Iowa Supreme Court Attorney Disciplinary Bd. v. Lustgraaf

• Decision Date: 17 December 2010
• Docket Number: No. 10-0425.,10-0425.
• Citation: 792 N.W.2d 295
• Parties: IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Complainant, v. Thomas E. LUSTGRAAF, Respondent.
• Court: Iowa Supreme Court

792 N.W.2d 295

IOWA SUPREME COURT ATTORNEY DISCIPLINARY BOARD, Complainant,

v.Thomas E. LUSTGRAAF, Respondent.

No. 10-0425.

Supreme Court of Iowa.

Dec. 17, 2010.

Charles L. Harrington and David J. Grace, Des Moines, for complainant.

Thomas E. Lustgraaf of Lustgraaf Law Office, Council Bluffs, pro se.

TERNUS, Chief Justice.

This matter comes before us on the report of a division of the Grievance Commission of the Supreme Court of Iowa. See Iowa Ct. R. 35.10. The Iowa Supreme Court Attorney Disciplinary Board alleged the respondent, Thomas E. Lustgraaf, violated ethical rules by failing to file income tax returns for four years. The grievance commission found Lustgraaf violated our ethical rules and recommended a public reprimand. Upon our respectful consideration of the findings of fact, conclusions of law, and recommendation of the commission, we find Lustgraaf engaged in ethical violations as a result of his negligent failure to file tax returns, and therefore, we publicly reprimand him.

I. Standard of Review.

The supreme court reviews attorney disciplinary proceedings de novo. Iowa Supreme Ct. Att'y Disciplinary Bd. v. Wagner, 768 N.W.2d 279, 281 (Iowa 2009). The commission's findings and recommendations are given respectful consideration, but we are not bound by them. Iowa Supreme Ct. Att'y Disciplinary Bd. v. Casey, 761 N.W.2d 53, 55 (Iowa 2009). The board has the burden of proving attorney misconduct by a convincing preponderance of the evidence. Iowa Supreme Ct. Att'y Disciplinary Bd. v. Conrad, 723 N.W.2d 791, 792 (Iowa 2006). As frequently stated, " 'This burden is less than proof beyond a reasonable doubt, but more than the preponderance standard required in the usual civil case.' " Id. (quoting Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Lett, 674 N.W.2d 139, 142 (Iowa 2004)). Upon proof of misconduct, we may impose a lesser or greater sanction than that recommended by the commission. Id.

II. Factual Findings.

Lustgraaf was admitted to practice law in April of 2004. Thereafter, he practiced primarily criminal law in Council Bluffs. On September 3, 2009, the board filed a disciplinary complaint against Lustgraaf alleging he had failed to file income tax returns for the years 2002 through 2007. The board alleged that Lustgraaf's failure to file the returns violated Iowa Rules of Professional Conduct 32:8.4(b) ("It is professional misconduct for a lawyer to ... commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects[.]"), 32:8.4(c) ("It is professional misconduct for a lawyer to ... engage in conduct involving dishonesty, fraud, deceit, or misrepresentation[.]"), and 32:8.4(d) ("It is professional misconduct for a lawyer to ... engage in conduct that is prejudicial tothe administration of justice[.]").¹ The board subsequently dropped the charges for tax years 2002 and 2003 because Lustgraaf was not licensed as a lawyer in those tax years.

The board contends Lustgraaf's failure to file tax returns violated 26 U.S.C. §§ 6012(a)(1)(A), 6017, and 6072(a) (2000). Under 26 U.S.C. § 6017, an individual who has net earnings from self-employment exceeding $400 must file an income tax return. Under 26 U.S.C. § 6072(a), a taxpayer is required to file tax returns based on a calendar year by April 15 of the following year, unless an extension is obtained. Schultz v. United States, 92 Fed.Cl. 213, 219 (Fed.Cl.2010). 26 U.S.C. § 6012(a)(1)(A) makes it a criminal offense for a taxpayer who has earned sufficient income to require him to file a federal income tax return to fail to do so.² See United States v. Stierhoff, 549 F.3d 19, 25 (1st Cir.2008); see also United States v. Kahl, 583 F.2d 1351, 1355 (5th Cir.1978) (finding information properly notified defendant of alleged crime when it specifically stated "that the earnings of the accused were sufficient to require him to file a return and he failed to do so").

At the disciplinary hearing, Lustgraaf testified he had innocently and mistakenly believed that he had insufficient income to require the filing of the returns. He testified he was unaware of the requirement to file a return when self-employment income exceeds $400.³

Lustgraaf also presented the testimony of a certified public accountant from whom he had sought tax advice since 1996. This witness testified that he prepared tax returns for Lustgraaf in the years preceding Lustgraaf's law school years, but did not prepare any returns while Lustgraaf attended law school because Lustgraaf did not have any income during that time. The witness testified that, in each year subsequent to Lustgraaf's graduation from law school, Lustgraaf came to the witness's office to talk about Lustgraaf's income tax situation. On these occasions, the accountant would ask Lustgraaf whether Lustgraaf was "going to have a tax liability." Lustgraaf always responded that he "put out more money than [he] took in," and the accountant "never got into specifics on those years." The accountant testified that, if he had thought Lustgraaf was required to file income tax returns in the years in question, he would have told Lustgraaf to file.

