88 F. Supp. 3d 1278
M.D. Fla.2015Background
- Government sued tax-preparer Demetrius Scott (and entities he controls) under 26 U.S.C. §§ 7402, 7407, and 7408 alleging preparation of thousands of fraudulent/understated tax returns (mainly 2012; alleged conduct continuing into 2014).
- Counts: (I) permanent bar from preparing federal tax returns under § 7407; (II) injunction under § 7408 to stop aiding/preparing returns known to understate tax; (III) injunction and disgorgement of ill-gotten gains under § 7402(a).
- Scott moved to dismiss for lack of subject-matter jurisdiction (arguing the complaint fails to show the Chief Counsel is a delegate of the Treasury Secretary) and for failure to state a claim and Rule 8 noncompliance (overly long/ granular complaint).
- Government alleged the action was requested by the IRS Chief Counsel (a delegate) and commenced at the direction of a delegate of the Attorney General, as required by the statutes authorizing injunctive actions.
- Court treated Scott’s jurisdictional challenge as a facial attack and rejected it on statutory-delegation grounds; it also found the complaint plausible as to ongoing misconduct, adequate under Rule 8, and that disgorgement is an available equitable remedy under § 7402(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Subject-matter jurisdiction (delegation) | Action was properly requested by IRS Chief Counsel, a delegate of the Secretary | Complaint fails to allege Chief Counsel is a delegate of the Treasury Secretary, so suit is unauthorized | Denied — statutory text and precedent show Chief Counsel is a delegate; jurisdiction proper |
| Failure to state claim / irreparable injury for injunction | Complaint pleads ongoing misconduct allowing inference of future harm and need for injunction | Complaint does not plead likelihood of irreparable injury; defendant claims cessation and compliance steps | Denied — well-pleaded allegations support plausible inference of ongoing misconduct and irreparable injury on the pleadings |
| Availability of disgorgement under § 7402(a) | § 7402(a) authorizes equitable relief including disgorgement to enforce tax laws | Disgorgement not available under § 7402(a) (arg implied) | Denied — courts have awarded disgorgement as equitable relief under § 7402(a) and federal equitable powers |
| Rule 8 adequacy (pleading verbosity/detail) | Complaint, though lengthy, is coherent and factual allegations are relevant | Complaint is overly long, granular, and thus fails Rule 8 | Denied — pleadings are cogent and distinguishable from impermissibly confusing complaints |
Key Cases Cited
- Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981) (distinguishing facial and factual jurisdictional attacks)
- Bell v. Hood, 327 U.S. 678 (1946) (limits on dismissal when jurisdiction overlaps merits)
- Eaton v. Dorchester Dev., Inc., 692 F.2d 727 (11th Cir. 1982) (plaintiff’s burden in factual jurisdictional attack)
- United States v. Ernst & Whinney, 735 F.2d 1296 (11th Cir. 1984) (§ 7402 provides broad equitable powers to enforce tax laws)
- United States v. Cruz, 611 F.3d 880 (11th Cir. 2010) (courts may consider equitable factors when issuing injunctions under §§ 7407/7408)
- eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006) (four-factor injunctive-relief test)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard for pleadings)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim for relief)
- F.T.C. v. Ross, 743 F.3d 886 (4th Cir. 2014) (district court equitable jurisdiction can include disgorgement)
- SEC v. Monterosso, 756 F.3d 1326 (11th Cir. 2014) (disgorgement is an equitable remedy to prevent unjust enrichment)
- Porter v. Warner Holding Co., 328 U.S. 395 (1946) (scope of federal equitable power to grant complete relief)
- Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. 1981) (precedent adoption from former Fifth Circuit)