United States v. Stover
2011 U.S. App. LEXIS 16874
8th Cir.2011Background
- Stover promoted three tax-avoidance schemes (Parallel C, ESOP/S, Roth/S) involving a management company and operating company.
- Operating company deductions to management fees were structured to defer or eliminate taxation without real services being provided.
- District court found the schemes violated accrual, ordinary/necessary deduction rules, top-heavy ESOP rules, and Roth IRA limits; the government sought §7408 injunction.
- Court trial led to a permanent injunction preventing promotion of schemes, requiring disclosure to IRS, and requiring notice to clients and entities formed under his direction.
- Stover argues the injunction lacks adequate factual support, is overbroad, an unlawful delegation, and a First Amendment restraint; the Eighth Circuit affirms.
- IRS investigation concluded substantial tax losses (millions to hundreds of millions) and significant client penalties; enforcement costs were substantial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the district court's §6700 findings support §7408 injunction? | Stover contends findings don't map precisely to §6700 language. | Stover argues district court failed to prove false statements under §6700. | Yes; the order, read as a whole, satisfies §6700 elements. |
| Was the injunction appropriate under §7408(b)(2) to prevent recurrence? | Government shows ongoing harm, expertise, and likelihood of repetition. | Stover disputes necessity of broad equitable relief. | Yes; totality of circumstances supports continuing injunction. |
| Does the injunction impermissibly mandate affirmative conduct beyond preventing false statements? | Injunction may require disclosures and notices to IRS/clients. | Such provisions exceed §7408's scope. | No; §7408 permits affirmative duties to facilitate enforcement and deter further violations. |
| Is the IRS 30-day approval/deferment clause a proper delegation of Article III authority? | Clause delegates to IRS authority to approve new schemes. | Clause is a reasonable governance mechanism for compliance. | No improper delegation; clause is permissible and consistent with precedent. |
| Was Stover's First Amendment challenge waived or, if considered, valid to restrain commercial speech? | No First Amendment issue should bar the broad injunction. | The injunction could chill speech about tax schemes. | Waived; or, if reached, upheld as narrowly tailored to false or fraudulent tax guidance. |
Key Cases Cited
- United States v. Gleason, 432 F.3d 678 (6th Cir.2005) (false statements required under §6700; economic substance considerations)
- United States v. White, 769 F.2d 511 (8th Cir.1985) (injunctions under §7408 favored when statute authorizes relief)
- United States v. Benson, 561 F.3d 718 (7th Cir.2009) (injunctions proper where conduct is ongoing and culpability persists)
- Schulz v. United States, 517 F.3d 606 (2d Cir.2008) (upholding broad injunctions against abusive tax promoters)
- Bell v. United States, 414 F.3d 474 (3d Cir.2005) (affirming notices to clients and information disclosures as part of injunction)
- Schiff v. United States, 379 F.3d 621 (9th Cir.2004) (affirmative obligations in injunctions against tax promoters)
- Campbell v. United States, 897 F.2d 1317 (5th Cir.1990) (notice requirements and 30-day approval language upheld)
- Kaun v. United States, 827 F.2d 1144 (7th Cir.1987) (broad definition of abusive tax shelters under §6700)
- Buttorff v. United States, 761 F.2d 1056 (5th Cir.1985) (enterprise in §7408 context and factors for injunctive relief)