Kalra v. USA

Filing 30

MEMORANDUM Opinion and Order Signed by the Honorable John W. Darrah on 4/23/2013.(tg, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BIKRAMJIT SINGH KALRA,
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.

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Case No. 12-CV-3154
Judge John W. Darrah

MEMORANDUM OPINION AND ORDER
Plaintiff Bikramjit Singh Kalra has filed a petition to quash an Internal Revenue Service
(“IRS”) summons that seeks his financial information from a third-party bank. Defendant United
States of America (“the Government”) has moved to dismiss Kalra’s Petition, pursuant to Fed. R.
Civ. P. 12(b)(1) and 12(b)(6). For the reasons stated below, the Government’s Motion is denied.
BACKGROUND
The following summary of operative facts is drawn from the petition, the parties’ briefs,
and the parties’ exhibits. 1 The Government asserts the following: Kalra is the subject of an
investigation by the Indian tax authorities (“ITA”) concerning his tax liability in that country.
(Def.’s Mem. in Supp. of Mot. to Dismiss (“Def.’s Mem.”) at 1.) Pursuant to a treaty between
the United States and India, the ITA requested that the IRS obtain Kalra’s relevant financial
information located in the United States. (Id.) In response to the ITA’s request, IRS Tax

1

In considering a motion to dismiss for lack of subject-matter jurisdiction, a court may
look beyond the complaint’s allegations and consider evidentiary materials addressed to the
jurisdictional question. United Transp. Union v. Gateway W. Ry. Co., 78 F.3d 1208, 1210 (7th
Cir. 1996).

Specialist Daniel B. Groscost served an administrative summons on third-party Bank of America
(“BofA”) regarding any accounts held by Kalra. (Id.; see also Def.’s Mem. Exh. 1A.)
According to the summons, Groscost also mailed a notice of the summons to Kalra to an
address in India provided by the ITA. (Id.; see also Def.’s Mem. Exh. 1A.) The date of the
summons to BofA is identified as “March XXth, 2012,” and there is no date or signature listed
for the notice of the summons sent to Kalra. 2
The summons at issue requested BofA to furnish copies of documents pertaining to all
accounts controlled or under the signatory authority of Kalra, for the period April 1, 2000
through December 31, 2011. (Def.’s Mem. Exh. 1A.) Kalra claims that, in or around mid-April
of 2012, he received a copy of the summons directly from BofA. (Pl.’s Resp. at 1.) According
to Kalra, he never received the notice mailed to him at the India address, and, upon receiving the
notice, he immediately contacted his attorneys. On April 27, 2012, Kalra filed the instant
petition to quash the IRS summons to BofA under 28 U.S.C. § 7609. (Id.) In his petition, Kalra
alleged that he is a resident of the United States, that he has filed taxes in the United States with
a United States address, and that he does not owe taxes in India. (Pl.’s Pet. ¶¶ 5-6.)
The Government has moved to dismiss Kalra’s petition under Fed. R. Civ. P. 12(b)(1)
and Fed. R. Civ. P. 12(b)(6). Kalra filed a response brief in opposition. The Government has not
filed a reply brief.

2

The Government submitted the unsworn, undated “affidavit” by IRS Tax Specialist
Daniel B. Groscost, as will be further discussed below. According to Groscost’s statement, he
issued the summons to BofA on March 26, 2012 and mailed the notice of the summons to Kalra
on or about March 29, 2012. (Def.’s Mem. Exh. 1.) As discussed below, Groscost’s statement is
not competent evidence.
2

