Joseph Banister v. United States
16-15813
| 9th Cir. | Dec 6, 2017Background
- Appellant Joseph R. Banister, a former tax collector, was assessed six civil penalties under 26 U.S.C. § 6701 for preparing documents and arguments for clients in matters involving the IRS; government moved for summary judgment and won.
- Banister prepared materials used in or prepared for Collection Due Process (CDP) hearings and other IRS-related proceedings; some materials advanced frivolous positions (e.g., U.S.-sourced income not taxable; no obligation because no IRS personal service).
- Banister challenged imposition of four of the penalties on grounds that (a) CDP-related submissions cannot produce an "understatement" of tax liability under § 6701 and (b) certain documents did not state or imply tax liability.
- He also contested all six penalties as lacking the required mental state under § 6701(a)(3) (the parties agreed the statute requires actual knowledge).
- The district court granted summary judgment for the government; the Ninth Circuit affirmed, finding (1) CDP-related documents can result in an "understatement," (2) the challenged documents did in fact convey understated tax liability, and (3) Banister had actual knowledge that his positions were contrary to law.
Issues
| Issue | Banister's Argument | Government's Argument | Held |
|---|---|---|---|
| Whether documents prepared in connection with CDP hearings can "result in an understatement" of tax liability under § 6701 | CDP limits challenges to liability, so CDP-related documents cannot produce an "understatement" for § 6701 purposes | "Understate" includes representing less than is the case; CDP context does not immunize documents that convey understatement | Court: CDP submissions can result in an understatement; § 6701 covers such documents |
| Whether specific penalized documents failed to state or imply tax liability | The documents did not speak to tax liability, so they could not "result in an understatement" | The documents advanced frivolous positions (e.g., no tax on U.S. income; no duty absent personal IRS notice) that necessarily understated liability | Court: Documents conveyed understatement; a reasonable jury would so find |
| Whether Banister had the requisite mental state under § 6701(a)(3) (actual knowledge that documents would result in understatement) | Banister lacked the required knowledge; his beliefs were assertions of law, not knowing violations | Given Banister’s background, research, correspondence with IRS, and the manifest unreasonableness of his positions, he had actual knowledge his theories were contrary to law | Court: No reasonable jury could find lack of actual knowledge; summary judgment for government |
| Whether alternative penalty provisions render § 6701 surplusage (interaction with § 6702) | Because Congress provided § 6702(b) to address frivolous CDP arguments, § 6701 should not apply to the same conduct | § 6702(b) and § 6701 operate on different conduct; overlap does not make either surplusage | Court: No surplusage problem; both statutes can apply in different circumstances |
Key Cases Cited
- Cheek v. United States, 498 U.S. 192 (1991) (evidence of awareness of tax law and unreasonableness of beliefs bears on defendant's knowledge defense)
- Zixiang Li v. Kerry, 710 F.3d 995 (9th Cir. 2013) (appellate court may affirm on any ground supported by the record)
- Hall v. N. Am. Van Lines, Inc., 476 F.3d 683 (9th Cir. 2007) (summary affirmance principle cited for appellate standards)