Preparer Can Be Guilty of Aiding and Assisting Despite Not Being Subject to Circular 230 (6/15/13)

In criminal cases, lawyers need to be creative, always being careful not to go too far on the wild side in the arguments they make.  I illustrate creativity to in a case raising an argument I have not seen before.  The argument is perhaps on the wild side.

In United States v. Tomlinson, 2013 U.S. Dist. LEXIS 82436 (D KS 2013) [link to come], the defendant, a return preparer, was tried for aiding and assisting, under Section 7206(2), here.  One of the arguments the defendant made was that she could not be convicted for Section 7206(2) because, at the time of the alleged offense, as a preparer, she was not subject to Circular 230, the regulation guiding persons practicing before the IRS; therefore she urged she could not have willfully violated Section 7206(2).  What's wrong with this argument? The Court tells us as follows:

As for the fourth element, willfulness, the defendant argues that (1) she was under no legal duty to prepare and present the returns truthfully and (2) even if she was under a legal duty, she did not prepare and present the false returns intentionally. The defendant's first argument focuses primarily on the applicability of a Treasury Department regulation commonly referred to as Circular 230, which contains duties and restrictions relating to practice before the IRS. Loving v. I.R.S., No. 12-385, 2013 U.S. Dist. LEXIS 7980, 2013 WL 204667, at *3 (D.D.C. Jan. 18, 2013). These regulations are published in the Code of Federal Regulations, Title 31, part 10 and reprinted under the name "Treasury Department Circular No. 230." Id. Before 2011, Circular 230 applied only to attorneys, CPAs, and other specified tax professionals (collectively, "practitioners"). Id. The defendant argues that Circular 230 did not apply to her when she prepared the false returns from 2008 through 2009 because at that time she was simply a return preparer and not a practitioner. Therefore, the defendant argues, according to IRS rules and regulations, she was under no legal duty to aid in the preparation and presentation to the IRS of tax returns that were not false as to any material matter.

The court finds this argument utterly unpersuasive. Circular 230 is a regulation that establishes duties for practitioners in addition to, and not in place of, duties already existing under the law (e.g., practitioners must register with the Secretary of the Treasury, pay a fee, and pass a qualifying exam). See id. In other words, Circular 230 is not the sole basis for the legal duty willfully breached by the defendant. The plain language of 26 U.S.C. § 7206, under which the defendant was convicted, establishes a duty for "any person" to abide by its provisions. According to the defendant's argument, tax return preparers not subject to regulation under Circular 230 would have no legal duty to abide by the provisions of § 7206. n1 This interpretation would effectively change "any person" in § 7206 to "any person subject to Circular 230." Moreover, the declaration on each form 1040 signed by the defendant establishes the existence of a legal duty. See Cheek, 498 U.S. at 202. Therefore, as a matter of law, when the defendant aided in the preparation and presentation of the returns, she was under a legal duty to do so in accordance with the provisions of § 7206(2).
   n1 According to the defendant, this would have included approximately 600,000 to 700,000 tax return preparers with no legal duty to file non-fraudulent tax returns under the old version of Circular 230. Dkt. 51 at 5. 

The court also finds unpersuasive the defendant's argument that she did not intentionally prepare and present the false returns. The evidence sufficiently established that the defendant had knowledge of her legal duty and acted intentionally to violate it. First, the defendant had extensive education and experience pertinent to tax preparation. See United States v. Guidry, 199 F.3d 1150, 1157-58 (10th Cir. 1999) (holding the jury can consider education and experience to support a finding of willfulness). She had a bachelor's degree in accounting from Wichita State University and a master's degree in business from Baker University. Before starting her own tax preparation business in 2006, she worked for both H&R Block and Compro Tax as a tax preparer. Second, each form 1040 bore the defendant's name, address, phone number, PTIN, and signature. As mentioned above, no evidence suggested that the defendant accidentally signed the returns or that her PTIN was used without her permission. Viewing this evidence in the light most favorable to the government, a reasonable jury could find beyond a reasonable doubt that the defendant had knowledge of her legal duty and acted intentionally to violate it.