## Facts

- Clara Mann Judisch, an attorney and long-time federal income tax return preparer, used a standardized process that relied heavily on a mailed client questionnaire and limited direct contact.
- Congress enacted I.R.C. § 280A (effective for the years at issue), tightening requirements for home-office deductions, including exclusive and regular use as a principal place of business and a general limitation tied to income from the home-office activity.
- Judisch knew of § 280A’s requirements but did not revise her questionnaire to collect the information necessary to assess eligibility under § 280A.
- She routinely claimed home-office deductions on clients’ 1976 and 1977 returns, including situations involving little or no business income and expenses that were not allowable as business expenses.
- After audits and investigation, the IRS assessed 58 return-preparer penalties against Judisch under 26 U.S.C. § 6694(a) (negligent or intentional disregard of rules or regulations) and § 6694(b) (willful attempt to understate liability).
- Judisch sued under § 6694(c) to contest the penalties; by agreement, trial was limited to five returns (Wotring 1977; Roates 1976 and 1977; Jones 1976 and 1977).
- The government presented the only witnesses; Judisch did not testify or call witnesses, but introduced a 1980 Joint Congressional Resolution criticizing aspects of IRS enforcement relating to home-office determinations.
- The district court directed verdicts for Judisch on certain § 6694(b) penalties based on a narrow definition of “willful,” submitted the § 6694(a) counts to the jury, and the jury found for Judisch on all § 6694(a) counts.

## Issues

1. Whether “willful” under 26 U.S.C. § 6694(b) is limited to purposely disregarding information furnished by the taxpayer, or also includes deliberate disregard of the Internal Revenue Code and Treasury rules and regulations to understate liability.
2. Whether conduct supporting § 6694(a) liability may also support § 6694(b) liability, or whether the subsections are mutually exclusive.
3. Whether a 1980 Joint Congressional Resolution was admissible and probative on liability for penalties arising from returns prepared for 1976 and 1977.
4. Whether the directed verdict removing certain § 6694(b) penalties from the jury required a new trial on those penalties (including those associated with the Roates’ returns).

## Decision

- The Eleventh Circuit held that “willful” under § 6694(b) includes willful disregard of the Internal Revenue Code and Treasury rules and regulations intended to understate a client’s tax liability; it is not limited to disregarding taxpayer-supplied information.
- The court held that the same conduct may trigger penalties under both § 6694(a) and § 6694(b); the provisions are not mutually exclusive.
- The court concluded the 1980 Joint Resolution post-dated the relevant tax years and could not retroactively change governing standards or excuse conduct based on the law applicable when the returns were prepared.
- The court reversed the directed verdict on certain § 6694(b) penalties and remanded for further proceedings under the correct legal standard, while affirming the judgment in other respects (including the jury’s verdict on the § 6694(a) counts).

## Legal Principles

- A preparer is liable under 26 U.S.C. § 6694(a) for an understatement attributable to negligent or intentional disregard of Internal Revenue Code provisions, Treasury regulations, or other specified administrative guidance.
- “Willful” in 26 U.S.C. § 6694(b) includes deliberate disregard of known legal requirements to understate tax liability, not merely purposeful disregard of taxpayer-furnished information.
- Penalties under § 6694(a) and § 6694(b) may both apply to the same misconduct where the facts satisfy each subsection’s elements.
- Post-enactment congressional statements criticizing enforcement practices generally do not alter the substantive legal standards governing earlier tax years or negate proof that a preparer knew the requirements at the time of preparation.

## Conclusion

The Eleventh Circuit ruled that § 6694(b) reaches deliberate disregard of tax law to understate liability and that §§ 6694(a) and (b) can overlap, reversing directed verdicts on certain § 6694(b) penalties and remanding for retrial under the proper willfulness standard while otherwise affirming.


Judisch v. United States, 755 F.2d 823 (11th Cir. 1985)