Beckton v. Francis et al

Filing 28

MEMORANDUM (Order to follow as separate docket entry) re 12 MOTION to Dismiss and, or in the alternative MOTION for Summary Judgment filed by Steve Brown, Fasciana Francis Signed by Honorable Malachy E Mannion on 3/21/17. (Attachments: # 1 Unpublished Opinion(s), # 2 Unpublished Opinion(s), # 3 Unpublished Opinion(s))(bs)

To grant preliminary injunction as may be
necessary or appropriate for enforcement of
internal revenue laws, court must evaluate four
factors: (1) likelihood of success on the merits,
(2) irreparable harm resulting from denial of
relief, (3) harm to non-moving party if relief is
granted, and (4) the public interest. 26 U.S.C.A.
§ 7402(a).

238 F.Supp.2d 696
United States District Court,
M.D. Pennsylvania.
UNITED STATES, Plaintiff,
v.
Thurston Paul BELL, Defendant.
Civil No. 1:CV–01–2159.
|
Jan. 10, 2003.
United States brought action for preliminary injunction
against website of promoter of methods to avoid paying
federal income tax which produced erroneous tax refunds for
numerous clients. The District Court, Conner, J., held that
injunction was appropriate.

53 Cases that cite this headnote

[3]

As the party seeking preliminary injunctive relief
for enforcement of federal tax laws, the United
States bears the burden of proof that all factors
which favor such relief. 26 U.S.C.A. § 7402(a).

Decision for government.

42 Cases that cite this headnote

West Headnotes (17)

[1]

Internal Revenue
Prevention and detection of violations of
revenue laws in general

[4]

10 Cases that cite this headnote

1 Cases that cite this headnote

Internal Revenue
Prevention and detection of violations of
revenue laws in general

Internal Revenue
Salaries, Wages or Compensation
Domestically earned wages of U.S. citizens are
taxable; regulations listing items of gross income
treated as income for sources within United States
do not create exceptions for domestic wages of
U.S. citizens. 26 U.S.C.A. § 861; 26 C.F.R. §§
1.861–1 to 1.861–8, 1.861–8T.

Preliminary injunction jurisdiction granted to
district courts under the Internal Revenue Code is
governed by same standard as preliminary
injunction under the Federal Rules of Civil
Procedure. 26 U.S.C.A. § 7402(a); Fed.Rule
Civ.Proc.Rule 65, 28 U.S.C.A.

[2]

Internal Revenue
Prevention and detection of violations of
revenue laws in general

[5]

Internal Revenue
Tax return preparers

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

1

Government could have suffered irreparable harm
without preliminary injunctive relief against
operator of website which promoted tax
avoidance; it was difficult to estimate government
resources that could be lost in tracking down the
maze of erroneous returns filed by operator's
clients, and improperly paid refunds. 26 U.S.C.A.
§ 7402(a).

[9]

Operator of website which promoted tax
avoidance was engaged in “commercial speech,”
within meaning of First Amendment, since his
website served as an advertisement attempting to
entice reader to join defendant's organization and
pay him for tax advice; nearly every page of
website contained some element of
self-promotion, website referred to certain
products for sale and the fee for each product, and
by receiving payments via internet operator had
economic motive in postings on his website.
U.S.C.A. Const.Amend. 1.

4 Cases that cite this headnote

[6]

Constitutional Law
Presumption of invalidity
Prior restraints are generally presumed
unconstitutional. U.S.C.A. Const.Amend. 1.

Cases that cite this headnote

[7]

Cases that cite this headnote

[10]

Constitutional Law
Commercial Speech in General
Although the First Amendment protects
commercial speech generally, it does not protect
false commercial speech, and does not protect
commercial speech about unlawful activities.
U.S.C.A. Const.Amend. 1.

Constitutional Law
What is “commercial speech”
“Commercial speech,” for First Amendment
purposes, is broadly defined as expression related
to economic interests of the speaker and its
audience, generally in the form of commercial
advertisement for sale of goods and services.
U.S.C.A. Const.Amend. 1.

Cases that cite this headnote

[11]
Cases that cite this headnote

[8]

Constitutional Law
Website content

Constitutional Law
What is “commercial speech”

Constitutional Law
Website content
Telecommunications
Offenses and Prosecutions
Website operator's false commercial speech,
promoting tax avoidance, was not protected by
First Amendment. U.S.C.A. Const.Amend. 1.

To determine whether speech is “commercial
speech,” within meaning of First Amendment, the
court must evaluate whether speech is an
advertisement, speech refers to specific product or
service, and speaker has economic motivation for
the speech. U.S.C.A. Const.Amend. 1.

Cases that cite this headnote

[12]

Constitutional Law
Prior Restraints

Cases that cite this headnote

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2

Prior restraint doctrine does not apply where there
has been an adequate determination that the
expression is unprotected by First Amendment.
U.S.C.A. Const.Amend. 1.

