United States of America v. Anderson
Filing
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ORDER GRANTING PETITIONER UNITED STATES OF AMERICA'S PETITION TO ENFORCE IRS SUMMONS by Judge Jon S. Tigar denying 44 Motion to Strike. (wsn, COURT STAFF) (Filed on 11/25/2014)
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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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UNITED STATES OF AMERICA,
Case No. 14-cv-01932-JST
Petitioner,
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v.
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SIGURD ANDERSON,
Respondent.
Re: Dkt. Nos. 1, 17, 21, 33, 36, 44, 50
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United States District Court
Northern District of California
ORDER GRANTING PETITIONER
UNITED STATES OF AMERICA'S
PETITION TO ENFORCE IRS
SUMMONS
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Before the Court is the United States’ Verified Petition to Enforce Internal Revenue
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Service Summons (“the Petition”) against Respondent Sigurd Anderson. The Court will grant the
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petition.
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I.
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BACKGROUND
The Petition arises from an Internal Revenue Service (“IRS”) investigation being
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prosecuted by Revenue Agent Sarah Ho (“Agent Ho”). ECF No. 1 at ¶ 4. The investigation
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concerns Respondent’s tax liabilities and investment activities for the years of 2009 and 2010. Id.
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On December 17, 2013, Agent Ho issued a summons for documents and testimony related to the
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alleged tax liabilities. Id. at ¶ 5; ECF No. 1-2. Pursuant to the summons, IRS officials including
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Agent Ho interviewed Respondent on January 14, 2014. Respondent refused to answer a majority
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of the questions posed to him, and did not supply any of the requested documents, claiming
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various grounds of privilege. Id. at 9-10.
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Seeking a court order compelling Respondent’s cooperation with the summons, the IRS
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filed the instant Petition on April 25, 2014. ECF No. 1. On May 23, 2014, this Court found that
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the Government had established its prima facie case and ordered Respondent to show cause why
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he should not be compelled to produce the requested documents and testimony. ECF No. 9. The
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parties subsequently submitted briefing. ECF Nos. 1, 17, 21, 33, 36, 44, 50. The Government’s
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briefing included a supplemental reply, which Respondent thereafter moved to strike, in part. ECF
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Nos. 36, 44.
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II.
JURISDICTION AND LEGAL STANDARD
The IRS has authority to examine books and witnesses pursuant to a summons under 26
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U.S.C. § 7602(a). “If any person is summoned under the internal revenue laws to appear, to
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testify, or to produce books, papers, records, or other data, the United States district court for the
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district in which such person resides or is found shall have jurisdiction by appropriate process to
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compel such attendance, testimony, or production of books, papers, records, or other data.” 26
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U.S.C. § 7604.
The specific legal procedure governing the court’s inquiry is well-established. See United
United States District Court
Northern District of California
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States v. Powell, 379 U.S. 48 (1964); United States v. Clarke, 134 S. Ct. 2361 (2014). First, the
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United States must outline its prima facie case. See Crystal v. United States, 172 F.3d 1141 (9th
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Cir. 1999). To do so, the United States must show that “1) the investigation will be conducted for
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a legitimate purpose 2) the material being sought is relevant to that purpose 3) the information
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sought is not already in the IRS’s possession and 4) the IRS complied with all the administrative
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steps required by the Internal Revenue Code.” Id. at 1143-1144. The statute is enforced in the
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context of the Government’s legitimate interest in collecting taxation revenue; “[t]he burden is
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minimal because the statute must be read broadly in order to ensure that the enforcement powers
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of the IRS are not unduly restricted.” Id. at 1144 (internal quotation omitted). “The government’s
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burden is a slight one, and may be satisfied by a declaration from the investigating agent that the
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Powell requirements have been met.” United States v. Dynavac, Inc. 6 F.3d 11407, 1414 (9th Cir.
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1993).
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Once the Government has succeeded in carrying its initial burden, the burden shifts to the
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Respondent. Crystal 172 F.3d at 1144. “[T]hose opposing enforcement of a summons . . . bear
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the burden to disprove the actual existence of a valid civil tax determination or collection purpose
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by the Service . . . this burden is a heavy one.” Id. at 1144 (internal quotation omitted).
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Established grounds for challenging the summons include demonstrating “failure to satisfy the
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Powell requirements.” United States v. Jose, 131 F.3d 1325, 1328 (9th Cir. 1997) (en banc).
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Abuse of process, such as bad faith use of the procedure to harass or pressure the taxpayer
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regarding other disputes, is also recognized as grounds to invalidate the summons. Powell, 379
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U.S. at 58. The Government also may not seek enforcement of a summons when it has already
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decided to recommend the matter for prosecution. See United States v. LaSalle National Bank,
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437 U.S. 298, 314 (1978). “[T]he dispositive question in each case is whether the Service is
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pursuing the authorized purposes in good faith.” Crystal, 172 F.3d at 1144-1145 (internal
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quotation omitted).
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United States District Court
Northern District of California
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III.
