LOUISE W. FLANAGAN, District Judge.
This matter is before the court on plaintiff's motion for summary judgment (DE 29). The issues raised have been fully briefed and are ripe for adjudication. For the reasons that follow, the court grants plaintiff's motion for summary judgment.
On January 10, 2017, plaintiff filed this action against defendant Tanisha Salmon ("Salmon"). Plaintiff subsequently joined defendant Raeford Lewis ("Lewis") to this action by amending its complaint with leave of court on November 1, 2017. In its amended complaint, plaintiff alleges that defendants were tax preparers that either filed or oversaw the filing of numerous false tax returns to the IRS in order to overstate the amount of taxpayer's respective refunds and charge excessive fees for those refunds. (
After being granted leave to file its amended complaint, plaintiff served its amended complaint on defendant Lewis. Defendant Lewis failed to timely respond to plaintiff's amended complaint. Plaintiff moved for entry of default, which request was granted by order of the court on February 5, 2018.
Plaintiff filed the instant motion for summary judgment on January 19, 2018 (DE 29), on the basis that defendants and tax return preparers acting at their direction or with their knowledge and consent have spent years filing false tax returns and reaping ill-gotten gains. In support of its motion, plaintiff relies upon a statement of material facts and many supporting documents. These documents broadly can be broken down in to several different categories, including 1) declarations of revenue agents, a paralegal, and other business record holders, testifying to the accuracy of records submitted in the case (DE 32-2 to -6, 32-131); 2) depositions of customers whose tax returns were prepared by defendants or others acting under the direction of defendants (DE 32-7 to -17, 32-19 to -24, 32-26 to -31); 3) depositions and responses to request for production by defendants (DE 32-18, 32-25, 32-126); 4) tax returns and accompanying forms for customers prepared by defendants or those acting under defendants' direction (DE 32-32, 32-33, 32-35 to -39, 32-41, 32-42, 32-44, 32-46, 32-48 to -60, 32-62, 32-64 to -75, 32-77 to -95, 32-97 to -111, 32-113 to -115, 32-117 to -125); 5) information on fees charged by defendants to plaintiffs for having their tax return prepared (DE 32-34, 32-40, 32-43, 32-45, 32-47, 32-61, 32-63, 32-112, 32-116, 32-129, 32-130, 32-132); 6) the articles of incorporation and other correspondence regarding QA Tax Service, Inc. (DE 32-76, 32-96); and 7) defendants' tax records (DE 32-127, 32-128).
Defendants, proceeding
Upon review of the affidavits, declarations, and exhibits submitted by plaintiff, and where defendants did not submit an opposing statement of facts or appendix, the court adopts the statement of facts submitted by plaintiff as summarized herein.
Defendants reside in Fayetteville, North Carolina and prepare tax returns for compensation. (Statement of Material Facts (DE 30) ¶¶ 8-11). Defendant Salmon employed individuals, either directly or through QA Tax Service, Inc., who prepare tax returns for compensation.
Defendant Salmon began working at LBS Tax Services ("LBS") as a tax return preparer in January 2013. (Salmon Dep. (DE 32-25) at 8:6-7; 10:7-9). Defendant Salmon worked at LBS until June 2014 at the store located at 5169 Bragg Boulevard in Fayetteville, North Carolina. (Salmon Dep. (DE 32-25) at 8:6-7; 10:25-11:3). Defendant Salmon's sister, Tonya Chambers, also instructed Defendant Salmon to "be in charge of the store." (Salmon Dep. (DE 32-25) at 10:14-19). Defendant Salmon's bosses, Tonya Chambers ("Chambers") and Vicky Eddleman a/k/a Vicky Barwick ("Eddleman"), were located in Florida, and there was nobody residing locally who defendant Salmon answered to or who oversaw the tax preparation store in Fayetteville. (Salmon Dep. (DE 32-25) at 11:8-12:7). Defendant Salmon received in-person training on tax preparation from Eddleman, and also took online tutorials on how to use tax software and file taxes with the IRS. (Salmon Dep. (DE 32-25) at 12:8-14:3).
On September 23, 2014, plaintiff filed a suit seeking an order of permanent injunction and disgorgement against Jean Demesmin, Chambers, and their related entities, including BPTS, LLC ("BPTS"), on September 23, 2014.
From January 2016 to January 2017, defendant Salmon worked for QA Tax Service. (Salmon Dep. (DE 32-25) at 9:12-17). QA Tax Service, Inc. was incorporated on November 30, 2015, and defendant Salmon was the Vice President of QA Tax Service. (Salmon Dep. (DE 32-25) at 24:11-22; 38:5-17; QA Tax Service Articles of Incorporation (DE 32-76)). Jasmine Morales ("Morales") was the president and Eddleman was the secretary of QA Tax Service. (QA Tax Service Articles of Incorporation (DE 32-76)). According to defendant Salmon, Chambers "gave" BPTS to her daughter (and Defendant Salmon's niece), Morales, who then incorporated and owned QA Tax Service.
At QA Tax Service, defendant Salmon prepared tax returns at the store in Fayetteville and handled payroll for all QA Tax Service stores, including the stores in Florida. (Salmon Dep. (DE 32-25) at 25:16-26:10). Salmon managed the Fayetteville QA Tax Service store, and also would check on the QA Tax Service store located in Dunn, North Carolina, which did not have a formal manager. (Salmon Dep. (DE 32-25) at 26:14-27:3). Defendant Salmon went to Dunn about twice weekly. (Salmon Dep. at 45:20-46:2).
Defendant Salmon was a signatory on QA Tax Service's bank account, (Salmon Dep. (DE 32-25) at 24:11-25:15), hired people to work at the QA Tax Service stores in Fayetteville and Dunn, (Salmon Dep. (DE 32-25) at 29:4-10; Lewis Dep. (De 32-18) at 28:7-14), and either answered other tax preparers' questions or sought direction from Eddleman. (Salmon Dep. (DE 32-25) at 30:19-31:5). The Electronic Filing Identification Number ("EFIN") used to file tax returns prepared at the Fayetteville store when it operated as QA Tax Service and BPTS was registered with the IRS by defendant Salmon, in her name. (Salmon Dep. (DE 32-25) at 31:6-19). Defendant Salmon would let any preparer at the store file tax returns using her unique EFIN. (Salmon Dep. (DE 32-25) at 32:3-14). Defendant Salmon would review the tax returns prepared at the Fayetteville store for typographical errors before the tax returns were filed, but would not review the substantive claims made on those tax returns. (Salmon Dep. (DE 32-25) at 32:15-33:25; 45:3-9; 55:21-56:14).
The United States filed a suit seeking an order of permanent injunction and disgorgement against Morales, Eddleman, and QA Tax Service on January 9, 2017.
Defendant Salmon resigned from QA Tax Service, Inc. on January 20, 2017, ten days after this lawsuit was filed. (Salmon Dep (DE 32-25) at 91:17-92:18; Salmon Resignation Letter (DE 32-96)).
