United States of America v. Ericson

Filing 53

ORDER GRANTING THE GOVERNMENT'S REQUESTED PERMANENT INJUNCTION. Signed by JUDGE LESLIE E. KOBAYASHI on 02/20/2015. (eps )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
UNITED STATES OF AMERICA,

)
)
Plaintiff,
)
)
vs.
)
)
JAMES A. ERICSON,
)
)
)
Defendant.
_____________________________ )

CIVIL 13-00551 LEK-KSC

ORDER GRANTING THE GOVERNMENT’S REQUESTED PERMANENT INJUNCTION
The sole issue before the Court is the scope of the
permanent injunction issued on behalf of Plaintiff the United
States of America (“the Government”) by this Court in its Order
Granting in Part the Government’s Motion for Summary Judgment
(“11/30/14 Order”).

[Dkt. no. 41.1]

The Court permanently

enjoined pro se Defendant James A. Ericson (“Ericson”) from
filing fraudulent tax returns, but reserved ruling on the
Government’s request to enjoin Ericson from acting as a federal
tax return preparer.

11/30/14 Order, 2014 WL 6749120, at *8.

In response to this Court’s entering orders (“EOs”),
[dkt. nos. 42, 47,] Ericson filed supplemental memoranda on
December 30, 2014 (“First Supplemental Memorandum”), and
January 21, 2015 (“Second Supplemental Memorandum”), [dkt. nos.
45, 48,] and the Government filed responses on December 30, 2014,
and January 28, 2015 [dkt. nos. 46, 49].
1

Ericson now has had

The 11/30/14 Order is also available at 2014 WL 6749120.

three separate opportunities to set forth his position on the
issue.

The Court finds this matter suitable for disposition

without a hearing pursuant to Rule LR7.2(d) of the Local Rules of
Practice of the United States District Court for the District of
Hawai`i (“Local Rules”).

After careful consideration of the

supporting and opposing memoranda, and the relevant legal
authority, the Government’s request for a permanent injunction
prohibiting Ericson from acting as a paid federal tax return
preparer is HEREBY GRANTED for the reasons set forth below.
BACKGROUND
On October 23, 2013, the Government filed its Complaint
for Permanent Injunction and Other Equitable Relief (“Complaint”)
to enjoin Ericson, a paid professional federal tax return
preparer, from preparing taxes.

The Complaint seeks injunctions

pursuant to 26 U.S.C. § 7407 (“Count I”) and 26 U.S.C. § 7402
(“Count II”) for taking unrealistic and unsustainable positions
on customers’ tax returns, willfully understating taxes due,
and recklessly and intentionally disregarding tax rules and
regulations.

[Complaint at ¶¶ 8-11.]

The Government seeks a

permanent injunction prohibiting Ericson from: (1) acting as a
federal tax return preparer; (2) assisting in preparing
fraudulent tax returns, violating the tax laws, and (3) engaging
in conduct that interferes with the proper administration and
enforcement of the tax laws.

[Id. at pgs. 16-18.]

2

On September 18, 2014, the Government filed its Motion
for Summary Judgment, [dkt. no. 25,] and, in the 11/30/14 Order,
the Court found that Ericson knowingly and repeatedly violated
the tax code, and granted summary judgment for the Government as
to both counts.

2014 WL 6749120, at *2-7.

Further, the Court

found that a permanent injunction was necessary, under either
§ 7402 or § 7407, to prevent recurrence of Ericson’s fraudulent
practices.

Id. at *8.

The Court, however, reserved ruling on

the scope of the permanent injunction, including whether Ericson
should be prohibited from preparing taxes entirely, until pro se
Defendant Ericson had a final opportunity to more fully argue his
position on this issue.

Now that Ericson has had that

opportunity, the Court finds that the permanent injunction, as
requested by the Government, is warranted.
DISCUSSION
The Ninth Circuit has not clearly articulated a
standard or test that a district court should apply in
determining whether a lifetime injunction against all tax
preparation is proper.

However, as the Government points out:

Courts have considered a variety of factors in
analyzing this question, including but not limited
to: (1) a defendant’s willingness or refusal to
acknowledge wrongdoing; (2) compliance with the
law following a warning or notification by the
[Internal Revenue Service] that the conduct is
unlawful; (3) the percentage of tax returns filed
which are fraudulent; (4) the severity of the
harm, i.e. the amount of money fraudulently
requested and the amount actually and erroneously
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released; (5) the number of discrete fraudulent
practices; (6) the longevity of the fraudulent
scheme; and (7) the defendant’s degree of
scienter.
United States v. McIntyre, 715 F. Supp. 2d 1003, 1010 (C.D. Cal.
2010) (some citations omitted) (citing United States v.
Nordbrock, 38 F.3d 440, 446–47 (9th Cir. 1994)).

