View PDF Version

No. 04-1383

In the Supreme Court of the United States

IRWIN SCHIFF, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

PAUL D. CLEMENT
Solicitor General
Counsel of Record

EILEEN J. O'CONNOR
Assistant Attorney General

GILBERT S. ROTHENBERG
JUDITH A. HAGLEY
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217

QUESTION PRESENTED

Whether the court of appeals correctly held that a preliminary injunction issued pursuant to 26 U.S.C. 7408, prohibiting petitioner from, inter alia, "[a]d vertising, marketing, or promoting any false, misleading or deceptive tax position in any media for the purpose of advising or encouraging taxpayers to unlawfully evade the assessment or payment of federal income taxes," is consistent with the First Amendment.

In the Supreme Court of the United States

No. 04-1383

IRWIN SCHIFF, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1-19) is reported at 379 F.3d 621. The order of the district court granting the government's motion for a prelimi nary injunction (Pet. App. 20-65) is reported at 269 F. Supp. 2d 1262.

JURISDICTION

The judgment of the court of appeals was entered on August 9, 2004. A petition for rehearing was denied on January 12, 2005 (Pet. App. 66). The petition for a writ of certiorari was filed on April 12, 2005. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

1. Petitioner is a long-time purveyor of fraudulent tax schemes who has repeatedly been convicted of at tempted tax evasion and related offenses. Petitioner's most recent scheme, known as the "zero-income" scheme, encouraged participants to stop the withholding of tax from their wages and to report zero income on their tax returns. Pet. App. 24-27, 29-31.

Petitioner promoted the zero-income scheme through various products, ranging from seminars and personal consultations to books and tapes. The central item in petitioner's product line was his self-published book The Federal Mafia: How the Government Illegally Imposes and Unlawfully Collects Income Taxes. Pet. App. 26. Petitioner identified The Federal Mafia as the "starting point" for the zero-income scheme, and marketed it as part of various instructional packages. Id. at 49, 50-51. Petitioner claimed that the book "shows you how to file the zero return[] [and] stop your wage withholding, and explains the basics." Id. at 26. The book contains step- by-step instructions on how to participate in the zero- income scheme, and includes an attachment to be filed with a participant's tax return in order to "establish your claim that you had 'zero' income and are entitled to a full refund of all the taxes you paid for that year." Id. at 27. Although the book warns that a participant in the zero-income scheme risks going to jail, it elsewhere states that a participant cannot successfully be prose cuted (and offers petitioner's services as a witness and brief writer in the event that a prosecution occurs). Id. at 32-33.

Most relevant for present purposes, petitioner's book promotes many of his other products, and expressly en courages its readers to purchase those products. The book contains descriptions of assorted other books, vid eos, and audiotapes sold by petitioner, together with a price list. At various points, the book suggests that it would be "helpful" if readers purchased another book; encourages readers to attend one of petitioner's work shops and to subscribe to his "audio report"; and de scribes other products that petitioner is designing to further the zero-income scheme. Pet. App. 46-47; Gov't C.A. Br. 9 & n.4.

Petitioner's zero-income scheme substantially inter fered with the federal income tax system. From 2000 to 2002, more than 3000 individuals filed tax returns using the attachment included in petitioner's book. Those in dividuals attempted to deprive the government of an estimated $56 million in tax revenue. Pet. App. 27-28.

2. The government filed suit against petitioner and two other individuals, seeking to enjoin them from mar keting the zero-income scheme. C.A. E.R. 1-19. The government relied on several provisions of the Internal Revenue Code authorizing such relief: (1) 26 U.S.C. 7408, which authorizes injunctive relief against persons who have promoted abusive tax shelters (in violation of 26 U.S.C. 6700) or aided and abetted the understate ment of tax liability (in violation of 26 U.S.C. 6701); (2) 26 U.S.C. 7407, which authorizes injunctive relief against persons who have improperly prepared tax re turns (in violation of 26 U.S.C. 6694 or 6695); and (3) 26 U.S.C. 7402(a), which authorizes injunctive relief "as may be necessary or appropriate for the enforcement of the internal revenue laws." C.A. E.R. 12-15.

