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United States v. Santoso

United States District Court, D. Maryland, Southern Division

August 14, 2018

UNITED STATES, Petitioner,


          Paul W. Grimm United States District Judge.

         The Internal Revenue Service has filed a petition to enforce an administrative summons it served on Sharon Santoso (a.k.a. Isarina Ali and Le le Ling). Pet., ECF No. 1. Santoso has filed a motion to quash the petition and deny its enforcement, and a motion to strike three exhibits attached to the IRS's petition, [1] Resp't's Mot. to Quash, ECF No. 19; Resp't's Mot. to Strike, ECF No. 20; in response the IRS filed a consolidated opposition, Pet.'s Opp'n, ECF No. 23. The briefing has been quite skillfully done by both parties. I issued a brief letter order advising the parties that, following review of their filings, I had determined that (a) the IRS had made a prima facie showing of its entitlement to have the petition enforced, and (b) Santoso had submitted sufficient evidence of non-possession of the documents the IRS seeks to warrant an evidentiary hearing to permit her to meet her burden of proof on this affirmative defense. ECF No. 35. That hearing has been scheduled for October 31, 2018, and if necessary, will continue on November 1, 2018. This Memorandum Opinion provides a more detailed explanation of those rulings.

         As explained by the Supreme Court and implemented by the Fourth Circuit, to prevail on a motion to enforce an administrative summons, the IRS must show:

(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. United States v. Stuart, 489 U.S. 353, 359-60 (1989); [United States v.] Powell, 379 U.S. [48, ] 57-58 [1964]; Alphin v. United States, 809 F.2d 236, 238 (4th Cir. 1987).

Conner v. United States, 434 F.3d 676, 680 (4th Cir. 2006). The IRS's burden is “slight or minimal, ” id. (citing Mazurek v. United States, 271 F.3d 226, 230 (5th Cir. 2001)), and generally is satisfied by attaching to the petition the declaration of an IRS revenue agent attesting to compliance with the four Powell elements, as was done in this case. See id.; Stuart, 489 U.S. at 360; Brimage Decl., ECF No. 1-3.[2] This is because summons enforcement proceedings are intended to be summary, to facilitate expeditious resolution of the investigation being conducted. See Alphin, 809 F.2d at 238 (“The government's burden is fairly slight because this is a summary proceeding. It occurs only at the investigative stage of an action against the taxpayer, and “‘the statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted.'”) (quoting United States v. Kis, 658 F.2d 526, 536 (7th Cir. 1981)).

         Once the IRS has made its prima facie showing, the burden shifts to the respondent to “show that enforcement of the summons would be an abuse of the court's process.” Id. This is a heavy burden. Id.

In order to be entitled to a hearing, the party challenging the summons must allege specific facts in its responsive pleadings, supported by affidavits, from which the court can infer a possibility of some wrongful conduct by the IRS. Kis, 658 F.2d at 540; Garden State National Bank, 607 F.2d at 71. See also United States v. Equitable Trust, 611 F.2d 492, 499-501 (4th Cir.1979) (hearing required when party states with sufficient particularity factual support for its allegations of bad faith). “Mere allegations of bad faith will not suffice.” Kis, 658 F.2d at 539. But see United States v. Southeast First National Bank of Miami Springs, 655 F.2d 661, 667 (5th Cir.1981) (allegation of improper purpose sufficient to trigger limited hearing). If the challenging party 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.” Garden State National Bank, 607 F.2d at 71. Similarly, the court should not allow discovery at this stage unless the taxpayer makes a preliminary demonstration of abuse.

United States v. Will, 671 F.2d 963, 968 (6th Cir.1982).

         Legitimate Purpose

         Although Santoso raises conclusory allegations that the IRS summons constitutes harassment and is being conducted for an improper purpose, the Brimage declaration and the exhibits attached to the IRS's petition more than adequately show that the purpose of the summons is legitimate. The IRS is looking into Santoso's tax returns for the years 2005-2012, and particularly is concerned with cash in the amount of $3, 589, 830 received by her between 2005 and 2011, allegedly as “gifts, ” from members of her famously wealthy family in Indonesia, but not reported to the IRS until March, 2014. Pet. 3 n.4. Although Santoso complains that she has given sworn testimony to the IRS on three occasions for more than twenty hours and provided over a thousand documents (e.g., Domestic R. Prev. Prod. to IRS, ECF No. 19-1), my review of the excerpts of the transcripts of that testimony attached as exhibits shows that much of it is of little value because it is made up of speaking objections made by Santoso's lawyers, sparring between them and counsel for the IRS and the revenue agent, and assertions of the fifth amendment by Santoso. Considered along with the “deer-in-the-headlights” manner in which Santoso professed nearly total ignorance of the manner in which she received millions of dollars of cash transfers from her relatives in Indonesia, as well as the circumstances under which her family members acquired the money which they gave to her, the IRS was more than justified in continuing its efforts to get to the bottom of whether she should be assessed with penalties under 31 U.S.C. § 5314 (failure to file a Report of Foreign Bank Account) and 26 U.S.C. § 6677 (failure to file Forms 5471, 3520, and 3520(a)), as well as the correctness of her 2005-2012 tax returns. Pet. 1-2.

         Relevance of the IRS Inquiry

         The filings and attached exhibits show that the documents the IRS seeks to obtain through the summons are relevant to the inquiry into the correctness of Santoso's 2005-2012 tax returns. In essence, the IRS wants documents relating to domestic and foreign bank accounts owned or controlled by Santoso; brokerage accounts, mutual funds, and security accounts over which she had signature authority or exercised control; her ownership interests in any “entities and structures” (such as corporations, partnerships, joint ventures, stock ownership, trusts in which she is a beneficiary); investments in specifically named entities (Kingboard Investments, Lyndale, Wisemalik Group) and their connection, if any, to specifically named individuals (Putera Sampoerna, Michael Sampoerna, Ron Walla, Stephen Walla, Willy Walla, and Melina Ali); ownership in foreign or domestic real estate; non-taxable sources of income (inheritance, commercial or private loan proceeds, gifts); tax and financial records prepared by Santoso's financial advisors relating the tax returns at issue; Santoso's travel records; and Santoso's domestic and foreign tax returns for the years 2005-2012. IRS Summons, ECF No. 1-3, at 7-19.

         Given the large sum of cash that Santoso received (and failed timely to report) during the tax years in dispute, her evasive, questionably credible, and incomplete explanation of its source, as well as the documents attached to the IRS's filings, the government clearly has shown that that the documents they seek are relevant to their inquiry.

         Information not already ...

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