Defendant Lewis currently works at Goodyear Tire and Rubber, and also worked at Goodyear while working as a tax return preparer. (Lewis Dep. (DE 32-18) at 6:17-25). Defendant Lewis worked as a tax return preparer at BPTS and QA Tax Service from 2014 through 2017 in the store in Dunn, North Carolina. (Lewis Dep. (DE 32-18) at 7:1-8:19; 9:20-10:3). Defendant Lewis began working as a tax preparer after seeing his mother, defendant Salmon, work as one, and speaking with his cousin, Morales, about becoming a tax preparer. (Lewis Dep. (DE 32-18) at 8:20-9:19).
Prior to working as a tax preparer, defendant Lewis had never prepared tax returns before, other than preparing his own using an online tax preparation service. (Lewis Dep. (DE 32-18) at 10:4-17). Eddleman provided the training on substantive tax preparation. (Lewis Dep. (DE 32-18) at 36:25-38:8; 40:2-11; 41:11-23). When defendant Lewis worked at BPTS and during the first year he worked at QA Tax Service, Morales and Eddleman were defendant Lewis' bosses, defendant Salmon "would oversee everything." (Lewis Dep. (DE 32-18) at 16:2-24). After defendant Salmon resigned from QA Tax Service in 2017, defendant Lewis was "pretty much the manager that year" and worked closely with Morales and Eddleman. (Lewis Dep. (DE 32-18) at 16:25-20:4). Defendant Lewis received a salary that was based on the percentage of the total tax preparation fees the Dunn office received. (Lewis Dep. (DE 32-18) at 20:21-22:3). Defendant Lewis received around 15 or 20 percent of the fees received at the Dunn office. (Lewis Dep. (DE 32-18) at 21:14-22:3).
Plaintiff alleges defendants engaged in several systematic, false tax practices, including 1) making false Schedule A deductions, 2) fabricating Schedule C business income and expenses, 3) fabricating household help income and other facts to enable customers to claim the Earned Income Tax Credit ("EITC"). The court addresses each of these practices, in turn.
Defendants and their preparers repeatedly and systematically claimed false deductions on the Schedule A portion of customers' tax returns. Several examples illustrate defendants' conduct.
Defendant Salmon prepared the 2012, 2013, and 2014 federal income tax returns of Donameche Ray. (Ray Dep. (DE 32-23) at 10:15-24, 12:19-13:11; Ray Tax Returns (DE 32-123, 32-124, 32-125)). On the Schedule A attached to Ray's 2014 tax return, defendant Salmon falsely reported that Ray donated $2,395 to charity, when Ray and defendant Salmon did not even discuss any charitable contribution expenses. (Ray Dep. (DE 32-23) at 21:21-22:16; Ray Tax Returns (DE 32-123)). As a result of this and other false claims, Ray's 2014 tax return claimed a bogus refund in the amount of $3,975. (
Christopher Upchurch's 2014 and 2015 federal income tax returns were prepared at the tax preparation store in Dunn, N.C. (Upchurch Tax Returns (DE 32-70, 32-71)). Defendant Salmon is identified as the paid preparer of the 2015 tax return, although Upchurch recalls defendant Lewis preparing that tax return. (Upchurch Dep. (DE 32-28) at 8:2-9:6, 23:2-10; Upchurch Tax Returns (DE 32-71)). In the Form 2106 and Schedule A attached to Upchurch's 2015 tax return, defendant Lewis falsely reported that Upchurch drove his personal vehicle 19,999 total miles, of which 16,399 miles were for business use related to his job, when Upchurch did not provide any mileage amounts to Defendant Lewis. (Upchurch Dep. (DE 32-28) at 28:12-29:9; Upchurch Tax Returns (DE 32-71)). Defendant Lewis also falsely reported that Upchurch incurred job-related vehicle expenses in the amount of $3,053 (for a $2,503 deduction), $2,001 for parking fees and tolls, and $3,633 in overnight travel expenses, when Upchurch did not provide defendant Lewis with any of this information. (Upchurch Dep. (DE 32-28) at 27:17-29:2; Upchurch Tax Returns (DE 32-71)). Defendant Lewis also claimed a bogus "Form 4684" expense on the Schedule A, categorized as an "other" deductible expense, in the amount of $14,695. (Upchurch Tax Returns (DE 32-71)). Upchurch could only guess that this was related to the theft of his daughter's piggybank from his home — a loss which was nowhere near $14,695. (Upchurch Dep. (DE 32-28) at 29:23-30:19, 31:20-22). Defendant Lewis also falsely reported on the Schedule A that Upchurch donated $499 to charity in 2015. (Upchurch Dep. at 32:19-33:2; Upchurch Tax Returns (DE 32-71)). The preparer made similar false statements on Upchurch's 2014 tax return. (
Sharron White's ("White") 2013, 2014, 2015, and 2016 tax returns were prepared at the BPTS and QA Tax Service store in Dunn, North Carolina. (White Tax Returns (DE 32-32, 32-33, 32-111, 32-113)). On the Form 2106 and Schedule A attached to White's 2015 tax return, the preparer falsely claimed that White drove her personal vehicle 40,000 miles, of which 31,200 miles were for business use related to her job, and claimed a false vehicle expense in the amount of $17,940. (White Tax Returns (DE 32-32)). White did not provide this false information to the preparer. (White Dep. (DE 32-29) at 9:18-10:1, 16:25-18:2). The preparer also falsely claimed, without White providing any such information, that White incurred $3,001 in meals and entertainment expenses related to her job. (White Dep. (DE 32-29) at 16:17-24). Defendant Lewis made similar false statements when preparing White's 2016 tax return. (
Tony Smith's 2015 and 2016 tax returns were prepared at the QA Tax Service store in Dunn, N.C. (Tony Smith Tax Returns (DE 32-39, 32-41)). Defendant Lewis prepared the 2016 tax return. (T. Smith Dep. (DE 32-27) at 19:13-14; Tony Smith Tax Returns (DE 32-41)). Even though Tony Smith did not donate to charity in 2015 and 2016 and had no more than $520 each year in job related expenses, (T. Smith Dep. (DE 32-27) at 7:10-12; 8:18-9:21), the Schedule A attached to Tony Smith's 2015 tax return falsely reported that Smith donated $4,501 to charity and incurred $9,605 in unreimbursed employee business expenses, including purportedly driving a total of 19,999 miles in 2015, of which 10,639 miles were purportedly for his job, and $3,001 in purported meals and entertainment expenses. (T. Smith Dep. at 23:23-30:5; Tony Smith Tax Returns (DE 32-39)). The preparer also falsely claimed that Tony Smith spent $1,021 on a cell phone for his job. (T. Smith Dep. at 23:23-30:5; Tony Smith Tax Returns (DE 32-39)). Defendant Lewis made similar false statements when preparing Tony Smith's 2016 tax return. (T. Smith Dep. (DE 32-27) at 19:13-20:13, 34:8-39:3; Tony Smith Tax Returns (32-41)).
