U.S. v. Nordbrock, 93-15533

• Decision Date: 11 October 1994
• Docket Number: No. 93-15533,93-15533
• Citation: 38 F.3d 440
• Parties: -6624, 94-2 USTC P 50,532 UNITED STATES of America, Plaintiff-Appellee, v. Neil T. NORDBROCK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 440

38 F.3d 440

74 A.F.T.R.2d 94-6624, 94-2 USTC P 50,532

UNITED STATES of America, Plaintiff-Appellee, v. Neil T. NORDBROCK, Defendant-Appellant.

No. 93-15533.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 15, 1994.

Decided Oct. 11, 1994.

William A. Cohan, Cohan & Greene, Encinitas, CA, for defendant-appellant.

Thomas Clark, U.S. Dept. of Justice, Tax Div., Washington DC, for plaintiff-appellee.

Appeal from the United States District Court for the District of Arizona.

Before: NELSON and BEEZER, Circuit Judges, and LETTS, ^* District Judge.

Opinion by Judge LETTS

LETTS, District Judge:

I. OVERVIEW

Neil T. Nordbrock's ("Nordbrock") failure to turn over requested tax returns or taxpayer information to the Internal Revenue Service ("IRS") resulted in an IRS assessment of $75,000 against Nordbrock and a lifetime injunction prohibiting him from preparing tax returns for others. Nordbrock now appeals from the district court's judgment for the Government on his claim for a refund of the small portion of the assessment which he actually paid and on the Government's counterclaim for the balance of the assessment. Nordbrock also appeals from the lifetime injunction.

Nordbrock alleges four grounds for reversing the district court's judgment. First, Nordbrock argues that the district court erred in instructing the jury that Nordbrock bore the burden of proving reasonable cause for his failure to produce the requested information, rather than that the Government bore the burden of proving that Nordbrock willfully refused production. Second, Nordbrock argues that there was insufficient evidence to support the jury's verdict. Third Nordbrock claims that the Government did not establish the essential prerequisites for a lifetime injunction against his preparing tax returns for other people. Finally, Nordbrock contends that the district court erroneously denied his motion for a new trial and motion to alter or amend the judgment based on newly discovered evidence.

We have jurisdiction pursuant to 28 U.S.C. Secs. 1291 and 1294(1). ¹ For the reasons that follow, we affirm the judgment of the district court.

II. FACTS AND PROCEDURAL HISTORY

A. The First Trials and Consolidated Appeal

In 1982, Nordbrock testified in criminal proceedings against accountant Karl Dahlstrom. Shortly thereafter, IRS agent Sharon Bennett ("Bennett") requested, pursuant to 26 U.S.C. Sec. 6107(b), certain information from Nordbrock regarding income tax returns which he prepared for others for the tax periods of July 1, 1978 through June 30, 1981. Through Bennett, the IRS asked Nordbrock to furnish either copies of the returns or a list of the taxpayers' names and taxpayer identification numbers.

Nordbrock consulted attorney Donald MacPherson, a certified criminal tax expert, who had represented accountant Dahlstrom in Dahlstrom's prosecution. Nordbrock subsequently provided to the IRS a document with the necessary information redacted. Nordbrock also objected to the request under the First, Fourth, Fifth, Ninth, and Tenth Amendments to the United States Constitution and asked for act of production immunity pursuant to 18 U.S.C. Secs. 6001 et seq.

After several years of actively pursuing its request, the IRS assessed penalties of $75,000 against Nordbrock for his failure to comply. Nordbrock paid $250 of this assessment and requested that the balance be abated and his payment refunded. The IRS denied this request.

In August of 1983, the IRS brought an action in the district court to enjoin Nordbrock from withholding the requested information. That case was assigned to Judge William D. Browning. In July of 1985, the district court granted the Government's motion for summary judgment, ordered Nordbrock to provide the requested information to the IRS, and enjoined Nordbrock from preparing tax returns for other taxpayers. Nordbrock complied by giving a client list to the IRS and closing down his tax return preparation business.

In December of 1983, Nordbrock filed a separate action in the district court praying for a refund of the $250 he had paid and an abatement of the balance of the assessment. That case was assigned to Judge Robert C. Broomfield. The Government filed a counterclaim for the $74,750 balance of the assessment. Judge Broomfield disposed of Nordbrock's action by granting summary judgment for the Government. Essential to this disposition was Judge Broomfield's giving res judicata effect to Judge Browning's finding that Nordbrock willfully had failed to provide the requested information to the IRS in the injunction action.

