Opinion
No. CV-01-952-HU
February 28, 2002
Michael W. Mosman, UNITED STATES ATTORNEY, Jeremy N. Hendon, TRIAL ATTORNEY, TAX DIVISION, U.S. Department of Justice, Washington, D.C., Attorneys for Defendants.
FINDINGS RECOMMENDATION
Petitioner Daniel Trent Oldham, appearing pro se, seeks to quash six summonses issued by the United States Internal Revenue Service (IRS) to various third-party recordkeepers pursuant to 26 U.S.C. § 7602. This court has jurisdiction under 26 U.S.C. § 11 §§ 7604(a) and 7609(h)(1).
Respondent moves for partial dismissal of petitioner's Second Amended Petition to Quash and for summary denial of the remainder of the Second Amended Petition. Petitioner moves to strike respondent's reply brief filed in support of its motion. For the reasons explained below, I deny petitioner's motion to strike and recommend that respondent's motion for partial dismissal and summary denial be granted.
Petitioner initially filed his petition on June 22, 2001 seeking to quash four different summonses issued by respondent. On July 6, 2001, he filed an Amended Petition which included one additional summons. On October 19, 2001, I granted petitioner's motion to amend by interlineation the July 6, 2001 Amended Petition. On that date, I amended the July 6, 2001 Amended Petition by interlineation to include a new summons issued by respondent to State Farm Insurance on August 29, 2001. Both parties refer to the July 6, 2001 Amended Petition, which I amended by interlineation, as the Second Amended Petition, which is also how I will refer to it.
BACKGROUND
Respondent is presently conducting an investigation into the tax liabilities of petitioner for the income tax periods of 1997, 1998, and 1999. McGeachy Declr. at ¶ 3. The purpose of the investigation is to determine petitioner's correct federal tax liabilities for those years. Id.
On June 8, 2001, IRS Revenue Agent Michele McGeachy issued an IRS summons to the following entities:
1. Harley Davidson Credit, 4150 Technology Way, Carson City, Nevada, 89706;
2. Ford Motor Credit Company, P.O. Box 239801, Las Vegas, Nevada, 89123;
3. US Bank National Association ND, 950 17th Street, Suite 600, Denver, Colorado, 80202; and
4. Fidelity Investments, 82 Devonshire Street, Mail Zone G12A, Boston, Massachusetts, 02109.
On June 21, 2001, McGeachy issued another IRS summons to US Bank National Association N.D. at 950 17th Street, Suite 600, Denver, Colorado, 80202. On June 28, 2001, McGeachy issued an IRS summons to State Farm Insurance Companies at One State Farm Plaza, Bloomington, Illinois, 61710-0001. On August 29, 2001, McGeachy withdrew the summons issued to State Farm and in its place, reissued a new summons again directed to State Farm Insurance Companies at One State Farm Plaza, Bloomington, Illinois, 61710-0001.
Each summons directed the third party recordkeeper to produce certain financial records pertaining to petitioner, for some or all of the relevant years. Petitioner moves to quash the summonses. He makes various challenges to the sufficiency of the summonses and the IRS's authority to issue them.
Pursuant to Federal Rule of Civil Procedure 12(b)(1), respondent moves to dismiss that part of the Second Amended Petition that seeks to quash the summonses issued to Harley Davidson Credit and Ford Motor Credit Company. Respondent asserts that the court lacks subject matter jurisdiction to adjudicate petitioner's challenges to these two summonses. Respondent also moves for "summary denial" of petitioner's efforts to quash the remaining summonses.
I. Motion to Dismiss for Lack of Subject Matter Jurisdiction
A. Standards
Pursuant to 26 U.S.C. § 7609(h)(1), subject matter jurisdiction over a petition to quash an IRS summons lies in the "United States district court for the district within which the person to be summoned resides or is found[.]" Petitioner has the burden of establishing that this court possesses the necessary subject matter jurisdiction. Association of Am. Med. Colls. v. United States, 217 F.3d 770, 778 (9th Cir. 2000).
When deciding a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), the court may consider affidavits and other evidence supporting or attacking a petitioner's jurisdictional allegations. See St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989).
