U.S. v. Gleason

• Decision Date: 29 December 2005
• Docket Number: No. 04-6360.,04-6360.
• Citation: 432 F.3d 678
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Daniel J. GLEASON, Individually and d/b/a Tax Toolbox, Inc., and My Tax Man, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 678

432 F.3d 678

UNITED STATES of America, Plaintiff-Appellee, v. Daniel J. GLEASON, Individually and d/b/a Tax Toolbox, Inc., and My Tax Man, Inc., Defendants-Appellants.

No. 04-6360.

United States Court of Appeals, Sixth Circuit.

Argued: November 9, 2005.

Decided and Filed: December 29, 2005.

ARGUED: John D. Schwalb, Williams & Schwalb, Franklin, Tennessee, for Appellants. Curtis C. Pett, United States Department of Justice, Washington, D.C., for Appellee. ON BRIEF: John D. Schwalb, Ernest W. Williams, Williams & Schwalb, Franklin, Tennessee, for Appellants. Curtis C. Pett, Gilbert S. Rothenberg, Charles Bricken, Richard T. Morrison, United States Department of Justice, Washington, D.C., for Appellee.

Before: MERRITT, MOORE, and SUTTON, Circuit Judges.

OPINION

MERRITT, Circuit Judge.

"Every day can be a new deduction if you structure your life right," defendant Daniel J. Gleason promised potential customers of his "Tax Toolbox." Mr. Gleason's aggressive tax strategies attracted the attention of the Internal Revenue Service (IRS) and prompted the District Court to enjoin him, pursuant to 26 U.S.C. § 6700 and 26 U.S.C. § 7408, from selling the Tax Toolbox, a collection of pamphlets, record-keeping aids, a CD-Rom, and other information, and from providing services to Tax Toolbox customers. Mr. Gleason appeals that permanent injunction on two grounds. First, he claims that the materials comprising the Tax Toolbox were never introduced into evidence at the hearing on the injunction. Second, he argues that the bar on providing services to Tax Toolbox customers unduly restricts his ability to earn a living. Because the record reflects more than ample evidence to support the District Court's findings, including relevant portions and descriptions of the Tax Toolbox, and because the injunction's scope is appropriately tailored and does not unduly burden his livelihood, we affirm.

I. Factual Background

For over fifteen years, Mr. Gleason has provided tax preparation and representation services individually and through Tax Toolbox, Inc., and My Tax Man, Inc. In 2000, Mr. Gleason, the President and CEO of My Tax Man, Inc., created the Tax Toolbox that, in the charitable words of the District Court, "aggressively promoted tax saving through home-based businesses."

In "no more than a couple of minutes a day," Mr. Gleason's materials asserted, "you transform your non-deductible personal expenses into legal and audit-proof business deductions" by following his tax strategies. A new business can "magically" erase taxes by purportedly creating deductions for weddings, college, "travel, meals, and golf, and cars and medical expenses, kids [sic] allowances, every day household expenses and much more."

According to Mr. Gleason, executing the Tax Toolbox's employment agreement between spouses and children eliminates many of life's more expensive costs. To deduct medical expenses, "[a]ll it takes is a business that you have, or can start, and a spouse who can become an employee.... Medical expenses that are usually subject to a 7.5% of income floor limitation are moved over to your business returns and become 100% deductible!" Get a head start on a college or wedding fund by turning a child's "weekly allowance into a pay check and it's a business deduction for you." With the Tax Toolbox's promissory agreement form, the children "loan" the money back to their parents without money actually changing hands. Mr. Gleason called his methods "audit-proof" and provided a "100% Accuracy Guarantee" that promised to pay any "penalties or interest from our mistake," but not the underlying tax resulting from using the Tax Toolbox.

Mr. Gleason's misrepresentations about tax deductions rival his generous resume embellishments to induce purchases of the Tax Toolbox. His promotional materials boasted that he was an attorney when he was neither licensed to practice in any state nor a graduate of an accredited law school, that he was an enrolled agent with the IRS when that status had lapsed, and that he was an adjunct professor of business law and federal taxation when he could not provide one name of a person to corroborate his claim. The District Court found further fabrications from the self-proclaimed tax expert:

a. falsely claiming to be ... an editor and a reviewer of articles for Newsweek ...;

b. falsely claiming that all of his tax coaches were CPAs and IRS Enrolled Agents;

c. falsely claiming that he is such a good attorney that the government pays his fees, when he is not an attorney and has been awarded fees in only one case, for the relatively minor sum of $318.75;

d. falsely claiming that he has never "lost a case in tax court" when Gleason admits that he has never even tried a case in Tax Court;

[e.] disingenuously claiming that he has "never lost a tax court dispute to date" and that he "has a 100% success record in tax court" when Gleason is referring to cases he has conceded and defines "loss" to mean that he has never had a client receive a decision that they did not agree to;

