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UNITED STATES v. VENIE

April 19, 1988

UNITED STATES OF AMERICA, Plaintiff,
v.
ARTHUR G. VENIE, d/b/a CONVENIENCE INCOME TAX SERVICE, Defendant


R. Dixon Herman, United States District Judge.


The opinion of the court was delivered by: HERMAN

R. DIXON HERMAN, UNITED STATES DISTRICT JUDGE.

 Procedural Background

 On March 25, 1988, the plaintiff, United States of America ("government"), filed the present action against the defendant, Arthur G. Venie, d/b/a Convenience Income Tax Service ("Venie"), requesting that this Court enter preliminary and permanent injunctions to enjoin Venie from acting as an income tax return preparer. The government also filed a motion for a temporary restraining order. A hearing on the motion for a temporary restraining order was held March 29, 1988. After hearing the testimony of James Carmody (group manager of the Examination Division of the Internal Revenue Service ("IRS"), Harrisburg, PA), Stephan Butler (tax auditor, IRS, Harrisburg, PA), and Venie, the court issued a temporary restraining order which enjoined Venie from preparing any federal income tax return or portion thereof and from employing any persons to prepare returns at his direction or under his control. In addition, the court scheduled a hearing on the government's request for preliminary injunctive relief for April 6, 1988, in order to provide Venie with the opportunity to retain counsel and to present evidence.

 At the hearing conducted April 6, 1988, the government offered the testimony of several taxpayers whose tax returns had been prepared by Venie for the tax years 1984-86, and the testimony of Clyde Cooper, a special agent of the Internal Revenue Service who, in an undercover capacity, employed Venie to prepare his 1986 federal income tax return. The government also offered into evidence the affidavits of various other taxpayers whose tax returns had been prepared by Venie.

 Proceeding pro se, Venie also testified at the hearing. He offered into evidence three newspaper articles, *fn1" eleven "Reports of Individual Income Tax Examination Changes" issued by the IRS to various taxpayers whose tax returns Venie had prepared, and correspondence to Venie from the District Counsel of the IRS dated January 4, 1988.

 Factual Background

 Upon finding a deficiency in a tax return prepared by Venie, the IRS meets with the taxpayer. Some taxpayers pay their deficiency immediately (the records indicate that $ 150,000 in deficiencies has been paid); other taxpayers agree to pay the deficiency periodically (currently, the IRS has agreements for payment in the amount of $ 900,000). The IRS has been unsuccessful in contacting 150 taxpayers who owe taxes for deficiencies.

 The IRS estimates the gross value of the understatement for those returns prepared by Venie for the tax years 1984-86 to be $ 1,000,000 per year. The IRS also estimates that approximately one of ten families in the Greater Harrisburg Area has been affected by this case. Most of these families are low-income families.

 In order to successfully complete this project, the IRS has had to borrow tax auditors from other districts, employ additional clerical personnel, and utilize the Philadelphia Service Center. *fn3"

 Discussion

 District courts are statutorily authorized to issue injunctions at the request of the United States for the enforcement of the internal revenue laws. Section 7402 of Title 26, U.S.C., provides the following:

 
The district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue in civil actions . . . orders of injunction . . . to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws. The remedies hereby provided are in addition to and not exclusive of any and all other remedies of the United States in such courts or otherwise to enforce such laws.

 26 U.S.C. ยง 7402(a). In addition to this general grant of authority to issue injunctions, district courts are specifically authorized to enjoin income tax preparers from engaging in certain prohibited conduct. Section 7407 provides that:

 
. . . a civil action in the name of the United States to enjoin any person who is an income tax return preparer from further engaging in any conduct described in subsection (b) or from further acting as an income tax return preparer may be commenced at the request of the Secretary. Any action under this section shall be brought in the District Court of the United States for the district in which the income tax preparer resides or has his principal place of business or in which the taxpayer with respect to whose income tax return the action is brought resides. . . .
 
(b) Adjudication and decrees - In any action under subsection (a), if the court finds -
 
(1) that an income tax preparer has -
 
(A) engaged in any conduct subject to penalty under section 6694 or 6695, or subject to any criminal penalty provided by this title,
 
(B) misrepresented his eligibility to practice before the Internal Revenue Service, or otherwise misrepresented his experience or education as an income tax return preparer,
 
(C) guaranteed the payment of any tax refund or the allowance of any tax credit, or
 
(D) engaged in any other fraudulent or deceptive conduct which substantially interferes with the proper administration of ...

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