Page 3 - Tax Controversy Corner: The Internal Revenue Code Injunction Statutes

Without a customer list, it is unlikely that the govern- the defendants was warranted because “Defendants show
ment will identify each of [the promoter]’s customers no remorse, recognition of culpability, or likelihood of
who followed his advice before the statute of limita- stopping this abusive conduct without a Court order.” 28
tions has run. [The promoter] will not be harmed by In December 2018, the Department of Justice brought
identifying his customers and it will serve the public another injunction action against alleged tax shelter pro-
interest for the government to receive a full list of moters in the district court for the Northern District of
[his] customers, both to warn them of the falsity and Georgia in Zak under Code Secs. 7402, 7407, and 7408,
ineffectiveness of [his] claims, and to enforce the alleging that the defendants organized, promoted, or sold
income tax laws. 21 “a highly structured—and abusive—tax scheme involving
the syndication of conservation easement donations.”
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In Champion, the court went one step further and The government alleged that the defendants’ conduct
22
required the promoter to notify all purchasers of his book, violated Code Secs. 6700 (promoting abusive tax shelters),
Income Tax: Shattering the Myths, that they could not rely 6694 (unreasonable return positions), 6695A (substantial
on its content and that they should seek professional tax and gross valuation misstatements attributable to incorrect
advice. appraisals), and for unlawful interference with the admin-
istration and enforcement of the internal revenue laws. 30
According to the complaint, the scheme involved dona-
recent Actions Enjoining tax shelter tions of conservation easements and corresponding tax
promotion benefits from those donations, and that defendants know-
ingly relied on grossly overvalued appraisals of the donated
There have been two recent cases of interest in which easements. The government noted that the Internal
the United States has brought injunction actions against Revenue Code does allow taxpayers to claim a charitable
alleged tax shelter promoters. First, in RaPower-3, LLC, the donation of a “qualified conservation contribution,” but
federal district court for Utah ordered the defendants to contended that the transaction that the defendants alleg-
disgorge over $50 million in gross receipts from an abusive edly promoted did not meet the requirements for that
tax scheme involving false tax deductions and solar energy deduction because the defendants obtained valuations that
credits, and permanently enjoined the defendants from grossly inflated the value of the conservation easement. 31
promoting the scheme. The court’s decision came after The Complaint alleged that the defendants organized,
23
a bench trial, in which it found that the defendants “each promoted, or sold at least 96 conservation easement syn-
knew, or had reason to know, that their statements about dicates resulting in over $2 billion of improperly claimed
the tax benefits purportedly related to buying solar lenses federal tax deductions. The United States further alleged
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were false or fraudulent.” The court further stated that that the conservation easement syndicate was a listed
24
the defendants sold lenses using a multi-level marketing transaction, and that the defendants continue to promote
approach, and encouraged distributors to “bring still more these transactions after the IRS issued the notice identify-
people in to the multi-level marketing system and build ing them as listed transactions. 33
an extensive ‘downline.’” 25 The government seeks a permanent injunction prohibit-
The court concluded that, in this case, “[t]he toxic ing the defendants from directly or indirectly organizing,
combination of multi-level marketing and misleading promoting, or selling the conservation easement syndi-
information creates an urgent need [for] an injunction.” cates and related conduct, including preparing returns
The injunction prohibits the defendants from making or other documents submitted to the IRS claiming a
statements that a person who buys a lens is in a trade or qualified conservation contribution, and advising or
business with respect to that lens, may lawfully claim a representing any individual before the IRS in connec-
depreciation deduction or any other business expense tion with a qualified conservation contribution. The
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deduction related to a solar lens, or may lawfully claim a government has also requested that the court order the
solar energy credit related to a lens. The court ordered the defendants to provide the government with a list of con-
26
defendants to state in their marketing materials that the servation easement syndicates that the defendants have
court “has determined that the solar energy technology of promoted, and a list of all persons who have invested
RaPower-3 in place from 2005 to 2018 is without scien- in the conservation easement syndicates since 2009.
35
tific validation or substance and ineligible for tax credits The government has also asked the court to order the
or depreciation by individual purchasers of lenses.” The defendants to notify all of the investors and provide them
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court emphasized that the permanent injunction against with a copy of the court’s judgment and the permanent

MAY–JUNE 2019 © 2019 CCH INCorporAtEd ANd Its AffIlIAtEs. All rIgHts rEsErvEd. 59