[f.] falsely claiming that over 50% of his audits result in refunds, when this figure includes audits resulting in "no changes" to the taxpayer's return;

[g.] falsely claiming that customers would have "free Form 1040 preparation," when in reality the cost to Gleason's customers varies based on the number of schedules attached to the return;

[h.] falsely presenting "customer testimonials" in promotional materials, including that of "A.M.," who was not a customer but one of Gleason's own salespersons, Alexander Mandossian;

[i.] misleading customers by referring them to only certain IRS publications, but not IRS Publication 4035, which expressly warns taxpayers of the potential dangers of home-based business scams, claiming he need not do so on the specious ground that this publication was not "relevant" to his home-based business customers.

United States v. Gleason, No. 3:03-0311, 2004 WL 2483220, at *2 (M.D.Tenn. Aug.25, 2004) (emphasis in original).

On April 10, 2003, the United States sued Mr. Gleason individually and d/b/a Tax Toolbox, Inc., and My Tax Man, Inc., seeking permanent injunctions under 26 U.S.C. §§ 7407-08. In spite of Mr. Gleason's continuing assertions of the Tax Toolbox's legitimacy, he stopped selling it in late 2003. On February 23, 2004, pursuant to 26 U.S.C. § 7407, the District Court permanently enjoined him from misrepresenting his eligibility to practice before the IRS and his experience or education as an income tax preparer, and from guaranteeing the payment of any tax refund or the allowance of any tax credit. Mr. Gleason did not appeal that injunction. On June 22, 2004, the District Court denied the Government's motion to enjoin Mr. Gleason permanently from acting as a federal income tax preparer, stating that "Mr. Gleason's primary business and livelihood is tax preparation and a total ban on his livelihood should not be undertaken lightly." The Government has withdrawn its appeal of that denial.

On August 25, 2004, the District Court issued a permanent injunction under 26 U.S.C. § 7408, prohibiting Mr. Gleason from selling or promoting the Tax Toolbox and from providing services to Tax Toolbox customers.¹ It is from this injunction that Mr. Gleason now appeals.

II. Analysis

A. Standard of Review

We review a district court's grant of a permanent injunction for abuse of discretion. United States v. Szoka, 260 F.3d 516, 521 (6th Cir.2001); United States v. Estate Pres. Servs., 202 F.3d 1093, 1097 (9th Cir.2000). "The district court abuses its discretion if it `applies the wrong legal standard, misapplies the correct legal standard or relies on clearly erroneous findings of fact.'" Szoka, 260 F.3d at 521 (quoting Waste Mgmt., Inc. of Tennessee v. Metro. Gov't of Nashville & Davidson County, 130 F.3d 731, 735 (6th Cir.1997)).

B. The District Court Did Not Abuse Its Discretion in Issuing a Permanent Injunction

Section 7408 of the Internal Revenue Code empowers a district court to grant an injunction when (1) the defendant has engaged in conduct subject to penalty under 26 U.S.C. § 6700, and (2) injunctive relief is appropriate to prevent recurrence of such conduct.² See United States v. Bell, 414 F.3d 474, 477 n. 2 (3d Cir.2005); United States v. Schiff, 379 F.3d 621, 625 (9th Cir.2004); United States v. Buttorff, 761 F.2d 1056, 1059 (5th Cir.1985). Because section 7408 expressly authorizes the issuance of an injunction, the traditional requirements for equitable relief need not be satisfied. Estate Pres. Servs., 202 F.3d at 1098.

1. Mr. Gleason's Conduct Subject to Penalty Under 26 U.S.C. § 6700

A person is subject to penalty under section 6700 when (1) he organized or participated in the sale of an entity, plan, or arrangement, (2) he made false or fraudulent statements regarding specified tax matters, including deductions, in connection with that organization or sale, (3) he knew or had reason to know that his statements were false or fraudulent, and (4) the statements pertained to a material matter.³ See Estate Pres. Servs., 202 F.3d at 1098.

First, the parties do not dispute that Mr. Gleason created the Tax Toolbox, that he participated in its sale, and that it is an "entity, plan or arrangement" within the meaning of section 6700(a)(1)(A). See United States v. Raymond, 228 F.3d 804, 811-12 (7th Cir.2000) (describing the broad scope of section 6700(a)(1)(A)).

Second, the District Court is not clearly erroneous in finding that Mr. Gleason made false statements about the purported home-based business deductions that can be derived from using the Tax Toolbox. Mr. Gleason did not properly qualify his assertions about the deductibility of weddings, college, travel, meals, golf, cars, and everyday household expenses by stating that business expenses must be "ordinary and necessary" to the business 26 U.S.C. § 162(a) (2005); Commissioner v. Groetzinger, 480 U.S. 23, 27-36, 107 S.Ct. 980, 94...