B. Discussion
As noted above, subject matter jurisdiction over petitioner's effort to quash the summonses is governed by 26 U.S.C. § 7609(h)(1) of the Internal Revenue Code. The Fifth Circuit has interpreted section 7609(h)(1) as limiting jurisdiction to the district where the summons is to be answered. Masat v. United States, 745 F.2d 985, 987 (5th Cir. 1984). This court has found no other case analyzing the statutory language "resides or is found." Courts that have addressed the issue summarily conclude that they lack jurisdiction if the recordkeeper is "located," or has its principal place of business, outside the district. See, e.g., Cosme v. IRS, 708 F. Supp. 45, 47 (E.D.N.Y. 1989) (jurisdiction exists where the third party resides or does business); Bilodeau v. United States, 577 F. Supp. 234, 235 (D.N.H. 1983) (New Hampshire district court did not have jurisdiction to quash summons issued to Massachusetts bank).
In support of the motion to dismiss the Second Amended Petition in regard to the Harley Davidson Credit and Ford Motor Credit summonses, respondent relies on McGeachy's declaration in which she states that she contacted officials at both companies and was informed that neither company's headquarters is based on Oregon and that neither company has a regular place of business in Oregon. McGeachy Declr. at ¶¶ 37-38. Thus, respondent argues, neither Harley Davidson Credit nor Ford Motor Credit Company can be considered to "reside" or be "found" in Oregon.
In response, petitioner contends that the court has subject matter jurisdiction over both businesses. First, petitioner asserts that Harley Davidson has several large retail sales locations in Oregon, two of which are in Portland. He further asserts that in each sales location, a customer can apply for and receive credit with Harley Davidson Credit. He states that Harley Davidson and Harley Davidson Credit have an integral relationship in Oregon. Thus, he argues, Harley Davidson Credit is "found" in Oregon.
As for Ford Motor Credit Company, petitioner states that it is located at 10220 S.W. Greenburg Road, in Portland. Thus, he contends that Ford Motor Credit Company is similarly "found" in or "resides" in Oregon.
In the absence of Ninth Circuit precedent on the issue, I adopt and apply the Fifth Circuit's analysis in Masat. There, the court observed that the statutory jurisdictional requirement "is not intended to permit a summons directed to a third-person recordkeeper at that recordkeeper's residence to be challenged wherever else in the world the recordkeeper may be found." Masat, 745 F.2d at 987.
Petitioner offers no affidavit or other evidence to support his assertions. Thus, he fails to adequately demonstrate that either Harley Davidson Credit or Ford Motor Credit Company reside in or are found, in Oregon. Additionally, as to Harley Davidson Credit, even if petitioner did substantiate his self-serving unattested statements, the fact that Harley Davidson retail stores offer credit applications to customers does not show that Harley Davidson Credit's principal place of business is in Oregon. Furthermore, as Judge Brown recently concluded in a similar case, the personal jurisdiction cases cited and discussed by petitioner are inapposite to the analysis of subject matter jurisdiction under 26 U.S.C. § 7609(h)(1). See Cook v. United States, No. CV-01-951-BR, Opinion and Order at p. 6 (D.Or. Jan. 9, 2002). I recommend that respondent's motion to dismiss the Second Amended Petition to Quash the Harley Davidson Credit and Ford Motor Credit Company summonses, be granted. Alternatively, even if there is subject matter jurisdiction over these two summonses, for the reasons explained below, the petition should to quash them should be denied.
II. Motion for Summary Denial
A. Standards and Burden of Proof
The Internal Revenue Code allows the IRS to issue a summons for production of information relevant to "determining the liability of any person for internal revenue tax." 26 U.S.C. § 7602(a). The taxpayer has the right to attempt to quash any such summons. 26 U.S.C. § 7609(b). The government, however, is entitled to enforcement of an IRS summons when it has established a prima facie case for enforcement and the taxpayer fails to show sufficient facts that indicate the existence of a defense to enforcement. United States v. Powell, 379 U.S. 48, 58 (1964).
To obtain judicial enforcement of a summons issued pursuant to section 7602, the IRS need show only that (1) the investigation will be conducted for a legitimate purpose; (2) the information sought is relevant to that purpose; (3) the information sought is not already in the government's possession; and (4) the administrative steps required by the Internal Revenue Code have been followed. Lidas, Inc. v. United States, 238 F.3d 1076, 1081-82 (9th Cir.) (citing Powell, 379 U.S. at 57-58), cert. denied, 121 S.Ct. 2245 (2001).
