United States v. Doonan

Background

William Doonan operated William Doonan and Associates, Inc. (WDA), a tax-preparation business, and served as its chief executive officer. From at least 2009 through 2016, Doonan and WDA prepared tax returns for customers. Between the 2012 and 2016 tax-processing years, they filed more than 23,000 returns for others, and more than 16,000 claimed deductions for unreimbursed employee expenses.

In 2016, Doonan pleaded guilty to two federal crimes: willfully helping prepare false or fraudulent tax documents, in violation of 26 U.S.C. § 7206(2), and corruptly trying to obstruct the administration of federal tax laws, in violation of 26 U.S.C. § 7212(a). During his plea hearing, he admitted that he knowingly prepared or caused the preparation of federal tax returns containing fictitious or inflated deductions and expenses. He was later sentenced to 24 months in prison on each count, to run concurrently, and one year of supervised release. The sentencing court found that he was responsible for an approximately $1.8 million tax loss.

The Internal Revenue Service separately investigated returns prepared between 2012 and 2016. It audited 69 returns, 54 of which had understated tax liabilities. The average deficiency across the audited returns was approximately $2,371 per return, and the Government presented evidence of millions of dollars in losses during the relevant tax-processing years.

The United States brought this civil action seeking injunctions under 26 U.S.C. §§ 7407, 7408, and 7402(a). The Government asked the court to permanently bar Doonan and WDA from preparing tax returns and from violating the federal tax laws. Doonan proceeded without a lawyer and opposed summary judgment, maintaining that he had prepared honest, nonfraudulent returns. WDA did not appear or oppose the motion. The court treated the motion as unopposed as to WDA but still independently reviewed the record.

Disputed Evidence and Summary-Judgment Standard

The court held that Doonan did not properly identify evidence creating a genuine dispute of material fact. He did not submit the required numbered response to the Government’s statement of facts. The court nevertheless exercised its discretion to consider evidence referenced in his opposition brief.

The court considered the declaration of Lori Dixon, an Internal Revenue Service revenue agent, except for portions recounting statements by former client Michael Leonard. Leonard had invoked his Fifth Amendment right against self-incrimination during a deposition attempt, but the Government had not shown that he qualified as unavailable under the applicable evidence rule. The court therefore disregarded those portions of Dixon’s declaration.

The court rejected Doonan’s general attacks on Dixon’s credibility and his unsupported claims that many facts were disputed. It also held that Doonan could not dispute the conduct underlying his criminal conviction in this civil case. Because he had pleaded guilty, had not withdrawn the plea, had not appealed the conviction, and had not moved to vacate it, the conviction prevented him from disputing matters established by that judgment in the Government’s later civil proceeding.

Summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. Applying that standard, the court concluded that the record did not present a factual dispute requiring a trial.

Injunction Under Section 7407

Section 7407 permits an injunction against a tax return preparer who engages in conduct subject to penalties under the Internal Revenue Code or in fraudulent or deceptive conduct that substantially interferes with federal tax administration, when an injunction is appropriate to prevent recurrence.

The court found that Doonan and WDA were tax preparers. Doonan’s criminal conviction and plea admissions established that he repeatedly helped prepare fraudulent or false tax documents and obstructed federal tax administration. The court further held that Doonan’s criminal liability could be attributed to WDA because he was operating the company and acted within the scope of his authority.

The court considered whether future violations were likely. It emphasized that Doonan acted willfully, that the conduct was repeated over several years, that evidence suggested it may have continued through at least 2016, and that Doonan continued to dispute the wrongful nature of the conduct. The court also found that, without an injunction, the defendants would have opportunities to commit future violations. It therefore granted summary judgment and concluded that a permanent injunction was warranted under section 7407.

Injunction Under Section 7408

Section 7408 authorizes an injunction against conduct subject to penalties under 26 U.S.C. § 6701 when the defendant engaged in that conduct and an injunction is appropriate to prevent its recurrence. Section 6701 addresses helping prepare or present a tax document while knowing that it will be used in a material tax matter and will cause another person’s tax liability to be understated.

The court found that the defendants violated section 6701 by preparing returns containing inflated and fictitious deductions that reduced customers’ tax liabilities and increased their refunds. The court also considered the seriousness of the harm and the defendants’ direct participation. It found significant harm to customers, who paid preparation fees and could face tax penalties, and to the Government, which lost revenue and spent resources investigating and addressing the conduct. The court found that Doonan directly prepared, reviewed, and filed the fraudulent returns.

The court therefore granted a permanent injunction under section 7408 prohibiting the defendants from engaging in conduct that violates section 6701.

Injunction Under Section 7402(a)

Section 7402(a) authorizes orders needed or appropriate to enforce the federal tax laws. Because that provision does not specify its own conditions for an injunction, the court applied traditional equitable factors: success on the merits, irreparable injury, inadequate legal remedies, the balance of hardships, and the public interest.

The court found that the Government had succeeded on the merits based on Doonan’s convictions and the established violations of sections 6694 and 6701. It found irreparable harm from lost tax revenue and the resources required to investigate and address false returns. Monetary remedies would not adequately prevent future fraudulent filings. Although an injunction would prevent the defendants from earning a living as tax preparers, the court found that this hardship was outweighed by the harm to the Government and customers if the conduct continued. The court also found that the injunction served the public interest by protecting taxpayers, conserving Internal Revenue Service resources, and supporting confidence in the federal tax system.

Disposition

The court granted the Government’s motion for summary judgment and permanently enjoined Doonan and WDA under 26 U.S.C. §§ 7402(a), 7407, and 7408. The order prohibits them, directly or indirectly, from:

- Preparing, filing, or helping prepare or file federal tax returns or related federal tax documents for anyone other than Doonan, Doonan and his spouse if filing jointly, or WDA; - Representing anyone before the Internal Revenue Service or advising, assisting, counseling, or instructing anyone about preparing a federal tax return; - Employing people who prepare or file federal tax returns or related documents for others; - Engaging in conduct subject to penalties under 26 U.S.C. §§ 6694 and 6701; - Promoting false tax schemes that violate federal tax laws; - Maintaining, assigning, holding, using, or obtaining a Preparer Tax Identification Number or Electronic Filing Identification Number; - Having an ownership interest in an entity that prepares federal tax returns or related documents for others or represents people before the Internal Revenue Service; - Advertising their own tax-preparation services; and - Engaging in conduct that substantially interferes with federal tax administration and enforcement.

The court also required Doonan, within 75 days after receiving the order, to file a declaration under penalty of perjury confirming receipt of the order and compliance with it. The United States was authorized to conduct post-judgment discovery to monitor compliance, and the Clerk was directed to close the case.