Illya Bond v. United States

The United States appeals from a decision by the district court limiting penalties assessed by the Internal Revenue Service against Iliya Bond (“Bond”). The district court determined that penalties for the sale of abusive tax shelters imposed under 26 U.S.C. § 6700 are to be calculated as a percentage of the gross income, not based on the number of individual sales transactions. We affirm.

FACTS AND PROCEEDING BELOW

During 1982, 1983, and 1984, Bond was Vice President and Secretary of H & L Schwartz, Inc. (“Schwartz”). Schwartz operated two divisions, American Educational Leasing (“AEL”) and American Videogame Leasing (“AVL”). Investors would lease audio cassette masters and videogame masters from the respective divisions.

The Internal Revenue Service (“IRS”) held that the investment programs in AEL and AVL were abusive tax shelters within the meaning of 26 U.S.C. § 6700 . Bond organized and participated in the sale of interests in the tax shelters, in violation of section 6700(a)(1)(A) and (B). Additionally, Bond prepared statements that misrepresented the value of the leased masters, in violation of section 6700(a)(2)(B). In the years at issue, Bond marketed 1106 leases to…