As tax professionals, CPAs and EAs operate under stringent ethical and legal requirements. Violations of judicial decrees, particularly permanent injunctions related to tax preparation, carry severe consequences, often resulting in findings of civil contempt and substantial monetary sanctions. The recent ruling in United States of America v. Kevin Hardy, 05-CV-3847 (KMW) (S.D.N.Y. October 28, 2025), provides a critical examination of the standards required to prove civil contempt when an individual violates a permanent injunction prohibiting future tax preparation activities.

Factual Background and Prior Restraint

The Defendant, Kevin Hardy, began operating a tax return preparation business in 1990 from a P.O. Box address in New York, New York. On April 15, 2005, the Government filed a civil complaint against Hardy, alleging he had fraudulently prepared federal income tax returns for customers by claiming a fabricated tax credit intended to provide reparations for past slavery and mistreatment of African-Americans.

To resolve the complaint, Hardy agreed to a Stipulation and Order of Settlement and Dismissal (the “Stipulation and Order”) on April 3, 2007, which the Court entered on April 16, 2007. Section 1(a) of this document permanently enjoined Defendant from “[a]cting as an income-tax return preparer, including, but not limited to, operating his federal income tax return preparation business”. The purpose of the Stipulation and Order was prominently outlined as preventing the Defendant from working as a tax preparer in the future due to his prior unlawful conduct involving the fabricated tax credit. Critically, the Court explicitly retained jurisdiction over any matters arising under the Stipulation and Order, including any failure by the Defendant to adhere to the requirements of the permanent injunctive relief.

The Government’s Motion for Contempt and Requested Sanctions

On July 24, 2024, the United States filed a motion seeking to hold Hardy in civil contempt, alleging that he had violated the 2007 permanent injunction by continuing to prepare federal income tax returns.

The Government sought several coercive sanctions:

Disgorgement of all fees the Defendant earned by preparing tax returns.
Disclosure of all of the Defendant’s tax-preparation customers, along with his financial and bank records, covering the period from April 16, 2007, to the present.
Fees and costs incurred by the Government in investigating and bringing the contempt motion.

Legal Standard for Establishing Civil Contempt

Courts retain the inherent power to enforce compliance with their lawful orders by holding violators in civil contempt (see Armstrong v. Guccione, 470 F.3d 89, 102 (2d Cir. 2006), citing Shillitani v. United States, 384 U.S. 364, 370 (1966)).

To prevail in a motion for civil contempt, the moving party must establish the following three elements:

The order that the alleged contemnor failed to comply with is clear and unambiguous.
The proof of noncompliance is clear and convincing. Proof is "clear and convincing" when the evidence demonstrates to a “reasonable certainty” that a violation occurred (Levin v. Tiber Holding Corp., 277 F.3d 243, 250 (2d Cir. 2002)).
The alleged contemnor has not diligently attempted to comply in a reasonable manner (Marcel Fashions Grp., Inc. v. Lucky Brand Dungarees, Inc., 779 F.3d 102, 111 (2d Cir. 2015)).

Crucially, the moving party is not required to show that the Defendant’s conduct was willful (Taggart v. Lorenzon, 587 U.S. 554, 561 (2019)).

Application of Law to the Facts

The Court analyzed each element of civil contempt based on the evidence presented by the Government and the Defendant’s own testimony at the evidentiary hearing held on September 10, 2025.

The Stipulation and Order Is Clear and Unambiguous

The Court found that the Stipulation and Order met the required standard, noting that an order is "clear and unambiguous" if it is “specific and definite enough to apprise those within its scope of the conduct that is being proscribed” or required (Nat’l Basketball Ass’n v. Design Mmgt. Consultants, Inc., 289 F. Supp. 2d 373, 377 (S.D.N.Y. 2003)). The order must leave “no uncertainty” in the minds of those addressed, who must be able to ascertain from the document precisely what acts are forbidden (King v. Allied Vision, Ltd., 65 F.3d 1051, 1058 (2d Cir. 1995)).