"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 v. United States, 59 F.3d 117, 120 (9th Cir. 1995) (internal quotation omitted). In an enforcement proceeding, after the government establishes a prima facie case, the burden shifts to the petitioner to show sufficient facts to establish a defense to the summons. See, e.g., Lidas, 238 F.3d at 1081-82.
In this case, however, the government has not moved to enforce the summonses, but only to dismiss the Second Amended Petition. Therefore, following the January 9, 2002 Cook decision by Judge Brown, I adopt the approach set forth in Cosme for determining such a motion. In Cosme, the court explained:
[W]hen faced with a petition to quash an IRS third-party summons, the government need not move to enforce the summons. Instead the government can rely on the voluntary compliance of third parties to effectuate the summons. Thus, when a taxpayer petitions to quash a summons, the government can move to dismiss the petition. Such a motion mirrors a 12(b)(6) motion to dismiss for failure to state a claim. . . . In a motion to dismiss the petition, the government does not have to establish a Powell prima facie case. Instead, the burden shifts immediately to the petitioner to establish a valid defense to the summons.
Cosme, 708 F. Supp. at 48 (citation omitted). Accordingly, I treat respondent's "Motion for Summary Denial" as a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).
B. Discussion
Petitioner raises several arguments in support of his request that the summonses be quashed. His primary argument appears to be that the IRS's authority to issue summonses pursuant to section 7602 is limited to information related to liquor, tobacco products, and cigarettes. He asserts that section 7602 applies only to regulations under Title 27 of the Code of Federal Regulations (CFR) which relate to liquor, tobacco, and cigarette papers and tubes. Petitioner's assertion is based on a page out of the Code of Federal Regulations which cross-references section 7602 and 27 C.F.R. Parts 170 and 296. Petitioner does not appear to understand the relationship between statutes and regulations. The page on which he relies simply cross-references the IRS's "rulemaking authority . . . for regulations codified in the Code of Federal Regulations [and includes the] statutory citations which are noted as being interpreted or applied by those regulations." Exh. 1 to First Am. Affid. of Daniel Trent Oldham at p. 1. The page does not purport to limit the application of section 7602 to only those C.F.R. sections listed. In fact, the C.F.R. expressly notes that "the table cannot be considered all-inclusive." Id.
Moreover, the plain text of the statute defeats petitioner's argument because it allows a summons to be issued "[f]or the purpose of . . . determining the liability of any person for any internal revenue tax." 26 U.S.C. § 7602(a) (emphasis added). The IRS's authority is not limited in the manner petitioner suggests.
Along with this argument, petitioner suggests that because the summonses are limited to "Title 27 excise activities," and because respondent knows that petitioner has had no involvement with any such activities, respondent has abused its power. As such, petitioner continues, to compel a third party to produce records under the summonses would violate his right to privacy and his "Fifth Amendment protection." First Am. Affid. of Daniel Trent Oldham at p. 9. For the reasons previously explained, the summonses are not limited to "Title 27 excise activities." Petitioner's constitutional arguments in this regard have no merit.
Petitioner also contends that the IRS failed to provide him with IRS Form 12180, which he characterizes as a third party authorization form. However, the IRS issued the summonses pursuant to 26 U.S.C. § 7602 and 7609 which do not require such a form.
Next, petitioner claims the summonses are not sufficiently specific to satisfy 26 U.S.C. § 7603(a), which requires a summons to describe the requested records with "reasonable certainty." This argument is without merit. Each summons was accompanied by a "summons rider" describing the records sought with sufficient particularity to satisfy the statute's requirements.
The first summons issued to State Farm had an attached summons rider. As explained above, that summons was withdrawn and reissued on August 29, 2001. The reissued summons, while not containing a separate rider, contains a list of specific records sought. The list is identical to the records listed in the summons rider sent with the first summons and is sufficiently particular to satisfy the statute.
Petitioner further contends that the summonses are invalid because IRS revenue agents are not authorized to issue them. In support of this argument, petitioner cites to a "Handbook for Special Agents." The page attached to petitioner's affidavit appears to be a page from a handbook specifically designed for Special Agents with instructions on the proper use of IRS Form 2039. It does not purport to restrict the service of administrative summonses only to special agents nor does it prohibit IRS revenue agents from issuing summonses. Exh. 6 to First Am. Affid. of Daniel Trent Oldham.