DISCUSSION
This Court previously found that the Government had established a prima facie case under
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Powell based upon its initial Petition and accompanying Declaration. ECF No. 9 at 1. The
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Government has demonstrated through Agent Ho’s declarations and the supporting documents that
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the investigation’s purpose is to seek Respondent’s records regarding tax liabilities and foreign
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banking and investment activities. ECF No. 1 at ¶ 4. The declarations of Agent Ho and the
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supporting documents establish that the material sought is indeed relevant to the investigation’s
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purpose. ECF No. 1 at ¶ 5, 6, and 13. The declarations assert that the records presently sought are
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not currently in the possession of the Government. ECF No. 1 at ¶ 7. Finally, the Government
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asserts that it has complied with all administrative steps required, including proper notice and
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summons. ECF No. 1 ¶ 8-12.
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Because the Government has carried its initial burden and established a prima facie case,
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the burden shifts to Respondent to rebut the Government’s assertions. Crystal, 172 F.3d at 1144.
Challenges to the Government’s Powell Prima Facie Case
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A.
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Direct, factual challenges to one of the four prongs established under the Powell line of
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cases are a well-recognized method for demonstrating that the Government is not justified in
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requesting that the Court enforce its summons. Action Recycling at 1142-1145. “’The taxpayer
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must allege specific facts and evidence to support his allegations’ of bad faith or improper
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purpose.” Jose, 131 F.3d at 1328 (quoting Liberty Fin. Servs. v. United States, 778 F.2d 1390,
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1392 (9th Cir.1985)).
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Respondent argues that the Government’s use of the word “control” rather than “care”
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renders its summons overly expansive and thus illegitimate, ECF No. 33 at 10-11, but cites no
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authority for this proposition. The cases make clear that someone responding to an enforcement
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subpoena must produce documents in her control as well as those in her possession. See United
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States v. Vallance, 793 F.2d 1003, 1005 (9th Cir. 1986) (district court did not err in enforcing
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subpoena where respondent failed to present evidence that documents were not in his control);
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United States v. Bright, 596 F.3d 683, 692-95 (9th Cir. 2010) (noting that issues to be litigated in
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enforcement subpoena included “privilege, possession and control”); United States v. Ellsworth,
460 F.2d 1246, 1248 (9th Cir. 1972) (ordering corporate secretary to produce documents in his
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United States District Court
Northern District of California
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control); United States v. Rylander, 460 U.S. 752, 757 (1983) (“Thus while [Respondent] could
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not attack the enforcement order on the ground that he lacked possession or control of the records
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at the time the order was issued, he could defend the contempt charge on the ground that he was
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then unable to comply because he lacked possession or control.”). Respondent fails to
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demonstrate that the Government’s use of the word “control” exceeds the legitimate statutory
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purpose.
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Respondent next argues that the Government has not shown that it does not already
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possess the information requested by the subpoena. ECF No. 33 at 11. Respondent also claims
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that that Government’s possession of certain documents demonstrates that the Government is
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requesting duplicative documents. ECF No. 33 at 11-12. Respondent provides no evidence to
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demonstrate that the Government’s requests actually overlap with the documents it has entered as
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exhibits or already has in its possession. In light of this lack of evidence and the Government’s
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broad discretion to request documents related to its legitimate purpose, Respondent has failed to
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carry his burden of demonstrating the summons is not valid. Crystal, 172 F.3d at 1141.
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B.
Abuse of Process
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Abuse of process is another well-established ground for challenging the good faith intent
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of an IRS summons. Powell, 379 U.S. at 58. Enforcement of a summons effectively invokes the
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process of the court, which may not be used for an improper purpose. United States v. Stuart 489
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U.S. 353, 360 (1989). But “[n]aked allegations of improper purpose are not enough: The taxpayer
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must offer some credible evidence supporting his charge.” United States v. Clarke, 134 S. Ct. at
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2367.
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Here, Respondent argues that the Government made overly broad requests, failed to
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recognize that Respondent did, in fact, answer some of the questions asked of him after the
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administrative summons, and that IRS counsel illegally attended the proceeding. ECF No. 33 at
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12-14. An accusation of abuse of process necessarily implicates the use of a legal proceeding for a
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purpose beyond what is recognized as legitimate. See Powell, 379 U.S. at 85 (“[A]buse of process
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would take place if the summons had been used for an improper purpose. . . .” (emphasis added))..
Respondent fails to allege that the Government sought to enforce the summons out of any sort of
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United States District Court
Northern District of California
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illicit objective or impermissible, collateral intent beyond the purposes of investigating
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Respondent’s tax liabilities and foreign banking activities.
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Respondent also states that the Government is unfairly conducting this investigation to
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obtain forbidden discovery for a potential criminal case, ECF No. 33 at 14-15, essentially alleging
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bad faith. Crystal, 172 F.3d at 1144 (“[G]athering evidence after having decided to make a
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recommendation for prosecution would be an improper purpose. . . .”). Respondent fails to
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provide specific facts or evidence to demonstrate that the Government is seeking to refer his case
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for prosecution, instead stating only that “Anderson has proven facts . . . that the IRS is . . .
