UNITED STATES

v.

ESPINAL

The United States filed a Motion to Find Milagros Espinal in Contempt (the “Motion”). (ECF No. 22).1 Espinal filed a response memorandum. (ECF No. 26). With the agreement of the parties, the Court bifurcated its adjudication of liability and possible penalties.² On April 15, 2021, the Court held an evidentiary hearing on liability, and with the parties’ consent did so via Zoom videoconferencing. At the conclusion of that hearing the Court advised the parties that it found that the United States had carried its burden of proof to prove that Espinal is in contempt of this Court’s Consent Judgment of Permanent

I. Findings of Fact

A. Espinal violated the Court’s injunction

1. In February 2011, the United States filed this action to permanently enjoin Espinal from, inter alia, preparing tax returns. The Complaint alleged that Espinal prepared tax returns for customers that claimed false or overstated deductions for medical expenses, charitable contributions, and unreimbursed employee business expenses. (ECF No. 1 ¶ 15). It further alleged that an IRS review of returns she prepared uncovered errors in 97% of the returns it examined. (Id. ¶ 10). 2. The United States attached to its Complaint a proposed consent order, signed by both government counsel and Espinal. (ECF No. 1-2). Without admitting or denying the allegations in the Complaint, Espinal agreed to a full bar on tax return preparation. (Id.). 3. On February 17, 2011, the Court entered the Consent Judgment of Permanent

Injunction as an order of this Court. (ECF No. 3). It prohibits Espinal from directly or indirectly (a) preparing or assisting in the preparation of any other person’s federal income tax returns or other related documents and forms for others; (b) preparing or assisting in the preparation of federal tax returns that she knows will result in the understatement of any tax liability or the overstatement of federal tax refunds; (c) providing any tax advice or services for compensation, including preparing or filing returns, providing consultative services, or representing customers; (d) engaging in any other activity subject to penalty under 26 U.S.C. §§ 6694, 6695, or 6701; or (e) engaging in any conduct that interferes with the proper administration and enforcement of the internal revenue laws. (Id.). 4. Years later, on December 29, 2020, the United States moved for an order to show cause why Espinal should not be held in contempt. (ECF No. 4). The Motion reported that a Department of Justice investigation uncovered evidence that, for years, Espinal had been violating the injunction. (Id.). The Court issued an order to show cause and scheduled an evidentiary hearing. (ECF No. 19). 5. On April 15, 2021, the Court conducted an evidentiary hearing via Zoom videoconferencing and heard testimony from 10 witnesses. 6. During the hearing, I presided over a virtual courtroom in which the attorneys for each party, Espinal, an IRS agent who was the United States’ party representative, the court reporter, and an interpreter were present throughout the hearing. I sequestered the witnesses in a virtual waiting room and admitted them into the virtual courtroom when it was their turn to testify. 7. While testifying, each witness could see everyone else in the virtual courtroom by video. Each participant appeared in a separate box on Zoom. The individual boxes were arranged in a grid on the screen. 8. For the entirety of the hearing, Espinal was on camera in a room by herself. Her attorney, who was not seated next to her, appeared separately on screen. 9. Zoom participants can select the name that appears on screen to identify them. The box that displayed an image of each participant had their chosen name at the bottom on the box. At the beginning of the hearing, Espinal’s name appeared in the box with her image. Tr. 59:18-21.3 10. Prior to the testimony of the third witness, Espinal changed her name on Zoom to “NA.” Id. At one point in the hearing, Espinal changed her name to “M,” only to switch it back again to “NA.” Id. at 132:24–133:7. She removed her name so that witnesses, who were asked to identify her, would not be aided in their identification by a display of her name. 11. All witnesses testified that Espinal prepared their tax returns in the years after the Court issued the injunction. Nine of those witnesses recognized Espinal on their screens and identified her as their return preparer. Id. at 17:25–18:7; 41:14-19; 61:12-24; 81:24– 86:3; 97:5-15; 116:11-23; 140:20–141:7; 159:7-16; 172:1-19.

12. The one witness who did not identify Espinal, testified that she used the same tax return preparer as her husband. Id. at 136:1-18. Her husband, in turn, identified Espinal. Id. at 116:11-23. 13. Espinal objected that the circumstances of the witnesses’ identification of her on Zoom were suggestive and thus not reliable, and she argued that the Court should credit only identifications made in the neutral circumstances of a line-up or photo array. The Court overruled that objection. The identifications of Espinal (especially once she removed

for their return to be prepared. Id. at 19:5-13; 62:13-15; 91:3-4; 97:19-22; 98:3-5; 142:9-12; 146:3-6; 173:8-12. 16. The witnesses’ credibility was enhanced by their frank testimony against their own interests, that their tax returns included false information. 17. The often identical, or nearly identical, fraudulent fuel tax credits claimed on the witnesses’ returns is strong circumstantial evidence that Espinal prepared those returns. 18. The fuel tax credit is available to taxpayers who operate farm equipment or other off-highway business equipment or vehicles. Off-highway business use is any use of fuel in a trade or business or in an income-producing activity where the equipment or vehicle is not registered and not required to be registered for use on public highways, which include all federal, state, county, and city roads and streets. See Publication 225 at 86, IRS, available at https://www.irs.gov/pub/irs-pdf/p225.pdf.

