The IRS sued yesterday to shut down a Humboldt, Iowa tax preparer it accuses of fabricating deductions for truck drivers. The suit alleges that Gayle Lemmon, operating through Gayle's Bookkeeping and Tax Service, Inc., took imaginary deductions for business and charitable expenses for its over-the-road driver clients. From the complaint:
Lemmon also knowingly prepared returns for truck drivers that claimed unreimbursed employees business expenses in part based on her customers’ personal expenses, such as deductions for the purchase of DVDs and televisions. Even though the IRS has rejected her position that DVDs and televisions were deductible as meals and entertainment expenses for truck drivers, Lemmon continued to prepare tax returns claiming deductions for such expenses and as recently as the summer of 2008 defended that position during IRS audits of her customers.
This comes on the heels of a suit to shut down a Clive, Iowa tax prep firm.
The IRS suffered a setback in another injunction suit yesterday involving a St. Louis Firm. A U.S. District judge this week denied an IRS bid for a temporary injunction against Zerjav & Company and related entities. The judge will allow the IRS to pursue a permanent injunction, but will allow the firm to continue to operate for now:
In this case, if preliminary injunctive relief is granted to the Government, the injury to Defendants would be very severe, if not catastrophic. Granting preliminary injunctive relief as requested would close Defendants’ business. The nature of a certified public accountant firm dictates that a client base be maintained from year to year. If the Court grants the requested injunctive relief to the Government, before there can be a scheduled hearing on the merits, Defendants would be required to notify all clients of the necessity for them to seek other professional services. Defendants would be required to bear the burden of proceeding with the litigation without a financial base and with the prospect that, even with a judgment on the merits in their favor, there would be no business to conduct. In considering the balance between the relatively insignificant harm that the Government would suffer if this Court did not issue a preliminary injunction and the massive harm that will fall upon the Defendants as the result of the preliminary injunction, it is clear that this factor weighs against granting a preliminary injunction.
The ruling also says the IRS was overzealous in its efforts:
It appears that the Government set the goal of shutting down Defendants’ business and, in relentlessly attempting to achieve that goal, misdirected the focus of its investigation. As previously noted, the responsibility for the unreasonable deductions likely lies with the taxpayers themselves, thus the Government’s decision to essentially ignore this responsibility and focus on the Defendants was an unreasonable one. This type of investigation is certainly not in the best interest of the public and will not be rewarded.
The IRS has alleged egregious violations by the St. Louis firm, including encouraging clients to deduct a collection of "Precious Moments" figurines as a business expense. As the judge notes, a preliminary injunction is a death penalty for the firm. Here the judge wasn't willing to hang the defendant before trial. That may provide some encouragement for the Iowa preparers.
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