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Wood v. United States

United States District Court, D. Maryland

May 27, 2016

WILLIAM G. WOOD, et al., Petitioners
v.
UNITED STATES OF AMERICA, et al., Respondents

          MEMORANDUM

          James K. Bredar United States District Judge

         William G. Wood (“Mr. Wood”) brought a pro se “Petition to Quash 3rd Party Summons, ” purportedly on behalf of himself and a corporation, Seaside Seafood, Inc. (“Seaside Seafood”) (together, the “Taxpayers”), with respect to certain summonses issued by the Internal Revenue Service (“IRS”) to JPMorgan Chase Bank, N.A.; M&T Bank; the Bank of Glen Burnie; and Capital One Bank USA, N.A. (collectively, the “Summonses”).[1] Mr. Wood named as Respondents the United States of America; IRS Commissioner John Koskinen (the “Commissioner”); and IRS Revenue Agent Jalal M. Abul-Huda (“Agent Abul-Huda”) (collectively, “Respondents”).[2]

         Now pending before the Court is Respondents’ Motion for Denial of Petition to Quash Third-Party Summonses and for Summary Enforcement of Summonses (“Motion to Enforce”) (ECF No. 13). Mr. Wood has not opposed Respondents’ motion and thus concedes all arguments presented therein. See Stenlund v. Marriott Int’l, Inc., Civ. No. GJH-14-1544, 2016 WL 1203749, at *7 (D. Md. Mar. 22, 2016); White v. Wal-Mart Stores, Inc., Civ. No. ELH-14-00031, 2014 WL 1369609, at *2 (D. Md. Apr. 4, 2014). Seaside Seafood, now represented by counsel, filed a response in opposition (ECF No. 14), and Respondents replied (ECF No. 16). The Court has reviewed the papers and has determined that no hearing is necessary, see Local Rule 105.6 (D. Md. 2014). For the reasons explained below, Respondents’ Motion to Enforce shall be GRANTED IN PART, and the pro se Petition shall be DENIED.[3]

         I. Legal Standards

         Section 7602 of the Internal Revenue Code (the “Code”) broadly authorizes the IRS to summon third parties having “possession, custody, or care of books of account” relating to a taxpayer and to require such third parties to “produce such books, papers, records, or other data . . . as may be relevant” to an audit of the taxpayer’s return or to a determination of his liability. When the IRS summons a third party to produce documents, it is generally required to notify the taxpayer within three days after service of the summons but no later than twenty-three days before the date on which the documents are scheduled to be produced. I.R.C. § 7609(a). Thereafter, the taxpayer may bring an action in a United States District Court to quash the third-party summons. § 7609(b)(2), (h).[4] If the taxpayer brings such an action, the Government may move to compel compliance with the third-party summons. Id.

         The proceeding that follows is summary in nature. United States v. Clarke, 134 S.Ct. 2361, 2367 (2014). The burden initially rests on the Government to show that “(1) the investigation is being conducted for a legitimate purpose; (2) the inquiry is relevant to that purpose; (3) the information sought is not already in the possession of the IRS; and (4) the administrative steps required by the Internal Revenue Code have been followed.” Conner v. United States, 434 F.3d 676, 680 (4th Cir. 2006) (citing United States v. Powell, 379 U.S. 48, 57-58 (1964)). The Government’s prima facie burden is “slight or minimal, ” id. (quoting Mazurek v. United States, 271 F.3d 226, 230 (5th Cir. 2001)), and the Government may meet its burden through an affidavit by a revenue agent averring the Powell elements, id. (citing Alphin v. United States, 809 F.2d 236, 238 (4th Cir. 1987)); see also Clarke, 134 S.Ct. at 2367 (“[A]bsent contrary evidence, the IRS can satisfy [the Powell] standard by submitting a simple affidavit from the investigating agent.”).

         If the Government produces an appropriate affidavit or otherwise establishes a prima facie case for enforcement, the burden shifts to the taxpayer to disprove one or more of the Powell elements or to “show that the IRS is attempting to abuse the court’s process” through summonses issued to harass the taxpayer, to coerce him to settle a collateral dispute, or for some other bad-faith purpose. United States v. Stuart, 489 U.S. 353, 360 (1989). The taxpayer’s burden on rebuttal is onerous: he must prove a negative by disproving the “actual existence of a valid civil tax determination or collection purpose.” Tillman v. United States, Civ. No. ELH-13-2413, 2014 WL 1379293, at *2 (D. Md. Apr. 8, 2014) (quoting Alphin, 809 F.2d at 238). “If the [taxpayer] cannot refute the government’s prima facie case or cannot factually support a proper affirmative defense, ‘the district court should dispose of the proceeding on the papers before it and without an evidentiary hearing.’” Alphin, 809 F.2d at 238 (citation omitted). Moreover, the court “should not allow discovery at this stage unless the taxpayer makes a preliminary demonstration of abuse.” Id.; cf. Clarke, 134 S.Ct. at 2367 (holding that a taxpayer is entitled to examine an IRS agent only where the taxpayer can “point to specific facts or circumstances plausibly raising an inference of bad faith”; clarifying that “[n]aked allegations of improper purpose are not enough” and that the “taxpayer must offer some credible evidence supporting his charge”).