3. The district court granted the government's mo tion for a preliminary injunction. Pet. App. 20-65. The district court first held that the government had met the requirements of 26 U.S.C. 7408 by demonstrating (1) that defendant had engaged in conduct in violation of 26 U.S.C. 6700 and 6701 and (2) that injunctive relief was appropriate to prevent recurrence of that conduct. Pet. App. 23-36. The district court then rejected defendants' contention that the injunction would violate the First Amendment. Id. at 36-62. At the outset, the court noted that "numerous federal courts have imposed § 7408 injunctions on similar abusive tax schemes with out violating the First Amendment." Id. at 37. The court reasoned that the injunction was valid as a restric tion on false and misleading commercial speech, speech that incites imminent lawless action, and speech that aids and abets criminal activity. Ibid.

As is relevant here, the district court determined that portions of petitioner's book constituted commercial speech because the book "includes not only a description of a number of other books written and published by [petitioner], but also a description of a cassette seminar and audio reports, and their prices." Pet. App. 47. The court added that other portions of the book that "further the promotion, marketing and sales of the overall tax scheme" likewise constituted commercial speech. Id. at 49. To the extent that the book also contained protected autobiographical and political expression, the court found, "the commercial speech components of The Fed eral Mafia are not 'inextricably intertwined' with its protected expression." Id. at 48. In a number of other cases involving First Amendment challenges to injunc tions issued under 26 U.S.C. 7408, the court noted, the materials at issue similarly contained a combination of protected and unprotected speech. Pet. App. 51-52. The court concluded that "the commercial speech and tax advice aspects of the scheme (including those contained in The Federal Mafia) can be enjoined to the extent that they are false, misleading or deceptive." Id. at 52.

The district court thus entered a preliminary injunc tion barring defendants from "[a]dvertising, marketing, or promoting any false, misleading or deceptive tax posi tion in any media for the purpose of advising or encour aging taxpayers to unlawfully evade the assessment or payment of federal income taxes." Pet. App. 63. The injunction also prohibited defendants from (1) organiz ing, promoting, marketing, or selling any plan or ar rangement that advises or encourages others to attempt to violate the tax laws; (2) assisting or inciting others to violate the tax laws; (3) instructing or assisting others to hinder or disrupt the enforcement of the tax laws; (4) preparing tax returns for others; or (5) engaging in any other conduct that violates 26 U.S.C. 6700, 6701, 6694, or 6695. Pet. App. 63-64. The court stressed that the in junction was designed "not to limit defendants' legiti mate tax-related activities or advocacy." Id. at 62.

4. The court of appeals affirmed. Pet. App. 1-19. After holding that the district court complied with 26 U.S.C. 7408 in issuing the preliminary injunction, see Pet. App. 6-7, the court of appeals rejected defendants' contention that the preliminary injunction was "uncon stitutionally broad as it relates to The Federal Mafia," id. at 8. The court noted that petitioner was contending that commercial speech should be limited to "advertising pure and simple." Id. at 9. Even under that definition, however, the court observed that certain portions of peti tioner's book would qualify as commercial speech. Ibid. The court ultimately determined that other portions of the book also constituted commercial speech, because "[t]he extravagant claims made in The Federal Mafia are designed to convince readers that they can lawfully avoid paying their income taxes so that the readers will buy other products in [petitioner's] line." Id. at 11. The court concluded that "The Federal Mafia is an integral part of [petitioner's] whole program to market his vari ous products for taxpayers to utilize his forms and tech niques to avoid paying income tax." Id. at 12.

Having thus defined the commercial-speech compo nents of petitioner's book, the court of appeals next de termined that "the expressive and political portions of The Federal Mafia are not 'inextricably entwined' with its commercial elements." Pet. App. 14. Petitioner, the court noted, "can relate his long history with the IRS and explain his unorthodox tax theories without simulta neously urging his readers to buy his products." Ibid. "Because the protected and unprotected parts of the book are not inextricably intertwined," the court rea soned, "[petitioner] cannot use the protected portions of The Federal Mafia to piggy-back his fraudulent com mercial speech into full First Amendment protection." Ibid.