By the time of the hearing, Lustgraaf had filed all tax returns and paid all required taxes. These returns showed that, in 2004, Lustgraaf's adjusted gross income was negative $6757. Although he owed no income taxes, he owed the federal government $2 in self-employment tax. Lustgraaf received a refund from the state of $16 in tax year 2004. In 2005, Lustgraaf's adjusted gross income was negative $23,833. He owed the federal government $93 in self-employment taxes and received a refund of $12 from the state. In 2006, Lustgraaf's federal adjusted gross income was negative $21,571. He owed no incometax on this amount, but did owe $1234 in self-employment tax. He received an $8 refund from the state. Lustgraaf had net operating business losses in 2006 that could be carried forward to 2007. These losses were sufficient to reduce his 2007 adjusted gross income to zero. Because Lustgraaf had prepared the 2007 return before he completed the return for 2006, he did not claim the net operating loss for 2006 in 2007. (He has three years to file an amended return.) Consequently, his tax returns for 2007 show an adjusted gross income of $33,043. He owed no federal income tax on this amount, but did owe $2339 in self-employment tax as well as penalty and interest of $899.37 on the self-employment tax. The record does not show whether taxes were owed to the state for the tax year 2007.

Lustgraaf was not charged with any criminal conduct by any governmental entity. He has no prior record of discipline, and two local attorneys testified that Lustgraaf had a good reputation in the legal community of Council Bluffs. Lustgraaf also presented evidence of significant pro bono work. It appears he fully cooperated with the disciplinary authorities and did not attempt to shift the blame for his conduct to anyone else.

The commission found that Lustgraaf had not intended to defraud the government when he failed to file tax returns and that he "incorrectly assumed that he did not need to file income tax returns for the years 2004 through 2007." Upon our review of the record and giving particular weight to the commission's assessments of the witnesses' credibility, we agree. See Iowa Supreme Ct. Att'y Disciplinary Bd. v. Marzen, 779 N.W.2d 757, 759 (Iowa 2010) (noting court gives particular weight to the commission's credibility findings although court is not bound by them). While it is true one is presumed to know the law, as a factual matter, Lustgraaf mistakenly believed he had no obligation to file tax returns during the years in question. Lustgraaf's conduct was certainly careless, but we conclude it was not fraudulent.

III. Ethical Violations.

A. Rule 32:8.4(b): Criminal Conduct. Rule 32:8.4(b) prohibits the commission of a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects. A lawyer may be found in violation of this rule, even though he has not been charged or convicted of a crime. See Iowa Supreme Ct. Bd. of Prof'l Ethics & Conduct v. Bell, 650 N.W.2d 648, 651-52 (Iowa 2002) (discussing comparable DR 1-102(A)(3) of the Iowa Code of Professional Responsibility for Lawyers and citing cases); Comm. on Prof'l Ethics & Conduct v. Hall, 463 N.W.2d 30, 33, 35 (Iowa 1990) (holding respondent's commission of theft constituted violation of DR 1-102(A)(3), even though respondent was not charged with or convicted of a crime). In this case, Lustgraaf failed to file tax returns for years 2004 through 2007 by April 15 of the following calendar year despite having sufficient income to trigger the filing requirement. This evidence is sufficient to establish a violation of 26 U.S.C. § 6012. In addition, we think Lustgraaf's conduct reflects adversely on his fitness as a lawyer. Iowa Supreme Ct. Att'y Disciplinary Bd. v. Fields, 790 N.W.2d 791, 796 (Iowa 2010). Therefore, we agree with the commission that Lustgraaf violated rule 32:8.4(b).

B. Rule 32:8.4(c): Misrepresentation. We have stated that a lawyer makes a misrepresentation in violation of our ethical rules when his income exceeds the sums requiring the filing of a tax return and he fails to file a return. Id. at 795;Iowa Supreme Ct. Att'y Disciplinary Bd. v. Iversen, 723 N.W.2d 806, 810 (Iowa 2006). In the cases in which we have found the existence of a misrepresentation, the respondent had willfully failed to file returns, had committed a fraudulent practice, or had made a false statement. See, e.g., Fields, 790 N.W.2d at 797 (attorney pleaded guilty to two counts of fraudulent practice in the second degree); Iversen, 723 N.W.2d at 809-10 (attorney pleaded guilty to crime of fraudulent practice); Comm. on Prof'l Ethics & Conduct v. Humphreys, 524 N.W.2d 396, 397 (Iowa 1994) (jury convicted respondent in federal court of willful tax evasion...