Opinion
CV F 05-00217 AWI DLB, (Document 1).
February 25, 2005
FINDINGS AND RECOMMENDATION TO DENY PLAINTIFF'S PETITION TO QUASH
INTRODUCTION
Petitioner Ronnie Green ("Petitioner"), proceeding pro se, seeks to quash summonses issued by the Internal Revenue Service ("IRS") to Bank One N.A, Washington Mutual Bank F.A., Crossland Mortgage Security, Wells Fargo Home Mortgage, Inc., Greenpoint Mortgage Funding, Inc., PNC Mortgage Corp. of America, Advanta Mortgage Corp. USA, Indymac Inc. (dba Loanworks), and the Pilot Corporation. Defendant United States of America ("Defendant") filed its opposition to the petition on January 21, 2005, and seeks denial of the petition. The Court has determined that the matter is appropriate for decision without oral arguments pursuant to Local Rule 78-230(h).
BACKGROUND
According to Defendant, the IRS seeks information and documents for its investigation to determine Petitioner's federal income tax liabilities for the tax years ending December 31, 1998 through December 31, 2003. Declaration of Revenue Agent Danny Gathright ("Gathright Dec."), at ¶ 2. Petitioner did not pay any taxes during this time period. Gathright Dec., at ¶ 2.
In furtherance of this investigation, Agent Gathright issued nine summonses respectively to Bank One N.A, Washington Mutual Bank F.A., Crossland Mortgage Security, Wells Fargo Home Mortgage, Inc., Greenpoint Mortgage Funding, Inc., PNC Mortgage Corp. of America, Advanta Mortgage Corp. USA, Indymac Inc. (dba Loanworks), and the Pilot Corporation. Gathright Dec., at ¶ 3. The summonses directed that a representative of these entities appear before Agent Gathright to give testimony and produce certain loan applications, financial statements, tax returns, correspondence, and other documents relevant to the IRS' investigation of Petitioner. Gathright Dec., at ¶ 3. Pursuant to 26 U.S.C. § 7603, Agent Gathright served the summonses by certified mail on November 8, 2004. Gathright Dec., at ¶ 4. Pursuant to 26 U.S.C. § 7609, Agent Gathright gave notice of the summonses to Petitioner by certified mail on November 8, 2004. Gathright Dec., at ¶ 4. None of the entities have provided the IRS with any of the information requested in the summonses. Gathright Dec., at ¶ 6.
Petitioner filed the instant petition to quash on November 24, 2004. Petitioner named each of the nine entities that received summonses as Defendants, along with Agent Gathright and Group Manager Pat Brown. Petitioner did not attach a certificate of service to his petition. Petitioner objects to the summonses based on lack of subject matter and personal jurisdiction, improper venue, insufficiency of service of process, failure to state a claim for which relief may be granted, and failure to "carry the seal of any court." Petitioner also argues that the summonses fail to meet the requirements set forth in United States v. Powell, 379 U.S. 48 (1964).
On January 21, 2005, Defendant filed its motion in opposition to the petition. Defendant argues that the petition should be denied because (1) Petitioner failed to serve the United States; and (2) Defendant has made a prima facie showing under Powell.
Petitioner filed an untimely response on February 24, 2005.
DISCUSSION
A. Proper Defendant and Proper Service
Defendant first argues that the United States is the sole proper defendant in this petition to quash, and that Petitioner's failure to serve the United States pursuant to Federal Rule of Civil Procedure 4(i) requires dismissal of the petition.
Defendant correctly argues that the proper defendant in this action is the United States. McTaggart v. United States, 570 F.Supp.547, 551 (E.D.Mich. 1983) (service of petition to quash is to be made upon the United States). It is well settled that a suit against IRS employees in their official capacity is essentially a suit against the United States. Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985). Here, Petitioner named each of the nine entities that received summonses, along with Agent Gathright and Group Manager Pat Brown. He failed to name the United States.
Accordingly, Petitioner was required to serve the United States in accordance with Federal Rule of Civil Procedure 4(i). Under Rule 4(i), proper service upon the United States is made by serving a copy of the complaint to both the United States Attorney for the applicable district and the United States Attorney General. Petitioner did not attach a certificate of service to his petition or file an affidavit regarding service. Consistent with this, Defendant states that neither the United States Attorney for the Eastern District of California nor the United States Attorney General was served with the petition. Gathright Dec., ¶ 8. Although this alone would be a basis to deny the petition, the petition can also be denied on the grounds discussed below.
