Opinion
No. 3:02-CV-2439-N
December 13, 2002
FINDINGS, CONCLUSIONS, AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
Pursuant to the Order Referring Case filed November 15, 2002, the Petition to Enforce Internal Revenue Service Summonses, filed November 8, 2002, has previously been referred to the United States Magistrate Judge to conduct an evidentiary hearing and to submit proposed findings and recommendation. The Magistrate Judge makes the following findings, conclusions, and recommendation:
I. BACKGROUND
On January 23, 2002 and January 25, 2002, the Internal Revenue Service served summonses on Respondents Anthony Gulley and his accountant, Samual Frederick Buggs, as part of an investigation into the income tax liability of Anthony Gulley for the years 1998 and 1999, and of his corporation, Anthony Gulley and Associates, for 1999. Respondents were directed to appear before Revenue Agent Lisa Hudgens to provide testimony and produce certain books, records, papers, and data on February 19, 2002 at 9:00 a.m. Both Respondents appeared in response to the summonses but did not provide any documents.
On November 26, 2002, the Magistrate Judge issued an Order to Show Cause directing the Respondents to appear on December 12, 2002, at 10:00 a.m. at 1100 Commerce Street, Room 1567, Dallas, Texas, to show cause why Anthony Gulley and Samual Frederick Buggs should not comply with and obey the Internal Revenue Serice summonses served upon Anthony Gulley and Samual Frederick Buggs.
The show cause hearing was conducted on December 12, 2002. Both Respondents appeared in person, without counsel. The Magistrate Judge received the sworn testimony of Revenue Agent Lisa Hudgens and the exhibits offered by the Government. Revenue Agent Hudgens testified that Respondent Anthony Gulley had not filed tax returns for the years 1998 and 1999, that Anthony Gulley and Associates had not filed a tax return for 1999, and that the financial information requested in the summonses was necessary to determine Respondent Gulley's tax liability for those years. She further testified that the documents were not in the possession of the IRS, with the exception of a few bank records, that the IRS had followed all applicable statutes and administrative procedures, and that there was no Justice Department referral regarding either Respondent.
The Magistrate Judge also received the sworn testimony of Respondent Samual Frederick Buggs. Respondent Buggs testified that he was the accountant for Respondent Anthony Gulley, that he had possession of Respondent Gulley's documents, and that he was solely responsible for the failure to comply with the summons. Respondent Buggs explained that he had been in the process of correcting errors by prior accountants which had resulted in a substantial tax liability for years prior to 1998, and that resolution of those errors was required in order to accurately prepare the 1998 and 1999 returns. Respondent Buggs tendered copies of the corporate tax returns for the years 1998 and 1999 to Agent Hudgens on the record. Respondent Buggs also testified that he had some of the requested documents, which were being copied, and that he had ordered missing bank statements and checks. He expected to be able to produce all documents in response to the subpoena in less than sixty days. Respondent Gulley offered no evidence.
II. FINDINGS
Where any person refuses to obey an IRS summons, the government may seek judicial enforcement of the summons. 26 U.S.C. § 7604. It is well settled that the government's prima facie case for enforcement requires only a "minimal" initial showing that the summons was issued in good faith, i.e., that (1) it was issued for a proper purpose, (2) that the material sought is relevant to that purpose, (3) that the information sought is not already within the Commissioner's possession, and (4) that the administrative steps required by the Internal Revenue Code have been followed. United States v. Powell, 379 U.S. 48 (1964); Barquero v. United States, 18 F.3d 1311, 1316 (5th Cir. 1994); United States v. McCoy, 954 F.2d 1000, 1004 (5th Cir. 1992). This showing may be made by a simple affidavit filed with the petition to enforce by the agent who issued the summons. United States v. Linsteadt, 724 F.2d 480, 482 (5th Cir. 1984); United States v. Davis, 636 F.2d 1028, 1034 (5th Cir.), cert. denied, 454 U.S. 862 (1981).
Once the government makes this minimal showing, the burden shifts to the party resisting the summons to challenge it on any appropriate ground, e.g., demonstrating an improper purpose of the summons or abuse of the court's process. United States v. LaSalle Nat'l Bank, 437 U.S. 298, 316 (1978); Powell, 379 U.S. at 58; McCoy, 954 F.2d at 1004. Accordingly, the taxpayer, or the party challenging the summons, bears the "heavy" burden of rebutting the government's prima facie showing for enforcement of a summons. United States v. Abrahams, 905 F.2d 1276, 1280 (9th Cir. 1990); Liberty Financial Serv. v. United States, 778 F.2d 1390, 1392 (9th Cir. 1985).
In this case, the testimony of Revenue Agent Hudgens establishes the Government's prima facie showing. Further, Respondents did not dispute that the Government satisfied the requirements for enforcement of the summonses, or challenge the summonses on any ground. The United States Magistrate Judge therefore finds that the Internal Revenue Service summonses heretofore issued by Revenue Agent Lisa Hudgens, and served upon the Respondents Anthony Gulley and Samual Frederick Buggs, were authorized and properly served pursuant to the provisions of 26 U.S.C. § 7602 and 7603. The United States Magistrate Judge finds that jurisdiction to enforce the summonses in this action properly exists pursuant to 26 U.S.C. § 7604(a). The United States Magistrate Judge further finds that the summonses which were the subject matter of this action, were issued for a legitimate purpose pursuant to the Internal Revenue Code, seek information relevant for that purpose, and seek testimony and documents which are not presently in the possession of the Internal Revenue Service. The Magistrate Judge specially finds that the purpose of the summonses was to secure testimony, records and documents relating to the tax liability of Respondent Anthony Gulley, individually, and Anthony Gulley and Associates, for the years 1998 and 1999, in order to determine the amount of Respondent Gulley's tax liability. The summons was issued in compliance with all applicable statutes, rules, and regulations and there is no "Justice Department referral" in effect with respect to Respondents, or any person whose tax liability is at issue pursuant to said summonses, for the years 1998 and 1999, as that term is defined in 26 U.S.C. § 7602(d)).
III. RECOMMENDATION
For the foregoing reasons, the undersigned Magistrate Judge RECOMMENDS that the District Court enter its order and judgment enforcing the summonses previously served on Respondents Anthony Gulley and Samual Frederick Buggs and ordering Respondents to appear on a date certain to provide testimony and to produce documents as requested in the said summonses before Revenue Officer Lisa Hudgens or any other proper officer of the Internal Revenue Service at 4050 Alpha Road, Farmers Branch, Texas 75244, and that the District Court further order that all court costs be taxed against Respondents.
A copy of this recommendation will be served on counsel for the Government and on Respondents Anthony Gulley and Samual Frederick Buggs.