19. IRS Publication 225 provides the following examples of qualifying off-highway fuel use: (1) in stationary machines such as generators, compressors, power saws, and similar equipment; (2) for cleaning; and (3) in forklift trucks, bulldozers, and earthmovers. Id. Because of its extremely limited availability and because of widespread abuse, the IRS included the fuel tax credit on its 2019 list of the “dirty dozen” scams. See

IRS concludes “Dirty Dozen” list of tax scams for 2019: Agency encourages taxpayers to remain vigilant year-round, IRS (Mar. 20, 2019), available at https://www.irs.gov/newsroom/irs-concludes-dirty-dozen-list-of-tax-scams-for-2019-agency-encourages-taxpayers-to-remain-vigilant-year-round. The IRS noted that it is a “tax benefit generally not available to most taxpayers.” Id.

20. All 10 witnesses had fraudulent fuel tax credits on their returns. Tr. at 22:23– 23:11; 45:17–46:4; 66:3-15; 88:12–90:5; 99:19–100:13; 121:7-14; 127:2-11; 137:4–138:4; 144:16-25; 146:11–147:14; 161:2-12; 174:20-25; 177:11-23. 21. All the returns claimed that the customers purchased precisely⁵,988 or⁶,988 gallons of fuel for a qualifying purpose. 22. For the following customers in the following tax years, the returns claimed exactly⁵,988 gallons for a fuel tax credit of $1,096: a. Carlos Silveira Mendoza, 2019 (ECF No. 22-25 at 12);4 b. Jean Albert Gallego, 2018 (ECF No. 22-10 at 38–41) and 2017 (ECF No. 22-10 at 23–26); c. Diana Izquierdo, 2016 (ECF No. 22-9 at 6–9), 2017 (ECF No. 22-9 at 19–

22), and 2018 (ECF No. 22-9 at 36–39); d. Olaf Pozo Lorenzo, 2017 (ECF No. 22-23 at 6); e. Francisco Flores, 2018 (ECF No. 22-26 at 6); f. Gueidy Antigua, 2018 (ECF No. 22-33 at 6); g. Naeleen Rosario, 2018 (ECF No. 22-34 at 6); and

h. Lina Maria Gallego, 2016 (ECF No. 22-11 at 6–9), 2017 (ECF No. 22-11 at 21–24), and 2018 (ECF No. 22-11 at 45–48). 23. For the following customers in the following tax years, the returns claimed exactly⁶,988 gallons for a fuel tax credit of $1,279: a. Carlos Silveira Mendoza, 2018 (ECF No. 22-25 at 6);

b. Angie Amaya, 2018 (ECF No. 22-37 at 6); and

6695(c), the IRS can assess penalties against return preparers who do not comply with the requirements of 26 U.S.C. § 6109. In addition, a court can enjoin a return preparer who continually engages in conduct subject to penalty under § 6695 from preparing returns for others. See 26 U.S.C. § 7407. 27. All 10 witnesses testified that they paid Espinal to prepare their returns. Tr. at

20:21-24, 42:17-20, 63:18–64:2, 87:13-16, 98:19-22, 117:23–118:1, 123:7-10, 137:1-3, 142:2-8, 145:21–146:2, 160:11-16, 174:9-16. Espinal did not sign those returns. Tr. at 42:11-16, 63:12-15, 87:9-10, 98:15-16, 118:24–119:1, 123:17-18, 143:23-24, 174:5-8; (ECF No. 22-10 at 5, 20, 32); (ECF No. 22-9 at 3, 17, 30); (ECF No. 22-11 at 2, 19, 40); (ECF No. 22-12 at 2); (ECF No. 22-2 ¶ 6). Instead, the witnesses submitted them to the IRS under the pretense that they prepared their own tax returns. Tr. at 63:9-11, 87:5-8, 94:16-23, 98:11-14, 119:4-5, 123:3-6, 124:6-8, 145:1-6, 146:7-10, 174:1-4; (ECF No. 22-2 ¶ 6). The witnesses testified consistently that Espinal did not sign or file their returns and that she instead directed them to sign the returns themselves and mail them to the IRS. Tr. at 63:9-11, 87:5-8, 94:16-23, 98:11-14, 119:4-5, 123:3-6, 124:6-8, 145:1-6, 146:7-10, 174:1-4. 28. Espinal had a motive to avoid signing the returns – that is, if she filed returns that identified her as the preparer, she would acknowledge to the IRS her noncompliance with the permanent injunction. 29. The witnesses’ testimony is also corroborated by sworn testimony Espinal gave in a 2019 deposition in an unrelated lawsuit: In re Estate of Luis Felipe Cainas, No. 2019-694-CP-02 (Fla. 11th Cir. Ct.). At the deposition, Espinal identified her profession as, “What I do is income tax, taxes.” (ECF No. 22-1 at 17:19-20). 30. Espinal’s involvement in the preparation of the witnesses’ tax returns went beyond her merely helping or answering questions. Several witnesses testified that they sat next to or across from Espinal as she prepared their returns on a computer. Tr. at 42:3-4, 91:22, 94:4-15, 132:9-11, 180:11-15, 184:22–185:3.

