Talbot v. United States of America et al

Filing 6

ORDER denying 1 Petitioner's Petition to Quash IRS Third Party Summons and granting 3 Respondent United States' Motion to Dismiss or Summarily Deny Petition to Quash. The Clerk shall terminate the case. Signed by Judge Neil V Wake on 7/15/11.(LSP)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Petitioner,
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vs.
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United States of America; Internal)
Revenue Service; and Alex Medley, IRS)
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Special Agent,
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Respondents.
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Traci Talbot,

No. MC-11-00038-PHX-NVW
ORDER

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Before the Court is Petitioner Traci Talbot’s Petition to Quash IRS Third Party

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Summons (Doc. 1) and Respondent United States’ Motion to Dismiss or Summarily Deny

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Petition to Quash (Doc. 3).

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I.

Background

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This action arises from an investigation into Petitioner Traci Talbot’s tax liabilities

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for the 2007, 2008, and 2009 tax years. Internal Revenue Service Special Agent Alex

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Medley was assigned to conduct an examination of Petitioner’s federal income tax liabilities

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between 2007 and 2009 because Petitioner did not file income tax returns for these years.

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Pursuant to the investigation, Special Agent Medley mailed a letter to Petitioner on February

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16, 2010, inquiring about her non-filed income tax returns. With this communication,

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Special Agent Medley included Publication 1 (“Your Rights as a Taxpayer”), which informs

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tax payers that the IRS may contact third parties in relation to the investigation, and Notice

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609 (Privacy Act Notice). Special Agent Medley did not receive any response from

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Petitioner to this communication.

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On March 8, 2011, Special Agent Medley served an IRS administrative summons on

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Wells Fargo Bank, directing Wells Fargo to give testimony and produce data, records and

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other information concerning any accounts in which Petitioner had an interest. On that same

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day, Special Agent Medley sent Petitioner a notice of the issuance of the summons of Wells

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Fargo, a copy of the summons, and a notice explaining Petitioner’s right to bring a

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proceeding to quash the summons. Petitioner filed her Petition to Quash IRS Third Party

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Summons on March 23, 2011 (Doc. 1) and sent copies of her petition, via certified mail, to

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Special Agent Medley, the United States Attorney General, the United States Attorney for

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Arizona, and Wells Fargo (Doc. 1). The Certificate of Service attached to Petitioner’s

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petition indicates that Petitioner did not believe a judicial summons was also required. On

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May 11, 2011, the United States filed a Motion to Dismiss or Summarily Deny Petition to

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Quash (Doc. 3).

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II.

Analysis

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In her Petition, Petitioner argues that the summons of Wells Fargo should be quashed

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because (1) the IRS did not provide Petitioner with advance notice that contact with Wells

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Fargo would be made or with a record of persons contacted by the IRS regarding the

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investigation into Petitioner’s tax liabilities; (2) the summons violates 26 U.S.C. §

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7602(d)(2)(A) because there is a pending Department of Justice referral for criminal

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prosecution; (3) the IRS abused the summons process and failed to satisfy the standard of

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good faith set out in United States v. Powell, 379 U.S. 48 (1964); and (4) the summons

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violates federal and state privacy laws. The United States asserts that Petitioner’s petition

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should be dismissed under Fed. R. Civ. P. 12(b)(5) because the petition was not properly

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served. Alternatively, it argues the petition should be summarily denied because the United

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States has made a prima facie case under Powell that the summons was issued in good faith.

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A.

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Petitioner attached to her petition a copy of IRS Form 2039, which informs parties of

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their right to bring a petition to quash a third party summons and instructions on how to file

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such a petition (Doc. 1). The form includes the admonition that the “petition must be served

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upon the appropriate parties, including the United States, as required by Federal Rule of Civil

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Procedure 4.” (Doc. 1.) Under Fed. R. Civ. P. 4(i)(1), a party bringing an action against the

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United States must “deliver a copy of the summons and of the complaint” to the United

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States Attorney for the district where the action is brought and the United States Attorney

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General. While Petitioner did mail a copy of her petition to the relevant parties, she did not

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obtain or mail a copy of the summons. Accordingly, the United States was not properly

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served. However, because this defect could permissibly be cured, Fed. R. Civ. P. 4(m), the

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Court will not dismiss the petition on these grounds.

Dismissal for Improper Service

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B.

