Opinion ID: 2973105
Heading Depth: 4
Heading Rank: 1

Heading: subject to penalty under section 6700

Text: 3 Section 6700 provides in pertinent part:
(1)(A) organizes (or assists in the organization of)--

(B) participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement referred to in subparagraph (A), and (2) makes or furnishes or causes another person to make or furnish (in connection with such organization or sale)-- (A) a statement 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 . . . . No. 04-6360 United States v. Gleason, et al. Page 5 expenditures must be “inextricably linked to the production of income,” Buttorff, 761 F.2d at 1060 (quoting Schulz v. Commissioner, 686 F.2d 490, 493 (7th Cir. 1982)). See also Estate Pres. Servs., 202 F.3d at 1101 (disallowing deduction of expenses related to ownership of a personal residence); Grimes v. Commissioner, 806 F.2d 1451, 1453-54 (9th Cir. 1986) (per curiam) (precluding deduction of personal expenditures to achieve the “American Standard of ‘good living’ ”); Kasun v. United States, 671 F.2d 1059, 1061-63 (7th Cir. 1982) (disallowing deduction of commuting expense). Mr. Gleason also failed to warn customers that the notion of deducting wages and all medical expenses through executing employment contracts with family members is subject to close scrutiny and has been rejected in similar abusive tax shelter cases. See generally Haeder v. Commissioner, 81 T.C.M. (CCH) 987 (2001). His claim that his methods are “audit-proof” misleads customers because no tax arrangement is immune from IRS scrutiny, and in fact the IRS has begun auditing many Tax Toolbox customers. Furthermore, many of his statements to induce customers to purchase the Tax Toolbox, including those regarding his education and experience, were flagrantly false. Third, the District Court is not clearly erroneous in concluding that Mr. Gleason knew or had reason to know that his statements were false. Factors relevant to this inquiry include: “(1) the extent of the defendant’s reliance upon knowledgeable professionals; (2) the defendant’s level of sophistication and education; and (3) the defendant’s familiarity with tax matters.” Estate Pres. Servs., 202 F.3d at 1103. Mr. Gleason has not claimed to have relied upon knowledgeable professionals, but instead has promoted himself as a nationally recognized tax expert. Although neither attorney nor law professor, Mr. Gleason has been involved in tax preparation for over fifteen years. Moreover, in his deposition, Mr. Gleason conceded the complexity of Internal Revenue rules governing deductions for employment of family members and admitted knowledge of numerous cases where deductions for payments to children have been disallowed. Fourth, the District Court’s conclusion that Mr. Gleason’s false statements pertained to a material matter is not clearly erroneous. Statements with a “substantial impact” on the decision to purchase a tax package pertain to a material matter. Buttorff, 761 F.2d at 1062 (quoting S. Rep. No. 97-494, 267 (1982), reprinted in 1982 U.S.C.C.A.N. 781, 1015). Mr. Gleason’s exaggerations and misstatements about himself, his company, and the tax benefits of home-based businesses undoubtedly influenced individuals deciding whether to purchase the Tax Toolbox. 2. The Injunction Was Appropriate to Prevent Recurrence Other Courts of Appeals have set out various factors for consideration in determining the need for an injunction to prevent future violations of section 6700, including: (1) the gravity of the harm caused by the offense; (2) the extent of the defendant’s participation; (3) the defendant’s degree of scienter; (4) the isolated or recurrent nature of the infraction; (5) the defendant’s recognition (or non-recognition) of his own culpability; and (6) the likelihood that defendant’s occupation would place him in a position where future violations could be anticipated. Estate Pres. Servs., 202 F.3d at 1105; see also United States v. Kaun, 827 F.2d 1144, 1149-50 (7th Cir. 1987). These factors strongly support the District Court’s issuance of an injunction. Adherence to Mr. Gleason’s tax strategies by his apparently large number of clients, which he advertised as over 250,000, indicates the possibility of significant harm to the federal treasury. Mr. Gleason’s participation in this scheme was pervasive and central. Morever, he maintained at the injunction hearing that the Tax Toolbox offers legitimate advice. Furthermore, his continued tax practice places him in a position where future violations could be anticipated. No. 04-6360 United States v. Gleason, et al. Page 6 C. Introduction of the Tax Toolbox at the Injunction Hearing Mr. Gleason argues on appeal that the Tax Toolbox was never introduced into evidence at the hearing on the injunction, and that, therefore, there was insufficient evidence to support the issuance of the injunction. This argument borders on the frivolous. As Mr. Gleason admitted in his Answer and similarly advertised in his promotional materials, the Tax Toolbox is “a collection of tapes, pamphlets, workbooks, a CD-Rom and record-keeping aids.” Sufficient portions and descriptions of the Tax Toolbox materials became part of the record through exhibits at the hearing on the injunction and through the testimony of various witnesses, namely Mr. Gleason himself. D. The Injunction Does Not Unduly Burden Mr. Gleason’s Livelihood Mr. Gleason challenges the scope of the injunction as an overly burdensome restriction on his ability to earn a living. As the District Court rightly remarked “a total ban on his livelihood should not be undertaken lightly.” However, permanently enjoining him from providing services to Tax Toolbox customers is far from a total ban on his livelihood and is fully warranted in light of his egregious misrepresentations about tax deductions, his company, and his resume. At the injunction hearing, Mr. Gleason and his counsel indicated that the Tax Toolbox constituted a relatively small portion of his overall tax practice and was, as the District Court described Mr. Gleason’s position, “an unfortunate offshoot” of his primary business, My Tax Man, Inc. Mr. Gleason testified that he sold the Tax Toolbox for only three of his roughly fifteen years of tax preparation and that such sales were limited only to those who were already operating small businesses. Moreover, towards the end of the injunction hearing, Mr. Gleason’s counsel asserted that, despite the Tax Toolbox’s demise, Mr. Gleason still “provides services to a lot of entities.” Based on these representations, the injunction will not overly restrict Mr. Gleason’s ability to continue conducting his primary tax practice. Even if the injunction encroaches on more of Mr. Gleason’s livelihood than the transcript reflects, the injunction comports with applicable case law. Some courts have gone so far as issuing a lifetime ban on acting as an income tax preparer in the face of extreme misconduct. See United States v. Nordbrock, 38 F.3d 440, 447 (9th Cir. 1994) (finding no error in lifetime injunction prohibiting preparation of tax returns pursuant to 26 U.S.C. § 7407(b)); United States v. Bailey, 789 F. Supp. 788, 819 (N.D. Tex. 1992) (permanently enjoining individuals from acting as income tax preparers pursuant to 26 U.S.C. § 7407(b)). Others have enjoined a range of tax-related conduct pursuant to 26 U.S.C. § 7408 where, as in this case, violations of 26 U.S.C. § 6700 occurred. See, e.g., United States v. Bell, 414 F.3d 474, 477 n.3 (3d Cir. 2005) (permanent injunction); Estate Pres. Servs., 202 F.3d at 1097 n.3 (preliminary injunction); Kaun, 827 F.2d at 1146 n.1 (permanent injunction); United States v. Stephenson, 313 F. Supp. 2d 1054, 1061-62 (W.D. Wash. 2004) (preliminary injunction). In the instant case, the District Court’s permanent injunction aligns with these cases and their applications of sections 7408 and 6700, and is especially appropriate to avert a serious conflict of interest. Allowing Mr. Gleason to continue providing services to Tax Toolbox customers would foster his direct financial interest in peddling further faulty tax advice to Tax Toolbox customers and in obstructing IRS audits to avoid malpractice liability for his abusive tax scheme embodied in the Tax Toolbox.