Joseph Banister v. United States ( 2017 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS DEC 6 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
JOSEPH R. BANISTER, No. 16-15813
Plaintiff-Appellant, D.C. No.
3:12-cv-00637-MMD-VPC
v.
UNITED STATES OF AMERICA, MEMORANDUM*
Defendant-Appellee.
Appeal from the United States District Court
for the District of Nevada
Miranda M. Du, District Judge, Presiding
Argued and Submitted November 14, 2017
San Francisco, California
Before: CLIFTON and FRIEDLAND, Circuit Judges, and SESSIONS,** District
Judge.
Appellant Joseph R. Banister (“Banister”) sued the government to recover
six penalties assessed under 26 U.S.C. § 6701, lost on summary judgment, and
now appeals. We affirm.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable William K. Sessions III, United States District Judge
for the District of Vermont, sitting by designation.
Banister argues that two of the penalties could not be imposed under § 6701
because the penalized documents were prepared in connection with collection due
process hearings (“CDP hearings”). He also argues that two of the penalties could
not be imposed given that, in his view, the penalized documents did not say
anything about tax liability. Finally, Banister challenges all six of the penalties on
the ground that he claims to have lacked the mental state required under
§ 6701(a)(3). These arguments are without merit.
1. CDP hearings are pre-deprivation procedural safeguards that allow taxpayers
who owe the Internal Revenue Service (“IRS”) to do things like challenge “the
appropriateness of collection actions” or suggest “collection alternatives.” See 26
U.S.C. § 6330(c)(2)(A)(ii)-(iii). Taxpayers may not challenge “the existence or
amount of the[ir] underlying tax liability” in CDP hearings except under
circumstances not present here. Id. § 6330(c)(2)(B). Banister argues that this
restriction means that documents he prepared in connection with CDP hearings
could not have resulted in an “understatement” of tax liability within the meaning
of 26 U.S.C. § 6701, no matter what the documents said.1
Banister is mistaken. In everyday language, “understate” means “to
represent as less than is the case.” Understate, Merriam-Webster’s Dictionary,
1
Banister does not dispute that a CDP hearing qualifies as a “material matter
arising under the internal revenue laws” under § 6701(a)(2).
2
https://www.merriam-webster.com/dictionary/understate (last visited Nov. 27,
2017). Indeed, Merriam-Webster’s Dictionary’s very first example of “understate”
used in a sentence is: “He understated his taxable income.” Id. So when a
document states that someone owes an amount in taxes under that required by law,
that document will inevitably “result in an understatement of [tax liability]” if
“used in connection with any material matter arising under the internal revenue
laws,” § 6701(a)(2)-(3). Such a document is an understatement. It does not matter
whether the IRS ultimately alters the amount of the tax assessment. Banister’s
reliance on the words “would result” in § 6701(a)(3) to argue otherwise is
misplaced. Those words broaden the reach of the statute. They make clear that a
penalizable document need not expressly understate tax liability (though it could),
and that the government may thus impose a penalty under § 6701 so long as the
document conveys an understatement of tax liability through the logic of its
arguments or the evidence it presents.
Banister also argues that Congress provided for penalties under 26 U.S.C.
§ 6702(b) “to directly and clearly address . . . making purportedly frivolous
arguments in a CDP hearing,” so § 6701 cannot be read to penalize the same.2 But
he fails to show that either provision amounts to surplusage. Among other things,
2
Because Congress added § 6702(b) after Banister prepared the documents at
issue here, that provision does not apply in this case.
3
§ 6702(b)(2) exposes someone who submits a frivolous “request for a [CDP]
hearing” to a civil penalty. See 26 U.S.C. § 6702(b)(2). A CDP request is
frivolous if it is “based on a position which the Secretary [of the Treasury] has
identified as frivolous” or “reflects a desire to delay or impede the administration
of Federal tax laws.” Id. § 6702(b)(2)(A). Under § 6702(b)(2), a penalizable
request for a CDP hearing need not understate tax liability. Treating a request that
frivolously understates tax liability as punishable under both § 6702(b) and § 6701
thus does not leave the former provision without work to do.
2. Banister also argues that two of the penalized documents could not result in
an understatement because they did not say anything about his clients’ tax liability,
but he is mistaken as a matter of law. First, Banister prepared a letter chastising
IRS officials for, among other things, prohibiting one set of his clients from
arguing in their CDP hearing that income earned within the United States is not
subject to taxation. This argument was frivolous, and any reasonable jury would
conclude that the only point of making it was to understate his clients’ tax liability.
Second, Banister prepared a document on behalf of another set of clients that,
though mostly incoherent, took at least one clear position: Banister’s clients were
under no obligation to pay taxes because they were not served with notice of their
tax obligations by an IRS official. This argument was also frivolous, and any
reasonable jury would conclude that it too understated his clients’ tax liability.
4
3. To be penalized under § 6701, Banister needed to “know[]” that the
documents he prepared “would result in an understatement of the liability for tax of
another person,” 26 U.S.C. § 6701(a)(3), if used in a material tax matter.3 So even
though § 6701(a)(3) doesn’t require Banister to have known that his conduct
violated § 6701, it still requires him to have known that documents he prepared
would, if used in a material tax matter, result in statements that his clients owed an
amount in taxes under that required by law.
Under Cheek v. United States, in deciding whether a defendant had such
knowledge, a jury is “free to consider any admissible evidence from any source
showing” the defendant’s “awareness of the relevant provisions of the [Tax] Code
or regulations, of court decisions rejecting his interpretation of the tax law, of
authoritative rulings of the Internal Revenue Service, or of any contents of the
personal income tax return forms and accompanying instructions that made it
plain” that taxes were owed. 498 U.S. 192, 202 (1991). Therefore, if the jury
finds that such evidence and/or the unreasonableness of the defendant’s position
indicate that his asserted belief is “nothing more than simple disagreement with
known legal duties imposed by the tax laws,” the defendant loses. Id. at 204
(emphasis added).
3
Both parties agreed that nothing short of actual knowledge satisfies § 6701(a)(3),
so we assume the same without deciding the question.
5
Given Banister’s background as a former tax collector, the research he
admitted to conducting, and his own correspondence with the IRS—not to mention
the manifest unreasonableness of his beliefs—no reasonable jury could find that
Banister lacked actual knowledge that his theories were contrary to law within the
meaning of Cheek. Indeed, Banister fails to cite any record evidence suggesting
that he himself lacked such knowledge.
Accordingly, the government was entitled to summary judgment with
respect to all six penalties assessed against Banister.4 See Fed. R. Civ. P. 56(a).
AFFIRMED.
4
“We may affirm on any basis supported by the record, whether or not relied upon
by the district court.” Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013)
(quoting Hall v. N. Am. Van Lines, Inc., 476 F.3d 683, 686 (9th Cir. 2007)). We
therefore need not decide the preclusive effects that Banister’s IRS disbarment
proceedings have on this case, if any.
6