414 F.3d 474 (3rd Cir. 2005), 04-1640, United States v. Bell

Docket Nº:04-1640.
Citation:414 F.3d 474
Party Name:UNITED STATES of America v. Thurston Paul BELL, Appellant.
Case Date:July 12, 2005
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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414 F.3d 474 (3rd Cir. 2005)



Thurston Paul BELL, Appellant.

No. 04-1640.

United States Court of Appeals, Third Circuit

July 12, 2005

Argued Jan. 25, 2005.

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Anthony N. Thomas, (Argued), Jeffrey J. Wood, Thomas & Associates, Harrisburg, Pennsylvania, for Appellant.

Paula K. Speck, (Argued), Jonathan S. Cohen, John Schumann, Richard T. Morrison, United States Department of Justice, Tax Division, Washington, D.C., for Appellee.

Before SCIRICA, Chief Judge, RENDELL and FISHER, Circuit Judges.


SCIRICA, Chief Judge.

At issue is whether a permanent injunction barring defendant Thurston Paul Bell from promoting and selling unlawful tax advice is permissible under the First Amendment. We will affirm the injunction with modifications.


Thurston Paul Bell is a professional tax protester who ran a business and a website selling bogus strategies to clients endeavoring to avoid paying taxes. In the 1980s, he worked for Save-A-Patriot, an entity dedicated to the proposition that "American citizens are not liable for the income tax." Bell later started his own organization, Tax-gate, and a website, www.tax-gate.com, where he drafted letters and pleadings to the Internal Revenue Service and state tax agencies on behalf of clients. Bell charged for advice and services in preparing various tax filings. Bell subsequently founded another group, the National Institute for Taxation Education ("NITE"), and the related website www.nite.org., with the mission of providing "income tax help, solutions and strategies that work for Citizens of the United States to legally declare their gross income to be Zero."

Substantively, Bell's main rationale for avoiding the income tax is known as the "U.S. Sources argument" or the "Section 861 argument." 1 This method has been

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universally discredited. See, e.g., Great-West Life Assurance Co. v. United States, 230 Ct.Cl. 477, 678 F.2d 180, 183 (1982); Loofbourrow v. Comm'r, 208 F.Supp.2d 698, 709-10 (S.D.Tex.2002); Williams v. Comm'r, 114 T.C. 136, 138-39, 2000 WL 230343 (2000). Still, several of Bell's clients obtained unwarranted tax refunds by filing returns according to his methods. From May 2000 until February 2002, over 400 clients paid Bell approximately $60,000 through the internet payment system PayPal.

The United States requested a preliminary injunction against Bell under 26 U.S.C. §§ 7402 and 7408. 2 Granting the motion, the District Court enjoined Bell from "directly or indirectly, by means of false, deceptive, or misleading commercial speech ... organizing, promoting, marketing or selling ... the tax shelter, plan or arrangement known as the 'U.S. Sources argument' ... or any other abusive tax shelter, plan or arrangement that incites taxpayers to attempt to violate the internal revenue laws," and from assisting others in such violations. Bell, 238 F.Supp.2d at 705-07. The District Court also ordered Bell to communicate by mail with all persons he assisted with the preparation of tax filings, to whom he gave or sold tax materials related to the U.S. Sources argument, or who contacted him about such matters. The letter was to inform those persons of the court's injunction, the fraudulent nature of the U.S. Sources argument, their potential liability for filing frivolous tax returns, and the possibility that the government may seek to recover

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erroneous refunds and impose other penalties. Id. The District Court ordered Bell to maintain his principal website, www.nite.org, during the pendency of the preliminary injunction, to remove "false commercial speech, and materials designed to incite others to violate the law (including tax laws)," and to post the court's order on the website while removing all the materials about the U.S. Sources argument. Id. The order also required Bell to inform the government of the identities of all persons whom he had helped file tax returns. 3 Id. The preliminary injunction was converted to a permanent injunction on January 29, 2004.


We have jurisdiction under 28 U.S.C. § 1291 to review the District

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Court's grant of a permanent injunction. We review the decision to grant or deny an injunction for abuse of discretion. Chao v. Rothermel, 327 F.3d 223, 225 (3d Cir.2003). We review findings of fact for clear error, and conclusions of law de novo. Highmark, Inc. v. UPMC Health Plan, Inc., 276 F.3d 160, 170 (3d Cir.2001).


