Opinion
Consolidated Case No. 4:02-CV-386 CAS, Associated Case No. 4:02-CV-387 CAS, Associated Case No. 4:02-CV-388 CAS, Associated Case No. 4:02-CV-389 CAS
January 9, 2003
MEMORANDUM AND ORDER
This consolidated case is before the Court on the motion of the United States for summary enforcement of Internal Revenue Service (IRS) summonses. For the reasons set forth below, this motion will be granted.
Petitioner Mary Robert filed four petitions under 26 U.S.C. § 7609(b)(2) to quash third-party summonses issued by the IRS to Siegel-Robert, Inc. (Siegel-Robert), Robert Robison, Halvor Anderson, and Robert Bowren. The three individuals are the president, vice president and treasurer, and the chief financial officer, respectively, of Siegel-Robert. The summonses were issued in connection with an IRS examination into the gift tax liability of petitioner for the years 1998 and 1999, which the IRS proposed was approximately $34 million and $233,000 respectively. These amounts were based in part upon the IRS's valuation of Siegel-Robert common stock which petitioner transferred to members of her family in 1998 and 1999.
The petitions to quash the summonses allege that the summonses were not issued in good faith due to improper ex parte communications in the tax liability appeals process, and that the summonses were issued for the improper purpose of preparing the case for litigation. After the four cases were consolidated, the United States filed a counterclaim for enforcement of the summonses. The United States has also filed a motion for summary enforcement of the summonses, asking the Court for an order denying the petitions to quash.
The IRS does not dispute that after petitioner filed an administrative appeal of the tax deficiency proposed by the IRS, an IRS appeals officer (Daniel Mannion) communicated with one of the IRS estate tax attorneys assigned to examine petitioner's gift tax returns (Paul Latt), telling him to secure an outside appraisal of the Siegel-Robert stock in question. The IRS also concedes that these communications may have been in violation of Revenue Procedure 2001-43, which is titled, "Prohibition of Ex Parte Communications Between Appeals Officers and Other Internal Revenue Employees." The IRS argues, however, that the communications do not undermine the IRS's right to enforce the summonses in question.
The essential facts underlying the communications are not in dispute. Petitioner's 1998 and 1999 gift tax returns reported transfers of Siegel-Robert stock to various family members. Latt disagreed with the values assigned to the stock in the tax returns and requested an IRS appraisal. The appraisal valued the stock higher than the tax returns had and, based on this appraisal, Latt proposed the above-mentioned tax deficiencies. Latt was aware of a one-million-share decrease in Siegel-Robert stock during 1998 and 1999, but did not know what happened to those shares. Petitioner requested an appeals conference and in April 2001, Latt forwarded the file to the IRS Appeals Office. Approximately four months later, Mannion contacted Latt and advised him that the IRS appraisal was inadequate because it did not follow the valuation methodology adopted by this Court in another case involving the valuation of Seigel-Robert stock.
In another conversation, Mannion informed Latt that petitioner had given him a critique of the IRS appraisal. Mannion also told Latt that he had new information regarding the one-million-share decrease of Siegel-Robert stock Latt obtained a copy of the critique and the IRS hired an outside appraiser to value the stock in question. On January 29, 2002, at a meeting with Latt, Mannion, and other IRS personnel, petitioner's counsel raised the matter of the ex parte communications between Mannion and Latt. In February 2002, the IRS Appeals Office returned the file to the tax examiner's office and John Crowe, who had worked on the case with Latt, was assigned to continue the examination.
In his declaration, submitted by the IRS in support of its motion for summary enforcement, Crowe attests that after he received petitioner's file in February 2002, he sent petitioner's counsel a letter requesting certain financial information regarding Siegel-Robert. He attests that this information is necessary for the outside appraiser to appraise the value of Siegel-Robert's stock in 1998 and 1999, which must be done to determine if there are tax deficiencies in petitioner's returns for those years. He further attests that, with the exception of certain documents listed in an exhibit attached to his declaration (and in a supplemental list), the IRS does not posses the information demanded in the summonses. Lastly, Crowe attests that all administrative steps have been taken by the IRS with regard to the summonses.
In response to the IRS's motion for summary enforcement, Robert argues that the summonses should be quashed because they were issued (1) as a result of violations of the ex parte regulations and the appeals officer's failure to review petitioner's case independently and impartially, and (2) to prepare the case for litigation. Petitioner also argues that there remain unresolved issues of fact surrounding the communications between Mannion and Latt, precluding summary judgment in favor of the IRS, under the standard set forth for summary judgment in Federal Rule of Civil Procedure 56(c).