Website operator's First Amendment right to free
speech would not be violated by granting
preliminary injunction against his website
promoting tax avoidance; injunction sought to
stop his false commercial speech about tax laws,
stop incitement to imminent lawless action, and
stop his course of illegal conduct in helping others
to evade their taxes. U.S.C.A. Const.Amend. 1.

Cases that cite this headnote

[13]

Constitutional Law
Injunctions and restraining orders
An injunction prohibiting non-commercial speech
can pass constitutional muster, if it is narrowly
drawn to prohibit only unprotected speech.
U.S.C.A. Const.Amend. 1.

2 Cases that cite this headnote

[16]

Public interest in proper administration of federal
tax laws favored injunctive relief against operator
of website which promoted tax avoidance. 26
U.S.C.A. § 7402(a).

Cases that cite this headnote

[14]

Constitutional Law
Incitement or encouragement of crime or
lawless action
Non-commercial advocacy of lawless action is not
per se unprotected speech, however, advocacy of
law violation can be proscribed, where such
advocacy is directed to inciting or producing
imminent lawless action and is likely to incite or
produce such action. U.S.C.A. Const.Amend. 1.

1 Cases that cite this headnote

[15]

Constitutional Law
Website content
Telecommunications
Prosecutions

Internal Revenue
Tax return preparers

1 Cases that cite this headnote

[17]

Internal Revenue
Injunctions
Preliminary injunction against operator of website
which promoted tax avoidance was proper under
statute permitting injunction against promoters of
abusive tax shelters, since defendant clearly
engaged in conduct subject to sanction, by
promoting a tax shelter and assisting in
preparation of tax forms that understated
taxpayers' tax liability, by advocating and selling
his U.S. Sources argument; operator also testified
that he would continue to do so if not enjoined. 26
U.S.C.A. § 7408(a).

2 Cases that cite this headnote

Attorneys and Law Firms
*698 Martin C. Carlson, Anne K. Fiorenza, Assistant U.S.
Attorney, Harrisburg, PA, Evan J. Davis, Donald N. Dowie,
Washington, DC, for Plaintiff.

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

3

Thurston Paul Bell, Hanover, PA, Pro Se.

MEMORANDUM

CONNER, District Judge.
**1 Before the court1 is the United States' motion for
preliminary injunction. (Doc. 34). The parties have fully
briefed the issues, and the matter is ripe for disposition.

I. Factual Background
Defendant Thurston Bell (“Bell”) has fashioned a career by
devising and publicizing ways to avoid paying federal income
tax. Bell acknowledges that he has “dealt with the issue of
taxes for eight and a half years on the edge of what would be
seen as legal....” Transcript of November 4, 2002 preliminary
injunction hearing (“N.T.”), pg. 28. A brief explanation of
Bell's career as a tax protester is appropriate to put the United
States' motion for preliminary injunction in context.

In the 1980s, Bell worked for Save–A–Patriot, “[a]n
organization that believes that American citizens are not liable
for income tax.” (Doc. 36, Exhibit J, pg. 13). (See also Doc.
36, Exhibit C, pg. 66). As a case worker at Save–A–Patriot,
Bell helped clients “avoid paying taxes or any number of other
things that could happen as a result of not paying taxes.” (Doc.
36, Exhibit J, pg. 17).

When Bell left Save–A–Patriot, he co-founded Tax-gate and
created the tax-gate.com website. (Doc. 36, Exhibit C, pp.
16–17). At Tax-gate, Bell drafted court pleadings and letters
to the Internal Revenue Service (“IRS”) and state taxing
agencies on his clients' behalf. (Doc. 36, Exhibit J, pg. 25).
See also id. at Exhibit 19 (letter dated January 27, 1998,
outlining Bell's tax avoidance argument). Bell charged his
clients for tax advice and for preparation of documents
directed to taxing authorities. (Doc. 36, Exhibit J, pg. 32). (See
also Doc. 36, Exhibit K, pg. 88) (deposition testimony that
Bell charged a $1,000.00 retainer before discussing certain tax
matters).

Between 1998 and 2000, Bell established the National
Institute for Taxation Education (“NITE”). On the NITE
website,2 Bell asserts, “The National Institute for Taxation
Education (NITE) provides income tax help, solutions, and

strategies that work for Citizens of the United States to legally
declare their gross income to be *699 Zero.” (Doc. 36, Exhibit
C, pg. 16). Bell's tax avoidance argument is commonly
referred to as the “Section 861 argument” or the “U.S. Sources
argument.”

