On Appeal from the United States District Court for the Middle District of Pennsylvania. D.C. Civil Action No. 01-cv-02159. (Honorable Christopher C. Conner).
The opinion of the court was delivered by: Scirica, Chief Judge.
Before: SCIRICA, Chief Judge, RENDELL and FISHER, Circuit Judges
At issue is whether a permanent injunction barring defendant Thurston Paul Bell from promoting and selling unlawful tax advice is permissible under the First Amendment. We will affirm the injunction with modifications.
Thurston Paul Bell is a professional tax protester who ran a business and a website selling bogus strategies to clients endeavoring to avoid paying taxes. In the 1980s, he worked for Save-A-Patriot, an entity dedicated to the proposition that "American citizens are not liable for the income tax." Bell later started his own organization, Tax-gate, and a website, www.taxgate.com, where he drafted letters and pleadings to the Internal Revenue Service and state tax agencies on behalf of clients. Bell charged for advice and services in preparing various tax filings. Bell subsequently founded another group, the National Institute for Taxation Education ("NITE"), and the related website www.nite.org., with the mission of providing "income tax help, solutions and strategies that work for Citizens of the United States to legally declare their gross income to be Zero."
Substantively, Bell's main rationale for avoiding the income tax is known as the "U.S. Sources argument" or the "Section 861 argument."*fn1 This method has been universally (emphasis supplied). Section 861 states that certain "items of gross income shall be treated as income from sources within the United States...." 26 U.S.C. § 861(a). According to the U.S. Sources argument, domestically earned wages of U.S. citizens are not taxable because such wages are not specifically mentioned in the list of items of gross income that "shall be treated as income from sources within the United States." See 26 U.S.C. § 861(a). Bell concedes that section 861 itself does not exempt domestically earned wages of U.S. citizens. No doubt Bell makes this concession because section 861 plainly provides that "[c]ompensation for labor or personal services performed in the United States ..." shall be treated as income from sources within the United States. 26 U.S.C. § 861(a)(3). Nevertheless, he argues that such wages are not taxable because certain regulations promulgated under section 861 (i.e. 26 C.F.R. §§ 1.861-8(a)(4), discredited. See, e.g., Great-West Life Assurance Co. v. United States, 678 F.2d 180, 183 (Ct. Cl. 1982); Loofbourrow v. Comm'r, 208 F. Supp. 2d 698, 709-10 (S.D. Tex. 2002); Williams v. Comm'r, 114 T.C. 136, 138-39 (2000). Still, several of Bell's clients obtained unwarranted tax refunds by filing returns according to his methods. From May 2000 until February 2002, over 400 clients paid Bell approximately $60,000 through the internet payment system PayPal.
The United States requested a preliminary injunction against Bell under 26 U.S.C. §§ 7402 and 7408.*fn2 Granting the motion, the District Court enjoined Bell from "directly or indirectly, by means of false, deceptive, or misleading commercial speech . . . organizing, promoting, marketing or selling . . . the tax shelter, plan or arrangement known as the 'U.S. Sources argument' . . . or any other abusive tax shelter, plan or arrangement that incites taxpayers to attempt to violate the internal revenue laws," and from assisting others in such violations. Bell, 238 F. Supp. 2d at 705-07. The District Court also ordered Bell to communicate by mail with all persons he assisted with the preparation of tax filings, to whom he gave or sold tax materials related to the U.S. Sources argument, or who contacted him about such matters. The letter was to inform those persons of the court's injunction, the fraudulent nature of the U.S. Sources argument, their potential liability for filing frivolous tax returns, and the possibility that the government may seek to recover erroneous refunds and impose other penalties. Id. The District Court ordered Bell to maintain his principal website, www.nite.org, during the pendency of the preliminary injunction, to remove "false commercial speech, and materials designed to incite others to violate the law (including tax laws)," and to post the court's order on the website while removing all the materials about the U.S. Sources argument. Id. The order also required Bell to inform the government of the identities of all persons whom he had helped file tax returns.*fn3
Id. The preliminary injunction was converted to a permanent injunction on January 29, 2004.
We have jurisdiction under 28 U.S.C. § 1291 to review the District Court's grant of a permanent injunction. We review the decision to grant or deny an injunction for abuse of discretion. Chao v. Rothermel, 327 F.3d 223, 225 (3d Cir. 2003). We review findings of fact for clear error, and conclusions of law de ...