These two actions were consolidated on appeal, and both were reversed. We held that Nordbrock had defeated summary judgment by presenting a prima facie case of good faith reliance on the advice of counsel, which raised a factual dispute over whether Nordbrock's refusal to provide the information to the IRS was willful. See United States v. Nordbrock, 828 F.2d 1401 (9th Cir.1987) ("Nordbrock I ").

B. The Second Trial and Appeal

On remand, the refund and injunction actions again were consolidated. The district court denied Nordbrock's request for a jury trial and found that Nordbrock's failure to turn over the requested information was willful. The district court then enjoined Nordbrock from preparing tax returns and sustained the $75,000 IRS assessment. See United States v. Nordbrock, 734 F.Supp. 908, 911 (D.Ariz.1990).

We again reversed, holding that the district court should have granted Nordbrock's request for a jury trial. We did not reach the question of which party bore the burden of proving willfulness or lack thereof. See United States v. Nordbrock, 941 F.2d 947 (9th Cir.1991) ("Nordbrock II ").

C. The Third Trial

1. Willfulness

On remand, Nordbrock moved for a directed verdict at the close of the case, arguing that no reasonable jury could find willfulness on his part by a preponderance of the evidence. The district court agreed that the evidence could not meet a preponderance standard with the burden on the Government. However, the district court ruled that under the relevant provision of the Internal Revenue Code, 26 U.S.C. Sec. 6695(d), the failure to provide requested information was a per se violation which shifted the burden to Nordbrock to prove his lack of willfulness.

The issue of willfulness was presented to the jury and decided in favor of the Government. The jury found that Nordbrock had not acted in good faith and willfully had failed to comply with the law. A lifetime injunction was entered on the basis of that verdict. The district court also entered judgment in favor of the Government on Nordbrock's claim for a refund, but did not enter judgment on the Government's counterclaim for the $74,750 remainder of Nordbrock's assessment.

2. Statutory Basis for Assessments

At the pre-trial hearing on remand, Nordbrock claimed that the assessments against him were invalid because they were brought under the wrong Internal Revenue Code sections. Specifically, the IRS brought the assessments under 26 U.S.C. Secs. 6694(a) (unrealistically understating tax liability) and 6695(a) (failing to furnish a copy of tax return to taxpayer), which Nordbrock argued were factually inapplicable to his conduct. The district court ruled that the validity of the assessments was a matter of law to be considered after the trial.

On the last day of the trial, in response to an earlier request, the IRS produced a so-called "Non-Master File Transcript" dated before the trial, which indicated that the assessments in fact had been brought under Secs. 6694(a) and 6695(a), rather than under Sec. 6695(d). Nordbrock then moved for judgment notwithstanding the verdict and, alternatively, for a new trial or to alter or amend the judgment based on newly-discovered evidence.

In October of 1992, the district court denied Nordbrock's post-trial motions and found that many documents similar to the Non-Master File Transcript were in Nordbrock's possession at the time of trial. The district court ruled that if the assessments were valid under any one of the three provisions, they were valid as a matter of law. The district court then concluded that the assessments were valid under Sec. 6695(d).

III. DISCUSSION

A. The District Court Did Not Err in Requiring Nordbrock to Prove His Lack of Willfulness

Nordbrock argues that the district court should have required the Government to prove that Nordbrock's failure to comply with the IRS's request was willful, instead of requiring Nordbrock to prove that his failure was not willful. Nordbrock then argues that if the correct burden of proof were applied the evidence was insufficient to support a verdict that he had acted willfully.

We review questions of law de novo, 999 v. C.I.T. Corp., 776 F.2d 866, 871 (9th Cir.1985), as we do interpretations of the Internal Revenue Code. Orvis v. Commissioner, 788 F.2d 1406, 1407 (9th Cir.1986).

We hold that 26 U.S.C. Sec. 6695(d), the statute providing for various tax return-related penalties, on its face places the burden on the tax return preparer to prove that he or she did not act willfully in refusing to comply with an IRS information request. Section 6695(d) provides:

Any person who is an income tax return preparer with respect to any return or claim for refund who fails to comply with section 6107(b) [requiring compliance with I.R.S. information requests] with respect to such return or claim shall pay a penalty of $50 for each such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to any return period shall not exceed $25,000.

26 U.S.C. Sec. 6695(d) (emphasis added). The plain language of Sec. 6695(d) places on the tax return preparer the burden of proving reasonable cause and a lack of willful neglect. The Supreme Court held in United States v. Boyle, 469 U.S....