him that they could not officially comment on his articles, and

that there was no procedure to set up a meeting to provide

advice specific to his situation.

[19] Kapp also claims to have relied on the advice of private sector attorneys Stolar and Palmer, but he has failed to

show that either attorney qualifies as a preparer. Even assuming that they qualify, Kapp failed to demonstrate that either

was aware of all of the relevant facts underlying the returns

he filed claiming the mariner’s deduction. The record shows

that he had general conversations with Palmer about travel

regulations and the Johnson case, and that Stolar reviewed

and agreed with his Professional Mariner articles. General

conversations about regulations and cases and review of an

article, however, do not demonstrate that either Stolar or

Palmer analyzed the relevant facts and advised Kapp that his

position was correct. Kapp’s counsel during the investigation,

the only attorneys who appear to have analyzed his position

in light of all the relevant facts, concluded that he was not

entitled to claim the deduction. 

[20] Finally, Kapp is not entitled to rely on “no change”

determinations made in IRS audits. See I.R.C. § 6110(k)(3)

(“a written determination may not be used or cited as precedent”). Therefore, Kapp is not entitled to assert a good faith

defense for his violations of § 6694, and the district court did

not err in entering the injunction against him under § 7407. 

V. Scope of the Injunction

Kapp argues that the injunction is vague and overbroad for

two reasons. First, he claims that it prevents him from claiming deductions that other tax preparers are allowed to claim.

Second, he claims that it prevents him from claiming tax

5154 UNITED STATES v. KAPP
deductions that are available to his other transportation industry clients, such as airline pilots. 

[21] The district court’s injunction prevents Kapp from preparing returns claiming a tax deduction for meals that are provided to mariners at no cost. The Tax Court’s decisions in

Johnson, Balla and Zbylut, however, prevent any tax preparer

from claiming such a deduction. The injunction does not place

Kapp at a unique disadvantage relative to other tax preparers.

[22] Additionally, the injunction does not prevent Kapp

from claiming deductions for mariners that he is entitled to

claim for other clients.7 Section 162 requires that all business

expenses must be paid or incurred in order to be deducted.

The Commissioner has discretionary authority to issue regulations that alter substantiation requirements under § 274. Treas.

Reg. § 1.274-5(j)(1). It is possible that some of these regulations, intended to ease the burden on taxpayers, create situations where an unscrupulous taxpayer may claim a deemed

substantiated deduction when no expense is actually incurred.

The regulations do not, however, eliminate the requirement

that expenses must be paid and incurred before they can be

deducted. All taxpayers, regardless of occupation, must first

pay or incur expenses before they are entitled to take a deduction. I.R.C. § 162.

VI. Summary Judgment

[23] Kapp asserts that there are several disputed material

facts related to his ability to claim a good faith defense and

7Kapp notes that the regulations permit employees to receive tax-free

per diem or hourly travel allowance payments instead of deducting

expenses on their tax returns. Rev. Proc. 90-60, §§ 3.03, 4.01, 1990-2 C.B.

651. He argues that an employee, such as an airline pilot, can collect this

payment when traveling regardless of whether he pays or incurs expenses.

However, the code limits per diem allowances to the amount that the

payor reasonably anticipates will be incurred by the employee. Rev. Proc.

90-60, § 3.01(1), 1990-2 C.B. 651. 

UNITED STATES v. KAPP 5155
that the district court erred in granting summary judgment for

the government. A disputed fact is material only if it can

affect the outcome of the suit under governing law. In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008), (citing Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). 

Kapp argues that there were disputed facts related to his

discussions with a GSA official regarding deductions for

common carrier meals, his interactions with IRS attorneys, his

reliance on the advice of his own counsel, and numerous “no

change” audit letters issued by the IRS. However, even if we

accept Kapp’s assertions, these facts are not material because

they would not entitle him to assert a good faith defense under

§ 6694 and the associated regulations. Treas. Reg. § 1.6694-

2(d). As discussed in Section IV(E), supra, the individuals

Kapp consulted do not fall within the definition of a preparer,

and he was not entitled to rely on their advice because they

were not aware of all the relevant facts. Additionally, audit

letters he relies on are not precedential. I.R.C. § 6110(k)(3).

Therefore, the district court did not err in granting summary

judgment for the government. 

AFFIRMED.

5156 UNITED STATES v. KAPP