Defendant Lewis prepared Clentis Smith's 2015 and 2016 federal income tax returns. (C. Smith Dep. (DE 32-26) at 8:23-9:1; Clentis Smith Tax Returns (DE 32-35, 32-36)). On the Form 2106 attached to Clentis Smith's 2015 tax return, defendant Lewis falsely reported that Clentis Smith incurred $7,433 in job-related vehicle expenses, and falsely claimed that Clentis Smith drove her personal vehicle 19,999 miles, of which 12,927 miles were for business use. (C. Smith Dep. (DE 32-26) at 13:12-14:4, 14:22-15:11, 17:6-18:14; Clentis Smith Tax Returns (DE 32-35)). Defendant Lewis also falsely reported that Clentis Smith incurred $2,001 in meals and entertainment expenses for her job. (C. Smith Dep. (DE 32-26) at 19:9-20:6; Clentis Smith Tax Returns (DE 32-35)). Defendant Lewis falsely reported on the Schedule A attached to Clentis Smith's 2015 tax return that Smith donated $5,501 to charity in 2015, when she did not and did not provide this reported amount to defendant Lewis. (C. Smith Dep. (DE 32-26) at 20:7-15, 20:25-21:3; Clentis Smith Tax Returns (DE 32-35)). Defendant Lewis made similar false statements when preparing the Form 2106 attached to Clentis Smith's 2016 tax return. (C. Smith Dep. (DE 32-26) at 19:9-20:6, 22:6-23:14, 23:24-24:14; Clentis Smith Tax Returns (DE 32-36)).
Sue Brewington had her 2013, 2014, 2015, and 2016 federal income tax returns prepared at the tax preparation store in Dunn, N.C. (Brewington Tax Returns (DE 32-42, 32-44, 32-46, 32-48). Despite having only small expenses for shoes not entirely reimbursed by her employer, (Brewington Dep. (DE 32-10) at 8:2-10:8), the preparer reported on the Schedule A attached to Brewington's 2013 tax return a purported tax that Brewington did not incur and could not explain (classified on the return as a "3750" type of other deductible tax, in the amount of $3,750) and $12,679 in fabricated unreimbursed employee business expenses. (Brewington Dep. (DE 32-10) at 27:5-25, 28:18-30:8; Brewington Tax Returns (DE 32-42)). As a result of these false claims, Brewington's 2013 tax return claimed a bogus refund in the amount of $3,341. (
The preparer falsely reported on the Schedule A attached to Brewington's 2014 tax return that Brewington donated $2,777 to charity, when Brewington did not and did not inform the preparer that she donated that amount to charity, and also falsely reported that Brewington incurred $9,580 in unreimbursed employee business expenses related to her job. (Brewington Dep. (DE 32-10) at 33:2-9, 34:2-7, 34:12-38:21, 40:18-41:7; Brewington Tax Returns (DE 32-44)). These false job-related expenses including business miles, meals and entertainment expenses, and a cell phone expense, which Brewington did not incur and never discussed with the preparer. (Brewington Dep. (DE 32-10) at 33:2-9, 34:2-7, 34:12-38:21, 40:18-41:7; Brewington Tax Returns (DE 32-44)). As a result of these false claims, Brewington's 2014 tax return claimed a bogus refund in the amount of $3,121. (
Defendant Lewis prepared the 2016 federal income tax return of Jerome Jones. (Jones Tax Return (DE 32-56)). Jones does not have to travel for his job, and does not have to use his personal car for work purposes. (Jones Dep. (DE 32-17) at 10:5-20, 16:4-6). Aside from buying steel-toed boots, Jones does not incur expenses related to his job, as his employer provides him with protective equipment. (Jones Dep. (DE 32-17) at 23:10-25:8, 25:16-19). Jones made small donations to charity in 2016. (Jones Dep. (DE 32-17) at 28:1-20, 28:4-29:4). Defendant Lewis falsely reported on the Schedule A of Jones' 2016 tax return that Jones donated $2,001 to charity in 2016, a number that Jones did not provide to defendant Lewis and never discussed with defendant Lewis. (Jones Dep. (DE 32-17) at 29:5-25; Jones Tax Return (DE 32-56)). Defendant Lewis also falsely reported on the Schedule A attached to Jones' 2016 tax return that Jones incurred $7,738 in unreimbursed employee business expenses related to his job, including for uniforms, a cell phone ($1,200), meals and entertainment expenses ($2,111), parking fees and tolls ($1,001), and a vehicle expense ($3,379). (Jones Dep. (DE 32-17) at 30:1-24, 31:4-24, 32:11-21, 35:6-37:12, 37:17-39:15; Jones Tax Return (DE 32-56)). With respect to the false vehicle expense claimed, defendant Lewis reported that Jones drove his vehicle 19,999 miles during the year, of which 6,999 miles were job-related. (Jones Tax Return (DE 32-56)). Jones did not discuss these types of expenses with defendant Lewis and did not provide these amounts to him. (Jones Dep. (DE 32-17) at 31:4-6, 32:11-15, 35:10-14, 36:7-18).
Defendant Lewis prepared Richard Blue's 2015 and 2016 federal income tax returns. (Blue Tax Returns (DE 32-37, 32-38). Blue commutes from his home to his job but does not have to travel for work. (Blue Dep. (DE 32-9) at 14:15-21). Blue does not incur any travel-related or meals and entertainment related expenses for his job, and does not have to pay for uniforms for his job, although his employer deducts some costs for tools. (Blue Dep. (DE 32-9) at 15:16-23, 16:24-17:13). Blue's job does not require him to use a cell phone, and Blue does not own a cell phone. (Blue Dep. (DE 32-9) at 17:18-25). On the Schedule A and the Form 2106 attached to Blue's 2015 tax return, Defendant Lewis falsely reported that Smith incurred $9,870 in unreimbursed employee business expenses. (Blue Tax Returns (DE 32-37)). This included $2,529 in job-related vehicle expenses (based on Blue purportedly driving his personal vehicle 19,999 total miles, of which 4,399 miles were for business use), $1,544 in parking fees, tolls, and transportation, $2,579 in other business expenses, and $2,193 in meals and entertainment expenses. (Blue Dep. (DE 32-9) at 19:8-22:23; Blue Tax Returns (DE 32-37)). Blue did not incur such expenses and did not provide these amounts to defendant Lewis. (Blue Dep. (DE 32-9) at 19:8-22:23; Blue Tax Returns (DE 32-37)). Defendant Lewis also falsely reported that Blue incurred expenses for uniforms in the amount of $801, tools in the amount of $299, and a cell phone in the amount of $1,021, when Blue did not even own a cell phone or have to wear special uniforms to work. (Blue Dep. (DE 32-9) at 22:25-23:17; Blue Tax Returns (DE 32-37)). As a result of these false claims, Blue's 2015 tax return claimed a bogus refund in the amount of $1,494. (
Perry Parker had his 2014, 2015, and 2016 federal income tax returns prepared at the tax preparation store in Dunn, N.C. (Parker Tax Returns (DE 32-49, 32-50, 32-51)). Defendant Lewis prepared Parker's 2015 and 2016 tax returns. (Parker Tax Returns (DE 32-49, 32-50)). Parker has a cell phone through which his employer can contact him, and Parker pays for that. (Parker Dep. (DE 32-22) at 18:5-11). Parker did not incur any other expenses for his job, as his employer covered expenses such as gas and provided him with boots. (Parker Dep. (DE 32-22) at 22:6-16). As a truck driver, Parker does not drive his work truck anywhere that requires him to stay overnight. (Parker Dep. (DE 32-22) at 9:13-23, 13:10-13, 23:11-18).
