Opinion ID: 2982652
Heading Depth: 2
Heading Rank: 3

Heading: Errors of Fact

Text: We first address Appellants’ claim that the district court made clearly erroneous findings of fact. Appellants challenge the following findings made by the district court: 195. When using a pay stub to prepare a tax return, the income information is not always accurate, and it can be off for a variety of reasons. In the aggregate, filing tax returns based on paystubs inevitably results in the understatement of customers’ tax liabilities. ITS Financial acknowledges that understatement of income inevitably results from paystub filing, which is why ITS Financial employees claim that company policy is to instruct customers that they are liable to the government for any understatement. 196. ITS Financial knows that tax returns prepared using paystubs are inaccurate more often than not. -6- Case No. 13-4341 United States v. ITS Financial, LLC, et al. Decision, 2013 WL 5947222, at  (internal citations omitted). To make these findings, the judge relied on testimony from Defendant Ogbazion, IRS manager Sam Anderson, and ITS Franchise Support/Relationship Manager Anita Boynton, emails between ITS Franchise Support/Relationship Manager Amber Bennett and a franchisee, and a PowerPoint presentation used to train ITS “Area Developers” and select franchisees on pay-stub filing. We have reviewed these materials and find the district judge’s findings were not clearly erroneous. Defendant Ogbazion agreed during his testimony that “[i]f you prepare a tax return using a pay stub, it’s not always accurate and does not always have all of the information on there,” and “[w]hen using a pay stub to prepare a tax return, the income information can be off for a variety of reasons.” IRS manager Anderson testified that preparing a tax return on a pay stub rather than a W-2 “can leave out” deferred compensation such as 401K contributions, which potentially affects tax liability. When asked what effect “a substantial volume of pay stub filing” would have on the accuracy of income reported on tax returns, Anderson said “[i]n the aggregate, it could have a multitude, it can have no effect possibly. It can have overstated numbers. It could have understated numbers.” And ITS employee Boynton, who had been a tax return preparer before she became a manager, agreed during her testimony that she was “aware that tax returns prepared using pay stubs are inaccurate more often than not,” that “the last paycheck stub varies from a W-2 more often than not,” and that “the income reflected on a return prepared on a pay stub can vary from income reflected on a return prepared based on a W-2.” In the emails that the district judge relied on, a franchisee told ITS employee Bennett that a customer was asking him to pay the IRS what the customer owed for an overstated return because the customer maintained it was due to the franchisee’s error. The franchisee told Bennett, “The reason for her owing money to the IRS is not data entry error, but the fact that her -7- Case No. 13-4341 United States v. ITS Financial, LLC, et al. W2 numbers were different than the numbers on her pay stub.” Bennett replied: “We always require clients to pay back monies they were given that they should not have. Paycheck filing is illegal though so that argument is not one that I would voice too terribly much.” And finally, the “Stub Shop” training slides include a section titled “Potential Problems” that warns that using the “gross pay” amount on the pay stub rather than the “net pay” amount could result in a bill from the IRS for unpaid taxes with interest. It is clear from this evidence that pay-stub filing often results in understatement of tax liability, and ITS knew it. It is also clear from this and other evidence that pay-stub filing was common at ITS franchises. The district court’s conclusion that understatement of tax liability “inevitably results” may have gone further than we would go, but it is a plausible account of the evidence in the record as a whole. Appellants argue that “given Instant Tax’s typical customer, it is actually highly unlikely” that a return using a pay stub will have to be amended because “[t]he reason that paystubs can sometimes have different income numbers than the W-2 is that some taxpayers receive deferred compensation, 401(k) contributions, and/or life insurance payments made by the employer that are reflected on the W-2 but not the paystub,” but “[i]t was undisputed at trial that Instant Tax’s typical customer is a low-income person,” who “would not be likely to receive deferred compensation or 401(k) contributions.”3 This argument is plainly contradicted by a series of emails exchanged in 2011 by Instant Tax Service employees and admitted as evidence at the trial. The emails discuss amendments that need to be filed based on W-2s for eleven 3 ITS Financial’s former Vice President of Marketing Greg Woryk testified at the trial that ITS targeted low-income single parents because “[t]hose would be the people most likely to need an anticipation loan on their tax refund. . . . Because they don’t have a lot of money and they’re probably living check to check.” -8- Case No. 13-4341 United States v. ITS Financial, LLC, et al. customers for whom returns were originally filed using a pay stub. For example, one email from a client to ITS Franchise Support/Relationship Manager Anita Boynton states: “[L]ast year you prepared for me an amendment. I am emailing you to ask you to do it again this year. This year again my taxes were done off of my last pay check stub and my AGI was a little off but also I didn’t have the form from my school yet as well. . . . He used the wrong amount off of my paystub because he included my tuition reimbursement . . . .” On this evidence, the district court’s findings that “[i]n the aggregate, filing tax returns based on paystubs inevitably results in the understatement of customers’ tax liabilities,” and “ITS Financial acknowledges that understatement of income inevitably results from paystub filing” are not clearly erroneous. In any event, even if the use of the term “inevitably” were erroneous, it was harmless because, as we explain below, § 7402 affords the district court ample authority to enjoin Appellants’ tax-preparation businesses based on the court’s unchallenged findings.