Intervenor Siegel-Robert has also filed a response to the IRS's motion. Siegel-Robert maintains that enforcement of the summonses is unnecessary and would be overly burdensome. It also argues that the summonses were issued as a result of "repeated illegal acts" of the IRS, and that thus, enforcement would constitute an abuse of the Court's process.
Title 26 U.S.C. § 7602(a) grants the IRS broad authority to issue summonses in connection with a tax investigation. When a party does not comply with a summons, or as here, when a petition to quash is filed, the IRS must rely on the district courts for enforcement. Id. § 7602(b). In United States v. Powell, 379 U.S. 48, 57-58 (1964), the Supreme Court identified four factors that the government must show to establish a prima facie case for summons enforcement: (1) the investigation is conducted pursuant to a legitimate purpose; (2) the inquiry is relevant to that purpose; (3) the information sought is not already within the IRS's possession; and (4) the administrative steps required by the Internal Revenue Code have been followed. The burden on the government to produce a prima facie case is "slight" or "minimal." Mazurek v. United States, 271 F.3d 226, 230 (7th Cir. 2001); Lidas v. United States, 238 F.3d 1076, 1082 (9th Cir. 2001).
If the government meets its burden, the opponent of the summons can rebut the government's case by either undermining the proponent's contentions regarding any of the Powell factors or by demonstrating that enforcement of the summons would result in an "abuse" of the court's process. Powell, 379 U.S. at 58; United States v. Claes, 747 F.2d 491, 494 (8th Cir. 1984). An abuse of the judicial process occurs when a summons is sought for an "improper purpose, such as . . . harass[ing] the taxpayer. . . . put[ting] pressure on him to settle a collateral dispute" or obtaining information solely for a criminal prosecution under the guise of a civil liability investigation. Powell, 379 U.S. at 58;Mazurek, 271 F.3d at 230. The taxpayer's burden at the rebuttal stage is heavy. Mazurek, 271 F.3d at 231.
The Court first concludes that the United States has established a prima facie case for the enforcement of the four summonses, based upon Crowe's declaration that (1) the IRS issued the summonses for the purpose of establishing petitioner's civil tax liability, (2) the information sought through the summonses is relevant to that purpose, (3) the information sought, with noted exceptions, is not already in the IRS's possession, and (4) all the administrative steps necessary for the issuance of the summonses have been taken. See C J Trust v. United States, 2002 WL 1987417, at *4 (E.D. Cal. June 26, 2002) (assertions by affidavit of the investigating agent that the Powell requirements have been met are sufficient to make the prima facie case).
The Court next concludes that petitioner has not disproved any of thePowell elements or established that enforcement of the summonses would constitute an abuse of the judicial process. Petitioner has cited no cases for the proposition that violation of the IRS's internal regulation against ex parte communications by an appeals officer invalidates any subsequently-issued summons for information. The Court does not believe that the record in the present case suggests bad faith on the part of the IRS, or that enforcement of the summonses in question would constitute an abuse of the judicial process. Petitioner has presented no facts to suggest that the case has been referred for criminal prosecution or that the summonses were issued to harass petitioner. Petitioner has also failed to refute Crowe's statement that the information still sought is relevant and needed. See Frederic Kohler Estate v. United States, 2002 WL 442247 (E.D. Wis. Feb. 13, 2002) (IRS was entitled to obtain broad range of documents which court was "hesitant to conclude could not possibly be relevant to" the value of certain stock for estate tax purposes).
Lastly, the Court notes that rigid adherence to the requirements of Federal Rule of Civil Procedure 56(c), as proposed by petitioner, would conflict with the summary nature of this proceeding. See Day v. United States, 2002 WL 1077970, at *3 (D.S.Dak. March 22, 2002). Rule 81(a)(3) allows the Court to limit application of the Federal Rules of Civil Procedure when to apply them rigidly would impair the summary nature of a summons-enforcement proceeding. Id.; United States v. Kis, 658 F.2d 526, 543 (7th Cir. 1981), cert. denied, 455 U.S. 1018 (1982) ("the burden that must be met by a taxpayer resisting enforcement is significantly more stringent than that of a party opposing a motion for summary judgment");United States v. National Bank of S. Dak., 622 F.2d 365, 366 (8th Cir. 1980) (district court has discretionary authority under Rule 81(a)(3) to deny hearings or limit the applicability of discovery in a summons-enforcement proceeding).
Accordingly,
IT IS HEREBY ORDERED that motion of the United States for summary enforcement is GRANTED. (Doc. 42)
IT IS FURTHER ORDERED that all other pending motions are DENIED as moot.
An appropriate Judgment shall accompany this Memorandum and Order.