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United States v. Carter

United States District Court, W.D. North Carolina, Charlotte Division

October 2, 2017

DIANNE M. CARTER, Individually and Doing Business As Carter Sensible Tax Service Defendant.


          Frank D. Whitney, Chief United States District Judge

         THIS 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.


         Plaintiff, 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.

         On 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 summary judgment.


         Defendant 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 returns. Id.

         All 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

         i. Summary Judgment Standard

         Summary 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 (1986).

         ii. Standard of Relief under 26 U.S.C. §§ 7402, 7407, and 7408

         While a 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.

         B. I.R.C. § 7407

         Section 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.

         As 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.

         C. ...

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