On the Schedule A attached to Parker's 2015 tax return, defendant Lewis falsely reported additional mortgage interest in the amount of $1,884 that Parker did not actually pay, and reported it on the tax returns as home mortgage interest not reported on a Form 1098. (Parker Dep. (DE 32-22) at 44:13-46:16; Parker Tax Returns (DE 32-50)). Defendant Lewis also falsely reported on the 2015 tax return that Parker incurred $5,061 in unreimbursed employee business expenses. (Parker Tax Returns (DE 32-50)). This included $501 in uniform expenses and $1,781 in vehicle expenses, where defendant Lewis claimed that Parker drove his vehicle 19,999 total miles, of which 3,098 were purported business miles, the exact same mileage amounts that defendant Lewis reported on Parker's 2016 tax return. (Parker Dep. (DE 32-22) at 50:13-23, 53:2-54:10; Parker Tax Returns (DE 32-49, 32-50)). Defendant Lewis and another preparer at the store in Dunn, N.C. made similar false claims on Parker's Schedule A for his 2014 and 2016 tax returns. (Parker Dep. (DE 32-22) at 33:17-34:24, 35:10-37:23, 38:4-38:25, 59:21-60:4, 60:10-15, 61:18-62:8; Parker Tax Returns (DE 32-49, 32-51)).
Angelo McLean had his 2013 and 2014 federal income tax returns prepared at the Dunn, N.C. tax preparation store. (McLean Dep. (DE 32-19) at 11:7-24; McLean Tax Returns (DE 32-119, 32-120). McLean is employed supervising cemeteries, and uses a city-owned truck when he has to go from one cemetery to another. (McLean Dep. (DE 32-19) at 10:4-11:6). The preparer falsely claimed deductions totaling $29,159 on the Schedule A attached to McLean's 2014 tax return. (McLean Tax Returns (DE 32-119)). The preparer falsely claimed that McLean donated $3,521 to charity, when McLean made no such contributions and did not tell the preparer that he made contributions in that amount. (McLean Dep. (DE 32-19) at 16:10-19:22). The preparer falsely reported that McLean incurred $13,843 in unreimbursed employee business expenses in 2014, when McLean did not incur any such expenses. (McLean Dep. (DE 32-19) at 20:8-23:2; McLean Tax Returns (DE 32-119)).
The fabricated expenses included $6,663 in vehicle expenses, even though McLean only drove a city-provided vehicle when working. (McLean Dep. (DE 32-19) at 20:24-22:4). The preparer falsely claimed that McLean drove a total of 19,999 miles in 2014, of which 11,899 were purportedly business miles, amounts that McLean never provided to the preparer. (McLean Dep. (DE 32-19) at 25:12-26:23, 27:22-29:3; McLean Tax Returns (DE 32-119)). The preparer did not explain to McLean what qualifies as an unreimbursed employee business expense. (McLean Dep. (DE 32-19) at 19:23-20:3, 26:24-13, 29:4-7). The preparer also falsely claimed that McLean incurred $4,119 in expenses for overnight travel related to his job, $2,001 in additional business expenses, and $2,119 in meals and entertainment expenses. (McLean Dep. (DE 32-19) at 22:7-24:14, 24:19-25:11; McLean Tax Returns (DE 32-119)). The preparer made similar false statements on the Schedule A attached to McLean's 2013 tax return. (McLean Dep. (DE 32-19) at 34:6-41:17; McLean Tax Returns (DE 32-120)).
Thomas and Susan Hudgins had their 2013 and 2014 federal income tax returns prepared at the Dunn, N.C. tax preparation store. (Hudgins Dep. (DE 32-26) at 12:11-24; Hudgins Tax Returns (DE 32-108, 32-109)). The preparer falsely claimed on the Schedule A attached to the Hudgins' 2013 tax return that the Hudgins donated $2,001 to charity, when they did not. (Hudgins Dep. (DE 32-26) at 34:7-22). The preparer asked the Hudgins how far they drove to and from work, and also how far they drove to and from their daughter's high school. (Hudgins Dep. (DE 32-26) at 16:4-23, 35:5-9). The preparer then falsely reported on the Schedule A that Hudgins incurred unreimbursed employee business expenses in the amount of $13,220, based on a purported 14,239 business miles driven. (Hudgins Dep. (DE 32-26) at 34:23-37:21; Hudgins Tax Returns (DE 32-108)). The preparer also falsely claimed that Hudgins incurred $1,001 in parking fees and tolls, $3,001 in overnight travel expenses, and $1,173 in other job-related expenses, none of which Hudgins incurred. (Hudgins Dep. (DE 32-26) at 37:16-38:14).
Similarly, on the Hudgins' 2014 tax return, the preparer falsely reported unreimbursed employee business expenses in the amount of $30,848. (Hudgins Dep. (DE 32-26) at 41:4-43:3; Hudgins Tax Returns (DE 32-109)). The basis for that amount was not reported on the tax return, and Hudgins did not know what that amount could represent. (Hudgins Dep. (DE 32-26) at 42:23-43:3; Hudgins Tax Returns (DE 32-109)). As a result of these false claims, the Hudginses' 2014 tax return claimed a bogus refund in the amount of $4,142. (
Tara Moulden (McIver) had her 2013 federal income tax return prepared at the tax preparation store in Dunn, N.C. (Moulden Tax Return (DE 32-110)). Moulden did not incur expenses for her job, other than using her personal car to drive between offices "five times a month maybe." (Moulden Dep. (DE 32-21) at 12:3-22). On the Schedule A attached to Moulden's 2013 tax return, the preparer falsely claimed that Moulden incurred $21,820 in unreimbursed employee business expenses. (Moulden Dep. (DE 32-21) at 23:1-24; Moulden Tax Return (DE 32-110)). The preparer also claimed a personal expense for a home roofing repair in the amount of $4,300 as an "other" deductible expense on the Schedule A. (Moulden Dep. (DE 32-21) at 23:25-24:17; Moulden Tax Return (DE 32-110)). As a result of these false claims, Moulden's 2013 tax return claimed a bogus refund in the amount of $11,927. (
Defendant Salmon prepared Jennifer and Samuel English's 2014 and 2015 federal income tax returns, although Defendant Salmon is not identified as the preparer of the 2014 tax return. (English Dep. (DE 32-15) at 8:6-9, 8:22-9:3; English Tax Returns (DE 32-66, 32-67)). The Englishes were not asked any questions about common deductions reported on a Schedule A, such as charitable contributions or medical expenses, and do not have a mortgage. (English Dep. (DE 32-15) at 10:18-11:9). On the Englishes' 2014 tax return, defendant Salmon claimed itemized deductions in the amount of $13,600, without attaching a Form Schedule A to the return. (English Tax Returns (DE 32-66)). As a result of these and other false claims, the Englishes' 2014 tax return claimed a bogus refund in the amount of $1,161. (
Defendant Salmon believes that she received training from Eddleman regarding preparing Forms Schedule A, including claiming business mileage. (Salmon Dep. (DE 32-25) at 57:23-58:18). Defendant Salmon does not specifically recall the training that she received, nor can she fully explain what qualifies as a deductible business mile (as opposed to a non-deductible commuting mile) on a Form Schedule A. (Salmon Dep. (DE 32-25) at 58:19-59:19). Defendant Lewis was similarly instructed by Eddleman. (
In addition to problems with Schedule A filings, defendants and those acting at their direction or with their knowledge and consent prepared tax returns that report either non-existent businesses and related income and/or expenses on Forms Schedule C ("Profit or Loss from Business, Sole Proprietorship"), or fabricated expenses and/or income for customers who actually own a small business. Several examples illustrate this practice by defendants.
