## Facts

- Berger was a tax attorney who worked with employee benefit plans.
- In 1987 and 1988, Berger prepared IRS determination applications (Forms 5300) for 23 corporate employers seeking confirmation that their employee-benefit plans qualified for favorable tax treatment under the Internal Revenue Code.
- During the 1980s, Congress changed plan-qualification rules. To obtain retroactive qualified status for earlier years (including 1984 and 1985), employers generally had to modify their plans by June 30, 1986.
- The Forms 5300 submitted for Berger’s clients represented that required plan modifications had been made.
- The IRS concluded the applications were supported by backdated plan documents and related materials that falsely indicated compliance with the June 30, 1986 deadline.
- Based on that conclusion, the IRS assessed civil penalties against Berger under 26 U.S.C. § 6701 for aiding and abetting understatements of tax liability connected to the allegedly false submissions.
- The IRS initially assessed $700,000, calculating the amount by imposing a $10,000 penalty for each “affected” tax year associated with each allegedly false application (i.e., multiplying penalties based on downstream tax-year effects).
- Berger paid 15% of the assessed penalty and filed an administrative refund claim. When the IRS took no action, Berger filed a refund suit against the United States.
- After the lawsuit began, the IRS reduced the assessment to $540,000 after determining that no penalty was warranted as to certain clients.
- Without conceding that any Form 5300 (or supporting materials) was false, Berger moved for partial summary judgment challenging the government’s interpretation of § 6701 and its penalty-stacking method.

## Issues

1. Under 26 U.S.C. § 6701, may the IRS assess separate penalties for each tax year allegedly affected by a single false or misleading document, or is the penalty tied to the act of aiding in the preparation or presentation of that document?
2. Does § 6701 permit the government to compute a $10,000 penalty by multiplying it across multiple “affected” tax years tied to the same Form 5300 submission?

## Decision

- The court granted Berger’s motion for partial summary judgment on the penalty-calculation issue.
- The court rejected the IRS’s approach of multiplying § 6701 penalties by each “affected” tax year associated with a single allegedly false Form 5300 submission.
- The court limited the government’s penalty theory to the conduct covered by § 6701—aid or assistance with the preparation or presentation of a false or misleading return, affidavit, claim, or other document—rather than downstream effects across multiple tax years.
- The ruling addressed the statutory scope of penalty computation and did not resolve disputed factual questions about whether Berger knowingly participated in creating or presenting false materials.

## Legal Principles

- 26 U.S.C. § 6701 imposes a civil penalty on a person who knowingly aids or assists in, procures, or advises with respect to, the preparation or presentation of a return, affidavit, claim, or other document, knowing it will be used in connection with a material matter under the internal revenue laws and knowing it would result in an understatement of another person’s tax liability if used as intended.
- For purposes of computing the penalty in this context, the relevant unit of misconduct is the knowing assistance with the preparation or presentation of the false or misleading document, not each later tax year whose tax liability is allegedly impacted by that document.
- The government may not expand § 6701’s fixed-amount penalty structure by stacking separate penalties solely because one document is said to affect multiple tax years.

## Conclusion

In Berger v. United States, 1997 WL 375319 (1997), the district court held that § 6701 penalties could not be multiplied by counting each “affected” tax year tied to a single allegedly false Form 5300; instead, the penalty must be based on the act of knowingly aiding in the preparation or presentation of the false or misleading document itself, leaving factual disputes about falsity and knowledge for later resolution.
