United States District Court, W.D. North Carolina, Charlotte Division
D. Whitney, Chief United States District Judge
MATTER is before the Court on Plaintiff's Motion
for Summary Judgment (Doc. No. 12) and Memorandum in Support
(Doc. No. 12-1). For the reasons stated below, the Court has
determined that Plaintiff's Motion for Summary Judgment
(Doc. No. 12) should be GRANTED, and that a permanent
injunction should be entered against Defendant pursuant to
Rule 65 of the Federal Rules of Civil Procedure.
the United States, filed this action on September 16, 2016,
seeking to enjoin Defendant, Dianne Carter, from preparing
both individual tax returns (IRS Form 1040) and trust income
tax returns (IRS Form 1041). (Doc. No. 12-1, p. 3). Plaintiff
alleges that Defendant inappropriately claims tax refunds for
her customers based on inflated or falsified income and
withholdings. Id. Defendant allegedly fabricates two
types of returns: (1) Form 1040 returns on behalf of
prisoners of Nash Correctional Facility that assert
fictitious “wages” and “withholdings”
in order to claim tax refunds to which they are not entitled;
and (2) Form 1041 returns on behalf of trusts that
irrationally report no income yet hundreds of thousands of
dollars in tax withholdings, improperly claiming refunds
based on these fictitious withholdings. Id.
August 11, 2017, Plaintiff filed a motion for summary
judgment on its claim for permanent injunction pursuant to 26
U.S.C. §§ 7407, 7408, and 7402(a). On August 22,
2017, Defendant filed a “PETITION in the nature of a
MOTION to dismiss this frivolous claim under Rule 12(b)(6)
for want of standing, ” in which she asserted that
Plaintiff was an “artificial, corporate fiction”
attempting to “usurp unalienable Rights and subject
[Defendant] to Plaintiff's will, which is slavery.”
(Doc. No. 13, p. 1). Defendant submitted her final filing on
September 9, 2017, in which she again failed to address the
merits of Plaintiff's claims against her. (Doc. No. 15,
p. 1). Defendant has not substantively responded in any form
to the arguments raised in the Government's motion for
is a tax preparer who operates Carter Sensible Tax Service.
(Doc. No. 12-2, p. 1). Between the years 2011 and 2014, the
Internal Revenue Service (“IRS”) reviewed
sixty-three tax returns prepared by Defendant, finding thirty
of these returns to contain evidence of improper conduct.
Id. at 2. Of these thirty returns, five were
prepared on behalf of purported trusts. Id. at 3.
The other twenty-five were prepared on behalf of inmates at
Nash Correctional Institution, a prison in Nashville, NC.
Id. Utilizing a Form 4852, Defendant prepared inmate
returns with entirely fabricated income and withholdings,
accompanied by supporting documents containing fictitious
wage calculations and other falsified information.
Id. at 6. The inmate returns claimed refunds ranging
from $7, 924 to $19, 996. Id. at 3. The trust
returns claimed even larger refunds, ranging from $750, 000
to $8, 035, 560, despite reporting no income. Id. at
4. Defendant also failed to physically sign any of the inmate
returns and even omitted her preparer identification from six
twenty-five inmate returns and the five trust returns were
rejected by the IRS for asserting frivolous and unreasonable
tax positions. Id. at 3. On one occasion, a trust
return, prepared by Defendant, generated an erroneous $750,
000 refund. Id. at 12. Only after initiating a
collection action against the fiduciary of the trust did the
IRS recover this money. Id. The IRS has incurred
over $23, 000 in administrative costs investigating
Defendant's conduct. Id. at 12.
A. Standard of Review
Summary Judgment Standard
judgment is appropriate only when there is no genuine issue
of any material fact and the moving party is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56(c). A genuine
issue of material fact exists if the evidence is sufficient
for a reasonable trier of fact to find in favor of the
nonmoving party. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
Material facts are those facts identified by the controlling
law as essential elements of the claims asserted by the
parties. Id.; Cox v. County of Prince
William, 249 F.3d 295, 299 (4th Cir. 2001). There is no
genuine issue of material fact if the nonmoving party fails
to make a sufficient showing on an essential element of its
case as to which it would have the burden of proof at trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
Standard of Relief under 26 U.S.C. §§ 7402, 7407,
typical remedy of permanent injunctive relief must satisfy
traditional equitable factors, an injunction “may issue
without resort to the traditional equitable prerequisites if
a statute expressly authorizes the injunction.”
United States v. Renfrow, 612 F.Supp.2d 677, 685
(E.D. N.C. 2009) (quoting Abdo v. IRS, 234 F.Supp.2d
553, 564 (M.D. N.C. 2002), aff'd, 63 Fed.Appx. 163 (4th
Cir.2003)). Sections 7402, 7407, and 7408 all authorize
injunctive relief when specified prohibited conduct occurs.
In this case, as discussed below, the undisputed facts
demonstrate that such conduct has occurred.
I.R.C. § 7407
7407 of the Internal Revenue Code (“I.R.C”)
states that if a tax return preparer engages in any conduct
subject to penalty under Section 6694 or 6695, injunctive
relief is appropriate to prevent the recurrence of such
conduct. 26 U.S.C. § 7407(b). Section 6694 penalizes tax
return preparers who knowingly understate a taxpayer's
liability. 26 U.S.C. § 6694. Section 6695 penalizes tax
return preparers who fail to sign or furnish their
identifying number with respect to any tax return. 26 U.S.C.
§ 6695. This Court agrees that the undisputed facts show
that Defendant repeatedly violated Sections 6694 and 6695.
stated above, Defendant submitted twenty-five inmate returns
and five trust returns that were subsequently rejected by the
IRS. (Doc. No. 12-2, p. 4). These returns not only claimed
refunds based on withholdings and income that did not exist,
the supporting documents that were submitted with the returns
also contained fabricated information. Id. at 4-5.
Furthermore, Defendant failed to identify herself by
signature or identification number in several of these
contrived filings. Id. Such conduct is in clear
violation of Sections 6694 and 6695.