Bell contends the District Court erred in concluding the materials on www.nite.org were false commercial speech unprotected by the First Amendment. He also argues the injunction is overbroad because it prospectively bars him from advocating resistance to the tax laws--speech he claims is protected because it does not incite imminent lawless action. He also contends the requirements to post the injunctive order on his website and turn over his list of clients to the government are unconstitutional forced speech. Because Bell makes no argument with respect to either the legality of the U.S. Sources argument or the District Court's application of the standard for injunctive relief under 26 U.S.C. § 7402(a) or Fed.R.Civ.P. 65, we limit our discussion to the First Amendment issues. 4

Permanent injunctions like the one here are "classic examples of prior restraints" on speech, Alexander v. United States, 509 U.S. 544, 550, 113 S.Ct. 2766, 125 L.Ed.2d 441 (1993), and prior restraints are generally presumed unconstitutional. 5 New York Times Co. v. United States, 403 U.S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971) (per curiam). Prior restraints, however, are not unconstitutional per se, and may be permissible depending on the type of speech at issue. Southeastern Promotions, 420 U.S. at 558, 95 S.Ct. 1239; see also Near v. State of Minnesota ex rel. Olson, 283 U.S. 697, 716, 51 S.Ct. 625, 75 L.Ed. 1357 (1931). First Amendment protection does not necessarily attach "merely because the conduct was in part initiated, evidenced, or carried out by means of language, either spoken, written or printed." Giboney v. Empire Storage & Ice Co., 336 U.S. 490, 502, 69 S.Ct. 684, 93 L.Ed. 834 (1949) (Black, J.); see also Ohralik v. Ohio St. Bar Ass'n, 436 U.S. 447, 456, 98 S.Ct. 1912, 56 L.Ed.2d 444 (1978) (noting that regulation of information regarding securities, corporate proxy statements, price information, and statements by employers to employees is constitutionally permissible in various contexts).


The District Court found Bell's bogus tax advice enjoys no First Amendment

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protection and may be restrained because it is false commercial speech. Bell, 238 F.Supp.2d at 703-04. We have defined commercial speech as "expression related to the economic interests of the speaker and its audience, generally in the form of a commercial advertisement for the sale of goods and services." U.S. Healthcare, Inc. v. Blue Cross of Greater Phila., 898 F.2d 914, 933 (3dCir.1990). To determine whether speech is commercial, courts should consider whether: (1) the speech is an advertisement; (2) the speech refers to a specific product or service; and (3) the speaker has an economic motivation for the speech. Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66-67, 103 S.Ct. 2875, 77 L.Ed.2d 469 (1983); In re Orthopedic Bone Screw Prods. Liab. Litig., 193 F.3d 781, 793-794 (3d Cir.1999). An affirmative answer to each question indicates "strong support" for the conclusion that the speech is commercial. Id.

In concluding the materials on Bell's website were predominantly commercial speech, the District Court made a factual finding that his website was the internet version of "a television infomercial" made to entice visitors to join Bell's organization and pay him for tax advice. Bell, 238 F.Supp.2d at 703. This finding is uncontradicted. From May 2000 to February 2002, Bell received approximately $60,000 in internet payments from more than 400 clients. The www.nite.org website invited visitors to pay a $195 annual fee for membership, which would give them access to tapes and documents to instruct them how to use the U.S. Sources rationale to file zero federal income tax returns. The website included an itemized schedule of fees charged by Bell for personalized assistance in completing IRS forms. Bell also recruited apprentices, known as "Senior Fellows," who, for a $3,500 fee, could receive training on how to market the U.S. Sources strategy to their own clients. As the District Court noted, the website was imbued with the unmistakable rhetoric of advertising. Id. (citing record). For example, Bell claimed on www.nite.org that "[u]nlike others who peddle arguments that may sound similar on the surface, our strategies have proven success, as the Internal Revenue Service (IRS) itself (as well as U.S. Attorneys and Federal Judges) has accepted NITE's arguments as valid." The website also referred to specific products and services, including forms, letters and assistance in preparing them. As noted, Bell profited from this scheme, and his profit motive was the driving force behind the enterprise.

In disputing the false commercial speech ruling, Bell argues the website also contained "important information concerning history, economic systems, monetary systems, judicial systems, politics and opinions." But even if true, this fact does not undermine the well-supported finding that the website's primary function was to sell fraudulent and illegal tax advice and services. Bell contends that because his website includes this additional information, it is not "pure" commercial speech which merely proposes a commercial transaction. See Bolger, 463 U.S. at 66, 103 S.Ct. 2875. Rather, Bell claims his commercial speech is "inextricably intertwined" with protected political expression. See Riley v. Nat'l Fed'n of the Blind of N.C., Inc., 487 U.S. 781, 796, 108 S.Ct. 2667, 101 L.Ed.2d 669 (1988) ("Where ... the component parts of...

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