The Internal Revenue Code defines “gross income” as “all
income from whatever source derived....” 26 U.S.C. § 61(a).
Bell claims that the word “source” in section 61 is defined in
the “Source Rules and Other General Rules Relating to
Foreign Income.” 26 U.S.C. §§ 861–865 (emphasis supplied).
Section 861 states that certain “items of gross income shall be
treated as income from sources within the United States....” 26
U.S.C. § 861(a). According to the U.S. Sources argument,
domestically earned wages of U.S. citizens are not taxable
because such wages are not specifically mentioned in the list
of items of gross income that “shall be treated as income from
sources within the United States.” See 26 U.S.C. § 861(a).
Bell concedes that section 861 itself does not exempt
domestically earned wages of U.S. citizens.3 Nevertheless, he
argues that such wages are not taxable because certain
regulations promulgated under section 861 (i.e. 26 C.F.R. §§
1.861–8(a)(4), 1.861–8(f)(1), and 1.861–8T(d)(2)(ii)(A))
create an applicable exemption.

**2 Bell's clients typically file zero income tax returns with an
“asseveration of claimed income” attached, disputing the gross
income indicated on the taxpayer's W–2 forms. (Doc. 36,
Exhibit K, pg. 53). See also N.T. 59–60. When this method
fails, Bell argues that the IRS has violated his clients' due
process rights by not allowing them to cross-examine their
employers regarding the gross income listed on their W–2
forms. (Doc. 36, Exhibit J, pg. 63). Bell's goal in seeking to
cross-examine employers is to show an absence of gross
income according to the fallacious U.S. Sources argument
outlined above. (Doc. 36, Exhibit J, pg. 63). Bell's methods
have secured erroneous tax refunds for numerous clients. (See,
e.g., Doc. 36, Exhibit C, pg. 64–65).

On November 4, 2002, the court held a hearing on plaintiff's
motion for a preliminary injunction. On November 19, 2002,
Bell filed a response to plaintiff's supplemental memorandum
of law (Doc. 85), exhibits in support thereof (Doc. 86), and an
additional deposition transcript. (Doc. 87).

II. Legal Standard
[1] [2] [3] Plaintiff seeks preliminary injunctive relief under
26 U.S.C. § 7402. The court is authorized to grant such relief
“as may be necessary or appropriate for the enforcement of the
internal revenue laws.” 26 U.S.C. § 7402. A preliminary
injunction under section 7402 is governed by the same

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4

standard as a preliminary injunction under Rule 65 of the
Federal Rules of Civil Procedure. U.S. v. Rosile, 2002 WL
1760861 *1 (M.D.Fla.2002); U.S. v. Bosset, 2002 WL
1058105 *1 (M.D.Fla.2002). The court must evaluate four
factors: (1) likelihood of success on the merits; (2) irreparable
harm resulting from a denial of the relief; (3) the harm to the
non-moving party if relief is granted; and (4) the public
interest. Allegheny Energy, Inc. v. DQE, Inc., 171 F.3d 153,
158 (3d Cir.1999) (citing A.C.L.U. of New Jersey v. Black
Horse Pike Regional Bd. of Educ., 84 F.3d 1471, 1477 n. 2
(3d Cir.1996)) (en banc ); Rosile, 2002 WL 1760861 *1. As
the party seeking preliminary injunctive relief, the United
States bears the burden of proof. Mettler–Toledo, Inc. v.
Acker, 908 F.Supp. 240, 245 (M.D.Pa.1995). “The *700
injunction should issue only if the plaintiff produces evidence
sufficient to convince the district court that all four factors
favor preliminary relief.” Merchant & Evans, Inc. v. Roosevelt
Bldg. Prods., 963 F.2d 628, 632–33 (3d Cir.1992).

III. Discussion
A. Likelihood of Success on the Merits
In order to prevail on the merits, the United States must
establish that an injunction is “necessary or appropriate for the
enforcement of the internal revenue laws.” 26 U.S.C. § 7402.
Plaintiff argues that it is likely to succeed on the merits
because “the § 861 Argument is completely meritless” and
because Bell blindly insists on the argument's validity,
“despite overwhelming evidence to the contrary.” (Doc. 35,
pg.23). The court agrees with plaintiff.

**3 Section 61(a) of the Internal Revenue Code states in
pertinent part:
Except as otherwise provided in this subtitle,
gross income means all income from whatever
source derived ... including (but not limited to)
... [c]ompensation for services, including fees,
commissions, fringe benefits, and similar
items....
26 U.S.C. § 61(a) (emphasis supplied).

[4] The Supreme Court has “repeatedly emphasized
the ‘sweeping scope’ of [section 61(a) ] and its
statutory predecessors.” C.I.R. v. Schleier, 515 U.S.
323, 327–28, 115 S.Ct. 2159, 132 L.Ed.2d 294
(1995) (citing C.I.R. v. Glenshaw Glass Co., 348
U.S. 426, 429, 75 S.Ct. 473, 99 L.Ed. 483 (1955);
United States v. Burke, 504 U.S. 229, 233, 112 S.Ct.

