The IRS has been ordered to pay more than $61,000 in attorneys’ fees to a disbarred South Carolina lawyer who operates a tax advisory firm that caters to American expats.
“They gave us every dime we asked for,” said James Sexton’s attorney, Desa Ballard of Ballard & Watson in West Columbia. She had argued that Sexton was entitled to fees because the IRS wrongly launched an investigation against him.
Ballard also represented Sexton in the disciplinary action that led to his disbarment in South Carolina and suspension from practicing before the IRS in 2008, about three years after he pleaded guilty to four counts of mail fraud and one count of conspiracy to commit money laundering.
As part of the plea deal, Sexton was sentenced to 21 months in prison—he also agreed to cooperate with prosecutors and testify against his co-defendant father, who quickly followed in his son’s footsteps and pleaded guilty.
In the wake of his disbarment and suspension, Sexton continued to offer tax advisory services as CEO of the Esquire Group, which he founded in 2005, according to the company’s website. The site, which describes Sexton as a pilot, “international entrepreneur,” and “self-confessed perfectionist,” states that the Esquire Group has offices in Austria, Germany, the United Arab Emirates and the U.S.
“From his base in Dubai, he regularly travels throughout the Middle East, Europe, and the Americas meeting with clients, speaking, and overseeing Esquire Group’s global operations,” the site says. “In his role as advisor, his primary focus is on advanced tax planning strategies for high-net worth and corporate clients, specializing in corporate structuring, expatriation, wealth structuring, and U.S. tax compliance.”
The IRS’s Office of Professional Responsibility began investigating Sexton in 2012, when a former client of the Esquire Group complained to the OPR after finding out about Sexton’s disbarment. The OPR sought to determine whether Sexton was violating the terms of his suspension from practicing before the IRS.
Sexton responded to the OPR’s probe by filing a complaint in federal court in Nevada, where he was living at the time. He asked a judge to determine whether the IRS and OPR had jurisdiction or authority over him.
In 2017, U.S. District Judge Richard Boulware of Las Vegas sent ripples through the tax world when he ruled in Sexton’s favor. Boulware rejected the government’s argument that Sexton was barred from offering written advice to clients as part of his suspension and concluded that tax-return preparers are not under the IRS’s thumb.
Boulware based his ruling on Loving v. IRS, a 2014 decision from the U.S. Court of Appeals for the District of Columbia, which held that the IRS lacked authority over those who are not “representatives of persons before the” IRS.
The Loving court also found that “it would be quite wrong to say that a tax-return preparer ‘represents’ the taxpayer in any meaningful legal sense. In short, the statute’s use of the term ‘representative’ excludes tax-return preparers.”
In his motion for attorneys’ fees, Sexton asserted that “OPR’s attempts to investigate and regulate him were not substantially justified under any statute or federal regulation.” He added that a “reasonable litigation position does not establish substantial justification in the face of a clearly unjustified underlying action.”
Sexton and Ballard argued that the government stubbornly moved forward with its case, even after the Loving decision was affirmed on appeal. In Loving, the government was ordered to pay nearly $260,000 in attorneys’ fees, because the court concluded that the IRS’s litigation position “was not substantially justified.”
Boulware agreed. He used Jan. 18, 2013—the date that the trial court issued its order in Loving—as the starting point for calculating fees and costs in Sexton’s case. In a June 12 order, Boulware awarded Sexton $61,479.
“We see this as validation of our position that the IRS’s actions against Mr. Sexton were inappropriate,” Ballard said. “[Sexton] is thrilled. It cost him more to litigate this than was awarded. But he still sees this as a validation.”
The IRS’s attorney in the case, Carl Hankla of Washington, referred an interview request to a Department of Justice spokesman, who declined to comment.
“I think they [the IRS and OPR] were very surprised by the rulings in this action,” Ballard said. “I don’t know whether it [these kinds of investigations] will stop, but I certainly hope they will pay attention to it.”
Follow Phillip Bantz on Twitter @SCLWBantz