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Sexton v. Hawkins

United States District Court, D. Nevada

March 17, 2017

JAMES C. SEXTON JR. AND ESQUIRE GROUP LLC, Plaintiffs,
v.
KAREN L. HAWKINS, Director of Office Of Professional Responsibility, Internal Revenue Service, Department of Treasure, Defendant.

          ORDER

          RICHARD F. BOULWARE, II United States District Judge.

         I. INTRODUCTION

         Before the Court are Plaintiff James Sexton's Motion for Judgment on the Pleadings (ECF No. 56) and Defendant Karen Hawkins's Motion for Summary Judgment (ECF No. 59, 64). This case arises from an investigation by the Office of Professional Responsibility (OPR) for the Internal Revenue Service (IRS) of Plaintiff James Sexton and his company, Plaintiff Esquire Group LLC, regarding his status as a practitioner for tax purposes. Compl. at 4.

         II. BACKGROUND

         A. Factual Allegations, Admitted by Defendant[1]

         The Court finds the following facts to be undisputed. This case arises from an investigation by the Office of Professional Responsibility (OPR) for the Internal Revenue Service (IRS) of Plaintiff regarding his status as a practitioner for tax purposes. Plaintiff was previously a lawyer barred in South Carolina. Id. at ¶ 8. In 2005, Sexton pleaded guilty to four counts of mail fraud and one count of money laundering. Id. at ¶ 9. Sexton was subsequently disbarred in South Carolina and then suspended from practicing before the IRS by OPR in 2008. Id. at ¶ 10. He has not challenged this suspension. Id. at ¶ 10.

         Prior to and during his suspension, Sexton has offered professional tax services as president of Esquire Group, LLC (“Esquire”). Id. at ¶ 13. Sexton assists with the preparation of tax returns for individual clients of Esquire. Id. at ¶ 14. He also performs various other duties within the scope of his employment with Esquire, including management, marketing, and client relations. Id. at ¶ 13. In September 2012, OPR received a complaint from Louise M. Kern, a former client of Sexton and Esquire. Defs. Resp. to MSJ, ECF No. 59, 5. Sexton assisted Kern in preparing her tax returns for 2010 and 2011, and offered to send her a written memorandum analyzing her options regarding her business' tax obligations. Id. at 7. Before accepting Sexton's offer, Kern found out about Sexton's disbarment, and fired him in an email on September 12, 2012. Id. at 9. Following Kern's Complaint, OPR initiated an investigation of whether Sexton was violating his suspension from practicing before the IRS. Id.

         In October 2012 OPR wrote a letter to the Supreme Court of South Carolina seeking information regarding Sexton's education and the date upon which he first became licensed to practice law in South Carolina. Id. at ¶ 18. On or about February 25, 2013, OPR sent a request to Sexton, as president of Esquire, for information related to an investigation of alleged unauthorized practice by Sexton during his suspension. Id. at ¶ 23. The letter's reference line read, “Re: Suspected Practitioner Misconduct Under Circular 230”, and represented the onset of an OPR investigation. (ECF 1-1). Citing section 10.20(a)(3) of Treasury Department Circular No. 230 (Regulations Governing Practice before the Internal Revenue Service) as the authority for its request, OPR requested a wide range of information from Sexton, alleging that this information was “required under section 10.2(a)(3)”. This included a request for detailed information on Sexton's educational background; documents related to the incorporation of Esquire Group and its entity structure; a list of all members, employees, and independent contractors of Esquire Group from the date of incorporation to the present; “any and all documents…and all information related to Esquire Group's business plan”; and an array of detailed requests regarding documents provided to clients “relating to the preparation, the filing, and/or the submission of the clients' Federal and State tax returns.” Sexton requested OPR to limit the scope of its original request for information. OPR amended its request for information in an e-mail sent on April 12, 2013. Id. at ¶ 29. Sexton's Complaint in this case seeks to determine whether Defendants have jurisdiction or authority over him, such that they can compel such disclosures from him, under 31 U.S.C. § 330.

         Sexton seeks the following relief:

1) A declaratory judgment by the Court that Sexton is not a practitioner as defined by federal law and that Defendants lack statutory authority to enact, promulgate or enforce demands or authority over him and/or his employer Esquire as a result of Sexton's activities.
2) A declaratory judgment by the Court that Defendants and their agents are prohibited from regulating the providing of tax advice generally, except as specifically provided by statute and conferred upon them by Congress.
3) A permanent injunction prohibiting Defendants or their agents from seeking to enforce Section 10.20 of Circular 230 against him.

         B. Procedural History

         Plaintiffs James Sexton and Esquire Group (Plaintiffs) filed their Complaint against Defendant Hawkins on May 21, 2013. ECF No. 1.

         Defendant filed a Motion to Dismiss on August 16, 2013. ECF No. 20. The Court held oral argument on this Motion on September 18, 2014. ECF No. 37. The Court later denied the Motion. ECF No. 42. Defendant appealed this decision on December 15, 2014. ECF No. 46. The parties later voluntarily dismissed this appeal. ECF No. 71.

         Plaintiffs filed a Motion for Judgment on the Pleadings on November 9, 2015. ECF No. 56. Defendant filed a Motion for Summary Judgment on December 23, 2015. ECF No. 64.

         III. LEGAL STANDARD

         A. Judgment on the Pleadings

         Fed. R. Civ. P. 12 (c) provides that “After the pleadings are closed--but early enough not to delay trial--a party may move for judgment on the pleadings. “‘A judgment on the pleadings is properly granted when, taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled to judgment as a matter of law.'” United States v. Teng Jiao Zhou, 815 F.3d 639, 642 (9th Cir. 2016) (quoting Fajardo v. Cty. of L.A., 179 F.3d 698, 699 (9th Cir.1999)). “Judgment on the pleadings is properly granted when there is no issue ...


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