These factors

weigh in favor of the Government’s requested injunction.
First, Ericson has not clearly admitted his fraudulent
practices.

In his First Supplemental Memorandum, he argued that

“if his testimony [was] subject to cross examination by the court
the evidence of his innocence [could] be determined[.]”
Suppl. Mem. at 1.]

[First

In his Second Supplemental Memorandum, he

took a different tack, conceding at least some wrongdoing: “So I
can see the error of my ways, at last.”
4.]

[Second Suppl. Mem. at

However, even in the Second Supplemental Memorandum, Ericson

equivocated.

For instance, he stated: “The court has decided

that I was preparing illegal tax returns until recently.

I now

admit that that seems to be the situation as even my clients
claim that some of the returns were not prepared properly.”
(emphasis added).]

[Id.

Further, he did not promise to desist from

all fraudulent practices; rather, he stated: “Should any of my
Clients ask me to take inappropriate deductions on their tax
returns I will advise them that I cannot and will not take those
deductions.”

[Id. at 1.]

This Court has concluded that Ericson

filed fraudulent tax returns.

11/30/14 Order, 2014 WL 6749120,
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at *7.

His failure to take full responsibility for his

wrongdoing weighs in favor of the broad injunction.
Second, although he argues that the IRS was wrong to
impose penalties in 2009, [Second Suppl. Mem. at 2-3,] and that
the auditor “was extremely vague as to what the problems were
with the tax returns that he had audited,” [id. at 3,] that
investigation is not at issue in this lawsuit.

The undisputed

facts show that, “in 2009, the IRS informed Ericson that his
practices were improper and fined him; and Ericson continued to
improperly deduct expenditures.”

11/30/14 Order, 2014 WL

6749120, at *8 (citing Government’s Concise Statement of Material
Facts (“Govt. CSOF”), filed 9/18/14 (dkt. no. 25–2), at ¶ 19);
see also Govt. CSOF, Decl. of Revenue Agent Sean Flannery
(“Flannery Decl.”) at ¶¶ 6-8.

Ericson’s belated denials do not

dispute the fact that he failed to “compl[y] with the law
following a warning or notification by the IRS that the conduct
[was] unlawful.”

See McIntyre, 715 F. Supp. 2d at 1010.

The IRS

imposed penalties on Ericson for a specific activity, and he
thereafter continued that activity.

Thus, whether or not the IRS

was correct, this factor also weighs in favor of the Government.2
As to the third through fifth factors, this Court found
in the 11/30/14 Order that the undisputed facts showed that, “the

2

Further, the Court finds it immaterial whether Ericson
passed “most” Hawai`i state tax audits. See Second Suppl. Mem.
at 2.
5

IRS examined 611 federal income tax returns of Ericson’s
customers from 2007 through 2012 and found a total tax shortfall
of $2,412,212, which amounts to an average of $3,948 per return,
and a loss of $30,052,176 in treasury revenue.”

2014 WL 6749120,

at *8 (citing Govt. CSOF at ¶¶ 8-9); see also Flannery Decl. at
¶¶ 9-13.

Also, “between eighty-six and ninety-two percent of

Ericson’s customers’ returns resulted in refunds.”

11/30/14

Order, 2014 WL 6749120, at *6 (citing Flannery Decl. at ¶ 11).
Ericson, on the other hand, argues that he is filing roughly 300
tax returns a year now, down from over 1,000, [Second Suppl. Mem.
at 2,] the Government has cherry-picked the evidence to make his
behavior appear more egregious, [id. at 3,] and the Government
will likely recover at least some of the money [id.].

The Court

concludes that this is a substantial number of discrete
fraudulent practices (and likely a high percentage too), and the
harm is severe – even if the Government is able to mitigate some
of the losses.

Moreover, even if his current rate of 300 tax

returns per year is low for Ericson, it is still a substantial
amount.

Therefore, the third through fifth factors weigh in

favor of the broad injunction.
Regarding the sixth factor, Ericson argues that there
is no evidence of fraudulent practices before 2007.
Suppl. Mem. at 3.]

[Second

Even if he has not engaged in fraud for all

of the nearly twenty years that he has been in business in Maui,

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five years of fraudulent activity is still significant.

