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  •                            NOT FOR PUBLICATION                           FILED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.
    UNITED STATES OF AMERICA,                       MEMORANDUM*
                       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
          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,
      Banister does not dispute that a CDP hearing qualifies as a “material matter
    arising under the internal revenue laws” under § 6701(a)(2).
                                              2 (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,
      Because Congress added § 6702(b) after Banister prepared the documents at
    issue here, that provision does not apply in this case.
    § 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.
    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).
      Both parties agreed that nothing short of actual knowledge satisfies § 6701(a)(3),
    so we assume the same without deciding the question.
          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).
      “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.