Opinion ID: 3002805
Heading Depth: 2
Heading Rank: 1

Heading: Statutory Authority for the Injunction

Text: A district court is authorized to enter an injunction against any person if it finds “(1) that the person has engaged in any [conduct subject to penalty under 26 U.S.C. § 6700], and (2) that injunctive relief is appropriate to prevent recurrence of such conduct.” 26 U.S.C. § 7408(b).
Section 6700 imposes a penalty on any person who (1) organizes (or assists in the organization of) any plan or arrangement, or participates (directly or indirectly) in the sale of any interest in an entity or plan or arrangement, and (2) in connection with such organization or sale, makes or furnishes a statement with respect to the allowability of any deduction or credit, the excludability or 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 (3) which the person knows or has reason to know is false or fraudulent (4) as to any material matter. 26 U.S.C. § 6700(a). 6 Nos. 08-1312 and 08-1586 Benson claims that he was simply urging political action and was not promoting any plan because he did not engage in affirmative conduct such as offering to help prepare trusts, false W-4 forms, false income tax returns, letters to harass the IRS, claims for tax refunds, etc., as some tax protestors have in the past. Benson is wrong, both legally and factually. First, the definition of a plan for purposes of § 6700 is broad. Raymond, 228 F.3d at 811 (“any ‘plan or arrangement’ having some connection to taxes” (citing Kaun, 827 F.2d at 1147)). Courts have not been hesitant in finding tax protesters’ activities to qualify as plans. Kaun, 827 F.2d at 1148 (“words ‘any other plan or arrangement’ are clearly broad enough to include a tax protester group”); Raymond, 228 F.3d at 811-12 (sale of program that told customers they could legally refuse to pay federal income tax was sale of an interest in a plan under § 6700); United States v. Schulz, 529 F. Supp. 2d 341, 348 (N.D.N.Y. 2007) (instruction guide on stopping employer withholdings was plan or arrangement), aff’d, 517 F.3d 606, 607 (2d Cir. 2008). Benson’s plan was simpler than some prior tax protester schemes, but its purpose was the same—to evade tax liability. Instead of filing false tax returns, Benson’s plan encouraged customers not to file a tax return at all. Such a don’t-do-it-yourself kit does not require forms or filings. Here, the devil is not in the details. Like every other tax protester, Benson was selling an illegal method by which to avoid paying taxes; the details of that method are immaterial. Second, Benson’s materials were prepared in such a way so that the entirety of either Package could be sent to Nos. 08-1312 and 08-1586 7 the IRS if they began an investigation. The Reliance Defense Package included a customized Reliance Letter, which concluded: It is insanely unrealistic for someone like [customer’s name] to believe that he would be required to file any forms with any state taxing agency or the Federal Government, when the 16th Amendment to the U.S. Constitution is an absolute complete total fraud as proven by The Law That Never Was Volume I and in excess of 17,000 documents etc. that [customer’s name] relies on as his STATE OF MIND, FRAME OF MIND RELIANCE, AND BELIEF. The entire Reliance Pro- gram shall become a part of his permanent record. Therefore, Benson was providing his customers with something to send to the IRS in an effort to avoid paying taxes. At least one taxpayer submitted the Reliance Letter and several other elements of the Reliance Defense Package along with the entire 16th Amendment Reliance Package to the IRS when questioned about failing to file an income tax return. The only distinction between Benson’s plan and other plans is that Benson’s materials were to be utilized after the IRS launched an investigation. So Benson did organize a plan or arrangement and participated in the sale of an interest in the plan or arrangement. 26 U.S.C. § 6700(a)(1). Benson made numerous statements about the tax benefits to be enjoyed by customers as a result of purchasing his materials and participating in his plan or arrangement. 26 U.S.C. § 6700(a)(2)(A). In promoting his materials, Benson claimed that he “discovered that 8 Nos. 08-1312 and 08-1586 the 16th Amendment was not ratified” and to have documents “proving that the 16th Amendment . . . is an absolute, complete, total fraud.” Benson also claimed on his website that: After serving time in federal prison for not paying his United States income taxes, Bill Benson still does not pay income taxes and yet our federal government chooses not to arrest him. Why? Because now he can use this book, which he has written: ‘THE LAW THAT NEVER WAS’ in his defense. Benson marketed the Reliance Defense Package on his website as a “compendium of information giving you the education and choice toward not filing an Income tax return. This compendium will give you the education to say ‘Based on my state-of-mind, frame of mind, reliance and belief I am obeying the dictates of Constitutional Law.’ ” Benson boasted that “[t]o date, the IRS has steadfastly refused to prosecute any person standing on this defense. Why do they do this? Because they know they cannot win!!” Benson also stated that “included in your Package will be numerous DVDs and many other references proving that you are not a taxpayer!” Benson knew or had reason to know that his statements were false or fraudulent. 