United States v. Hill
| Decision Date | 07 January 2019 |
| Docket Number | No. 5:17-CV-366-D,5:17-CV-366-D |
| Court | U.S. District Court — Eastern District of North Carolina |
| Parties | UNITED STATES, Plaintiff, v. LARRY DARNELL HILL JR., HILLBOY'S ENTERTAINMENT, and CRYSTAL DENISE DICKENS, Defendants. |
On July 21, 2017, the United States of America ("United States" or "plaintiff") filed a complaint against Larry Darnell Hill, Jr. ("Hill"), Hillboy's Entertainment, d/b/a Hill's Tax Service ("Hill's Tax"), and Crystal Denise Dickens ("Dickens"; collectively "defendants"), seeking a permanent injunction pursuant to 26 U.S.C. §§ 7402, 7407, and 7408 to prohibit, inter alia, defendants from preparing or filing federal income tax returns [D.E. 1]. On July 16, 2018, the United States moved for summary judgment against Hill and Hill's Tax [D.E. 36], and the United States filed a statement of material facts [D.E. 37], an appendix [D.E. 38], and a memorandum in support [D.E. 39]. On August 2, 2018, Hill, proceeding pro se, responded in opposition [D.E. 42]. On October 31, 2018, the United States replied [D.E. 44]. On November 26, 2018, Hill moved for reconsideration pursuant to Rule 59(e) of the Federal Rules of Civil Procedure [D.E. 47]. On November 30, 2018, the United States responded in opposition [D.E. 48]. On December 17, 2018, Hill moved to oppose the United States's response [D.E. 50].1 As explained below, the court grantsthe United States's motion for summary judgment [D.E. 36] and denies Hill's motion for reconsideration [D.E. 47].
From 2010 until 2012, Hill owned a tax preparation business, Hillboy's Entertainment, which did business as Hill's Tax Service. See [D.E. 37] ¶ 1; [D.E. 38] 4 ¶ 3. Hill's Tax maintained offices in Rocky Mount, Farmville, Scotland Neck, Hollister, and Wilson, North Carolina. See [D.E. 37] ¶ 1. Hill trained his employees to prepare and file federal income tax returns, and obtained Electronic Filing Identification Numbers ("EFIN") from the IRS for each Hill's Tax office. See id. ¶¶ 3-5; [D.E. 38] 5 ¶ 7.
During 2010, 2011, and 2012, Hill and his employees, acting at his direction, prepared and filed federal income tax returns that reported false income information, improper deductions and exemptions, false Child Tax Credits, exaggerated or false Earned Income Tax Credit claims, and other fraudulent representations. See [D.E. 37] ¶ 6; [D.E. 38] 5, 7-9 ¶¶ 8, 11-19; Reynolds Decl. [D.E. 38] ¶¶ 7-8. Hill admitted that, over the three-year period that he operated the fraud, he filed over 2,800 federal income tax returns that claimed approximately $14.4 million in federal income tax refunds. See [D.E. 37] ¶ 8; Reynolds Decl. ¶¶ 18, 21-22. Hill often collected a "tax preparation fee" from the false tax refunds (between $500 and $1,000 per return), gave a "small portion" to his customers, and kept the remainder of the refund (approximately "$1-3000") for his personal benefit. [D.E. 37] ¶ 10; see [D.E. 38] 9-10 ¶¶ 20-23.
The Internal Revenue Service ("IRS") audited 72 tax returns that Hill and Hill's Tax filed and determined that all of the returns failed to report taxable income accurately. See [D.E. 37] ¶ 9. Based on the audited returns, IRS concluded that Hill was responsible for "a tax loss of $365,162," an average of $5,072 per return. Id. ¶ 9. IRS has conducted both a criminal and civil investigationinto Hill's fraudulent scheme. See id. ¶ 12.
On August 5, 2013, Hill pleaded guilty to one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 286 and one count of filing a false tax return in violation of 26 U.S.C. § 7206(1). See id. ¶ 11. Hill received a sentence of 100 months' imprisonment in the Eastern District of North Carolina and was ordered to pay nearly $5,000,000 in restitution. [D.E. 38] 13, 16. After Hill's conviction, Hill refused to agree to a permanent injunction that would prohibit Hill and Hill's Tax from preparing or filing federal income tax returns after his release. See id. ¶ 13; [D.E. 17-1] 3.
The court has subject-matter jurisdiction over this action. See 26 U.S.C. § 7402(a). Summary judgment is appropriate when, after reviewing the record as a whole, the court determines that no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The party seeking summary judgment must initially demonstrate the absence of a genuine issue of material fact or the absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has met its burden, the nonmoving party may not rest on the allegations or denials in its pleading, Anderson, 477 U.S. at 248-49, but "must come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis and quotation omitted). A trial court reviewing a motion for summary judgment should determine whether a genuine issue of material fact exists for trial. Anderson, 477 U.S. at 249. In making this determination, the court must view the evidence and the inferences drawn from that evidence in the light most favorable to the nonmoving party. Scott v. Harris, 550 U.S. 372, 378 (2007).
