United States v. Stinson, Case No: 6:14–cv–1534–Orl–22TBS

• Decision Date: 06 March 2017
• Docket Number: Case No: 6:14–cv–1534–Orl–22TBS
• Citation: 239 F.Supp.3d 1299
• Parties: UNITED STATES of America, Plaintiff, v. Jason P. STINSON, Defendant.
• Court: U.S. District Court — Middle District of Florida

239 F.Supp.3d 1299

UNITED STATES of America, Plaintiff,

v.Jason P. STINSON, Defendant.

Case No: 6:14–cv–1534–Orl–22TBS

United States District Court, M.D. Florida, Orlando Division.

Signed March 6, 2017

As Modified May 3, 2017

Daniel A. Applegate, Joshua Y. Levine, Sean Green, Steven C. Woodliff, Alison Austen Yewdell, Jared S. Wiesner, US Department of Justice, Washington, DC, for Plaintiff.

John J. Pappas, Peter C. Pappas, Pappas & Associates, Orlando, FL, for Defendant.

MEMORANDUM OPINION

ANNE C. CONWAY, United State District Judge

Plaintiff the United States (the "Government") filed this action seeking injunctive relief and disgorgement from Defendant Jason P. Stinson ("Stinson") for alleged violations of the Internal Revenue Code. (Doc. No. 1). The Court held a preliminary injunction hearing in January 2016. The Court then entered a preliminary injunction against Stinson that enjoined him from preparing tax returns or otherwise operating his tax preparation business.¹ (Doc. 69). On October 17–21, 2016 and November 21, 2016, the Court held a six-day bench trial. Having reviewed the evidence presented at the preliminary injunction hearing and at trial, the Court makes the following findings of fact and conclusions of law. The Court will grant the requested injunctive relief and will order the equitable remedy of disgorgement in the amount outlined below.

I. FINDINGS OF FACT

A. Stinson's Tax Preparation Business

Stinson began his tax preparation career in 2010 as a manager for LBS Tax Services ("LBS"). (Doc. 10 ¶ 12). In order for Stinson to become the manager of an LBS store, Stinson paid the owner of the LBS franchise, Walner Gachette $5,000. (Doc. 197 at 155). Mr. Gachette covered the store's expenses while Stinson managed the store and received 25% of the profits. (Id. ) In 2011, at some time before the 2012 tax filing season, Stinson became a franchise owner of one LBS store located in Tampa, Florida. (Doc. 32–2 at 1). In 2012, Stinson expanded his franchise to a total of twelve LBS stores. (Id. ) Stinson owned the LBS stores by way of Jason Stinson LLC. (Doc. 55–4 at 13–15). Stinson was the sole owner of Jason Stinson, LLC. (Doc. 197 at 158). Stinson hired managers to run each store, primarily individuals who were former tax preparers for Stinson the year before. (Id. at 162–163). Like Stinson had done, Stinson's managers paid Stinson a fee to become a manager, and in return, Stinson paid the managers a salary that Stinson determined. (Id. at 168).

In 2013, Stinson decided he did not want to do business under the LBS name, so he downsized his operations to ten store locations and started doing business under the name Nation Tax Services ("Nation Tax"). (Doc. 32–3 at 3). Stinson remained in the same physical spaces as his former LBS stores, kept the same employees, and continued to use the same customer files. (Doc. 197 at 166). In 2015, Stinson owned two stores in Tampa, Florida; one store in St. Petersburg, Florida; one store in Birmingham, Alabama; two stores in Raleigh, North Carolina; one store in Greenville, North Carolina; one store in Augusta, Georgia; one store in Fairfield, Alabama; and one store in Albany, Georgia. (Doc. 32–2 at 6–7).

In 2012, Stinson personally prepared hundreds of tax returns. (Doc. 197 at 160–161). However, by 2013, Stinson stopped preparing tax returns and left the tax preparation to his employees. (Id. at 163). Despite ownership of more than ten tax preparation stores, Stinson maintains that he does not believe he had sufficient knowledge to prepare tax returns. (Id. at 164). In total, the Internal Revenue Service ("IRS") identified over 14,000 tax returns prepared by Stinson's stores. (Plaintiff's Exhibit 765 ("Pl.'s Ex.")).

At all relevant times, Stinson has been the sole owner of the LLC that owns his tax preparation stores, and Stinson determines how the LLC is operated. (Doc. 197 at 160). Even though Stinson changed his LLC name from Jason Stinson LLC to Nation Tax Services LLC, he has owned his tax preparation stores through the same LLC. (Doc. 197 at 159–160). Stinson is the only individual with signature authority on all of Nation Tax Services LLC's bank accounts. (Id. at 239). All tax preparation fees that were paid to Nation Tax (or LBS when Stinson operated under that name) were deposited into the LLC's bank accounts. (Id. at 238–239). Although the bank accounts have been in the LLC's name, Stinson utilizes the accounts for personal and business purposes. (Id. at 240). In addition to owning tax preparation stores, Stinson also owns rental real estate property. (Id. at 152).