31. In sum, clear and convincing evidence demonstrates that Espinal prepared the witnesses’ tax returns after the Court entered the Permanent Injunction. Espinal provided no evidence to suggest otherwise. B. Espinal had notice of the injunction and was able to comprehend its terms

32. Espinal had actual notice of the injunction at all relevant times. 33. Espinal signed the Consent Judgment to indicate her consent to the permanent injunction. See (ECF No. 3 at 4). She does not dispute her signature and she admitted this in the 2019 deposition. (ECF No. 22-1 at 20:18-20). 34. At that deposition, an attorney showed Espinal a copy of the injunction and summarized its contents to her. (Id. at 20:23–21:7). 35. At the hearing, two of the witnesses testified that in the following year, 2020, Espinal prepared their 2019 tax returns. Tr. at 61:15-17, 172:1-2. 36. The Court finds that Espinal’s “ghost” preparation is further evidence of her knowledge of the injunction. Espinal’s failure to identify herself as the paid return preparer strongly suggests her awareness of the impropriety of preparing others’ tax returns. 37. Espinal has not denied that she knew of the injunction. She asserts her Fifth Amendment right against self-incrimination when asked if she was aware of the injunction, and in response to all questions regarding her preparation of tax returns. (ECF No. 35). In her response memorandum, she suggests that even if she had notice of the injunction, she did not understand its contents because she speaks Spanish, and the injunction is in English. (ECF No. 11 at 2). 38. Espinal has sufficient English proficiency to understand the injunction.⁵

C. Espinal prepared multiple returns with fraudulent claims

42. The returns Espinal prepared have multiple fraudulent claims. In addition to the fraudulent fuel tax credits, the following table highlights $269,095 in deductions that Defendant fabricated or overstated on returns she prepared. Customer Tax Type of Citation to | Citation to | Amount of Year Bogus Claim | Tax Hearing Bogus/Inflated Return or | Testimony | Deductions Return Transcript Jean Albert | 2017 Business loss | ECF No. Tr. at $9,694 Gallego 22-10 at 125:15-20. 19, 22. 2017 Medical and ECF No. Tr. at $9,765 dental 22-10 at 124:9-13. expenses 21.

2017 Charitable ECF No. Tr. at $750 donations 22-10 at 124:14-18.

21.

2017 Other business ECF No. Tr at $9,717 expenses 22-10 at 124:19– 21, 28. 125:14. 2018 Business loss ECF No. Tr. at $9,268 22-10 at 120:23– 33, 36. 121:6. 2018 Medical and ECF No. Tr. at $13,889 dental 22-10 at 119:6-17. expenses 35. 2018 Charitable ECF No. Tr. at $750 donations 22-10 at 119:18– 35. 120:9. 2018 Impairment-ECF No. Tr. at $21,240 related work 22-10 at 120:11-22. expenses 35. Olaf Pozo 2017 Charitable ECF No. Tr. at 44:5– $750 Lorenzo donations 22-23 at 5. 45:5. 2017 Medical and ECF No. Tr. at 43:2- $8,999 dental 22-23 at 5. 16. expenses 2017 Unreimbursed ECF No. Tr. at 45:6- $7,553 employee 22-23 at 5, 16. expenses 6. Carlos 2018 Business loss ECF No. Tr. at $8,682 Silveira 22-25 at 5, 175:11– Mendoza 6. 177:7. 2019 Business loss ECF No. Tr. at $8,778 22-25 at 177:24– 11, 12. 179:3. Francisco 2018 Medical and ECF No. Tr. at 64:6- $13,988 Flores dental 22-26 at 5. 14. expenses 2018 Charitable ECF No. Tr. at 65:1- $750 donations 22-26 at 5, 18.