As discussed above, defendant Salmon prepared the 2012, 2013, and 2014 federal income tax returns of Donameche Ray. (Ray Dep. (DE 32-23) at 10:15-24, 12:19-13:11; Ray Tax Returns (DE 32-123, 32-124, 32-125)). Ray was employed as a car detailer, and also worked on his own doing detailing for additional income. (Ray Dep. (DE 32-23) at 9:25-10:14). On Ray's 2014 tax return, Salmon falsely claimed that Ray lost $14,341 through a detailing business, where Ray did not provide this information to defendant Salmon. (Ray Dep. (DE 32-23) at 13:12-15:3; Ray Tax Returns (DE 32-123)). Defendant Salmon falsely reported on the Schedule C attached to Ray's 2014 tax return that Ray incurred expenses for insurance ($1,032), repairs and maintenance ($561), supplies ($607), utilities ($637), and a cell phone ($1,208). (Ray Dep. (DE 32-23) at 16:16-17:1; Ray Tax Returns (DE 32-123)). Defendant Salmon also falsely claimed a car and truck expense in the amount of $11,199, based on Ray purportedly driving 19,999 business miles for his car detailing business. (Ray Dep. (DE 32-23) at 18:1-25; Ray Tax Returns (DE 32-123)). Defendant Salmon did not review this information with Ray, who was "at a loss" when reviewing his tax return at his deposition. (Ray Dep. (DE 32-23) at 18:11-25). As stated above, Ray's 2014 tax return claimed a bogus refund in the amount of $3,975. (
As discussed above, Christopher Upchurch's 2015 federal income tax return was prepared by defendants. (Upchurch Dep. (DE 32-28) at 8:2-9:6, 23:2-10; Upchurch Tax Returns (DE 32-71)). Defendant Lewis falsely reported on the Schedule C attached to the 2015 tax return that Upchurch owned or operated a "sales" business that received gross receipts in the amount of $10 but incurred expense for repairs and maintenance in the amount of $5,200, for a loss of $5,190. (Upchurch Tax Returns (DE 32-71)). Upchurch had no such business, and could only guess that the maintenance and repair expense listed was for repairs he made to his home, although he did not provide any information to Lewis about the cost of those home repairs. (Upchurch Dep. (DE 32-28) at 33:3-34:22).
Defendant Salmon prepared the 2012, 2013, and 2014 tax returns of Kevin and Rita Chambers. (R. Chambers Dep. (DE 32-13) at 9:12-16, 12:10-25; R. Chambers Tax Returns (DE 32-87, 32-88, 32-89, DE 32-114, DE 32-115, DE 32-118)). In 2014, Rita Chambers worked at a retail store and also had a cake business that she operated, through which she made two to three hundred dollars. (R. Chambers Dep. (DE 32-13) at 16:1-19:5)). Defendant Salmon falsely reported on the Schedule C attached to Rita Chambers' 2014 tax return that Rita Chambers lost $13,158 through a cupcake business. (R. Chambers Dep. (DE 32-13) at 19:10-20:14, 21:1-25:21, 26:13-21, 27:19-28:6; R. Chambers Tax Returns (DE 32-114)). This reported fabricated business loss included false supply expenses in the amount of $2,397 and false vehicle expenses in the amount of $10,290 (based on a purported 18,375 business miles driven selling cakes). (R. Chambers Dep. (DE 32-13) at 22:12-25:21; Chambers Tax Returns (DE 32-114)). Rita Chambers did not provide this information to defendant Salmon and was unaware that defendant Salmon was reporting it on the tax return. (R. Chambers Dep. (DE 32-13) at 15:12-21). As a result of these and other false claims, Kevin and Rita Chambers' 2014 tax return claimed a bogus refund in the amount of $5,861. (
Defendant Salmon prepared the 2014 and 2015 tax returns of James and Kristopher Motley. (Motley Dep. (DE 32-20) at 8:17-23; Motley Tax Returns (DE 32-57, 32-58). Motley works for the postal service, and his wife, Kristopher, does hair out of their home. (Motley Dep. (DE 32-20) at 7:5-8:4). Motley dropped off his Form W-2, IDs, and social security cards to Defendant Salmon, who did not ask many questions, and Motley returned to pick up the completed tax return. (Motley Dep. (DE 32-20) at 8:24-9:25, 11:16-12:5). Defendant Salmon did not ask Motley or his wife about how much money his wife made or lost doing hair. (Motley Dep. (DE 32-20) at 9:13-22, 12:3-5).
Defendant Salmon falsely reported on the Schedule C attached to the Motleys' 2014 tax return that Kristopher Motley lost $14,019 through her hair business. (Motley Dep. (DE 32-20) at 12:21-13:21; Motley Tax Returns (DE 32-57)). Motley lost "nowhere near that much," and Defendant Salmon never asked for any documents showing income or expenses related to the business. (Motley Dep. (DE 32-20) at 13:6-21, 14:1-7). Similarly, defendant Salmon falsely reported on the Schedule C attached to the Motleys' 2015 tax return that Kristopher Motley lost $2,994 through her hair business, based on purported gross receipts received in the amount of $500 and expenses totaling $3,494, for advertising ($150), supplies ($1,500), travel ($500), and a cell phone ($1,344). (Motley Dep. (DE 32-20) at 14:8-17:22; Motley Tax Returns (DE 32-58)).
