Opinion
Civil No. 03-00575 HG-KSC.
April 19, 2004
The instant case involves an Internal Revenue Service ("IRS") summons issued in the course of the tax examination of two individuals, Shawn D.T. Kajiyama and Susan L. Kajiyama. The summons, issued to and served on the Bank of Hawaii, sought records related to the bank account of Petitioner Asia Pacific Mutual Insurance Company, Ltd. ("Asia Pacific"). On October 22, 2003, Asia Pacific filed a Petition to Quash Summons, contending that the summons sought irrelevant documents and was overbroad. On January 9, 2004, the United States filed a Response and Opposition to Petition to Quash Summons, and on January 20, 2004, Petitioner filed a Reply. On January 29, 2004, Magistrate Judge Chang held a hearing on Asia Pacific's petition to quash the summons. Based on his review of the parties' pleadings and oral arguments, the Magistrate Judge found that the summons in question met the requirements established in United States v. Powell, 379 U.S. 48 (1964), and that Asia Pacific had failed to show that the summons was issued in bad faith or as an abuse of process. On February 13, 2004, the Magistrate Judge issued a written report recommending that the petition to quash the summons be denied.
On February 12, 2004, Petitioner Asia Pacific filed an Objection to Magistrate Judge's Disposition and Request for a De Novo Hearing Before District Court Judge.
Having considered the papers submitted, the record in this case, and the applicable law, the Court DENIES Petitioner's Request for a De Novo Hearing and ADOPTS the Magistrate Judge's Recommendation Filed February 13, 2004 as the opinion and order of this Court.
STANDARD OF REVIEW
With respect to motions to enforce, modify, or quash an IRS summons issued pursuant to 26 U.S.C. § 7602, magistrate judges may not issue final orders. See 26 U.S.C. § 7402(b); see also United States v. First National Bank of Atlanta, 628 F.2d 871, 873 (5th Cir. 1980). The district court may, however, refer the matter to a magistrate judge to conduct an evidentiary hearing and submit proposed findings of fact and a recommended disposition. See 28 U.S.C. § 636(b)(1).
If a party to the proceedings objects to the magistrate judge's findings or recommendations, the district court must review de novo those portions to which objection is made. See United States v. Raddatz, 447 U.S. 667, 673 (1980); Fed.R.Civ.P. 72(b). The district court may accept, reject, or modify, in whole or in part, the findings and recommendations made by the magistrate judge. Raddatz, 447 U.S. at 673-74.
De novo review means the district court must consider the matter anew, as if it had not been heard before and as if no decision previously had been rendered. See Ness v. Commissioner, 954 F.2d 1495, 1497 (9th Cir. 1992). The district court must arrive at its own independent conclusion about those portions to which objections are made, but a de novo hearing is not required. United States v. Remsing, 874 F.2d 614, 617-18 (9th Cir. 1989).
ANALYSIS
In the instant motion, Petitioner Asia Pacific seeks to quash an Internal Revenue Service ("IRS") summons for production of the Bank of Hawaii's records related to Petitioner's account. The Court has reviewed the parties' original briefs, Petitioner's objections, and the affidavits of IRS agent Russell Bain and Lindsay D. Barrett, CEO and Chairman of Asia Pacific, and has listened to a recording of the January 29, 2004 hearing before Magistrate Judge Chang. The Court has come to an independent decision about Asia Pacific's petition to quash, and there is no need to hold another hearing on the matter.Petitioner's Objection to the Magistrate Judge's Recommendation
In order to obtain enforcement of a summons, the IRS 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 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. 48, 57-58 (1964). 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 establishing that the Powell requirements have been met.Fortney v. United States, 59 F.3d 117, 120 (9th Cir. 1995). Once a prima facie case is made, a "heavy" burden is placed on the taxpayer to show an abuse of process or lack of good faith. United States v. Dynavac, Inc., 6 F.3d 1407, 1414 (9th Cir. 1993).
The IRS has established that the summons in question meets the four requirements set forth in Powell. First, the declaration submitted by the investigating IRS agent established that the summons was issued for a legitimate purpose — namely, as part of the IRS's tax examination. See 26 U.S.C. § 7602(b). Second, the Court is satisfied that the information sought through the summons is relevant to the tax examination, especially as the transactions occurring through Petitioner's bank account could help the IRS determine whether the Kajiyamas have sheltered income offshore in order to avoid paying taxes. Third, the IRS agent's declaration affirmatively establishes that the summons requests documents not already within the IRS's possession. Lastly, the Court finds that all administrative requirements have been met with regard to the summons. Although the IRS failed to send notice to Petitioner in a timely fashion, Petitioner has suffered no harm or prejudice from this minor procedural violation, as evidenced by Petitioner's timely filing of its petition to quash the summons.
The IRS has therefore made its prima facie case. Petitioner, however, has failed to show that the summons was issued in bad faith or as an abuse of process. Accordingly, the Court agrees with the Magistrate Judge's recommendation that the petition to quash the summons should be denied.
Petitioner's only objection to the Magistrate Judge's recommendation is that, in determining whether Petitioner's bank records were relevant to the investigation, he relied on an inaccurate declaration of the IRS agent.
In determining the relevance of Petitioner's bank records to the investigation, the Magistrate Judge had before him the following statements by IRS agent Russell Bain: (1) that Shawn Kajiyama used a company called the Colony Mortgage Company ("Colony Mortgage") as a vehicle to repatriate money he had sheltered offshore; (2) that among the entities to which Colony Mortgage transferred funds included Petitioner Asia Pacific; and (3) that the connection between Asia Pacific and Colony Mortgage is further evidenced by the fact that the two share a common postal address.
Petitioner contends that the Magistrate Judge's recommendation is erroneous because, contrary to Agent Bain's declaration, Asia Pacific's postal address is not the same as that of Colony Mortgage. In support of its contention, Petitioner has filed an affidavit by Lindsay D. Barrett, CEO and Chairman of Asia Pacific, which directly contradicts Agent Bain's declaration on this point.
The conflicting affidavits notwithstanding, Petitioner's objection is not persuasive. The fact that Shawn Kajiyama transferred significant sums of money to Colony Mortgage, which in turn transferred similarly large sums to Asia Pacific, is sufficient to establish that Asia Pacific's financial records are relevant to the investigation. Even if Asia Pacific and Colony Mortgage do not, in fact, share a postal address, that fact alone does not affect the Court's underlying conclusion.
CONCLUSION
In accordance with the foregoing, it is HEREBY ORDERED that:
(1) Petitioner's Request for a De Novo Hearing is DENIED;
(2) Petitioner's Objection to Magistrate Judge's Disposition is OVERRULED; and
(3) the Magistrate Judge's Recommendation Filed February 13, 2004 is ADOPTED as the opinion and order of this Court.
IT IS SO ORDERED.