Tax Controversy Corner: The Internal Revenue Code Injunction Statutes

By Megan L. Brackney
Journal of Passthrough Entities
May - June 2019 Edition

Under the injunction statutes in the Internal Revenue Code, the U.S. government has broad discretion to seek—and the federal courts to order—the injunction of the preparation of false or fraudulent returns, as well as the aiding and abetting of false tax returns, and the promotion of abusive tax shelters. This power includes enjoining persons and businesses from engaging in specific conduct, and other equitable remedies, such as requiring preparers and promoters to turn over their clients’ identities, notify their clients of the injunction, and disgorgement of fees. The injunction statutes provide a powerful civil enforcement tool for the Department of Justice and the IRS. In many ways, the injunction action is a much worse consequence for a tax promoter or preparer than civil penalties because the action is part of the public record (unlike the results of a preparer or promoter audit, which would be subject to taxpayer confidentiality under Code Sec. 6103), and the court may shut down the preparer’s practice altogether. This column discusses the injunction statutes and two recent cases filed against alleged tax shelter promoters.

Full Article