239 F. Supp. 3d 1299
M.D. Fla.2017Background
- Stinson owned and operated multiple tax-preparation stores (initially LBS, later Nation Tax) through Jason Stinson LLC; over 14,000 returns were prepared by his stores across multiple states.
- Government alleged systemic fraudulent practices: fabricated Schedule A and C items, false education credits, improper EITC claims, failure of due diligence, nondisclosure/withholding of return copies, and undisclosed/overstated preparer fees.
- IRS investigation (beginning 2013) and audits showed widespread adjustments in the same categories (unreimbursed employee expenses, Schedule C, EITC). Random-sample interviews by IRS agents found high rates of underreporting.
- Evidence included testimony from many taxpayer victims, depositions, IRS audits, and investigator reports showing recurring, similar abusive entries and preparer misconduct across years.
- The Court found Stinson liable under I.R.C. §§ 7407, 7408, and 7402(a); it entered a permanent injunction barring him from preparing taxes, owning/operating tax-prep businesses, training preparers, holding PTIN/EFIN, etc., and ordered disgorgement of $949,952.47 as unjust enrichment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stinson is a "tax return preparer" and subject to injunction under § 7407 | Stinson owned/operated stores, employed and profited from preparers; definition covers those who employ others | Stinson argued he was not a preparer because he did not personally prepare returns | Court: Stinson is a tax return preparer under § 7701(a)(36); injunction appropriate under § 7407 |
| Whether government must prove fraud or use a random statistical sample | Govt relied on taxpayer testimony, audits, investigator reports and circumstantial badges of fraud; fraud not required for all claims | Stinson argued fraud must be proved and sample evidence was required | Court: Fraud not required for §§ 7407/7402; Carlson (§ 6701) distinguished; random-sample not required; evidence sufficient to show willful/reckless and fraudulent conduct where needed |
| Whether Stinson violated statutes imposing preparer-related penalties (§§ 6694, 6695, 6701) supporting injunctions under §§ 7407/7408 | Govt: returns contained understations, reckless/willful positions, due-diligence failures, and aiding/abetting material false statements | Stinson largely did not contest § 6694/6695 substance; contested § 6701 and sufficiency of proof | Court: Violations of § 6694 (negligent and willful/reckless positions) and § 6695 due-diligence/retention failures established; § 6701 violation proven by clear and convincing evidence (badges of fraud) |
| Whether disgorgement of preparer fees is an appropriate remedy and the proper amount | Govt sought disgorgement of ill-gotten gains; presented fee summaries and identified categories tied to fraudulent practices | Stinson argued LLC—not him—received fees, challenged calculation methods and sampling/statistical approach | Court: Disgorgement available under § 7402(a); corporate form does not shield individual who commingled funds and participated in wrongdoing; court awarded a reasonable approximation—$949,952.47—declining duplicative categories |
Key Cases Cited
- United States v. Ernst & Whinney, 735 F.2d 1296 (11th Cir.) (injunction standard under § 7407 and scope of court's authority)
- United States v. Baxter, 372 F. Supp. 2d 1326 (M.D. Ala. 2005) (EITC context; remedies against abusive preparers)
- United States v. Carlson, 754 F.3d 1223 (11th Cir. 2014) (§ 6701 requires proof of fraud; standards for clear-and-convincing proof)
- United States v. Bailey, 789 F. Supp. 788 (N.D. Tex. 1992) (willfulness/recklessness in return preparation)
- S.E.C. v. Calvo, 378 F.3d 1211 (11th Cir. 2004) (disgorgement: need only reasonable approximation of ill-gotten gains)
- C.F.T.C. v. Sidoti, 178 F.3d 1132 (11th Cir. 1999) (limits on disgorgement—must relate to ill-gotten gains)
- United States v. Mesadieu, 180 F. Supp. 3d 1113 (M.D. Fla. 2016) (disgorgement and injunctive relief against tax preparers)