B. Defendant's Prima Facie Case
Defendant contends that it has established a prima facie case for denial under United States v. Powell, 379 U.S. 48 (1964).
To obtain enforcement of a summons, the United States must first establish its "good faith" by showing that the summons: (1) is issued for a legitimate purpose; (2) seeks information relevant to that purpose; (3) seeks information that is not already within the IRS' possession; and (4) satisfies all administrative steps required by the United States Code. United States v. Powell, 379 U.S. at 57-58; Fortney v. United States, 59 F.3d 117, 119 (9th Cir. 1995). The government's burden is "a slight one" and typically is satisfied by the introduction of the sworn declaration of the revenue agent who issued the summons that the Powell requirements have been met. Fortney, 59 F.3d at 120 (citations omitted). Once a prima facie case is made, a "heavy" burden is placed on the taxpayer to show an "abuse of process" or "the lack of institutional good faith." Id. (citations omitted).
1. Legitimate Purpose
The summonses in question were issued pursuant to 26 U.S.C. § 7602, which authorizes the issuance of summonses for "determining the liability of any person for any internal revenue tax . . ." In this case, Agent Gathright issued the summonses in furtherance of his investigation into Petitioner's income tax liabilities for the tax years ending December 31, 1998 through December 31, 2003, a period during which Petitioner did not file any tax returns. Gathright Dec., at ¶ 2, 3. Accordingly, the purpose of the summonses was legitimate.
2. Relevancy of Information and Documents Sought
26 U.S.C. § 7602(a)(1) authorizes the IRS "[t]o examine any books, papers, records, or other data which may be relevant or material" to "ascertaining the correctness of any return, . . . [or] determining the liability of any person for any internal revenue tax." The relevance test is met if the requested material "might have thrown light upon the correctness of the return."David H. Tedder Assoc., Inc. v. United States, 77 F.3d 1166, 1169 (9th Cir. 1996) (citing United States v. Arthur Young Co., 465 U.S. 805, 813-815 (1984)). The IRS must also have a "realistic expectation rather than an idle hope that something might be discovered" from the requested information. Id. (citing Arthur Young Co., 465 U.S. at 813-814, n. 11)).
Here, the summonses requested certain loan applications, financial statements, tax returns, loan and credit files, correspondence, and a history of disbursements and repayments for any loan and/or credit line accounts. Gathright Dec., ¶ 3. These documents will certainly assist the IRS in its investigation of Petitioner's tax liabilities, and the IRS has a realistic expectation that useful information will be discovered from the requested documents and information. Gathright Dec., ¶¶ 2, 3 and 7. The relevancy test is therefore met.
3. Location of Documents
None of the summoned entities have responded to the summonses, and therefore the requested information and documents are not already in the possession of the IRS. Gathright Dec., at ¶ 6.
4. Administrative Steps
The procedures the IRS must follow in issuing third-party summonses pursuant to Section 7602 are set forth in Sections 7603 and 7609. Section 7603(b)(1) allows the IRS to serve summonses directed at third-party recordkeepers by certified mail. Third-party record keepers are defined generally as attorneys, accountants, banks, trusts companies, credit unions, savings and loan institutions, credit reporting agencies, issuers of credit cards, and brokers in stocks or other securities. 26 U.S.C. § 7603(b)(2). Additionally, Section 7609(a) provides that notice of a third-party summons must be given to any person identified in the description of the records contained in the summons. Section 7609(a)(2) further provides that the notice is sufficient if it is "mailed by certified or registered mail to the last known address of such person. . . ."
Here, Agent Gathright declares that he served notice to Petitioner as required by Section 7609(a) by certified mail on November 8, 2004, and the copies of the Service of Summons, Notice and Recordkeeper Certificates and Certified Mail Receipts attached to his declaration as Exhibits A through I support this statement. Gathright Dec., at ¶ 4; Exhibits A-I, attached to Gathright Dec.