Finally, the court of appeals determined that the commercial speech contained in petitioner's book was fraudulent and therefore could be enjoined. Pet. App. 16. The court noted that, "[a]lthough [petitioner's] claims are far-fetched, they could mislead a customer into believing that he or she could use [petitioner's] products to legally stop paying income taxes." Ibid. Because the court concluded that the injunction was valid as a restriction on false and misleading commercial speech, it did not reach the district court's alternative bases for rejecting defendants' First Amendment claim: namely, that the injunction was also valid as a restric tion on speech that incites imminent lawless action and that aids and abets criminal activity. Id. at 16-17.

ARGUMENT

Petitioner contends (Pet. 10-18) that the court of ap peals erred by rejecting his First Amendment challenge to the preliminary injunction entered by the district court. The court of appeals' decision is correct and does not conflict with any decision of this Court or of another court of appeals. Further review is therefore not war ranted.

1. The court of appeals correctly concluded that the injunction could properly be applied to petitioner's book to the extent that it contained fraudulent or deceptive commercial speech. This Court has repeatedly made clear that false, fraudulent, or deceptive commercial speech, or commercial speech related to illegal activity, is unprotected by the First Amendment. See, e.g., Ibanez v. Florida Dep't of Bus. & Prof'l Regulation, 512 U.S. 136, 142 (1994); Edenfield v. Fane, 507 U.S. 761, 768 (1993); Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557, 563-564 (1980).

Petitioner does not deny that the speech at issue was fraudulent or deceptive. Instead, he contends that the court of appeals' decision "seems to conflict with the Supreme Court's definition of 'commercial speech,'" Pet. 10, and that "commercial speech" should be "limited to 'advertising pure and simple,'" Pet. 11. Those conten tions lack merit.

This Court has stated that the "core notion of com mercial speech" is "speech which does no more than pro pose a commercial transaction." Bolger v. Youngs Drugs Prods. Corp., 463 U.S. 60, 66 (1983) (citation omitted). At times, however, the Court has "also sug gested that * * * lesser protection was appropriate for a somewhat larger category of commercial speech-'that is, expression related solely to the economic interests of the speaker and its audience.'" City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 422 (1993) (quot ing Central Hudson, 447 U.S. at 561). Although the Court has not yet established "the precise bounds of the category of expression that may be termed commercial speech," Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 637 (1985), it has never held that commercial speech comprises only "advertising pure and simple," as petitioner contends, but has instead held that a variety of other types of material constitutes commercial speech. See, e.g., Bolger, 463 U.S. at 66-67 (informa tional pamphlets); Friedman v. Rogers, 440 U.S. 1, 11 (1979) (trade names).

This case is a poor vehicle for resolving any residual uncertainty as to the extent to which the category of commercial speech encompasses more than speech that merely proposes a commercial transaction. Although the court of appeals recognized (Pet. App. 10) that "[m]uch thought has gone into the question of what the Supreme Court really meant by the [larger] category of commercial speech" to which the Court referred in Cen tral Hudson, the court of appeals did not purport to de lineate the bounds of that category in this case. Instead, the court merely noted that petitioner's book contained commercial speech under any definition. Compare Pet. App. 9 (noting that portions of petitioner's book consti tuted commercial speech "[u]nder [petitioner's] defini tion"), with id. at 11 (suggesting that petitioner's "[e]xtravagant claims" constituted commercial speech under the broader definition set forth in Central Hud son). Moreover, the court of appeals did not suggest that the injunction would have been overbroad under any valid narrower definition of commercial speech, nor does petitioner challenge any particular provision of the injunction as overbroad. Because the court of appeals' decision does not conflict with any decision of this Court concerning the definition of commercial speech, and be cause there is no indication that the court of appeals would have reached a different outcome even if it had expressly adopted a narrower definition, this Court's intervention is unwarranted.1

2. The court of appeals correctly upheld the injunc tion notwithstanding the fact that petitioner's book in disputably contains some fully protected speech. Where commercial speech is "inextricably intertwined" with otherwise fully protected speech, it is entitled to the fullest First Amendment protection. See, e.g., Board of Trs. v. Fox, 492 U.S. 469, 474 (1989). A speaker, how ever, cannot "immunize false or misleading product in formation from government regulation simply by includ ing references to public issues." Bolger, 463 U.S. at 68 (citation omitted); see Zauderer, 471 U.S. at 637 n.7.