         II. Analysis

         In this case, the Government has produced a declaration by Agent Abul-Huda averring the Powell elements. With respect to prong one (i.e., proper purpose), Agent Abul-Huda averred that it is “necessary to obtain the testimony and to examine the books, papers, records, or other data sought by the [S]ummonses in order to properly investigate the income tax liability of [the Taxpayers] for the taxable years 2009, 2010, 2011, 2012, and 2013.” (ECF No. 13-2 at 3.) This simple attestation is sufficient for purposes of the Government’s prima facie case. See Putnam v. United States, Civ. No. RWT-09-CV-1229, 2009 WL 2447944, at *1 (D. Md. Aug. 4, 2009). Moreover, Seaside Seafood conceded in its brief that the Government “has made a prima facie showing of a proper purpose for the Summons[es].” (ECF No. 14 at 5.) As for Mr. Wood, he did not respond to the Government’s Motion to Enforce, and none of his unsubstantiated, conclusory allegations in his Petition raise a plausible inference of IRS misconduct.[5] The IRS acted with a proper purpose; Powell prong one is satisfied.

         With respect to prong two (i.e., relevance), the documents that the IRS has requested- which include bank statements, copies of loan applications, and credit card records for the tax years in question-are indisputably germane to Agent Abul-Huda’s investigation of the Taxpayers’ liability. This is particularly so given that Code section 7602(a)(2) authorizes the IRS to obtain records that “may be relevant or material” to an audit (emphasis added). “The language ‘may be’ reflects Congress’ express intention to allow the IRS to obtain items of even potential relevance to an ongoing investigation, without reference to . . . admissibility.” United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984); see also United States v. Richards, 631 F.2d 341, 345 (4th Cir. 1980) (“[P]rior to judicial enforcement, the court must conclude that there is a realistic expectation that the information called for by the summons will throw light upon the [taxpayer’s] federal tax liability.”). In its brief, Seaside Seafood contends that Agent Abul-Huda’s declaration “does not contain a statement or averment of how the documents and records sought by the [S]ummonses are relevant to [his] investigation.” (ECF No. 14 at 5-6.) Seaside Seafood then cites Sylvestre v. United States, 978 F.2d 25, 27 (1st Cir. 1992) (per curiam), a case in which a revenue agent attested that the bank records he sought were “relevant for the purpose of reconstructing income received.” While Agent Abul-Huda did not make such an explicit statement, his declaration-read alongside the detailed Summonses themselves- demonstrates that he sought to review financial records for the purpose of ascertaining the Taxpayers’ income for the years in question. Seaside Seafood acknowledges that the requested documents “may be relevant to the IRS’s investigation” (ECF No. 14 at 6), and controlling authority in this Circuit requires nothing more: the Court will not superimpose a hypertechnical “magic words” requirement onto the Powell framework. See Putnam, 2009 WL 2447944, at *2 (relevancy requirement was satisfied where “requested records include[d] bank statements, deposited items, cancelled checks, copies of cash transaction reports, and loan applications, ” and where such records could “show the sources and amount of income that [taxpayer] received”); Matchwood Found. v. United States, Civ. No. L-09-665, 2009 WL 2009041, at *2 (D. Md. Apr. 30, 2009) (relevancy requirement was satisfied where agent declared that summoned documents would “shed light on the taxpayers’ federal income tax liabilities for the years” in question); Dorsey v. United States, Civ. No. L-03-1140, 2004 WL 424508, at *2 (D. Md. Jan. 14, 2004) (relevancy requirement was satisfied where summoned documents would “reflect the receipt of income” by taxpayer and “would certainly be relevant to determining [taxpayer’s] tax liabilities”). Likewise here, the requested bank statements and related documents are relevant to Agent Abul-Huda’s investigation, and Powell prong two is satisfied.