1867, 119 L.Ed.2d 34 (1992); Helvering v. Clifford,
309 U.S. 331, 334, 60 S.Ct. 554, 84 L.Ed. 788
(1940)). When it defined gross income, Congress
intended “to use the full measure of its taxing
power.” Glenshaw Glass, 348 U.S. at 429, 75 S.Ct.
473. Moreover, it is well-settled that wages or
compensation for services constitute income and that
individuals receiving income are subject to the
federal income tax. See, e.g., 26 U.S.C. § 61(a)(1);
Central Illinois Public Service Co. v. U.S., 435 U.S.
21, 25, 98 S.Ct. 917, 55 L.Ed.2d 82 (1978), U.S. v.
Connor, 898 F.2d 942, 943–44 (3d Cir.1990);
Coleman v. Commissioner, 791 F.2d 68, 70 (7th
Cir.1986).

Bell's U.S. Sources argument is nonsensical. It rests
purely on semantics and takes the regulations
promulgated under section 861 out of context.4 As
noted by the Tax Court in Christopher v. C.I.R.,
2002 WL 71029 *3 (U.S. Tax Ct.2002):

The rules of sections 861–865 have significance in
determining whether income is considered from
sources within or without the United States. The
source rules do not exclude from U.S. taxation
income earned by U.S. citizens from sources within
the United States.
See also Great–West Life Assur. Co. v. United
States, 230 Ct.Cl. 477, 678 F.2d 180, 183 (1982)
(“The determination of where income is derived or
‘sourced’ is generally of no moment to either United
States citizens or United States corporations, for
such persons are subject to tax *701 under I.R.C. §
1 and I.R.C. § 11, respectively, on their worldwide
income.”). Other jurisdictions which have heard this
U.S. Sources argument have uniformly found it
unpersuasive. See, e.g., Loofbourrow v. C.I.R., 208
F.Supp.2d 698, 709–10 (S.D.Tex.2002)
(“Loofbourrow's argument, however, is misplaced
and takes the regulations out of context.”); In re
Clark, 2001 WL 1807509 (Bankr.E.D.N.Y.2001)
(holding that 26 C.F.R. §§ 1.861–1 to 1.861–8, and
1.861–8T do not exempt U.S. citizens' domestic
income from taxation); Madge v. C.I.R., 23
Fed.Appx. 604, 2001 WL 1414315 *1 (8th
Cir.2001) (“[T]he Tax Court properly rejected
Madge's contention that the income from his
business was not ‘gross income’ under 26 U.S.C. §
61(a)”); Williams v. Commissioner, 114 T.C. 136,
138–139, 2000 WL 230343 (2000) (rejecting claim
that income is not subject to tax because it is not
from any of the sources listed in 26 C.F.R. §

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5

1.861–8(a)).
**4 The regulations cited by Bell—26 C.F.R. §§
1.861–1 to –8 and 26 C.F.R. § 1.861–8T—were
promulgated for the purpose of interpreting 26
U.S.C. § 861. Section 861 “does not define gross
income; it provides which items of gross income
shall be treated as income from sources within the
United States, and also provides, at § 1.861–8, for
the allocation and apportionment of deductions
between statutory groupings of gross income for the
purpose of calculating taxable income” for
nonresident aliens and foreign corporations. In re
Clark, 2001 WL 1807509 *6
(Bankr.E.D.N.Y.2001). See also Great–West Life,
678 F.2d at 183–84 n. 8 (describing bifurcated
taxing pattern applicable to nonresident aliens and
foreign corporations). To suggest that these
regulations create an exemption for domestic wages
of U.S. citizens is irresponsible and frivolous
advocacy. See 26 C.F.R. § 1.861–4 (providing that
gross income from sources within the United States
includes compensation for labor or personal services
performed in the United States).

For all of the foregoing reasons, the court finds a
substantial likelihood that the United States will
prevail on the merits. Accord U.S. v. Rosile, 2002
WL 1760861 *1; U.S. v. Bosset, 2002 WL 1058105
*1. The court also finds that enjoining Bell from
selling this frivolous tax argument is “necessary
[and] appropriate for the enforcement of the internal
revenue laws.” 26 U.S.C. § 7402. Bell testified that
he intends to continue to promote the U.S. Sources
argument. N.T. at 47. On the NITE website, Bell
boasts that the U.S. Sources argument has resulted in
eight “Employer IRS Refunds,” three “IRS
Abatements,” and thirteen “Individual IRS Refunds
/ Credits” for his clients. (Doc. 36, Exhibit C, pg.
65). Every time Bell convinces another individual to
file false tax returns under the U.S. Sources
argument, the internal revenue laws are thwarted.
The court will not countenance such impropriety.

