Appeal from the United States District Court for the Eastern District of Wisconsin, No. 84 C 569 - Robert W. Warren, Judge.
Author: Flaum; Ripple; Eschbach
Before: FLAUM and RIPPLE, Circuit Judges, and ESCHBACH, Senior Circuit Judge.
Dennis Kaun, a tax protester, appeals from the district court's entry of a permanent injunction against him pursuant to sections 7402(a) and 7408 of the Internal Revenue Code. Among other things, the injunction prohibits Kaun from inciting others to submit tax returns based on certain false and fraudulent income tax theories, and from advertising or marketing materials based on these theories under the guise of tax advice. Kaun argues that the district court had no statutory authority to enter an injunction against him. He also argues that the injunction is void because it is based on clearly erroneous findings of fact, because it impermissibly restricts his freedom of speech and freedom of expression, and because it is vague and overbroad. We reject these claims, and affirm the judgment of the district court.
Because the district court's opinion in this case is reported, see United States v. Kaun, 633 F. Supp. 406 (E.D. Wis. 1986), we set forth only those facts necessary to an understanding of the issues on appeal.
Kaun is the unofficial leader of a tax protester group known as the Wisconsin Society for educated Citizens ("WSEC"). The WSEC is formally affiliated with the American society for Educated Citizens, and informally affiliated with a number of similar groups across the country.
In early 1984, Special Agents Thomas Walkner and Lynn Griffin of the Internal Revenue Service, posing as husband and wife, became members of the WSEC and attended about 14 meetings. At the time, the WSEC held weekly two and a half hour meetings in Elm Grove, Wisconsin, with a usual attendance of 60 to 75 people. New members were encouraged to join the "constitutional class," which involved listening to as much as 90 hours of presentations and cassette tapes on issues of constitutional law. Regular members discussed topics such as the First Amendment, the Freedom of Information Act, driver's licenses, and land patents.
The most popular topic of discussion among the regular WSEC membership, however, was the corruption of the internal revenue system, and the ways in which taxpayers could obstruct the workings of the Internal Revenue Service. For example, according to the trial testimony of Agents Walkner and Griffin, Kaun encouraged WSEC members to sent the IRS as many Freedom of Information Act requests as possible, in order to "bog down" the IRA. Kaun also discussed requesting injunctions against employers to prevent them from requiring their employees to fill our W-4 forms. Agent Walkner testified that the WSEC sponsored a videotape presentation on the subject of filing common law liens against IRS personnel, and that he knew of at least three WSEC members who subsequently field such liens.
As a result of information gained through the IRS agents' infiltration, on May 23, 1984, the United States filed suit in federal district court, requesting injunctive relief against Kaun because he was the promoter of an "abusive tax shelter," and because Kaun was impending the enforcement of the internal laws. The district court granted the government's motions for an expedited hearing, and for consolidation of the expedited hearing and the trial on the merits.
At trial, the main evidence against Kaun was the direct testimony of Special Agents Walkner and Griffin; tape recordings of WSEC meetings made by the agents; forms printed on the WSEC word processor; and various pamphlets and information kits that were offered for sale at each meeting. Kaun, who represented himself at the trial, argued that the government had insufficient evidence of any misconduct on his part.
On April 9, 1986, the district court entered a permanent injunction against Dennis Kaun pursuant to § 7402(a) and § 7408 of the Internal Revenue Code, 26 U.S.C. § 7402(a) (1982) and 27 U.S.C. § 7408 (1982 & Supp. 1985). Under the injunction, Kaun may not, among other things, encourage others to file returns based on certain false and fraudulent theories about the tax system, or advertise or sell materials based on these theories under the guise of tax advice.*fn1 Kaun filed a timely notice of appeal.
