You Guys! Corporations Actually Pay Taxes!

A horrible fate must await an attorney when a judge has these things to say about him:

“Just because other accountants and professionals were doing something wrong does not excuse Defendant’s misconduct.”

“Defendant’s reasoning is so specious that he should have known it was wrong.”

“Defendant has been quite adept at hiding his involvement in these activities in an effort to develop what he believes is plausible deniability. Ultimately, his denials are implausible.”

“As stated earlier, the Court believes that promotion of tax schemes and structures is now Defendant’s modus operandi. These were not isolated occurrences, and the nature of his preferred method of business indicates it will continue to ng business.”

“Defendant describes himself as a “rainmaker,” and the Court finds that practically everything he has done in that capacity has been improper. The Court has no reason to believe he would not concoct and promote some other scheme of doubtful validity.”

So this led to…maybe a referral to the local attorney disciplinary board? A broad and sweeping injunction against doing further tax work?

Well, a Kansas City judge barred defendant A. Blair Stover from promoting three “schemes” he no longer promotes anyway. The judge also required him to run any other tax planning ideas by the IRS before marketing them. No disbarment. No banishment. Just “sin no more.”

Why the seeming leniency?

An injunction prohibiting Defendant from providing tax advice raises serious First Amendment concerns. The Government has a strong and valid interest in preventing fraud, and the First Amendment does not protect fraudulent statements. However, the Government has no interest in preventing true statements, and even liars and hucksters have First Amendment rights. Conceivably, Defendant could provide lawful and accurate tax advice, and the Court is unwilling (and probably unable) to prevent him from doing so.

I like the First Amendment. Without it I might have been moved to an oubliette underneath IRS Headquarters long ago. Yet the first in line in the bill of rights hasn’t stopped other judges from shutting down tax scheme promoters. For example, a federal judge enjoined tax protest guru Bill Benson from:

promoting, organizing, or selling (or helping others to promote, organize, or sell) any other tax shelter, plan, or arrangement that incites or assists others to attempt to violate the internal revenue laws or unlawfully evade the assessment or collection of their federal tax liabilities or unlawfully claim improper tax refunds.

Benson appealed on First Amendment grounds. The Seventh Circuit turned him down:

Benson purported to be selling a way to avoid tax liability; what he was actually selling was a way to increase tax and criminal liability for failing to pay taxes. That is false advertising, which may be banned consistent with the First Amendment.

Some years back a Des Moines gentleman vigorously promoted Employee Stock Ownership Plans as a tax cure-all, which had a number of unfortunate consequences. The Eighth Circuit didn’t let the First Amendment get in the way from permanently enjoining him and his CPA practice “…from acting as a service provider to any ERISA plan.”

Perhaps there’s something in ERISA that overrides the First Amendment the same way “ERISA preemption” keeps states from regulating many features of pension plans. Maybe the Eighth Circuit was wrong. But if the Kansas City judge’s opinion gets it right, you can get away with a lot in tax practice before you are drummed out altogether.