B. Irreparable Harm
The United States argues that it will suffer
irreparable harm if an injunction is not issued
because processing, investigating, and correcting the
false tax returns filed by Bell's clients “requires
substantial IRS resources.” (Doc. 35, pg.23).
Plaintiff also argues that, while future harm is certain
unless the court enjoins Bell, the timing and
magnitude of such harm would be impossible to

ascertain.

[5] The Third Circuit has stated that:
In order to demonstrate irreparable harm the
plaintiff must demonstrate potential harm
which cannot be redressed by a legal or an
equitable remedy following a trial. The
preliminary injunction must be the only way of
protecting the plaintiff from harm.
*702 Campbell Soup Co. v. ConAgra, Inc., 977 F.2d
86, 91 (3d Cir.1992) (citations omitted) (emphasis in
original). See also Novartis Consumer Health, Inc.
v. Johnson & Johnson–Merck Consumer
Pharmaceuticals Co., 290 F.3d 578, 595 (3d
Cir.2002) (defining irreparable harm as “potential
harm that cannot be redressed following trial”).
Absent injunctive relief, Bell will likely cause the
government and law abiding taxpayers great harm.
Due to the nature of Bell's conduct, i.e. providing
harmful tax advice, it is impossible to determine the
degree to which this conduct will injure the United
States in the future; one cannot estimate with any
precision the government resources potentially lost
in tracking down the maze of erroneous returns filed
by Bell's clients or the amount of refunds improperly
paid to Bell's clients. The court notes with interest
that Bell “ghostwrites” his clients' returns—his name
never appears on the individual 1040 forms or on his
clients' correspondence to the IRS. (Doc. 35, pg. 23
& Doc. 36, Exhibit J, Exhibits 9, 19 & 29).

**5 For all of the foregoing reasons, the court finds
that plaintiff has met its burden to demonstrate
irreparable harm. Accord U.S. v. Rosile, 2002 WL
1760861 *1; U.S. v. Bosset, 2002 WL 1058105 *1.

C. Balance of Harms
Plaintiff argues that the threatened injury to the
United States outweighs any injury an injunction will
cause defendant, because an injunction would merely
require Bell to comply with the law. Bell, on the
other hand, argues that an injunction would violate
his First Amendment right to freedom of speech.
Bell supports his argument with a miscellaneous
collection of Supreme Court and Third Circuit
quotes taken out of context. For example, Bell
quotes Bantam Books, Inc. v. Sullivan, 372 U.S. 58,
66, 83 S.Ct. 631, 9 L.Ed.2d 584 (1963) and
American Library Ass'n, Inc. v. U.S., 201 F.Supp.2d

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6

401, 479 (E.D.Pa.2002), stating that “[t]he
separation of legitimate from illegitimate speech
calls for sensitive tools.5 The First Amendment
demands the precision of a scalpel, not the
sledgehammer.”6 See N.T. at 25. However, both of
these cases deal with regulation of obscenity and
neither stands for the proposition that the First
Amendment protects the sale or advocacy of false
tax advice. See Bantam Books, 372 U.S. at 66, 83
S.Ct. 631 (“[T]he Fourteenth Amendment requires
that regulation by the States of obscenity conform to
procedures that will ensure against the curtailment of
constitutionally protected expression....”); American
Library, 201 F.Supp.2d at 490 (finding the
Children's Internet Protection Act facially invalid).

[6] Despite the inapplicability of the case law argued
by Bell, an injunction prohibiting him from engaging
in false speech concerning the U.S. Sources
argument would amount to a prior restraint. See
Alexander v. U.S., 509 U.S. 544, 550, 113 S.Ct.
2766, 125 L.Ed.2d 441 (1993) (“Temporary
restraining orders and permanent injunctions—i.e.,
court orders that actually forbid speech
activities—are classic examples of prior restraints.”).
Prior restraints are generally presumed
unconstitutional. See Southeastern Promotions, Ltd.
v. Conrad, 420 U.S. 546, 558, 95 S.Ct. 1239, 43
L.Ed.2d 448 (1975) (“Any system *703 of prior
restraint, however, ‘comes to this Court bearing a
heavy presumption against its constitutional
validity.’ ”). However, not all prior restraints are
prohibited. Near v. State of Minnesota ex rel. Olson,
283 U.S. 697, 716, 51 S.Ct. 625, 75 L.Ed. 1357
(1931).

i. Bell's False Commercial Speech
[7] Bell contends that the majority of his speech is
political speech, as opposed to commercial speech.
The court disagrees. Commercial speech is “broadly
defined as expression related to the economic
interests of the speaker and its audience, generally in
the form of a commercial advertisement for the sale
of goods and services.” In re Orthopedic Bone
Screw Products Liability Litigation, 193 F.3d 781,
793 (3d Cir.1999) (quoting U.S. Healthcare, Inc. v.
Blue Cross of Greater Phila., 898 F.2d 914, 933 (3d.
Cir.1990)).