In a similar argument, petitioner contends that the definition of revenue officer precludes McGeachy from any activity related to petitioner because he is not a citizen of Puerto Rico. In support of this argument, petitioner cites "27 U.S.C. § 27.250.11." First Am. Affid. of Daniel Trent Oldham at p. 7; Exh. 7 to First Am. Affid. of Daniel Trent Oldham. The citation to which petitioner refers appears to be the Code of Federal Regulations, not the United States Code. Furthermore, it is a regulation pertaining solely to Puerto Rico and does not restrict the definition of revenue agents operating elsewhere.
Petitioner additionally argues that respondent's motion to dismiss does not comply with the Federal Rules of Civil Procedure and various local rules. Petitioner contends that respondent's motion should be denied because respondent did not follow the rules applicable to a motion for summary judgment. As noted, I treat respondent's motion as similar to a motion to dismiss and find that it satisfies the procedural requirements applicable to such a motion.
Petitioner also asserts that he has "never lived in the Federal territory known as, or described as[,] the Internal Revenue District, Western Region." First Am. Affid. of Daniel Trent Oldham at p. 2. To the extent this statement raises an issue of jurisdiction, it is rejected. Oldham resides in Lake Oswego, Oregon, which is within the District of Oregon.
Finally, petitioner contends that because the summonses at issue were issued without proper authority, their issuance violates constitutional substantive due process provisions. As explained, the summonses were properly issued. I reject petitioner's substantive due process argument.
III. Motion to Strike
Respondent filed its motion to dismiss and for summary dismissal on October 25, 2001. Petitioner filed a timely response to the motion on November 7, 2001. Respondent filed a timely reply on November 15, 2001. Petitioner moves to strike respondent's November 15, 2001 reply because, petitioner argues, the reply "ventur[es] outside the perimeters set by the Federal Rules of Civil Procedure, and by Local Rules." Petitioner's Memo. in Sup. of Mtn to Strike at p. 5. Additionally, he contends that under Federal Rule of Civil Procedure 12(f), the reply is redundant, immaterial, and impertinent.
I reject petitioner's arguments. First, as explained above, respondent's motion for summary dismissal is interpreted as a motion to dismiss which is clearly contemplated by the Federal Rules of Civil Procedure. A reply brief in support of such a motion is allowed under Local Rule 7.2(f)(2). Cf. L. R. 26.5(c) (prohibiting reply briefs in discovery motions).
Second, the reply brief contains no redundant, immaterial, or impertinent material. It is not subject to dismissal under Rule 12(f).
Petitioner requests the opportunity to further brief the merits of the summary dismissal motion if I do not strike the reply. Petitioner's request is denied. First, petitioner makes most of his arguments in his affidavit in support of the petition. Second, he makes an additional substantive argument in the memorandum in support of this motion to strike. No further opportunity to brief the merits of this dispute is allowed.
Finally, as to the argument made in the memorandum in support of his motion to strike, petitioner contends that respondent lacks authority to issue the summonses because "there are no specific application regulations published in 26 C.F.R. Part 1." Petitioner's Memo. in Support of Mtn to Strike at p. 7. He contends that where regulations authorizing the issuance of the summonses are not listed in the parallel table of authorities and rules and other ancillary finding aids, respondent bears the burden of proving that such regulations exist and have been published in accordance with the requirements of the Federal Register Act.
I reject petitioner's arguments. Regulations governing the issuance of IRS summonses are found in 26 C.F.R. Part 301. Petitioner presents no credible argument that these regulations were not properly adopted.
CONCLUSION
I recommend that respondent's motion for partial dismissal of the Second Amended Petition to Quash and motion for summary denial of the remaining portions of the Second Amended Petition to Quash (#18), be granted. Petitioner's motion to strike (#30) is denied.
SCHEDULING ORDER
The above Findings and Recommendation will be referred to a United States District Judge for review. Objections, if any, are due March 15, 2002. If no objections are filed, review of the Findings and Recommendation will go under advisement on that date. If objections are filed, a response to the objections is due March 29, 2002, and the review of the Findings and Recommendation will go under advisement on that date.