The court of appeals determined that the commer- cial-speech component of petitioner's book was not "in extricably intertwined" with the fully protected compo nent, because petitioner could "relate his long history with the IRS and explain his unorthodox tax theories without simultaneously urging his readers to buy his products." Pet. App. 14. Petitioner does not contend that the court of appeals' decision on that issue conflicts with any decision of this Court or of another court of appeals. To the contrary, courts of appeals have consis tently upheld injunctions under 26 U.S.C. 7408 as per missibly regulating fraudulent or deceptive commercial speech-including in cases where, as here, the materials giving rise to the injunction contained both commercial speech and speech that was fully protected. See, e.g., United States v. Raymond, 228 F.3d 804, 807, 815 (7th Cir. 2000) (materials providing information regarding "general tax-protest principles" and "forms and instruc tions that guide the purchaser through the process of 'de-taxing'"); United States v. White, 769 F.2d 511, 512, 516-517 (8th Cir. 1985) (materials containing "argu ments against the constitutionality and legality of the federal tax system" and "detailed instructions" on how to evade taxes); see also United States v. Estate Pres. Servs., 202 F.3d 1093, 1106 (9th Cir. 2000); United States v. Kaun, 827 F.2d 1144, 1152 (7th Cir. 1987); United States v. Buttorff, 761 F.2d 1056, 1066-1068 (5th Cir. 1985).

Crucially, the preliminary injunction issued by the district court did not directly enjoin petitioner from dis seminating his book, but instead merely prohibited peti tioner from, inter alia, "[a]dvertising, marketing, or promoting any false, misleading or deceptive tax posi tion in any media for the purpose of advising or encour aging taxpayers to unlawfully evade the assessment or payment of federal income taxes." Pet. App. 63. Peti tioner thus remains free to disseminate his book without material that is covered by the injunction.2 And peti tioner remains free to engage in other forms of "legiti mate tax-related activities or advocacy," pending the district court's determination as to whether a permanent injunction is warranted. Id. at 62.

3. Finally, petitioner contends (Pet. 17-18) that the injunction is overbroad as applied to his book because the injunction separately enjoins him from selling the other products that the book promotes. This Court, however, traditionally refuses to consider arguments that were neither pressed in nor passed upon by the court of appeals. See, e.g., Zobrest v. Catalina Foothills Sch. Dist., 509 U.S. 1, 8 (1993). In any event, peti tioner's argument lacks merit. To the extent that peti tioner's book promotes products whose sale would now be prohibited by the injunction, it contains "speech pro posing an illegal transaction," which (like fraudulent or deceptive speech) "a government may regulate or ban entirely." Village of Hoffman Estates v. Flipside, Hoff man Estates, Inc., 455 U.S. 489, 496 (1982). Petitioner cites no authority for the contrary proposition.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

 

PAUL D. CLEMENT
Solicitor General

EILEEN J. O'CONNOR
Assistant Attorney General

GILBERT S. ROTHENBERG
JUDITH A. HAGLEY
Attorneys

JUNE 2005

1 Petitioner also suggests (Pet. 10, 12-14) that the court of appeals' decision conflicts with its earlier decisions in American Academy of Pain Management v. Joseph, 353 F.3d 1099 (9th Cir. 2004); Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894 (9th Cir. 2002), cert. denied, 537 U.S. 1171 (2003); and Hoffman v. Capital Cities/ABC, Inc., 255 F.3d 1180 (9th Cir. 2001). This Court, however, does not sit to resolve alleged intracircuit conflicts. See Wisniewski v. United States, 353 U.S. 901, 902 (1957) (per curiam). In any event, those decisions do not clearly adopt a different definition of "commercial speech" from that used in the decision below.

2 As a practical matter, petitioner could readily remove the offending material from his book because he publishes it himself. Moreover, as the district court noted (Pet. App. 48), the commercial speech contained in the book does not finance its publication.