Another obvious source of irreparable harm is the hardship
caused to the populace as a whole, on whose behalf the suit
was initiated, by the underpayment of tax by the clients of
Mr. Franchi. The court does not necessarily agree with the
projected figure of $2.2 million of understated 1990 federal
income tax liability put forth by the government. The court
does find, however, that if the pattern of past years holds
true, significant amounts of revenue rightly owed to the
government will be lost if Mr. Franchi continues to prepare
The more tenuous of the arguments put forth by the
government regarding irreparable harm concerns the cost to the
government of auditing returns. The government argues that it
"simply does not have the human financial resources required
to examine all of the federal income tax returns which the
defendant prepares each year." (Complaint of plaintiff at
This argument of the government can be broken down into two
branches. The first argument has merit; that is government
expenditures are necessary to audit the tax returns, to meet
with the taxpayers to devise some sort of payment plan, and
then to enforce the payment plan. There is certainly some harm
to the government in putting forth such an outlay of time and
resources. Whether the government would be required to examine
every federal income tax return which the defendant prepares
each year, as it asserts, is far more speculative. However, on
balance, the court is convinced that the first factor, the
significance of the threat of irreparable harm to the
plaintiff if the injunction is not granted, has been met.
The court would like to point out, however, that it is not
considering the so-called Program Action Case when weighing
the possible irreparable harm to the plaintiff. Apparently
this Internal Service program targets certain income tax
preparers for intense scrutiny. The government introduced
evidence that it intends to propose certain penalties in the
future based upon the Program Action Case aimed at Mr.
The court feels that it would be unfair to weigh the Program
Action Case into the irreparable harm equation for two
reasons. First, regarding the cost in employee hours, the
government has chosen to use this extraordinary tool of
targeting all of an individual tax preparer's returns.
Credible defense evidence was introduced showing that this
type of all out blitz may lack reliability in certain aspects.
For instance, the government evidence could point to no data
regarding those tax returns which the Program Action Case
found satisfactory. In short, this data lacks the indicia of
reliability necessary to be considered by this court.
Secondly, the government has attempted to state that future
penalties will be forthcoming as a result of the Program
Action Case. Here again, the speculative nature of such
penalties would not be fair to consider, nor would it take
into account Mr. Franchi's right to appeal such future
penalties, if and when they were assessed. In summary, the
court finds that there is the threat of irreparable harm to
the plaintiff without considering the Program Action Case in
Second, we must weigh the irreparable harm suffered by the
government against the injury that Mr. Franchi will suffer if
an injunction is issued. As previously stated, the court has
found that irreparable harm may ensue to the plaintiff if the
injunction is not issued. Balanced against this harm is the
very drastic measure of depriving the defendant of his
livelihood, for whatever period of time. The court will go
into greater analysis of these equities in its final
discussion regarding enjoining a person from acting as a tax
preparer under § 7407. Suffice it to say for now that the
weight falls upon the side of the government in this balance if
the defendant is to be enjoined for an indefinite period of
time that is not permanent.
The third factor we must consider is the probability that
the government will succeed on the merits. U.S. v. Venie,
691 F. Supp. 834, 839 (M.D.Pa. 1988). As discussed earlier, Mr.
Franchi's conduct is clearly subject to penalty under 26 U.S.C. § 6694,
whether it be for negligent disregard of the rules and
regulations or willful attempt to understate tax liability.
Also, Mr. Franchi is clearly preparing tax returns in a manner
that substantially interferes with the proper administration of
the internal revenue laws. Thus, there exists a strong
probability that the government will succeed on the merits.
Therefore, the third prong of the test to see if injunctive
relief is appropriate has been met.
Last, we must consider the public interest. Many witnesses
testified that they now owe taxes due to Mr. Franchi's
preparation of their tax returns, and that as a result, they
are now suffering financial hardship. When viewed from the
perspective of the public at large, they too will be harmed if
such widespread understatement of tax liability is to continue
for another filing season. Many of the reasons already given
by the court are also applicable to the public interest factor
regarding injunctive relief. The court finds that public
interest also favors the issuance of the injunction.
In considering these four factors, we find that injunctive
relief is appropriate to prevent the recurrence of such
conduct in which Mr. Franchi engaged in preparing tax returns.
Under an analysis of 26 U.S.C. § 7407, the court must now
make another decision; namely whether to enjoin Mr. Franchi
from further engaging in such conduct, or to enjoin him from
acting as an income tax preparer. The statute states:
If the court finds that an income tax preparer
has continually or repeatedly engaged in any
conduct described in subparagraphs (A) through
(D) of this subsection and that an injunction
prohibiting such conduct would not be sufficient
to prevent such person's interference with the
proper administration of this title, the court
may enjoin such person from acting as an income
tax preparer. 26 U.S.C. § 7407.