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The IRS is broadly empowered to issue summons “[f]or the purpose of ascertaining

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the correctness of any return, making a return where none has been made, determining the

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liability of any person for any internal revenue tax . . . or collecting any such liability.” 26

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U.S.C.§ 7602(a). When the subject party of an investigation objects to the issuance of a third

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party summons under 26 U.S.C.§ 7602(a), she may file a petition to quash the summons. 26

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U.S.C.§ 7609. Petitioner argues the Wells Fargo summons should be quashed because (1)

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the United States has not shown that it acted in good faith under Powell; and (2) the

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summons issued in violation of 26 U.S.C.§ 7602(d)(2)(A).

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Authority to Issue Summons

1.

Powell Standard

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When a party challenges the validity of a summons issued by the IRS, the United

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States is required to establish a prima facie case that it acted in good faith by showing the

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summons: (1) was issued for a legitimate purpose; (2) seeks information relevant to that

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legitimate purpose; (3) seeks information that is not already in the IRS’s possession; and (4)

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all of the administrative steps required by the Internal Revenue Code were followed. Powell,

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379 U.S. at 57-58. “The government’s burden [to show the Powell factors are met] is a slight
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one, and may be satisfied by a declaration from the investigating agent . . . .” United States

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v. Dynavac, Inc., 6 F.3d 1407, 1414 (9th Cir. 1993). Once the United States meets this

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“slight” burden, the taxpayer has the “heavy” burden of showing “an abuse of process . . .

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or the lack of institutional good faith.” Id.

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Here, the United States has supplied the sworn declaration of Special Agent Medley

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showing the Powell factors have been satisfied (Doc. 3-2). Special Agent Medley attests that

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he issued the third-party summons in furtherance of his investigation into Petitioner’s tax

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liability between 2007 and 2009 (Doc. 3-2, ¶ 6) and that the information sought from Wells

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Fargo is relevant because it may shed light upon Petitioner’s income, which assists in the

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determination of Petitioner’s correct income tax liabilities (Doc. 3-2, ¶¶ 8, 12). Special

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Agent Medley additionally swears that the information sought by the Wells Fargo summons

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is not already in the possession of the IRS (Doc. 3-2, ¶ 7). Finally, Special Agent Medley’s

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declaration shows that he satisfied all of the administrative procedures required by the

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Internal Revenue Code, including sending Petitioner the notices required by 26 U.S.C. §

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7609(a) (Doc. 3-2, ¶¶ 4, 6, 9, 13).

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Because the United States has made the required prima facie showing under Powell,

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the burden shifts to Petitioner to show an abuse of process or lack of institutional good faith.

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Dynavac, 6 F.3d at 1414. However, Petitioner’s response does not contain sufficient facts

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to meet her “heavy burden” of showing the IRS acted in bad faith or issued the summons as

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an abuse of process. Petitioner’s sole factual allegation in support of her bad faith claim is

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that the IRS issued an identical summons of Wells Fargo targeting information about

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Petitioner on November 29, 2010, subsequently withdrew that summons, and now have

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reissued the summons seeking the same information (Doc. 5). Although Petitioner argues

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that issuing this course of action is an abuse of process because it forces her to again defend

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against the summons, she has not provided any evidence to make out a claim that the

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summons was issued to harass her. Accordingly, Petitioner’s petition to quash will not be

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granted on these grounds.

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2.

Violation of 26 U.S.C. § 7602(d)(2)(A)

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Under 26 U.S.C. § 7602(d)(2)(A), “[n]o summons may be issued under this title . . .

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with respect to any person if a Justice Department referral is in effect with respect to such

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person.” Although Petitioner alleges that there is a Justice Department referral in effect that

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would bar the Wells Fargo summons, Special Agent Medley’s declaration show there is no

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such referral (Doc. 3-2, ¶ 14). Accordingly, violation of 26 U.S.C. § 7602(d)(2)(A) is not

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grounds to grant the petition to quash.

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D.

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Petitioner vaguely asserts that the Wells Fargo summons violates federal and state

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privacy laws. However, Petitioner has not identified any specific statutory or constitutional

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laws which are purportedly violated by issuance of the summons. Without a more specific

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allegation, the United States has not been put on notice of its alleged wrongdoing; nor can

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the Court say that the summons issued in violation of any unenumerated privacy laws. See,

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Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009).

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Violation of Privacy Laws

IT IS THEREFORE ORDERED that Petitioner’s Petition to Quash IRS Third Party
Summons (Doc. 1) is denied.

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IT IS FURTHER ORDERED that Respondent United States’ Motion to Dismiss or

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Summarily Deny Petition to Quash (Doc. 3) is granted. The Clerk shall terminate the case.

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DATED this 15th day of July, 2011.

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