As discussed above, defendant Salmon prepared Jennifer and Samuel English's 2014 and 2015 federal income tax returns, although defendant Salmon is not identified as the preparer of the 2014 tax return. (English Dep. (DE 32-15) at 8:6-9, 8:22-9:3; English Tax Returns (DE 32-66, 32-67)). Both Jennifer and Samuel English work for a moving and storage company. (English Dep. (32-15) at 7:14-23). Neither Jennifer nor Samuel English own or operate a business or provide any cleaning services, and defendant Salmon did not ask the Englishes any questions about whether they owned a business. (English Dep. (DE 32-15) at 7:24-8:5). Schedule C attached to the 2014 tax return, Defendant Salmon falsely reported that Samuel English had a cleaning business that lost $6,800, when he did not own or operate a business, and did not incur the claimed expenses. (English Dep. (DE 32-15) at 14:1-3, 14:10-17, 14:20-15:2, 16:5; English Tax Returns (DE 32-66)). Defendant Salmon made similar false statements on the Schedule C attached to the Englishes' 2015 tax return. (English Dep. (DE 32-15) at 16:5-15; English Tax Returns (DE 32-67)).
William and Rebecca Byrd's 2014 and 2015 federal income tax returns were prepared at the tax preparation store in Dunn, N.C. (Byrd Tax Returns (DE 32-72, 32-73)). Defendant Salmon is identified as the paid preparer of the 2015 tax return, although Byrd recalls two men, not defendant Salmon, preparing his tax returns. (Byrd Dep. (DE 32-11) at 15:9-16:11, 21:7-15; Byrd Tax Returns (DE 32-73)). William Byrd worked for a hog farm maintenance company, and also earned some income doing tattoos, but earned no more than $4,000 annually, which he made known to the preparers. (Byrd Dep. (DE 32-11) at 8:25-9:13, 10:25-12:4). The preparer falsely reported on the Schedule C attached to the 2014 tax return that William Byrd received gross receipts in the amount of $16,501 for doing tattoos, which Byrd called an "astronomical number." (Byrd Dep. (DE 32-11) at 17:18-18:18; Byrd Tax Returns (DE 32-72)). While the preparer of Byrd's 2015 tax return reported Byrd's income received through his job with his family's hog farm maintenance business, the preparer reported false expenses on the Schedule C attached to the tax return. (Byrd Dep. (DE 32-11) at 21:22-25:1; Byrd Tax Returns (DE 32-73)). These fabricated expenses included $5,401 in car and truck expenses, $201 for leasing vehicles or machinery, $1,097 for repairs and maintenance, and $3,100 for deductible meals and entertainment. (Byrd Dep. (DE 32-11) at 21:22-25:1; Byrd Tax Returns (DE 32-73)). The phone expenses exceeded 50% of the income that Byrd received and, when shown these amounts at the deposition, Byrd stated that "it would be ridiculous to have a job like that." (Byrd Dep. (DE 32-11) at 24:3-24:22).
Michael Zimmerman had his 2014 and 2015 federal income tax returns prepared at the tax preparation store in Fayetteville, N.C., and defendant Salmon is identified as the preparer of both returns. (Zimmerman Dep. (DE 32-21) at 8:2-5, 22:19-25; Zimmerman Tax Returns (DE 32-74, 32-75). Zimmerman drove a taxi part-time, was employed at Smithfield, and had his own home improvement business. (Zimmerman Dep. (DE 32-21) at 8:6-9:7, 9:13-11:8). Zimmerman typically made around $3,500 to $5,000, after expenses, through his home improvement business. (Zimmerman Dep. (DE 32-21) at 11:13-21:1). Zimmerman estimates that he made around $3,500 through his business in 2015. (Zimmerman Dep. (DE 32-21) at 12:25-13:8). On the Schedule C attached to the 2014 tax return, defendant Salmon falsely reported that Zimmerman only received $1,317 in gross receipts through his home improvement business, when the actual amount was more. (Zimmerman Dep. (DE 32-21) at 17:11-18:17; Zimmerman Tax Returns (DE 32-74)). Defendant Salmon also falsely reported that Zimmerman incurred $11,881 in expenses, including for advertising ($150), vehicle expenses ($7,613, based on 13,594 purported business miles driven), repairs and maintenance ($1,354), supplies ($1,400), and travel ($1,364), which was information that was not accurate and that Zimmerman did not provide to defendant Salmon. (Zimmerman Dep. (DE 32-21) at 18:18-20:11; Zimmerman Tax Returns (DE 32-74)). Defendant Salmon made similar false statements on the Schedule C attached to Zimmerman's 2015 tax return. (Zimmerman Dep. (DE 32-21) at 12:25:13:8, 22:7-23:11; Zimmerman Tax Returns (DE 32-75)).
Christy Elliott had her 2013, 2014, 2015, and 2016 tax returns prepared at the tax preparation store in Dunn, N.C. (Elliott Dep. (DE 32-14) at 16:10-17:20; Elliott Tax Returns (DE 32-52, 32-53, 32-54, 32-55)). Defendant Lewis prepared Elliott's 2016 tax return. (Elliott Dep. (DE 32-14) at 27:11-28:2; Elliott Tax Returns (DE 32-52)). Defendant Lewis falsely claimed on the Schedule C attached to Elliott's 2016 tax return that she earned $6,119 braiding hair, far more than the $150 or $200 per year she actually earned. (Elliott Dep. (DE 32-14) at 11:10-12:1, 21:15-20, 23:16-25:6, 29:2-30:1; Elliott Tax Returns (DE 32-52)). Elliott did not provide this information to Lewis. (Elliott Dep. (DE 32-14) at 31:18-23). Defendants made the same type of false claim on Elliott's 2015 and 2014 tax returns as well. (
Defendant Salmon prepared the 2012 and 2013 tax returns of Najib Al Shami. (Al Shami Tax Returns (DE 32-121, 32-122)). Al Shami met Defendant Salmon at the grocery store where Al Shami works. (Al Shami Dep. (DE 32-8) at 10:1-14, 11:1-9). Al Shami only worked at the grocery store, is not a mechanic, but one time repaired defendant Salmon's car. (Al Shami Dep. (DE 32-8) at 11:10-12:10). Al Shami never told defendant Salmon that he worked as a mechanic. (Al Shami Dep. (DE 32-8) at 12:5-10, 14:23-15:12). However, defendant Salmon falsely reported on the Schedule C attached to Al Shami's 2012 tax return that Al Shami owned a mechanic business, through which he purportedly received gross receipts totaling $1,501 (a number commonly reported on tax returns prepared that year) and incurred expenses totaling $9,714, for a reported loss of $8,213. (Al Shami Tax Returns (DE 32-121)). The false expenses included $8,664 in vehicle expenses, based on purported mileage totaling 15,611, and a cell phone expense of $481, when Al Shami did not have any such expenses and was not questioned about these types of expenses. (Al Shami Dep. (DE 32-8) at 14:10-17:21; Al Shami Tax Returns (DE 32-121)). Defendant Salmon falsely reported similar losses on Al Shami's 2013 tax return. (Al Shami Dep. at 19:8-24, 20:6-21, 21:18-22-18, 23:14:24:3, 24:21-25:5; Al Shami Tax Returns (DE 32-122)).