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seeking [criminal] discovery. . . .” ECF No. 33 at 15. The Government has stated that it has not
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referred the matter to the Justice Department. ECF No. 1 at 3. Without more, these allegations are
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insufficient for Respondent to meet his burden in demonstrating an abuse of process.
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C.
Privilege
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Respondent claims that the information sought by the IRS is protected by various grounds
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of privilege. ECF No. 33 at 19-25. Specifically, Respondent claims that his Fifth Amendment
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right against self-incrimination, spousal privilege, attorney-client privilege, and tax practitioner
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privilege each bar the enforcement of the IRS summons. Id.
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Respondent is correct that a taxpayer may invoke his Fifth Amendment rights in response
to an IRS summons under certain circumstances. United States v. Drollinger, 80 F.3d 389, 392
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(9th Cir.1996) (“A claim of Fifth Amendment privilege may be asserted if there are ‘substantial
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hazards of self-incrimination that are real and appreciable. . . .”). When invoking the Fifth
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Amendment, however, the party seeking protection must justify the invocation of the privilege.
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Hoffman v. United States, 341 U.S. 479, 486 (1951). Mere “blanket assertion[s]” of Fifth
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Amendment rights are insufficient. United States v. Brown, 918 F.2d 82, 84 (9th Cir.1990). The
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process requires a question-by-question or document-by-document review. United States v.
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Bodwell, 66 F.3d 1000, 1001 (9th Cir.1995).
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Here, Respondent does not point to specific documents or questions and explain with
specificity why any of the privileges he claims should apply. Instead, Respondent has claimed
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that all documents in his possession sought by the IRS are privileged by the Fifth Amendment.
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United States District Court
Northern District of California
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Such a blanket assertion of privilege cannot bar enforcement of the summons. See Brown, 918
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F.2d at 84 (concluding that privilege claim was properly rejected where petitioner “did not attempt
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. . . to make a document-by-document or question-by-question claim of privilege, though he could
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have done so” but instead asserted “a blanket privilege”).
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Respondent makes his other privilege assertions in similarly blanket manner. “It is
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incumbent upon [the individual seeking evidentiary privilege] to make a particular assertion with
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respect to each specific category of requested information to which he claimed the privilege
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applied.” United States v. Abrahams, 905 F.2d 1276, 1283 (9th Cir. 1990) (overruled by United
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States v. Jose on other grounds). For each category of privilege, the individual invoking the
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privilege has the burden of establishing that the information sought satisfies the conditions
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required by the privilege. United States v. Flores, 628 F.2d 521 (9th Cir.1980). Without some
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demonstration of why specific documents should be privileged, the Court cannot deny
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enforcement of the petition on the grounds of privilege. Respondent was asked by the Court in its
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Order to Show Cause, ECF No. 9, to make some showing of why privilege should bar
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enforcement of the petition, and Respondent has failed to do so. In light of this failure,
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Respondent cannot rely on claims of privilege to justify a blanket refusal to produce documents or
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provide testimony related to the investigation.
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D.
Other Challenges
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Respondent argues that the Petition is moot because he has already responded to the
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Government’s record requests and provided some testimony. ECF No. 33 at 5-8. But Respondent
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has not provided the IRS with any of the requested documents, nor has he provided anything more
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than blanket assertion of privilege at the proceeding. Because the IRS seeks to use the Petition to
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compel the production of documents Respondent has thus far refused to produce, and obtain
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testimony the Respondent has thus far refused to provide, the matter is not moot and is fit for
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disposition.
Respondent also argues that Petition is filed incorrectly and that the Court should construe
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the process as, essentially, a standalone request for preliminary and permanent injunction. ECF
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United States District Court
Northern District of California
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No. 33 at 8-9. The Court is not persuaded by this argument. The IRS petition enforcement process
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is well-established and has been appropriately exercised by the Government in this case. The
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Court likewise finds Respondent’s challenges under the Administrate Procedure Act inapposite, as
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“[a]n IRS investigation . . . is not an adjudicative order subject to the requirements set forth in the
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Administrative Procedures Act.” Kernan v. I.R.S., 2006 WL 2091668 at *4 (D. Ariz. 2006).
Finally, Respondent has submitted a motion to strike, asking this Court to strike various
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arguments he alleges that the Government raised for the first time in its Reply briefing.
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Respondent uses this motion to raise numerous new substantive arguments of his own. The Court
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notes that it has only considered those arguments that were properly raised by the parties during
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the course of the briefing. Respondent’s motion to strike is denied.
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IV.
CONCLUSION
For the foregoing reasons, the Court GRANTS the United States’ petition to enforce the
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IRS summons. Respondent is ORDERED to appear before Revenue Agent Sarah Ho, or any other
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proper officer or employee of the IRS, at such time and place as may be set by Revenue Agent Ho
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or her designee, and produce the documents and give the testimony called for by the terms of the
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summons dated December 17, 2013, a copy of which is attached as an exhibit to the Declaration of
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Sarah Ho dated April 25, 2014.
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IT IS SO ORDERED.
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Dated: November 24, 2014
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______________________________________
JON S. TIGAR
United States District Judge
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United States District Court
Northern District of California
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