According to Stinson, his tax preparation stores target "underprivileged, undereducated poor people" and earned income credit claims. (Doc. 57 at 17; Doc. 197 at 173). Stinson's customers are "unsophisticated," according to him, and the customers come to Stinson's stores because they need assistance with their tax returns. (Doc. 10 ¶ 70; Doc. 197 at 173:20–25). Additionally, Stinson's business emphasizes marketing and advertising. (Doc. 197 at 175–176). LBS called its advertising efforts "guerilla marketing,"—dropping yard signs, going to residences, and shopping centers to advertise. (Id. at 176). LBS advertised a specific refund per child and a tax refund that taxpayers would receive the same day. (Pl.'s Ex. 268). The practice at Stinson's tax preparation stores was to not charge a fee for each tax return upfront, but rather extract the fee from the taxpayer customers' refund amount. Therefore, a larger refund was better for the client and for Stinson. Stinson often charged in excess of $600 per return, sometimes as much as $999, oftentimes without informing the taxpayer of the fee amount.² The goal was to get the maximum refund to make the customer happy and deduct a larger fee. (Doc. 201 at 181–182, 194–195; Doc. 55–9 at 53, 66).

B. Testimony of Stinson's Taxpayer Customers: Tax Returns That Are False and Fraudulently Prepared

The Government claims that Stinson, by way of LBS and Nation Tax, has repeatedly engaged in the following fraudulent practices: (1) falsifying deductions on Form 1040 Schedule A to reduce a customer's taxable income by reporting personal expenses as business expenses and falsifying unreimbursed employee expenses and charitable contributions; (2) falsifying Form 1040 Schedule C deductions by fabricating businesses and reporting profits or losses from a false business or inflating profits³ and losses from an actual business; (3) claiming false education credits; (4) falsifying a customer's earned income tax credit; (5) failing to conduct proper due diligence; and (6) failing to disclose fees and provide customers complete copies of their tax returns. (Doc. 218 at 27). To support its claims at trial, the Government presented more than fifteen taxpayer witnesses who testified that various amounts and claims on their tax returns were false, and that they had not provided the information that the tax return preparer put on the return. Additionally, the Government submitted by deposition the testimony of forty-one witnesses and their corresponding tax returns, primarily taxpayer customers, who also testified that they had not provided the false amounts on their tax returns. (Doc. 211). Many of Stinson's customers have been audited. Additionally, pursuant to Rule 65 of the Federal Rules of Civil Procedure, evidence that was received with the motion for preliminary injunction, that is otherwise admissible, became part of the evidence at trial. (Doc. 195 at 35).

Stinson targeted underprivileged individuals and earned income credit claims (Doc. 57 at 17; Doc. 197 at 173). The Earned Income Tax Credit ("EITC") "was enacted to provide relief for low-income families hurt by rising food and energy prices." United States v. Baxter , 372 F.Supp.2d 1326, 1328 (M.D. Ala. 2005) (citing Sorenson v. Sec. of Treasury of U.S. , 475 U.S. 851, 864, 106 S.Ct. 1600, 1609, 89 L.Ed.2d 855 (1986) ). The EITC is a refundable tax credit available to low-income workers and depends upon a multitude of factors, such as income, filing status, and number of dependents. (Doc. 69 at 2, n.2). For example, in tax year 2012, customers with earned income between $13,050 and $17,100 were eligible for the maximum EITC. Stinson would falsify information to claim the maximum EITC in a number of ways, or in a combination of these ways: claiming bogus dependents,⁴ fabricating unreimbursed employee business expenses and charitable contributions, and fabricating business income or expenses.

1. False Deductions on Form Schedule A

A Form Schedule A (Form 1040) ("Schedule A") is used for itemizing various deductions. (Doc. 198 at 2). Common deductions include home mortgage interest, property taxes, charitable contributions, and unreimbursed employee business expenses. (Doc. 198 at 62). Unreimbursed employee business expenses "are expenses that aren't covered by your employer that are required as part of your job." (Id. ) Many of Stinson's customers' tax returns reported large employee business expenses with jobs that do not typically have such expenses.

(Id. ) For example, a bus driver would not have significant unreimbursed mileage expenses because a bus driver rarely, if ever, drives a private car. (Id. ) Many tax returns prepared by Stinson or his employees claimed deductions for business mileage that were actually (and obviously) non-deductible commuting miles.⁵ Oftentimes, the amounts claimed on the tax returns included tens of thousands of miles more than the customers actually drove for work.⁶ Even after a hired consultant, Hermen Cruz ("Mr. Cruz"), seeinfra , instructed Stinson's employees that taxpayers could not claim commuter miles as business mileage, Stinson's preparers continued to do so.⁷

Additionally, many of the tax returns prepared by Stinson or his employees contained business expenses for meals, entertainment, and uniforms—expenses and amounts that the taxpayers testified were false and that they had not provided...