As to the requirements for service to the third-party recordkeepers, Defendant asserts, and this Court agrees, that Bank One N.A, Washington Mutual Bank F.A., Crossland Mortgage Security, Wells Fargo Home Mortgage, Inc., Greenpoint Mortgage Funding, Inc., PNC Mortgage Corp. of America, Advanta Mortgage Corp. USA, and Indymac Inc. (dba Loanworks) all qualify as third-party recordkeepers. As such, Agent Gathright satisfied the requirements of Section 7603(b)(1) by serving the summons by certified mail on November 8, 2004. Gathright Dec., at ¶ 4; Exhibits A-I, attached to Gathright Dec.
Although Defendant also served the Pilot Corporation by certified mail, Defendant raises an issue about whether the Pilot Corporation qualifies as a third-party recordkeeper under Section 7603(b)(2). Defendant states, "[t]o the extent that it can be construed that the IRS was required to personally serve the Pilot Corporation [footnote omitted], Petitioner has no standing to challenge the service of the summons." Opposition to Petition, at 6. However, as Defendant points out, Petitioner has not made this specific allegation. If Defendant is correct that personal service was required, a determination which this Court does not have sufficient information to make, Petitioner does not likely have standing to challenge the error. See eg. Wright v. United States, 964 F.Supp. 336, 338 (M.D. Fla. 1997) (holding that the party seeking to quash an IRS summons lacks standing to assert objections to a summons that are personal to the summoned party); see also King v. United States, 684 F.Supp. 1038, 1041 (D. Neb. 1987). In any event, to obtain enforcement of a summons, the IRS need only establish that it has substantially complied with the requirements of Section 7603, and minor violations will be excused where the IRS acts in good faith and there is no prejudice to the taxpayer. Sylvestre v. United States, 978 F.2d 25, 27-28 (1st Cir. 1992); United States v. Payne, 648 F.2d 361, 363 (5th Cir. 1981). There is no indication that the Defendant has not acted in good faith or that Petitioner has suffered prejudice. Accordingly, all four prongs of thePowell test have been met and the Defendant has established a prima facie case in favor of denying the petition.
C. Petitioner's Showing
The burden now shifts to Petitioner to show an "abuse of process" or "the lack of institutional good faith." Fortney, 59 F.3d at 120 (citations omitted). This is a "heavy burden" and must include allegations of specific facts and evidence to support his claims. Id.; Liberty Financial Services v. United States, 778 F.2d 1390, 1392 (9th Cir. 1985) (citations omitted).
In his petition, Petitioner makes numerous meritless arguments. He argues that Section 7602 is limited to the collection of gasoline taxes, but this argument is simply incorrect. As discussed earlier, Section 7602(a)(1) authorizes the IRS "[t]o examine any books, papers, records, or other data which may be relevant or material" to "ascertaining the correctness of any return, . . . [or] determining the liability of any person for any internal revenue tax," and is in no way limited to the collection of gasoline taxes.
Petitioner next asserts that the summonses fail the Powell test because they fail to allege that the information and documents sought are not already in the possession of the IRS. Contrary to Petitioner's assertion, there is no requirement that such an allegation be made on the face of the summons.
Third, Petitioner argues that the summonses are procedurally inadequate because thirdparty recordkeepers are not qualified to receive summonses by mail and must be personally served instead. However, Section 7603(b) specifically allows third-party recordkeepers to be served by certified mail. Defendant's concerns regarding Pilot Corporation are discussed above and do not change this conclusion.
Finally, Petitioner contends that enforcement of the summonses would be an abuse of the court's process. He offers no evidence in support of his argument and his contention is without merit.
Petitioner has failed to carry his "heavy burden" of rebutting the Defendant's prima facie case. Accordingly, the petition to quash should be denied.
RECOMMENDATION
The Court recommends that the petition to quash be DENIED.
This Findings and Recommendation is submitted to the Honorable Anthony W. Ishii, United States District Court Judge, pursuant to the provisions of 28 U.S.C. section 636 (b)(1)(B) and Rule 72-304 of the Local Rules of Practice for the United States District Court, Eastern District of California. Within thirty (30) days after being served with a copy, any party may file written objections with the court and serve a copy on all parties. Such a document should be captioned "Objections to Magistrate Judge's Findings and Recommendations." The Court will then review the Magistrate Judge's ruling pursuant to 28 U.S.C. § 636 (b)(1)(C). The parties are advised that failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).
IT IS SO ORDERED.