This court finds that the defendant has continually and
repeatedly engaged in the proscribed conduct of
26 U.S.C. § 7407(b)(1)(A) and § 7407(b)(1)(D). The evidence presented
shows a pattern of disregard for the decrees and statutes of
the Internal Revenue Code that has been continuous for a period
of years. In addition, the sanctions put in place by the IRS
regarding Mr. Franchi appear to have largely fallen upon deaf
Nor can the court convince itself that an injunction that
merely proscribes certain conduct by Mr. Franchi would be
effective. The testimony is replete with examples of Mr.
Franchi giving his interpretation to the meaning of IRS
directives, while essentially ignoring the plain meaning the
words convey. For instance, much ado was made of the
difference between whether Mr. Franchi was barred from
"advising" or "representing" his clients before the Internal
Revenue Service. This court could foresee the defendant giving
his interpretation to any detailed directive this court may
convey regarding the bounds of his conduct.
Nor can we find it sufficient, as did the Venie case, to
merely enjoin the preparer from utilizing the "Head of
Household" status in a manner contradictory to the express
language of the statute. Mr. Franchi's disregard for the
express language of the Internal Revenue Code appears to be
across the board, and no specific prohibition would effectively
address all of the forbidden conduct. On the other hand, a
blanket injunction stated in general terms would leave itself
open to Mr. Franchi's interpretation, similar to the spin he
has given to the dictates of the IRS code.
This court therefore finds that a preliminary injunction
should be issued to enjoin Mr. Franchi from acting as an
income tax preparer. A grant or denial of a preliminary
injunction rests in the discretion of the trial court. As the
Third Circuit has stated, "A district court must have
considerable discretion because of the infinite variety of
situations which may confront it." A.L.K. Corporation v.
Columbia Pictures Indus., Inc., 440 F.2d 761, 763 (3d Cir.
The district court has broad discretion in such matters,
since its task involves
weighing the benefits and burdens that granting or denying the
injunction will have on the parties and on the public.
Penn Galvanizing Co. v. Lukens Steel Co., 468 F.2d 1021, 1023
(3d Cir. 1972). Implicit in the court's discretion under Rule
65(a) is that the court need not grant the total relief sought
by the applicant, but may mold its decree to meet the
exigencies of the particular case or may enter conditional
preliminary relief. 11 C. Wright & Miller, Fed. Practice &
Procedure § 2947 (1973).
This court is aware that the government has asked this court
to permanently enjoin the defendant from preparing federal
income tax returns. But the court is also cognizant that
permanently depriving Mr. Franchi of his livelihood at this
time is a harsh and severe measure that the equities of the
situation do not demand.
The defense presented testimony from numerous witnesses that
Mr. Franchi provides a valuable service to a largely
blue-collar clientele from the Beaver Valley area of Western
Pennsylvania. Because this court finds that Mr. Franchi should
be enjoined from preparing tax returns at this point in time
does not mean that this situation is not capable of or subject
The language of 26 U.S.C. § 7407 states that "the court may
enjoin such person from acting as a tax preparer." This court
has found no case that stands for the proposition that such an
injunction must be permanent. On the contrary, the legislative
history of 26 U.S.C. § 7407 and § 7402 is replete with
references to the court's wide latitude in fashioning relief.
As stated earlier in the opinion, the history of § 7402
recognizes "the great latitude inherent in § 7402 equity
jurisdiction to fashion appropriate relief." Similarly, the
legislative history of § 7407 states that "Nothing in this
provision is to alter the inherent authority of the court to
limit the scope and duration of any injunction as is deemed
appropriate given the actions leading to the request for
The court will enter a preliminary injunction enjoining
defendant Thomas C. Franchi from preparing any income tax
returns. In addition, a hearing on the merits will be held on
July 15, 1991. Following said hearing on the merits, this
court shall determine whether the preliminary injunction
should be made permanent or whether the defendant should be
enjoined only as to further engaging in the conduct discussed
in 26 U.S.C. § 7407(b)(1)(A), and § 7407(b)(1)(D). In addition,
other options may be considered at the time of the hearing.
The court makes the following findings of fact and
conclusions of law:
Findings of Fact:
1. Defendant Thomas C. Franchi is an income tax preparer
under 26 U.S.C. § 7701(a)(36), and 26 U.S.C. § 7407.
2. Eighty-seven penalties have been assessed against Mr.
Franchi by the Internal Revenue Service for the years from
1980 to 1988.