[8] To determine whether speech is “commercial
speech” the court must evaluate whether:

**6 (1) the speech is an advertisement;
(2) the speech refers to a specific product or
service; and

(3) the speaker has an economic motivation for
the speech.

Orthopedic Bone Screw, 193 F.3d at 793 (citations
omitted). “An affirmative answer to all three
questions provides ‘strong support’ for the
conclusion that the speech is commercial.” Id.

[9] Applying this test to the instant case, the court
finds that Bell is engaged in commercial speech. The
NITE website (http://www.nite.org) serves as an
advertisement. Indeed, it is an internet version of a
television “infomercial.” (See Doc. 36, Exhibit C).
The website attempts to entice the reader to join
NITE and to pay Bell for tax advice. (See, e.g., Doc.
36, Exhibit C, pg. 1) (“Unlike others who peddle
arguments that may sound similar on the surface, our
strategies have proven success, as the Internal
Revenue Service (IRS) itself (as well as U.S.
Attorneys and Federal Judges) has accepted NITE's
arguments as valid....”). Nearly every page of Bell's
NITE website contains some element of
self-promotion.

A basic member of NITE gets “access to the
Members Hall7 for $195.00 ... renewable yearly for
$75.” (Doc. 36, Exhibit C, pg. 108) (ellipses in
original). To become a Senior Fellow a member
must pay an additional $3,500.00. (Doc. 36, Exhibit
C, pg. 109). The website refers to certain products
for sale (seminars on tape, for example) along with
Bell's fee for each product. (See Doc. 36, Exhibit C,
pp. 53–61; Exhibit K, Exhibit 16).

Clearly, Bell has an economic motive in posting the
NITE website. He admitted at the preliminary
injunction hearing that he receives remuneration
from NITE members for the services he provides.
N.T. at 46. Moreover, undisputed record evidence
establishes that Bell received $68,179.50 via internet
payments between May 18, 2000, and February 8,
2002. (Doc. 36, Exhibit L). Therefore, the court
concludes that Bell's conduct falls squarely within

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7

the definition of commercial speech.

[10] [11] [12] Although the First Amendment
protects commercial speech generally, it does not
protect false commercial *704 speech. Castrol, Inc.
v. Pennzoil Co., 987 F.2d 939, 949 (3d Cir.1993)
(“[I]t is well settled that false commercial speech is
not protected by the First Amendment and may be
banned entirely.”) (citing Bates v. State Bar of Ariz.,
433 U.S. 350, 383, 97 S.Ct. 2691, 53 L.Ed.2d 810
(1977)); Central Hudson Gas & Elec. Corp. v.
Public Serv. Comm'n of N.Y., 447 U.S. 557, 562–63,
100 S.Ct. 2343, 65 L.Ed.2d 341 (1980) (“[T]here
can be no constitutional objection to the suppression
of commercial messages that do not accurately
inform the public about lawful activity. The
government may ban forms of communication more
likely to deceive the public than to inform it....”);
Virginia State Bd. of Pharmacy v. Virginia Citizens
Consumer Council, Inc., 425 U.S. 748, 771–72 n.
24, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976). “[T]he
First Amendment does not protect commercial
speech about unlawful activities.” Orthopedic Bone
Screw, 193 F.3d at 792 (quoting 44 Liquormart, Inc.
v. Rhode Island, 517 U.S. 484, 497 n. 7, 116 S.Ct.
1495, 134 L.Ed.2d 711 (1996)). Moreover, the prior
restraint doctrine does not apply where there has
been “an adequate determination that [the
expression] is unprotected by the First Amendment.”
Castrol, 987 F.2d at 949 (quoting Pittsburgh Press
Co. v. Pittsburgh Comm'n on Human Relations, 413
U.S. 376, 390, 93 S.Ct. 2553, 37 L.Ed.2d 669
(1973)).

**7 Accordingly, Bell's false commercial speech is
not protected by the First Amendment. Therefore, an
injunction prohibiting Bell from producing or
disseminating false commercial speech would not
violate his First Amendment rights.

ii. Incitement to Imminent Lawless Action
Bell also argues that an injunction would infringe on
his freedom to engage in political speech, which is
non-commercial in nature. The United States
counters that enjoining Bell's non-commercial
advocacy of the U.S. Sources argument would not
violate the First Amendment if tailored to prohibit
only incitement to lawless action.