This

factor, thus, also weighs in favor of the Government.
As to the seventh factor, regarding scienter, this
Court has found that Ericson “knowingly and repeatedly violated
the tax code.”

11/30/14 Order, 2014 WL 6749120, at *7.

For that

reason, this factor weighs in favor of the broad injunction.
Last, Ericson has not offered any facts that
counterbalance the factors discussed above, or would lead the
Court to lessen the severity of the remedy.

As the Government

emphasizes, Ericson’s only equitable argument consists entirely
of the following sentence: “Since my wife no longer is able to
work, our family budget requires me to continue working.”
[Second Suppl. Mem. at 2.]

Ericson has not provided the

following information that could guide the Court in determining
whether a true hardship exists: why his wife cannot work; the
number of people in his household; his specific financial
obligations; other family revenue; any outstanding debts; and
other extenuating circumstances.

The sole fact that his wife

cannot work does not suffice to show hardship, and thus the
proposed injunction does not appear unfair under the
circumstances of this case.3

3

The only other argument Ericson makes is that he can be
“trusted” since he is a longtime church-member, and a recognized
veteran. [Second Suppl. Mem. at 4-5.] While the Court looks
favorably on these aspects of Ericson’s character, they do not
(continued...)
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Since all of the factors weigh in favor of the
Government, and Ericson does not offer any reasons why the broad
injunction would be unfair, the Court GRANTS the permanent
injunction as requested, including prohibiting Ericson from
acting as a federal tax return preparer.

To the extent that

Ericson requests the opportunity to move for summary judgment,
see Second Suppl. Mem. at 5, the Court denies that request as
untimely and moot.
CONCLUSION
On the basis of the foregoing, the Government’s
requested permanent injunction, raised in the Complaint and in
the Motion for Summary Judgment, is HEREBY GRANTED.
The Court HEREBY ENTERS a permanent injunction, which
supersedes the injunction put in place by the 11/30/14 Order, as
follows:
Defendant James A. Ericson, and all those in active
concert or participation with him, are prohibited from:
(1) acting as federal tax return preparers or
requesting, assisting in, or directing the preparation
or filing of federal tax returns, amended returns, or
other related documents or forms for any person or
entity other than themselves;
(2) preparing or assisting in preparing or filing
federal tax returns, amended returns, or other related
documents or forms that they know, or reasonably should

3

(...continued)
offset the ongoing scheme that he perpetuated or the harm he
caused to the Government and American taxpayers.
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know, will result in an understatement of tax liability
or the overstatement of federal tax refund(s);
(3) engaging in any other activity subject to penalty
under 26 U.S.C. § 6694 or any other penalty provision
in the Internal Revenue Code; and
(4) engaging in any conduct that substantially
interferes with the proper administration and
enforcement of the tax laws.
It is further ORDERED that Defendant James A. Ericson
produce to counsel for the Government, by March 24, 2015, a list
that identifies by name, social security number, address, email
address, telephone number, and tax period(s) all persons for whom
he prepared federal tax returns or claims for refund since
January 1, 2008.
By March 24, 2015, Mr. Ericson shall contact by mail
(and also by email, if an address is known) all persons for whom
he prepared a federal tax return since January 1, 2008, to inform
those persons of the permanent injunction entered against him.
Along with that notice, Ericson shall include a copy of the order
of permanent injunction but not enclose any other documents or
enclosures unless agreed to by counsel for the Government or
approved by the Court.

By April 8, 2015, Ericson shall file with

the Court a sworn certificate that he has complied with this
requirement.
Ericson shall also provide a copy of this Order to all
of the principals, officers, managers, employees, and independent

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contractors of his tax return preparation business by March 9,
2015, and provide counsel for the United States a signed and
dated acknowledgment or receipt of the Court’s order for each
person to whom he provided a copy of this Order by March 24,
2015.
The United States shall be entitled to conduct
discovery to monitor Defendant’s compliance with the terms of
this Order.

This Court retains jurisdiction over Defendant and

over this action to enforce this Order.
There being no remaining claims in this case, the Court
DIRECTS the Clerk’s Office to enter judgment and close the case
on April 22, 2015, unless Plaintiff files a timely motion for
reconsideration of the instant Order.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, February 20, 2015.

/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

UNITED STATES OF AMERICA VS. JAMES A. ERICSON; CIVIL 13-00551
LEK-KSC; ORDER GRANTING THE GOVERNMENT’S REQUESTED PERMANENT
INJUNCTION

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