Tamara Albright's 2014 and 2015 federal income tax returns were prepared at the tax preparation store in Dunn, N.C. (Albright Tax Returns (DE 32-68, 32-69)). Albright operated a house cleaning business in 2014 and part of 2015, where she made less than $5,000 annually. (Albright Dep. (DE 32-7) at 6:19-21, 10:1-11:9). Albright stopped cleaning houses in June 2015, and earned less that year than in 2014. (Albright Dep. (DE 32-7) at 11:9-18). Defendant Lewis reported on the Schedule C attached to Albright's 2014 tax return that Albright received $3,001 in gross receipts from her house cleaning business, and incurred $551 in expenses. (Albright Tax Returns (DE 32-68)). Albright does not recall what her exact income was that year, but believes that her expenses were greater than $551. (Albright Dep. (DE 32-7) at 19:20-20:18, 21:13-25). As a result of this and other false claims, Albright's 2014 tax return claimed a bogus refund in the amount of $6,044. (
In addition to making false statements on Schedules A and C, defendants and their preparers also routinely fabricated information, such as household help income, to increase the Earned Income Tax Credit ("EITC") of their customers, thereby increasing their tax refund. Several examples illustrate this practice.
As discussed above, Christy Elliott had her 2013, 2014, 2015, and 2016 tax returns prepared at the tax preparation store in Dunn, N.C. (Elliott Dep. (DE 32-14) at 16:10-17:20; Elliott Tax Returns (DE 32-52, 32-53, 32-54, 32-55)). Defendant Lewis prepared Elliott's 2016 tax return. (Elliott Dep. (DE 32-14) at 27:11-28:2; Elliott Tax Returns (DE 32-52)). In addition to falsely claiming expenses on Elliott's Schedule C, defendants reported on Elliott's 2013, 2014, 2015, and 2016 tax returns that she had received household help income when Elliott did not receive any wages or income for such services. (
Defendant Salmon prepared the 2012, 2014, and 2015 tax returns of Cynthia Rouse. (Rouse Tax Returns (DE 32-59, 32-60, 32-62)). In 2012, 2014, and 2015, Rouse lived with other people, including some children, but they were not relatives. (Rouse Dep. (DE 32-24) at 7:11-8:15). When Rouse had her 2012 tax return prepared, she went to the tax preparation store with her landlord and a woman and that woman's child who were staying with Rouse. (Rouse Dep. (DE 32-24) at 8:22-10:3, 11:11-12:13). The child was not related to Rouse. (Rouse Dep. (DE 32-24) at 9:17-9:24).
On Rouse's 2012 tax return, defendant Salmon claimed the child as a dependent and falsely reported that she was Rouse's niece. (Rouse Dep. (DE 32-24) at 12:14-13:20; Rouse Tax Returns (DE 32-59)). The child's mother was present when Rouse's tax return was prepared, and defendant Salmon did not ask Rouse any questions about the existence of any familial relationship between Rouse and the child. (Rouse Dep. (DE 32-24) at 11:7-13:20). On Rouse's 2012 tax return, defendant Salmon also falsely reported, as wages, fabricated household help income purportedly earned by Rouse in the amount of $6,071, when Rouse did not receive any wages or any other income in that amount (she was only employed doing home health care, for which she received a Form W-2) and did not tell defendant Salmon that she earned such income. (Rouse Dep. (DE 32-24) at 13:21-14:9, 14:18-15:1; Rouse Tax Returns (DE 32-59)). Defendant Salmon made similar false claims on Rouse's 2014 and 2015 tax returns, enabling Rouse to claim the EITC. (Rouse Dep. (DE 32-24) at 18:5-19:9, 20:14-24, 24:8-25:18; Rouse Tax Returns (DE 32-60, 32-62)).
Tamara Albright's 2014 and 2015 federal income tax returns were prepared at the tax preparation store in Dunn, N.C. (Albright Tax Returns (DE 32-68, 32-69)). In both years, defendant Lewis failed to report social security income, while also falsely reporting household help income for Albright. (Albright Dep. (DE 32-7) at 18:3-19, 22:1-17, 23:3-16, 24:5-11; Albright Tax Returns (DE 32-68, 32-69)). As a result of these and other false claims, Albright's tax returns claimed EITC of $5,390 in 2014 and $5,548 in 2015. (Albright Tax Returns (DE 32-68, 32-69)).
Raul Campos' 2014 federal income tax return identifies defendant Lewis as the paid preparer, and 2015 federal income tax return identifies defendant Salmon as the paid preparer. (Campos Tax Returns (DE 32-64, 32-65)). It is not clear, however, if defendant Lewis and defendant Salmon prepared the tax returns that identifies them as the paid preparer, or if defendant Salmon prepared the 2014 tax return while defendant Lewis prepared the 2015 tax return. (Campos Dep. (DE 32-12) at 8:24-9:1, 12:16-25, 24:21-25:22). The preparer of Campos' 2014 tax return falsely reported household help income, identified as wages on line 7 of the Form 1040, in the amount of $2,501. (Campos Tax Returns (DE 32-64)). Campos had no such income. (Campos Dep. (DE 32-12) at 16:1-17:22, 18:1-3). The preparer claimed an EITC in the amount of $4,570 on Campos' 2014 tax return. (Campos Tax Returns (DE 32-64)). Similarly, the preparer of Campos' 2015 tax return falsely reported household help income, identified as wages on line 7 of the Form 1040, in the amount of $2,001. (Campos Dep. (DE 32-12) at 18:6-19:6; Campos Tax Returns (32-65)).
Defendant Salmon did not know why several tax returns that she prepared all reported Household Help income in the exact same amount of $1,900, nor could she explain the nature or source of that income. (Salmon Dep. (DE 32-25) at 54:3-55:8;
Defendants (or the businesses where they worked, BPTS and QA Tax Service) contracted with tax refund processors — BPTS, LLC contracted with Refundo, Inc. in 2015 and QA Tax Service, Inc. contracted with Santa Barbara Tax Products Group, LLC in 2016 and 2017 — to process their customers' tax refunds and, simultaneously, to deduct from those refunds the defendants' tax preparation fees. (
Plaintiff asserts that defendants' underlying business model and their actual return preparation practices involved falsely claiming: (1) unreimbursed employee business expenses (EBE) on Forms Schedule A ("Category A"); (2) business income and/or expenses on Forms Schedule C ("Category B"); and (3) the Earned Income Tax Credit ("Category C"). (Statement of Facts (DE 30) ¶ 394). For purposes of calculating defendants' profit, there is no overlap of either tax returns in Categories A, B, and C; each category contains separate and distinct tax returns and related fees. (
In 2015 and 2016, fees for tax returns with defendant Salmon's Electronic Filing Identification Number ("EFIN") included $3,779 for returns claiming employee business expenses on Schedule A, $38,707 for returns falsifying business income and/or expenses on Schedule C, and $32,357.73 in false claims generating EITC. (
In 2015, 2016, and 2017, fees for tax returns with the EFIN associated with the tax preparation store in Dunn, North Carolina used by defendant Lewis and other tax return preparers at that store to file tax returns included $26,122.88 for returns claiming employee business expenses on Schedule A, $34,559.45 for returns falsifying business income and/or expenses on Schedule C, and $44,239.30 in false claims generating EITC. (
According to defendant Lewis, he received between 15% and 20% of the tax preparation fees generated by the Dunn, North Carolina store. (Lewis Dep. (DE 32-18) at 21:14-22:3). Assuming defendant Lewis received only 15% of these fees, defendant Lewis received ill-gotten gains in the amount of $9,947.12 in 2015, $3,521.84 in 2016, and $2,269.28 in 2017, for a total of $15,738.24. BPTS, LLC did not issue a Form 1099 to defendant Lewis for 2015, and QA Tax Service, Inc. has not issued a Form 1099 to defendant Lewis for 2017. (Ruiz Decl. (DE 32-5) ¶ 8). QA Tax Service, Inc. issued a Form 1099 to defendant Lewis for 2016 that stated defendant Lewis was paid $13,000 in 2016. (Ruiz Decl. (DE 32-5) ¶ 7).
