Opinion ID: 3064659
Heading Depth: 3
Heading Rank: 1

Heading: Standard for injunctive relief.

Text: [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 UNITED STATES v. KAPP 5147 less than one in three chance of being sustained on the merits, and (3) an injunction is appropriate to prevent recurrence.