Belsby v. Commissioner of Internal Revenue Service

Full title: SHELL and MARY BELSBY, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE…

Court: United States District Court, E.D. Washington

Date published: Dec 2, 2004

No. CV-04-304-RHW (E.D. Wash. Dec. 2, 2004)

Opinion

No. CV-04-304-RHW.

December 2, 2004

ORDER DENYING PETITION TO QUASH, AND GRANTING MOTION FOR SUMMARY ENFORCEMENT OF INTERNAL REVENUE SERVICE SUMMONS

ROBERT WHALEY, District Judge

Before the Court are Petitioners Shell and Mary Belsbys' Petition to Quash (Ct. Rec. 1), and the United States' Motion for Summary Enforcement of Internal Revenue Service Summons (Ct. Rec. 2). The motions were heard without oral argument.

BACKGROUND

On August 10, 2004, the Internal Revenue Service (IRS) issued and served a summons to a Spokane bank as third-party recordkeepers, seeking records of all accounts and loan information pertaining to Petitioners Shell and Mary Belsby. Petitioners were given notice of the summons, and on August 18, 2004, filed their petition requesting the Court to quash the summons that was served on the bank. The United States objects to the petition to quash and seeks enforcement of the summons.

DISCUSSION

Pursuant to 26 U.S.C. 7609, the IRS is authorized to serve a summons on a thirdparty record keeper. The summons power of the IRS "is an investigative tool provided by Congress to enable the IRS to determine and assess all taxes due under the Internal Revenue Code." United States v. Jose, 131 F.3d 1325, 1327 (9^th Cir. 1997). Section 7609 also authorizes the taxpayer to challenge the summons. U.S.C. 7609(b). If the taxpayer challenges the summons, the IRS may seek to enforce the challenged summons in the same proceedings. Id.

In order to defeat the petition to quash and to enforce the summons, the IRS has the burden to establish a prima facie case for enforcement. United States v. Powell, 379 U.S. 48, 57-58 (1964); Fortney v. United States, 59 F.3d 117, 119 (9^th Cir. 1995). To do so, the IRS must show 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's possession; and (4) satisfies all administrative steps required by the United States Code. Id. The IRS's burden is "a slight one" and generally can be met by a 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 the IRS has met its burden, the taxpayer faces a "heavy" burden to show an "abuse of process" or "lack of institutional good faith." Id.

Here, the IRS has meet its burden of establishing a prima facie case for enforcement. The United States submitted the declaration of Derik Hudson, who is the revenue agent who issued the summons at issue in this case. (Ct. Rec. 2, Pt. 4). He stated that he is conducting an investigation into the individual federal tax liability of Petitioners Shell and Mary Belsby for the years 2000, 2001, 2002, and 2003. The fact that he is conducting an investigation meets the first prong of Powell.

Petitioners assert that in order for a summons to be issued, there must be a tax liability.¹ This is not true. The IRS can issue a summons for the purpose of ascertaining the correctness of any return, for making a return where none has been made, or for determining the liability of any person for any internal revenue tax or liability. 26 U.S.C. 7602. The statutes do not require that the IRS first must determine that there is tax liability.

1 Petitioners also state that 26 U.S.C. 7609(c)(2)(D)(i) "clearly forbids the use of a summons in aid of collection of the liability of any person against whom an assessment has been made." Petitioners misconstrue this section. Instead, this section dispenses with the notice requirement when the summons is issued in aid of the collection of a tax liability. See Ip v. United States, 205 F.3d 1168, 1172 (9^th Cir. 2000).

Likewise, the IRS has shown that the remaining prongs of the Powell test have been met. The bank records are relevant to determining Petitioner's tax liability. See United States v. Kao, 81 F.3d 114, 115 (9^th Cir. 1996) (recognizing the relevancy of bank records in determining whether the taxpayer's bank deposits exceeded the gross income reported on their tax returns). Agent Hudson stated that the requested information is not already within the IRS's possession and his declaration establishes that he has complied with all administrative steps required by the United States Code.

Because the IRS has met its burden, Petitioners face the "heavy" burden of establishing bad faith or an improper purpose. Jose, 131 F.3d at 1328. Petitioners assert that the summons is being used as a form of harassment. Petitioners do not provide any facts or evidence to support this allegation. It appears that Agent Hudson met with Petitioners one time and, thereafter, served the summons on the bank. This alone cannot constitute harassment, or support an allegation of improper purpose. Petitioners assert that the summons "could be and maybe being used to gather evidence for a criminal prosecution." Again, this bald assertion does not meet the burden Petitioner is required to show in order for the summon to be quashed. Id. (holding that taxpayer's bald assertion that "he feels that the underlying reason for [the summons] was criminal — a pending criminal prosecution . . . did not some close to meeting his burden."). Petitioner's remaining challenges to the summons are meritless. As such, they have not met their burden of showing an "abuse of process" or "lack of institutional good faith."

Accordingly, IT IS HEREBY ORDERED:

1. Petitioner's Petition to Quash (Ct. Rec. 1) is DENIED.

2. Respondent's Motion for Summary Enforcement of Internal Revenue Service Summons (Ct. Rec. 2) is GRANTED. IT IS SO ORDERED. The District Court Executive is hereby directed to enter this order, furnish a copy to Petitioners and counsel, and close the file.