The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court
Order Granting Respondent's Motion to Dismiss
Movants, Viewtech, Inc. and Jung Kwak, have filed a motion to quash an Internal Revenue Service ("IRS") summons dated June 25, 2009. The third-party summons was issued in furtherance of an IRS investigation of Movant Jung Kwak's ability to pay previously assessed federal income tax liability totaling over $3 million. The summons calls for production by Wells Fargo Bank in Oceanside, California, of the bank account records of Viewtech, Inc. for the time period January 1, 2009 through May 31, 2009.
The government has moved to dismiss this action, arguing Movants are not parties entitled to notice of the summons under 26 U.S.C. § 7609(c)(2)(D)(i), and thus lack standing to move to quash the summons. Movants have filed an opposition to the government's motion to dismiss.
The Court finds the motions appropriate for submission on the papers and without oral argument. For the reasons set forth herein, the Court GRANTS the government's motion to dismiss.
Revenue Officer Susan LaRoche is conducting an investigation into Jung Kwak's ability to satisfy an outstanding federal income tax liability of over $3 million. [Declaration of Revenue Officer LaRoche in Support of Motion to Dismiss ("LaRoche Decl."), ¶ 2.] On June 25, 2009, Revenue Officer LaRoche issued a summons to Wells Fargo Bank, for records and testimony regarding a specified account held in the name of Petitioner Viewtech, Inc. [Id., ¶ 3; Exhibit A.] The summons called for production of all records regarding the specified account for the time period January 1, 2009 through May 31, 2009. Revenue Officer LaRoche served the summons upon Wells Fargo Bank on the date it was issued.
On July 24, 2009, the account holder, Viewtech, Inc., and the assessed taxpayer, Jung Kwak, filed a motion to quash the summons pursuant to 26 U.S.C. § 7602, et seq.*fn1 On September 24, 2009, the government filed a motion to dismiss this action, arguing Petitioners lack standing to move to quash the summons. Petitioners have filed an opposition to the motion.
The government moves to dismiss the petition under Fed. R. Civ. P. 12(b)(1) for lack of jurisdiction. The United States is immune from suit unless there is a valid waiver of sovereign immunity. Valdez v. United States, 56 F.3d 1177, 1179 (9th Cir. 1995). The only statute providing the court with jurisdiction to quash an IRS summons is 26 U.S.C. § 7609(b). Section 7609(b), therefore, is the exclusive method by which a taxpayer can challenge a summons issued by the IRS to a third-party recordkeeper. Ponsford, 771 F.2d 1305, 1309 (9th Cir. 1985).
Only those persons entitled to notice of the summons pursuant to § 7609 have standing to move to quash the summons. 28 U.S.C. § 7609(b)(2)(A); Ip v. United States, 205 F.3d 1168, 1170 (9th Cir. 2000). Although the IRS is required to give notice of the issuance of a third-party summons in many circumstances, it is not required to give notice where the third-party summons is issued "in aid of the collection of -- (i) an assessment made . . . against the person with respect to whose liability the summons is issued . . . ." 26 U.S.C. § 7609(c)(2)(D).
In this case, there is no dispute the summons was issued to a third party in aid of collection of an IRS assessment of federal tax liability against Jung Kwak. Thus, under § 7609(c)(2)(D), Mr. Kwak was not entitled to notice of the summons and he lacks standing to move to quash the summons.
The IRS has not made an assessment of tax liability against Viewtech, Inc. In its motion to dismiss, however, the IRS argues it has evidence in its possession suggesting Mr. Kwak has a "recognizable legal interest in the records summonsed." Ip, 205 F.3d at 1176. In Ip, the Ninth Circuit addressed the question of when an individual has standing to challenge an IRS summons concerning his own records in connection with collecting a tax assessment from another individual or entity. The Ninth Circuit noted Congress's desire to balance the IRS's need to expeditiously obtain information in furtherance of its enforcement of an assessed tax liability with the right of certain individuals to receive notice before a third-party produces private documents in response to an IRS summons. Id. at 1172-73. The Court noted that "Congress also recognized that to give notice to a person who is a fiduciary or transferee of an assessed taxpayer gives rise to a heightened risk of tax fraud." Id. at 1173 (citing § 7609(c)(2)(D)(ii)). The Court concluded that the "assessed taxpayer" notice exception applied only where the summonsed party "had recognizable legal interests in the accounts summonsed or ... had fiduciary relationships with the person against whom an assessment was made." Id. at 1174.
Here, the government argues Viewtech has a significant legal relationship with Mr. Kwak, sufficient to bring the company within the exception-to-notice provisions of § 7609(c)(2)(D). In particular, the government has provided the declaration of Revenue Officer LaRoche establishing the following:
* In 2007, Mr. Kwak was the 100% shareholder of Viewtech and received $12,645,377 in ordinary income, $145,181 in interest income, $45,473 in expenses, and $1,343,461 in ...