United States v. Martha A. Velarde

Summary

The United States District Court for the Central District of California held Martha A. Velarde in civil contempt for violating a limited injunction governing federal tax-return preparation. The court found by clear and convincing evidence that Velarde knowingly used incorrect social security numbers for qualifying persons without making the required due-diligence inquiries, in violation of 26 U.S.C. § 6695 and applicable Treasury regulations. The court imposed a $20,000 coercive sanction, payable within 60 days, while declining to award the Government's requested $228,575 disgorgement.

Holdings

1. The Government proved by clear and convincing evidence that Velarde violated the Limited Injunction by knowingly providing incorrect social-security numbers for qualifying persons without making the reasonable inquiries required by the applicable due-diligence regulation.
2. The Government did not prove by clear and convincing evidence that Velarde improperly claimed head-of-household status on all of the challenged returns.
3. A $20,000 sanction was appropriate to compel Velarde's compliance with the Limited Injunction.

Questions Presented

1. Whether the Government proved by clear and convincing evidence that Velarde violated the specific and definite terms of the Limited Injunction.
2. Whether Velarde demonstrated that she was unable to comply with the injunction's tax-return-preparer due-diligence requirements.
3. Whether a $20,000 civil-contempt sanction was appropriate to coerce compliance with the injunction.

Disposition

other