Department of Justice Seal Department of Justice
FEBRUARY 1, 2002
(202) 514-2007
TDD (202) 514-1888


Accountant Agrees To Stop Asserting Meritless Positions

WASHINGTON, D.C. -- On Tuesday a federal court in Atlanta, Georgia issued a permanent injunction against Harold E. Hearn—an accountant and tax return preparer—and two of his corporations, HEH Financial Services, Inc. and Hal's Financial Services, L.L.C. from preparing tax returns for clients claiming exemption from income tax based on frivolous positions, including a misinterpretation of Section 861 of the Internal Revenue Code. Hearn has improperly requested refunds for his clients totaling over $2.5 million.

In the permanent injunction issued by the court, the parties agreed that Hearn, in promoting the Section 861 argument, made false or fraudulent statements regarding the exclusion of wages and other items from income. The injunction requires Hearn to notify his clients of the injunction, and to inform his clients that the representations made by Hearn and his corporations and the tax returns prepared by Hearn and his corporations were false. Hearn and his corporations must also tell their clients about the possibility that the IRS may impose frivolous-return penalties on his clients and seek to recover any erroneous refunds the clients received. The injunction further requires Hearn and his corporations to turn over all records which identify clients whose tax returns they prepared.

Eileen J. O'Connor, Assistant Attorney General in charge of the Justice Department's Tax Division, said, "Taxpayers must be wary of unscrupulous promoters and return preparers who advocate baseless legal positions. The Section 861 argument has been rejected by every judge who has considered it. Moreover, courts have imposed penalties of as much as $25,000 against those who assert this legally frivolous position. If it sounds too good to be true, it usually is."

According to court papers the Justice Department filed in the case, Hearn and his corporations prepared tax returns for clients claiming exemption from federal income tax based on a false claim that the income tax generally applies only to income earned by United States citizens working abroad. The Government's complaint alleged that Hearn prepared at least 88 original and amended income tax returns on behalf of at least 35 clients.

On November 15, 2001, the same day the United States sued Hearn, it filed separate injunction suits against two other Section 861 promoters—David Bosset of Clearwater, Florida, and Thurston Bell of Hanover, Pennsylvania. Those two cases are still pending.