[13] An injunction prohibiting non-commercial
speech can pass constitutional muster if it is

narrowly drawn to prohibit only unprotected speech.
See U.S. v. Kaun, 827 F.2d 1144, 1150 (7th
Cir.1987) (“the injunctive order does not
impermissibly infringe upon Kaun's freedom of
expression and freedom of association, because it
constrains only unprotected speech”).

[14] Non-commercial advocacy of lawless action is
not per se unprotected speech. However, advocacy
of law violation can be proscribed “where such
advocacy is directed to inciting or producing
imminent lawless action and is likely to incite or
produce such action.” Brandenburg v. Ohio, 395
U.S. 444, 447, 89 S.Ct. 1827, 23 L.Ed.2d 430
(1969) (emphasis supplied). Injunctions prohibiting
non-commercial advocacy of tax schemes similar to
Bell's have been upheld to the extent that they
comply with Brandenburg. See U.S. v. Raymond,
228 F.3d 804 (7th Cir.2000); Kaun, 827 F.2d at
1150–52.

[15] At the hearing on this motion, counsel for
plaintiff stated that “[t]he government is not trying to
shut down Bell's website. The government is asking
the court to simply enter an injunction that stops his
false commercial speech, stops incitement to
imminent lawless action, and stops his course of
illegal conduct, helping others to evade their taxes.”
N.T. at 8. In light of the preceding discussion, the
court believes that such an injunction would pose no
threat to Bell's constitutional rights.

Therefore, the court finds that the balance of harms
counsels in favor of enjoining Bell's improper
conduct. Accord U.S. *705 v. Rosile, 2002 WL
1760861 *1; U.S. v. Bosset, 2002 WL 1058105 *1.

D. Public Interest
Plaintiff argues that a preliminary injunction would
be in the public interest because it will slow the
spread of the frivolous U.S. Sources argument, thus
saving government resources needed to track down
refunds improperly paid to Bell's clients.
Furthermore, an injunction will help protect Bell's
clients from tax penalties resulting from using the
U.S. Sources argument on their tax return forms.
(Doc. 35, pg.24) (citing U.S. v. Mathewson, 1993
WL 113434 *2 (S.D.Fla.1993) (“the collection of
taxes certainly serves the public interest....”)). The
court agrees.

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

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[16] [17] Proper administration of the laws is in the
public interest. U.S. v. Knudson, 959 F.Supp. 1180,
1187 (D.Neb.1997) (“[T]here is a strong public
interest in assuring the proper and efficient
functioning of the government. This includes the fair
administration of federal tax laws....”). Furthermore,
Bell is harming his clients (who often become the
target of IRS sanctions) and all law-abiding
taxpayers. See U.S. v. Venie, 691 F.Supp. 834, 839
(M.D.Pa.1988) (finding that an injunction is in the
public interest when necessary to stop a person from
“placing literally hundreds of taxpayers in financial
difficulty”). Clearly, the public interest is served by
enjoining Bell from further providing harmful tax
advice. Therefore, the court finds that the United
States has met its burden for a preliminary injunction
under section 7402.8

IV. Conclusion
**8 For the foregoing reasons, the court will grant
the plaintiff's motion for preliminary injunction. An
appropriate order will issue.

furnishing, in connection with the organization or
sale of an abusive shelter, plan, or arrangement, a
statement they know or have reason to know is
false or fraudulent as to any material part;

c. Further engaging in any conduct subject to
penalty under 26 U.S.C. § 6701, i.e. assisting
others in the preparation of any tax forms or other
documents to be used in connection with any
material matter arising under the internal revenue
laws and which they know will (if so used) result
in the understatement of income tax liability; and

d. Further engaging in any conduct that interferes
with the administration and enforcement of the
internal revenue laws.

2. Bell shall forthwith send a letter to:
a. All persons to whom he gave, sold, or
distributed any materials espousing or related to
the U.S. Sources argument;

ORDER
b. All persons for whom Bell prepared or assisted
in the preparation or drafting of any federal
returns or tax-related documents; and

AND NOW, this 10th day of January, 2003, in
accordance with the accompanying memorandum, it
is hereby ORDERED that plaintiff's motion for
preliminary injunction (Doc. 34) is GRANTED. It is
further ORDERED that:

1. Thurston Bell and his representatives, agents,
servants, employees, attorneys, and those persons in
active concert or participation with him, are
preliminarily enjoined from directly or indirectly, by
means of false, deceptive, or misleading commercial
speech:
a. Organizing, promoting, marketing, or selling
(or assisting therein) the tax shelter, plan, or
arrangement known as “the U.S. Sources
argument” (also known as “the section 861
argument”) or any other abusive tax shelter, plan
or arrangement that incites taxpayers to attempt to
violate the internal revenue laws or unlawfully
evade the assessment or collection of their federal
tax liabilities *706 or unlawfully claim improper
tax refunds;
b. Further engaging in any conduct subject to
penalty under 26 U.S.C. § 6700, i.e. making or

c. All persons who contacted Bell regarding the
U.S. Sources argument (in paper, via telephone, or
through electronic means);

and inform those persons of the entry of the court's
findings concerning the falsity of Bell's
representations, the falsity of the tax returns based in
whole or in part on the U.S. Sources argument, the
possibility of the imposition of frivolous-return
penalties against them, the possibility that the United
States may seek to recover any erroneous refund
they may have received, and the fact that a
preliminary injunction has been entered against Bell
(and attach a copy of this Order to the letter); and
Bell shall simultaneously serve copies of all such
letters (without attachment) to counsel for the United
States at the address listed on the docket of this
matter; and

3.