Additional facts pertinent to the motion will be discussed below.
Summary judgment is appropriate where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact."
Once the moving party has met its burden, the non-moving party must then "come forward with specific facts showing that there is a genuine issue for trial."
"[A]t the summary judgment stage the [court's] function is not [itself] to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial."
Nevertheless, "permissible inferences must still be within the range of reasonable probability,. . . and it is the duty of the court to withdraw the case from the [factfinder] when the necessary inference is so tenuous that it rests merely upon speculation and conjecture."
Plaintiff seeks a permanent injunction barring defendants from preparing taxes, as well as an order disgorging fees obtained from defendants' systematic false statements on tax returns. The court addresses each remedy in turn.
Plaintiff seeks a permanent injunction against defendants to prevent them from preparing taxes again.
The court may issue an injunction if it finds "(1) that the person has engaged in any conduct subject to penalty under section 6700 . . . or section 6701 . . ., and (2) that injunctive relief is appropriate to prevent recurrence of such conduct." 26 U.S.C. § 7408. The Internal Revenue Code imposes a penalty on any person who
26 U.S.C. § 6701(a). The penalty extends liability to individuals for the conduct of subordinates.
In this case, plaintiff has established each of the elements required for permanent injunction. Defendants aided and assisted in, as well as procured,
In this case, injunctive relief is appropriate to prevent recurrence of such conduct. Although defendants claim that they do not intend to prepare taxes again, the continuous and systematic nature of their misconduct over the years, combined with the fact that their activities are part of a larger tax fraud scheme whose leadership has changed hands several times, provides sufficient basis to find that an injunction is necessary to prevent recurrence of misconduct.
Defendants do not offer any opposition to plaintiff's motion, but instead "agree to the permanent injunction." (Def. Brief in Opposition (DE 36) ¶ 1). In light of the foregoing, the court is satisfied that a permanent injunction is appropriate in this case. Having reaching this determination, the court does not address plaintiff's additional claims supporting injunction under 26 U.S.C. §§ 7402, 7407. The court adopts the form of injunction and terms thereof proposed by plaintiff.
Plaintiff seeks an order for disgorgement from defendants for fees they obtained resulting from false statements on tax returns they or their subordinates helped prepare.
The court has broad authority to issue orders and judgments "as may be necessary or appropriate for the enforcement of the internal revenue laws." 26 U.S.C. § 7402(a). This includes the remedy of disgorgement.
Here, defendants engaged in a significant pattern of wrongful conduct such that an order for disgorgement is appropriate. Over several years, defendants repeatedly made false statements on the tax returns of their customers, increasing tax refunds from which the preparers drew their fees. The facts in this case show that defendants had little interest in accuracy, but great interest in increasing their own bottom line, often without their customer's knowledge. (
Defendants argue in response that they "were mislead and not properly advised of all matters which [they] were asked to do for the company." (Def. Brief in Opposition (DE 36) ¶ 2). Defendants' argument is without merit. The tax returns and depositions submitted to the court show a persistent pattern of misconduct, where defendants and other preparers acting at their direction falsified the tax returns of their customers. No tax preparer can argue that, because they were misled, they believed it was lawful to make unsubstantiated statements about income and expenses out of whole cloth, or to overstate or understate the income or expenses of a taxpayer. (
Moreover, plaintiff's estimate of the amount of fees to be disgorged is a reasonable estimate for both defendants. The District Court for the Middle District of Florida considered evidence of the same patterns of wrongdoing in a lawsuit against Eddleman, Morales, and QA Tax Service, Inc., and ordered disgorgement in that case.
Defendant Salmon oversaw tax preparation at both the Fayetteville and Dunn stores, and is responsible either directly or indirectly for all the false returns filed at the Fayetteville store. As stated above, fees for tax returns with defendant Salmon's Electronic Filing Identification Number ("EFIN") included $3,779 for returns claiming employee business expenses on Schedule A, $38,707 for returns falsifying business income and/or expenses on Schedule C, and $32,357.73 in false claims generating EITC. (
Based on the calculations submitted in the Reinken Declaration, as well as the limited tax information for defendant Salmon, there is sufficient reason to conclude the estimate of fees to be disgorged for 2016 and 2015 is reasonable. (
Similarly, the estimated amount to be disgorged from defendant Lewis is reasonable. In 2015, 2016, and 2017, fees for tax returns with the EFIN associated with the tax preparation store in Dunn, North Carolina used by defendant Lewis and other tax return preparers at that store to file tax returns included $26,122.88 for returns claiming employee business expenses on Schedule A, $34,559.45 for returns falsifying business income and/or expenses on Schedule C, and $44,239.30 in false claims generating EITC. (
According to defendant Lewis, he received between 15% and 20% of the tax preparation fees generated by the Dunn, North Carolina store. (Lewis Dep. (DE 32-18) at 21:14-22:3). Assuming Defendant Lewis received only 15% of these fees, defendant Lewis received ill-gotten gains in the amount of $9,947.12 in 2015, $3,521.84 in 2016, and $2,269.28 in 2017, for a total of $15,738.24. This amount, based on defendant Lewis's own statements as to how much money he received from tax preparation fees, is reasonable.
Defendants do not offer any evidence to rebut plaintiff's argument that its calculations are a reasonable approximation of the fees to be disgorged. Therefore, the court orders disgorgement against defendant Salmon in the amount of $74,843.73, and disgorgement against defendant Lewis in the amount of $15,738.24.
Based on the foregoing, the court GRANTS plaintiff's motion for summary judgment (DE 29). IT IS HEREBY ORDERED that:
IT IS FURTHER ORDERED that Judgment is entered in favor of the United States and against Tanisha Salmon a/k/a Tanisha Chambers and Raeford Lewis on the United States' claim, brought under 26 U.S.C. § 7402, for the disgorgement of the ill-gotten gains that Tanisha Salmon a/k/a Tanisha Chambers and Raeford Lewis received for the preparation of tax returns making false claims, as follows: against Tanisha Salmon a/k/a Tanisha Chambers in the amount of $74,843.73; against Raeford Lewis in the amount of $15,738.24. The clerk is DIRECTED to close this case.
SO ORDERED.