The Court affirmed the specific and definite nature of the language in Section 1(a), which permanently barred Hardy from acting as a tax preparer. The Court rejected Hardy’s argument that the "intent and spirit" of the order was only meant to address the slavery reparations issue, emphasizing that the document plainly stated its purpose was to prevent him from working as a tax preparer in the future. Furthermore, the fact that Hardy negotiated and consented to the order, represented by counsel, weighed against any claim of ambiguity (see Nunez v. New York City Dep’t of Corr., 758 F. Supp. 3d 190, 218 (S.D.N.Y. 2024)).

Proof of Noncompliance Is Clear and Convincing

The Court found that the Government had provided extensive, undisputed evidence that Hardy failed to comply with the injunction over the nearly two decades since its entry.

Evidence establishing noncompliance included:

Customer Testimony: Five interviewed taxpayers confirmed that Defendant Kevin Hardy prepared their federal income tax returns after April 16, 2007, and charged them fees ranging from $175 to $250.
Business Operations and Communication: Hardy communicated with customers using the email address hardykevin_@hotmail.com, confirming his availability to prepare their taxes.
Business Identity: Customers received returns with cover letters bearing headers for K & T Associates LLC, using P.O. Box 1707, New York, NY 10274. This P.O. Box was the same address Hardy used to operate his business in 2005 prior to the injunction.
Payment Records: Hardy requested payment via Venmo to the account “kevin-hardy-1”. Screenshots corroborated that this account received payments noted for "Taxes" or specific tax years (e.g., “2018 taxes”) years after the injunction was entered.
Defendant's Admissions: Hardy’s own testimony during the September 10, 2025, hearing established non-compliance. Hardy unequivocally admitted that he was operating an income tax preparation business in the years 2019, 2020, 2021, and 2022. He confirmed operational details, including accepting payments for services and the P.O. box used.

This evidence demonstrated, to a "reasonable certainty," that Hardy continued to act as a tax return preparer, thereby meeting the clear and convincing burden of proof.

Defendant Did Not Diligently Attempt to Comply

Reasonable diligence requires a party to “develop reasonably effective methods of compliance” (Zino Davidoff SA v. CVS Corp., 2008 WL 1775410, at *8 (S.D.N.Y. Apr. 17, 2008)). Courts assess whether a party has “substantially complied” or been “reasonably diligent and energetic in attempting to accomplish what was ordered” (Yurman Studio, Inc. v. Casteneda, 2009 WL 454275, at *2 (S.D.N.Y. Feb. 23, 2009); Medina v. Buther, 2019 WL 581270, at *25 (S.D.N.Y. Feb. 13, 2019)).

Given that Hardy continued to operate his tax preparation business and act as a preparer for more than 16 years following the Stipulation and Order, the Court determined that he ignored the judicial order and failed to exhibit any diligent attempt to comply in a reasonable manner.

Conclusion and Coercive Remedial Action

The Court GRANTED the Government’s motion and found Defendant Kevin Hardy in civil contempt for his persistent noncompliance with the April 2007 Stipulation and Order.

The Court deferred a ruling on the exact amount of disgorgement and specific sanctions, pending further action by the parties. However, the Court mandated a strict schedule for disclosure and initial payment to initiate the coercive remedy.

Specifically, the Court ordered that no later than November 10, 2025, the Defendant must provide the following, covering the time period from April 16, 2007, to the present:

A list of all tax-preparation customers and/or returns prepared since April 16, 2007, along with the corresponding fee charged for the preparation of each return.
All bank statements where Defendant and/or K & T Associates LLC is a signatory or holds a beneficial interest, Venmo transaction records, and all other relevant financial records necessary for the Government to verify that all fees have been disgorged.

Furthermore, by November 10, 2025, the Defendant must identify and disgorge all fees collected for tax preparation under the Preparer Tax Identification Number (PTIN) ending in -9531 since April 16, 2007, forwarding these funds to the United States.

The Court warned that Hardy’s failure to comply with this subsequent Order or the prior injunction may result in further sanctions.

Prepared with assistance from NotebookLM.