On appeal, Kaun, still representing himself, raises a great many issue, some frivolous and some of substance. Bearing in mind our duty to hold pleadings drafted by persons untrained in the law to "less stringent standards than formal pleadings drafted by lawyers," Haines v. Kerner, 404 U.S. 519, 520, 30 L. Ed. 2d 652, 92 S. Ct. 594 (1972) (per curiam), we read his appeal to involve three major claims. First, Kaun argues that the district court had no authority under either I.R.C. § 7402(a) or § 7408 to enter an injunction against him. Second, Kaun argues that even if the district court had statutory authority to grant an injunction, this injunction is void because it was based on clearly erroneous factual findings. Finally, Kaun argues that the injunction intolerably burdens his First Amendment Rights to freedom of expression and freedom of association, and is impermissibly vague and overbroad. We reject these claims, and affirm the judgment of the district court.
Kaun first argues that the injunction is void because the court had no statutory authority to proscribe his conduct. The district court based its injunction against Kaun on two statutes: I.R.C. § 7408 and, in the alternative I.R.C. § 7402(a). We conclude that the injunction against Kaun was proper under § 7408. We therefore need not consider whether the district court's actions was also proper under § 7402(a), which authorizes a district court, at the request of the United States, to issue such injunctions and other judgments and decrees "as may be necessary or appropriate for the enforcement of the internal revenue laws," I.R.C. § 7402(a) (1982).
Section 7408 authorizes the United States to seek injunctive relief against persons found to be in violation of I.R.C. § 6700. Thus, the injunction against Kaun was properly based on § 7408 if Kaun's activities fell within the scope of the § 6700.
Sections 6700 and 7408 of the Internal Revenue Code were added to the Code of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), Pub. L. No. 97-248, 96 Stat. 324. Section 6700, titled "Promoting abusive tax shelters," contains two elements that the government must prove: (1) that the defendant was involved in an abusive tax shelter, and (2) that the defendant made statements about the tax benefits investors would receive if they participated in the shelter which the defendant knew or had reason to know were false or fraudulent.*fn2 We conclude that Kaun's tax protest activities fell within the scope of § 6700.
TEFRA defines an abusive tax shelter as a partnership or other entity, any investment plan or arrangement, or any other plan or arrangement, whose "principal purpose . . . is the avoidance or evasion of federal income tax." I.R.C. § 6661(b)(2)(C)(ii) (1982 & Supp. 1985). The government argues that under this broad definition the WSEC can be considered a tax avoidance scheme within the meaning of § 6700, and that Kaun is therefore liable as a promoter of the scheme.
Congress may have envisioned a different strategy for enforcing the revenue laws against tax protesters. At the same time that Congress enacted § 6700, it enacted § 6702, which provides a penalty for "frivolous returns." The legislative history of § 6702 indicates that Congress was concerned with "the rapid growth in deliberate defiance of the tax laws by ax protestors," S. Rep. No. 97-494, 97th Cong., 2d Sess. 277, reprinted in 1982 U.S. Code Cong. & Admin. News 781, 1023, and that Congress knew that "many of these protestors [were] induced to file protest returns through the criminal conduct of others," id. at 1024. The simultaneous enactment of these two new provisions might indicate that congress conceived of tax shelters and tax protester groups as two separate problems, and intended that they be addressed in different ways. This distinction, moreover, is supported by the case law. We have found only one other case in which § 6702. See, e.g., Coleman v. C.I.R., 791 F.2d 68 (7th Cir. 1986) (collecting cases).
However, under the broad language of § 6700, there is nothing to prevent a tax protest group from qualifying as an "abusive tax shelter." It is a familiar rule of statutory construction that, in the absence of clear legislative intent to the contrary, the language of a statute determines its meaning. See Consumer Product Safety Comm'n v. GTE Sylvania, 447 U.S. 102, 108, 64 L. Ed. 2d 766, 100 S. Ct. 2051 (1980). The words "any other plan or arrangement" are clearly broad enough to include a tax protester group. Moreover, the fact that congress designed § 6702 to reach tax protesters does not mean that § 6702 to reach tax protesters does not mean that § 6702 was intended to be the exclusive remedy against tax protester conduct. In the absence of compelling evidence that § 6700 was not intended to apply to tax protesters, we conclude ...