Bell

shall

maintain

the

NITE

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

website
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(www.nite.org) during the pendency of this
preliminary injunction Order, remove from the
aforementioned
website
all
abusive-tax-shelter-promotional materials, false
commercial speech, and materials designed to incite
others to violate the law (including tax laws), and
display prominently on the first page of the website
an attachment of this preliminary injunction
Memorandum and Order.

**9 4. Bell shall mail to counsel for the United
States, at the address listed on the docket of this
matter, one copy of every federal tax return,
amended return, or other document intended for the
IRS that he prepares, or assists in the preparation of,
on behalf of any other person or entity during the
pendency of this preliminary injunction Order. The
mailing shall be made on the same date the
document is mailed to or filed with the IRS.

5. If Bell requires access to any file in the court's
possession in order to comply with this order (e.g.
paragraph 2), Bell shall promptly contact the court's
deputy clerk, Ms. Kimberly McKinney, at 221–3920
to schedule an appointment for document access.

6. The parties shall file a request for a permanent
injunction hearing within thirty (30) days. If no such
request is filed, the Court will issue an order
converting this *707 preliminary injunction to a
permanent injunction.

All Citations
238 F.Supp.2d 696, 2003 WL 102610, 91
A.F.T.R.2d 2003-491, 2003-1 USTC P 50,501

Footnotes

1

By Order dated September 25, 2002, this matter was transferred to the undersigned. (Doc. 74).

2

The NITE website currently shares a link with the Tax-gate.com website. (Doc. 36, Exhibit C, pg. 16).

3

No doubt Bell makes this concession because section 861 plainly provides that “[c]ompensation for labor or personal services
performed in the United States ...” shall be treated as income from sources within the United States. 26 U.S.C. § 861(a)(3).

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4

The illogical nature of Bell's U.S. Sources argument can best be described by reference to the following quote from the Seventh
Circuit in Coleman v. Commissioner, 791 F.2d 68, 69 (7th Cir.1986):
Some people believe with great fervor preposterous things that just happen to coincide with their self-interest. “Tax protesters” have
convinced themselves that wages are not income, that only gold is money, that the Sixteenth Amendment is unconstitutional, and
so on. These beliefs all lead—so tax protesters think—to the elimination of their obligation to pay taxes.

5

Bantam Books, Inc. v. Sullivan, 372 U.S. 58, 66, 83 S.Ct. 631, 9 L.Ed.2d 584 (1963).

6

American Library, 201 F.Supp.2d at 479. American Library is the opinion of a three-judge panel of the District Court for the Eastern
District of Pennsylvania, penned by Chief Judge Edward R. Becker of the Third Circuit Court of Appeals.

7

Touted as the ultimate service sold to NITE members, aside from personal meetings with Bell himself (at a charge of $125 per hour,
Doc. 36, Exhibit C, pg. 109), the “Members Hall is a restricted access area of the NITE web site which holds the developed strategies,
information, letters, news updates, articles, and other tools needed to avoid and eliminate any appearance of legitimacy of claims of
taxes owed, and apparent liabilities.” (Doc. 36, Exhibit C, pg. 108).

8

The court notes that a preliminary injunction is also proper under 26 U.S.C. § 7408. Section 7408 provides alternative grounds for
the issuance of injunctive relief.U.S. v. Estate Preservation Services, 202 F.3d 1093, 1098 (9th Cir.2000). Under section 7408, the
United States must prove (1) that Bell has engaged in conduct subject to penalty under section 6700 or section 6701, and (2) that
injunctive relief is appropriate to prevent recurrence of such conduct. 26 U.S.C. § 7408. Bell is clearly engaged in conduct subject
to sanction under sections 6700 (promoting a tax shelter) and 6701 (assisting in the preparation of tax forms that understate the
taxpayer's tax liability) by advocating and selling the U.S. Sources argument; he also testified that he would continue to do so if not
enjoined. See N.T. at 47. Therefore, injunctive relief is authorized under section 7408 as well as section 7402.

End of Document

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© 2017 Thomson Reuters. No claim to original U.S. Government Works.

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