United States District Court, N.D. California
ORDER GRANTING PETITIONER UNITED STATES OF AMERICA'S PETITION TO ENFORCE IRS SUMMONS Re: Dkt. Nos. 1, 17, 21, 33, 36, 44, 50
JON S. TIGAR, District Judge.
Before the Court is the United States' Verified Petition to Enforce Internal Revenue Service Summons ("the Petition") against Respondent Sigurd Anderson. The Court will grant the petition.
The Petition arises from an Internal Revenue Service ("IRS") investigation being prosecuted by Revenue Agent Sarah Ho ("Agent Ho"). ECF No. 1 at ¶ 4. The investigation concerns Respondent's tax liabilities and investment activities for the years of 2009 and 2010. Id . On December 17, 2013, Agent Ho issued a summons for documents and testimony related to the alleged tax liabilities. Id. at ¶ 5; ECF No. 1-2. Pursuant to the summons, IRS officials including Agent Ho interviewed Respondent on January 14, 2014. Respondent refused to answer a majority of the questions posed to him, and did not supply any of the requested documents, claiming various grounds of privilege. Id. at 9-10.
Seeking a court order compelling Respondent's cooperation with the summons, the IRS filed the instant Petition on April 25, 2014. ECF No. 1. On May 23, 2014, this Court found that the Government had established its prima facie case and ordered Respondent to show cause why he should not be compelled to produce the requested documents and testimony. ECF No. 9. The parties subsequently submitted briefing. ECF Nos. 1, 17, 21, 33, 36, 44, 50. The Government's briefing included a supplemental reply, which Respondent thereafter moved to strike, in part. ECF Nos. 36, 44.
II. JURISDICTION AND LEGAL STANDARD
The IRS has authority to examine books and witnesses pursuant to a summons under 26 U.S.C. § 7602(a). "If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, records, or other data, the United States district court for the district in which such person resides or is found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data." 26 U.S.C. § 7604.
The specific legal procedure governing the court's inquiry is well-established. See United States v. Powell, 379 U.S. 48 (1964); United States v. Clarke, 134 S.Ct. 2361 (2014). First, the United States must outline its prima facie case. See Crystal v. United States, 172 F.3d 1141 (9th Cir. 1999). To do so, the United States must show that "1) the investigation will be conducted for a legitimate purpose 2) the material being sought is relevant to that purpose 3) the information sought is not already in the IRS's possession and 4) the IRS complied with all the administrative steps required by the Internal Revenue Code." Id. at 1143-1144. The statute is enforced in the context of the Government's legitimate interest in collecting taxation revenue; "[t]he burden is minimal because the statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted." Id. at 1144 (internal quotation omitted). "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 11407, 1414 (9th Cir. 1993).
Once the Government has succeeded in carrying its initial burden, the burden shifts to the Respondent. Crystal 172 F.3d at 1144. "[T]hose opposing enforcement of a summons... bear the burden to disprove the actual existence of a valid civil tax determination or collection purpose by the Service... this burden is a heavy one." Id. at 1144 (internal quotation omitted). Established grounds for challenging the summons include demonstrating "failure to satisfy the Powell requirements." United States v. Jose, 131 F.3d 1325, 1328 (9th Cir. 1997) (en banc). Abuse of process, such as bad faith use of the procedure to harass or pressure the taxpayer regarding other disputes, is also recognized as grounds to invalidate the summons. Powell, 379 U.S. at 58. The Government also may not seek enforcement of a summons when it has already decided to recommend the matter for prosecution. See United States v. LaSalle National Bank, 437 U.S. 298, 314 (1978). "[T]he dispositive question in each case is whether the Service is pursuing the authorized purposes in good faith." Crystal, 172 F.3d at 1144-1145 (internal quotation omitted).
This Court previously found that the Government had established a prima facie case under Powell based upon its initial Petition and accompanying Declaration. ECF No. 9 at 1. The Government has demonstrated through Agent Ho's declarations and the supporting documents that the investigation's purpose is to seek Respondent's records regarding tax liabilities and foreign banking and investment activities. ECF No. 1 at ¶ 4. The declarations of Agent Ho and the supporting documents establish that the material sought is indeed relevant to the investigation's purpose. ECF No. 1 at ¶ 5, 6, and 13. The declarations assert that the records presently sought are not currently in the possession of the Government. ECF No. 1 at ¶ 7. Finally, the Government asserts that it has complied with all administrative steps required, including proper notice and summons. ECF No. 1 ¶ 8-12.
Because the Government has carried its initial burden and established a prima facie case, the burden shifts to Respondent to rebut the Government's assertions. Crystal, 172 F.3d at 1144.
A. Challenges to the Government's Powell Prima Facie Case
Direct, factual challenges to one of the four prongs established under the Powell line of cases are a well-recognized method for demonstrating that the Government is not justified in requesting that the Court enforce its summons. Action Recycling at 1142-1145. "The taxpayer must allege specific facts and evidence to support his allegations' of bad faith or improper purpose." Jose, ...