         With respect to prong three (i.e., no summonses for records already in IRS possession), Agent Abul-Huda admitted that the IRS previously acquired a small subset of the requested documents-specifically, bank statements from 2010-12 for certain accounts owned by Seaside Seafood at JPMorgan Chase Bank, N.A. and the Bank of Glen Burnie. (See ECF No. 13-2 at 2.) Respondents have also supplied a declaration by Agent Abul-Huda’s predecessor, Revenue Agent Julia Garland (“Agent Garland”), wherein Agent Garland acknowledged that she obtained these 2010-12 statements from the Taxpayers’ accountant and transferred the files to Agent Abul-Huda when she left her position in July 2015. (ECF No. 16-2.)[6] Apart from this small subset of documents, Agent Abul-Huda avers that the “books, papers, records, or other data sought by the [S]ummonses . . . are not already in the possession of the Internal Revenue Service.” (ECF No. 13-2 at 3.) Once again, the Taxpayers have failed to rebut Agent Abul-Huda’s attestation.[7] In this situation, where some careful tailoring would bring the Summonses into full compliance with Powell, it would be gratuitous (and profoundly inefficient) to quash the Summonses in their entirety simply because, as drafted, they are slightly overbroad. The Court is “vested with considerable authority to modify a summons prior to enforcement, ” Richards, 631 F.2d at 346; see also Worsham v. U.S. Dep’t of the Treasury, Civ. No. ELH-12-2635, 2013 WL 5274358, at *18 (D. Md. Sept. 17, 2013) (where government conceded that it had custody of certain summoned records, court enforced summonses with respect to remaining records). Accordingly, the Court will craft an Order enforcing the Summonses but only to the extent that they request documents not already in IRS custody, thereby achieving a result that is congruent with Powell prong three.[8]

         Finally, with respect to prong four (i.e., administrative compliance), Agent Abul-Huda averred that “[a]ll administrative steps required by the Internal Revenue Code for issuance of a summons have been taken.” (ECF No. 13-2 at 3.) He also recounted that he “served attested copies of the [S]ummonses . . . on the summonsed third parties via certified mail, ” in accordance with Code section 7603(b), and that he served notice on the Taxpayers via certified mail, in accordance with Code section 7609(a). (Id. at 2.) Such averments are sufficient to make out a prima facie showing of administrative compliance. See Putnam, 2009 WL 2447944, at *2 (administrative-compliance element was satisfied where agent declared that he was “authorized to issue summonses, that he served an attested copy on each bank, and that he gave notice of the summonses to [taxpayer]”); Matchwood Found., 2009 WL 2009041, at *2 (administrative-compliance element was satisfied where agent declared that “[a]ll administrative steps required by Title 26 of the United States Code for the issuance of a summons have been followed” (alteration in original)). Critically, nothing in either Mr. Wood’s Petition or Seaside Seafood’s brief casts the slightest doubt on Agent Abul-Huda’s attestation. Mr. Wood complained that the Summonses “fail[ed] to state any liability, actual or ostensible[, ] for which purpose the [S]ummons[es] may have been issued” (ECF No. 1 ¶ 10)-but his assertion is once again demonstrably false, as each Summons identifies the tax form series (1040 or 1120S) and the tax years in question.[9] Seaside Seafood passingly asserts that its “accountant . . . was not provided notice prior to the [S]ummonses being served on third parties as required by 26 U.S.C. §7602 [sic]” (ECF No. 14 at 10)-but neither section 7602 nor the regulations promulgated thereunder require the IRS to notify a taxpayer’s accountant in advance of serving third-party summonses.[10] See Bodensee Fund, LLC v. United States, Civ. No. 07-3209 (MLC), 2008 WL 4490361, at *7 (D.N.J. Sept. 30, 2008) (“Internal Revenue Code § 7602 does not . . . require the IRS to notify taxpayers’ representatives when issuing third-party summonses.”); cf. Treas. Reg. § 601.506(a)(3) (as amended in 1991) (“Failure to give notice or other written communication to the recognized representative of a taxpayer will not affect the validity of any notice or other written communication delivered to a taxpayer.”). Because the Taxpayers here have neither adduced evidence nor, for that matter, presented any viable allegations tending to discredit Agent Abul-Huda’s declaration of administrative compliance, Powell prong four is satisfied.

         III. Conclusion

         In light of the foregoing, the Court concludes that the Government has carried its prima facie burden under Powell and progeny. The Taxpayers have neither rebutted the Government’s prima facie case nor otherwise demonstrated that the IRS is “attempting to abuse the court’s process, ” Stuart, 489 U.S. at 360. The Taxpayers have not carried their heavy burden of “disproving the actual existence of a valid civil tax determination or collection purpose, ” nor have they alleged “specific facts . . . supported by affidavits, from which the court can infer a possibility of some wrongful conduct by the IRS, ” Alphin, 809 F.2d at 238. Under such circumstances, further evidentiary review is wholly unnecessary. Instead, an Order shall enter DENYING Mr. ...


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