3. These penalties were assessed pursuant to 26 U.S.C. § 6694(a)
and § 6694(b), and were for an amount in excess of
4. As a result of these penalties under § 6694(a) and (b),
the defendant has met the requirements of
26 U.S.C. § 7407(b)(1)(A), regarding an action to enjoin an income tax
5. The defendant, Thomas C. Franchi, has been abusively
preparing income tax returns since at least 1986, and even
before that time. During that time, he has been promoting the
understatement of tax liabilities of his clients, through
inclusion, on clients' tax returns, of inaccurate, fabricated,
false, and fraudulent tax deductions and other benefits. Those
include inflated interest deductions, illegal and improper
expenses deductions, and inflated charitable contribution
deductions. All of these activities have interfered with the
proper administration of the Internal Revenue laws.
6. The defendant's conduct of preparing client's tax returns
containing patently inaccurate, fraudulent, fabricated, and
erroneous deductions has impeded the ability of the Internal
Revenue Service to enforce the Internal Revenue laws.
7. The detection and audit of all the improper and illegal
tax returns generated by the defendant's activities, the
collection of resulting deficiencies in tax, and the resulting
and potential litigation relating thereto has placed, and in
the future will place, a severe burden on the administrative
resources of the Internal Revenue Service and on the judicial
8. As a result of such fraudulent or deceptive conduct, the
defendant has met the requirements of
26 U.S.C. § 7407(b)(1)(D), regarding an action to enjoin an income tax
9. Thomas C. Franchi has continually and repeatedly engaged
in conduct described in 26 U.S.C. § 7407(b)(1)(A) and §
7407(b)(1)(D), and an injunction prohibiting such conduct would
not be sufficient to prevent Mr. Franchi's interference with
the administration of the Internal Revenue laws set forth in
Title 26 of the United States Code.
Conclusions of Law:
1. This District Court is statutorily authorized to issue a
preliminary injunction to enjoin certain conduct of income tax
preparers, as well as to enjoin such persons from acting as
income tax preparers pursuant to 26 U.S.C. § 7402(a) and
26 U.S.C. § 7407.
2. Preliminary injunctive relief is appropriate in this case
to prevent the recurrence of Thomas C. Franchi's conduct.
3. Pursuant to 26 U.S.C. § 7407(b)(2), the issuance of a
preliminary injunction enjoining the defendant from acting as
an income tax preparer is appropriate.
4. Thomas C. Franchi has engaged in conduct which has
interfered with the administration and enforcement of the
Internal Revenue laws by the Internal Revenue Service, and
pursuant to 26 U.S.C. § 7402, the issuance of a preliminary
injunction is appropriate to prevent the recurrence of such
An appropriate order will follow.
ORDER OF COURT
IT IS HEREBY ORDERED that the motion of the plaintiff,
United States of America, for a preliminary injunction, is
GRANTED. Until the above captioned case is determined on the
merits, defendant, Thomas C. Franchi, together with his
officers, agents, servants, employees, and persons in active
concert or participation with him, are preliminarily enjoined
1. Acting as an income tax preparer within the meaning of
26 U.S.C. § 7701(a)(36), which includes but is not limited to:
preparing for compensation or employing others to prepare for
compensation, any federal tax return or substantial portion
thereof, or any claim for refund or substantial portion
2. Further engaging in conduct subject to penalty under
26 U.S.C. § 6694, including but not limited to: aiding, assisting,
procuring, or advising with respect to, the preparation or
presentation of any portion of any return, affidavit, claim or
other document, which defendant knows will be used in
connection with any material matter arising under the federal
tax laws, and which defendant knows that, if so used, will
result in an understatement of another party's liability for
3. Interfering with and/or impeding the proper
administration of the Internal Revenue laws, including but not
limited to: improperly and/or illegally preparing tax returns,
counseling clients not to keep records or receipts supporting
their tax deductions, and/or not to cooperate during their
audits or appeals before the Internal Revenue Service.
IT IS FURTHER ORDERED that a hearing on the merits shall be
held at 9:30 A.M. on Monday, July 15, 1991 in Courtroom No. 5,
following which this court shall determine whether this
preliminary injunction should be made into a permanent
injunction, or whether the defendant, Thomas C. Franchi,
should be enjoined as to further conduct which would violate
the provisions of 26 U.S.C. § 7407(b)(1)(A) and
26 U.S.C. § 7407(b)(1)(D), or whether other appropriate actions should be
IT IS FURTHER ORDERED that this court shall retain
jurisdiction of this action for the purpose of implementing
this Judgment of Preliminary Injunction, and all additional
decrees and orders necessary and appropriate to the public
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