978 F. Supp. 2d 901
S.D. Ohio2013Background
- This is a government civil action seeking to enjoin Defendants from providing certain tax-related services and prosecuting their ongoing theft-loss deduction practices under I.R.C. §165.
- FRG and STS are entities controlled by Tobias H. Elsass; FRG provides theft-loss deduction services and STS handles in-house tax return preparation.
- Elsass/FRG allegedly repeatedly filed or supervised theft-loss deductions for clients stemming from investment scams (e.g., ABFS, Schneiders, OneCap) to obtain larger refunds for a contingent fee.
- The Government seeks permanent injunctions under §7402, §7407, and §7408 to bar Defendants from acting as tax return preparers and from engaging in conduct that interferes with tax administration.
- The Court granted partial summary judgment and injunctive relief, dismissed certain strike-related issues, and found substantial violations of multiple I.R.C. provisions by Elsass and FRG; STS was largely granted summary judgment in its favor with exception of §6701 claims.
- A concurrent Judgment and Permanent Injunction orders broad relief including prohibiting Defendants from engaging in theft-loss deductions and divestment from related entities.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are Defendants tax return preparers under §7407? | Government: Defendants meet §7701(a)(36) and exercise control over returns. | Elsass/FRG: not within §7407’s scope. | Yes; Defendants are tax return preparers under §7407. |
| Did Elsass/FRG violate §6694 by understating tax liabilities? | Government: repeated improper theft-loss deductions show willful/reckless understating. | FRG/Elsass contesting the breadth of liability. | Summary judgment for Government; violations established. |
| Did use of Form 4797 to claim theft losses warrant §6694(b) penalties? | Government: Form 4797 use improperly shifts deductions; reckless disregard. | Defendants contend proper characterization allowed in some cases. | Violations established; §6694(b) penalties apply. |
| Did FRG/Elsass violate §6700/§6701 by promoting/assisting theft-loss schemes? | Government: false statements/promotional misrepresentations about theft deductions. | Defendants dispute materiality of statements. | Judgment for Government on §6700 and §6701 grounds. |
| Is broad injunctive relief warranted given the conduct? | Government: pattern of ongoing, egregious conduct; needs broad relief. | Defendants argue narrower remedies suffice. | Yes; permanent injunction enjoining as defined in Judgment. |
Key Cases Cited
- Goulding v. United States, 957 F.2d 1420 (7th Cir.1992) (broad definition of tax return preparer includes those who direct the preparation)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (summary judgment standard: genuine issues of material fact must exist)
- Loving v. IRS, 917 F.Supp.2d 67 (D.D.C.2013) (informs scope of § 330 regulation and § 7407 applicability)
- Gleason v. United States, 432 F.3d 678 (6th Cir.2005) (factors for injunctive relief under § 7407/7408; substantial harm and recurring violations)