26 U.S.C. § 6700(a)(2)(A). Benson’s claim to have discovered that the Sixteenth Amendment was not ratified has been rejected by this Court in Benson’s own criminal appeal. United States v. Benson, 941 F.2d 598, 607 (7th Cir. 1991) (“In Thomas, we specifically examined the arguments made in The Law That Never Was, and concluded that ‘Benson . . . did not discover anything.’ ” Nos. 08-1312 and 08-1586 9 (quoting United States v. Thomas, 788 F.2d 1250, 1253 (7th Cir. 1986))). “[W]e have repeatedly rejected the claim that the Sixteenth Amendment was improperly ratified. One would think this repeated rejection of Benson’s Sixteenth Amendment argument would put the matter to rest.” Benson, 941 F.2d at 607 (citations omitted). Benson knows that his claim that he can rely on his book to prevent federal prosecution is equally false because his attempt to rely on his book in his own criminal case was ineffective. Benson, 941 F.2d at 607. Benson’s book has been repeatedly discredited by the courts. Miller v. United States, 868 F.2d 236, 241 (7th Cir. 1989) (“We find it hard to understand why the long and unbroken line of cases upholding the constitutionality of the sixteenth amendment generally, and those specifically rejecting the argument advanced in The Law That Never Was, have not persuaded Miller and his compatriots to seek a more effective forum for airing their attack on the federal income tax structure.” (citations omitted)). Benson’s statement that the government cannot successfully prosecute any person choosing not to file a tax return based on his belief that he is obeying the dictates of constitutional law is also false. This argument seems to be derived from Cheek v. United States, 498 U.S. 192 (1991), as discussed above. But Cheek only supports a defense that the defendant misunderstood the requirements of the tax code, not that he believed those requirements to be unconstitutional. Id. at 205-06 (“Claims that some of the provisions of the tax code are unconstitutional are submissions of a different order [from a good-faith misunder10 Nos. 08-1312 and 08-1586 standing of the law]. . . . [D]efendant’s views about the validity of the tax statutes are irrelevant to the issue of willfulness . . . .”); United States v. Dunkel, 927 F.2d 955, 95556 (7th Cir. 1991) (stating that Cheek held that “judges may rebuff defenses based on erroneous constitutional beliefs (such as that the 16th Amendment was not properly ratified)”). Benson argues that because he made no false state- ments, materiality is not at issue. We obviously disagree with Benson’s premise and so must decide whether Benson’s false statements pertained to a material matter. 26 U.S.C. § 6700(a)(2)(A). There is no matter more material to the sale of a tax avoidance package than whether the package effectively allows customers to avoid taxes. Benson’s program was organized and promoted as a golden ticket whereby purchasers could avoid income tax liability and criminal liability. Benson’s false statements regarding the vulnerability of the Sixteenth Amendment and the ability of his customers to refuse to pay taxes without being prosecuted were material because they would have a “ ‘substantial impact’ on the decision to purchase [his] tax package.” United States v. Gleason, 432 F.3d 678, 683 (6th Cir. 2005) (citing United States v. Buttorff, 761 F.2d 1056, 1062 (5th Cir. 1985); see also United States v. White, 769 F.2d 511, 515 (8th Cir. 1985) (material because “taxpayers who have been or are now being audited by the IRS or are involved in litigation because they relied upon appellant’s representations should certainly have been informed about their complete lack of merit”). Even if some of Benson’s followers purchased the Packages for educational purposes Nos. 08-1312 and 08-1586 11 or to take political action, as Benson claims, it is hard to believe they would have bought the materials knowing they were false.
In determining whether an injunction is appropriate to prevent recurrence of the illegal conduct, the court must consider the totality of the circumstances including: (1) the gravity of harm caused by the offense; (2) the extent of the defendant’s participation and his degree of scienter; (3) the isolated or recurrent nature of the infraction and the likelihood that the defendant’s customary business activities might again involve him in such [a] transaction; (4) the defendant’s recognition of his own culpability; and (5) the sincerity of his assurances against future violations. Raymond, 228 F.3d at 813 (quoting Kaun, 827 F.2d at 114950) (internal quotations omitted). Lengthy discussion of this matter is not warranted. Reliance on Benson’s false promises has deprived the government of revenue and has harmed Benson’s customers who were deceived by the “siren call of the tax protester movement.” United States v. Engh, 330 F.3d 954, 956 (7th Cir. 2003). Benson was at the heart of this scheme, which he knew or should have known had been thoroughly rejected by the courts. His violation of § 6700 was not isolated, but continuous since his false assurances about the efficacy of his products were posted on his website. Benson does not acknowledge his culpability, and, despite any assurances 12 Nos. 08-1312 and 08-1586 to the district court, he is not likely to stop without an injunction. The district court adequately examined the necessary factors and did not abuse its discretion in concluding that an injunction was necessary. See Kaun, 827 F.2d at 1148.