A genuine issue of material fact exists if a reasonable jury, considering the evidence, could return a verdict for the nonmoving party. Anderson, 477 U.S. at 248. A scintilla of evidence or mere speculation is insufficient. Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985). Only factual disputes that affect the outcome of the litigation under substantive law properly preclude the entry of summary judgment. See Anderson, 477 U.S. at 248.
The United States seeks a permanent injunction prohibiting Hill or Hill's Tax from preparing or filing federal income tax returns pursuant to 26 U.S.C. §§ 7402, 7407, and 7408. These statutes expressly authorize injunctive relief, and the court can grant injunctive relief without regard to the four traditional equitable requirements. See United States v. Carter, No. 3:16-CV-673-FDW-DCK, 2017 WL 4369488, at *2 (W.D.N.C. Oct. 2, 2017) (unpublished); United States v. Renfrow, 612 F. Supp. 2d 677, 685 (E.D.N.C. 2009); Abdo v. IRS, 234 F. Supp. 2d 553, 564 (M.D.N.C. 2002), aff'd, 64 F. App'x 163 (4th Cir. 2003) (per curiam) (unpublished).
The United States argues that 26 U.S.C. § 7407 of the Internal Revenue Code authorizes the court to issue a permanent injunction against Hill and Hill's Tax. Section 7407 authorizes such injunctive relief against any tax return preparer who engages in conduct that violates 26 U.S.C. §§ 6694 or 6695 or is otherwise subject to criminal penalty under Title 26. See 26 U.S.C. § 7407(a), (b)(1)(A). Additionally, if the court finds that a permanent injunction is necessary to restrain future violations, then the court can grant this relief. See 26 U.S.C. § 7407(b)(1)-(2).
As for the United States's claim for a permanent injunction pursuant to 26 U.S.C. § 7407, section 7407 authorizes a court to permanently enjoin any person from acting as a tax return preparer if the court finds that the person has "continually or repeatedly engaged in [criminal or fraudulent conduct concerning tax preparation] and that an injunction prohibiting such conduct would not besufficient to prevent such person's interference with the proper administration of [the Internal Revenue Code]." 26 U.S.C. § 7407. Hill and Hill's Tax qualify as "tax return preparers" within the meaning of the Internal Revenue Code because each prepared federal income tax returns for compensation or employed one or more persons to do so. See 26 U.S.C. § 7701(a)(36); [D.E. 37] ¶¶ 2, 5. In addition, both Hill and Hill's Tax have committed fraudulent and criminal conduct in preparing tax returns. Hill pleaded guilty to conduct subject to criminal penalty pursuant to 26 U.S.C. § 7206, see [D.E. 37] ¶ 11, and both Hill and Hill's Tax engaged in conduct violating 26 U.S.C. § 6694 by filing thousands of tax returns that understated tax liability in numerous ways. See [D.E. 37] ¶¶ 6-8. Because Hill engaged in this behavior repeatedly and caused significant losses to the United States, see [D.E. 37] ¶¶ 6, 8, an injunction limited in scope to prohibiting future violations is insufficient to prevent Hill and Hill's Tax from interfering with the "proper administration" of the Internal Revenue Code. 26 U.S.C. § 7407(b); see Abdo, 234 F. Supp. 2d at 566-67. Accordingly, Hill's conduct is subject to a permanent injunction pursuant to 26 U.S.C. § 7407.
Alternatively, the United States seeks injunctive relief pursuant to 26 U.S.C. § 7408, which authorizes such relief if a person has engaged in "specified conduct" and injunctive relief is appropriate to prevent the recurrence of such conduct. See 26 U.S.C. § 7408(b). Specified conduct includes any action penalized under 26 U.S.C. § 6701, such as aiding, assisting, procuring, or advising the preparation of any portion of a return with knowledge or reason to believe that return would be materially used to result in a understatement of another's tax liability. See 26 U.S.C. §§ 7408(c)(1); 6701(a)(1)-(3). Both Hill and Hill's Tax aided in preparing and filing tax returns that took unreasonable tax positions to minimize customers' tax liabilities. See, e.g., [D.E. 37] ¶¶ 6-8. Thus, Hill and Hill's Tax engaged in "specified conduct" within the meaning of 26 U.S.C. § 7408(b). See, e.g., Carter, 2017 WL 4369488 at *2-3. Accordingly, Hill's conduct is subject to an injunctionunder 26 U.S.C. § 7408.
Finally, the United States seeks injunctive relief pursuant to 26 U.S.C. § 7402. Section 7402 authorizes a federal district court to "render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws." 26 U.S.C. § 7402(a). The remedies available under section 7402 are "in addition to and not exclusive of any and all other remedies." Id...
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