United States District Court, E.D. California
FINDINGS AND RECOMMENDATIONS RECOMMENDING DENYING PETITIONER'S AMENDED PETITION TO QUASH SUMMONS (ECF Nos. 12, 13, 14, 16) OBJECTIONS DUE WITHIN FOURTEEN DAYS
STANLEY A. BOONE, Magistrate Judge.
Petitioner David Pontius filed a petition to quash Internal Revenue Service ("IRS") summonses on November 14, 2013. (ECF No. 1.) On November 19, 2013, the Court issued an order requiring Petitioner to properly serve and notice a hearing on the petition to quash. (ECF No. 2.) On December 6, 2013, Petitioner refiled the petition to quash and filed a notice of hearing. (ECF Nos. 3, 4.) On December 17, 2013, Petitioner filed a motion to amend his petition to quash and an amended petition was lodged with the Court. (ECF Nos. 5, 6.) On December 18, 2013, Respondent filed a motion to continue the hearing on the petition to quash. (ECF No. 7.) The motion to continue the hearing was granted; and the hearing on the petition to quash was set for February 19, 2014 at 10:00 a.m. before the undersigned. (ECF No. 8.)
On January 7, 2014, an order issued granting Petitioner's motion to amend his petition; and the lodged amended petition was filed. (ECF Nos. 9, 12.) Respondent filed a response to the motion to quash and a motion for summary judgment to enforce the I.R.S. summonses on January 8, 2014. (ECF No. 13.) On January 27, 2014, Petitioner filed a reply. The Court found the motion suitable for decision without a hearing and an order issued vacating the hearing on the motion. (ECF No. 15.) On January 31, 2014, Respondent filed a reply. (ECF No. 16.)
PETITION TO QUASH LEGAL STANDARD
The IRS has the authority "No examine any books, papers, records, or other data which may be relevant or material" to "ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability." 26 U.S.C. § 7602(a)(1). This includes the authority to issue summons to a person who has possession, custody, or care of books related to the tax liability. 26 U.S.C. § 7602(a)(2). In light of the vital public purpose which they serve, these grants of power are to be liberally construed. DeMasters v. Arend , 313 F.2d 79, 87 (9th Cir. 1963); see also United States v. Arthur Young & Co. , 465 U.S. 805, 814 (1984) (a section 7602 summons is a critical discovery tool in the investigative and enforcement functions of the IRS which allows the IRS to obtain items of even potential relevance to an ongoing investigation); Speck v. United States , 59 F.3d 106, 108 (9th Cir. 1995) (quoting Arthur Young & Co. , 465 U.S. at 816) ("Congress has granted the IRS expansive information-gathering authority.'").
A taxpayer identified in the summons served on a third party recordkeeper may seek to quash the summons and the IRS may seek to compel compliance with the summons. 26 U.S.C. § 7609(b)(2)(A). To defeat the petition to quash, the Commissioner must establish that 1) the investigation will be conducted for a legitimate purpose; 2) the material sought may be relevant to that purpose; 3) the material sought is not already within the Commissioner's possession; and 4) the IRS complied with the administrative steps required by the Internal Revenue Code. United States v. Powell , 379 U.S. 48, 57-58 (1964). "The government's burden is a slight one, and may be satisfied by a declaration from the investigating agent that the Powell requirements have been met." United States v. Dynavac, Inc. , 6 F.3d 1407, 1414 (9th Cir. 1993). Once the IRS meets its burden, the taxpayer then has a heavy burden to show there was an abuse of process or the lack of institutional good faith. Dynavac, Inc. , 6 F.3d at 1414. "Enforcement of a summons is generally a summary proceeding in which the taxpayer has few defenses." United States v. Derr , 968 F.2d 943, 945 (9th Cir. 1992).
Petitioner contends that the summonses were improperly served by the IRS without the proper authority to serve under 26 U.S.C. § 7608. (Am. Pet. to Quash I.R.S. Summons 1, 7-10,  ECF No. 12.) Petitioner argues that the specific authority to issue IRS summonses is under 26 U.S.C. §§ 7402(b) and 7604(a). (Id. at 5.) Petitioner states that the IRS is required to establish all the "appropriate process" under 26 U.S.C. §§ 7603 and 7613 before the district court can enforce the summonses. (Id. at 6.) Petitioner argues that Agent Valdez is not authorized by the statute to effect service. (Id. at 21.) Petitioner moves to have the subpoenas quashed for lack of proper service under 26 U.S.C. § 7608(a) and Federal Rule of Civil Procedure 12(b)(5). (Id. at 22.)
Respondent argues that the summonses satisfy the Powell requirements and should be enforced. (United States Mem. in Support of Opp. to Am. Pet. to Quash Two IRS Third Party Summones and Mot. for Summary Enforcement of the Summonses 4-8, ECF No. 13-1.) Respondent also argues that Agent Valdez is authorized to issue the summonses pursuant to the authority of 26 U.S.C. §§ 7602 and 7608, 26 C.F.R. § 301.7602-1 and IRS Delegation Order No. 25-1. (Id. at 8-11.) Respondent contends that ...