ANALYSIS
Rule 12(b)(1) Motion
Fed. R. Civ. P. 12(b)(1) permits a defendant to move for dismissal on the ground that the
court lacks subject-matter jurisdiction. In considering the motion, “a district court must accept as
true all well-pleaded factual allegations and draw all reasonable inferences in favor of the
plaintiff.” Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). The district court
also “may properly look beyond the jurisdictional allegations of the complaint and view
whatever evidence has been submitted on the issue to determine whether in fact subject-matter
jurisdiction exists.” Id. (internal citations omitted). However, the nonmoving party (the
plaintiff) carries the burden of proving that the court has jurisdiction over its claims. United
Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir. 2003) (en banc).
Although the Government fails to mention Fed. Rule 12(b)(1) in its supporting
memorandum, it appears the Government is challenging subject-matter jurisdiction based on
sovereign immunity. Under the doctrine of sovereign immunity, the United States cannot be
sued without its consent, and any consent given limits the scope of the court’s jurisdiction. See
United States v. Dalm, 494 U.S. 596, 608 (1990). When Congress provides conditions waiving
sovereign immunity, “those conditions must be strictly observed and exceptions thereto are not
to be lightly implied.” Bartley v. United States, 123 F.3d 466, 468 (7th Cir. 1997) (quoting
Block v. North Dakota, 461 U.S. 273, 287 (1983)).
Notice Requirements Under 26 U.S.C. § 7609
A petition to quash an IRS summons qualifies as a suit against the United States and,
therefore, requires a waiver of sovereign immunity. Barmes v. United States, 199 F.3d 386, 388
(7th Cir. 1999). Such a waiver is provided under 26 U.S.C. § 7609(b)(2), which permits a
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petition to quash by any person who “is entitled to notice of a summons under subsection (a).”
See also Stratton v. United States, 34 F. Supp. 2d 1096, 1097 (N.D. Ind. 1998) (“[A] person has
the right to bring a proceeding to quash a summons only if he or she is entitled to notice.”)
(quoting Davidson v. United States, No. 97-1244, 1998 WL 339541, *1 (10th Cir. Jun. 9, 1998)).
However, the petition must be filed “not later than the 20th day after such notice is given in the
manner provided in subsection [7609](a)(2).” 26 U.S.C. § 7609; Riggs v. United States, 575 F.
Supp. 738, 741 (N.D. Ill. 1983).
Kalra’s petition was filed on April 27, 2012. (Def.’s Mem. at 2-3.) The Government
argues the petition should be dismissed as untimely. The Government claims, based on
Groscost’s unsworn and undated statement, that Kalra was mailed notice at the India address on
March 29, 2012, and that under the statute, Kalra had twenty days from March 29, 2012 to file
his petition (April 18, 2012). In response, Kalra argues that the IRS failed to follow the
notification procedures set forth in 26 U.S.C. § 7609(a)(2) and that, consequently, the twenty-day
clock never began ticking. Kalra further asserts that he filed his petition as soon as possible after
receiving the notice from BofA.
26 U.S.C. § 7609(a)(1) requires that the IRS give notice to the taxpayer whose financial
records are sought from a third-party. 26 U.S.C. § 7609(a)(2) provides that such notice is
sufficient if it is mailed by certified or registered mail to the last known address of the taxpayer. 3
The notice must include: (1) a copy of the summons and (2) an explanation of the taxpayer’s
right to sue to quash the summons. 26 U.S.C. § 7609(a)(1).

3

Service can also be effectuated according to 26 U.S.C. § 7603(a), which permits
delivering the summons by hand or leaving it at the last and usual place of abode.
4

In this case, it appears, based on several reasons, that the notice requirements of
26 U.S.C. § 7609(a)(2) were not met. First, the summons’s certificate of service is defective.
Section Four of the certificate, which pertains to service on Kalra and states “this certificate is
made to show compliance with IRC Section 7609,” is both unsigned and undated. (Def.’s Mem.
Exh. 1A at 2.) The section of the certificate regarding service to BofA is also undated, although
it is signed. Second, the actual summons is undated and instead states that it was issued on the
“xxth” day of March, 2012. (Id. at 1.) Third, the Government has failed to provide a certified or
registered mail receipt showing that the summons was, in fact, mailed to Kalra.
Faced with such defects, the Government submitted the “affidavit” by Groscost, referred
to above, in which he states that he sent a copy of the summons to Kalra by registered mail. (See
Def.’s Mem. Exh. 1). However, Groscost’s purported affidavit also is defective. His “affidavit”
lacks any sort of jurat, seal, or other type of certification by a notary public that his statement
was actually sworn. Instead, underneath Groscost’s signature, there is a blank notary signature
block. According to Black’s Law Dictionary, an affidavit is a “voluntary declaration of facts
written down and sworn by the declarant before an officer authorized to administer oaths.”
BLACK’S LAW DICTIONARY 66 (9th ed. 2009); see also Pfeil v. Rogers, 757 F.2d 850, 859 (7th
Cir. 1985) (Pfeil) (“An affidavit is a statement reduced to writing and the truth of which is sworn
to before someone who is authorized to administer an oath.”) (internal quotation and citation
omitted). As Groscost’s statement lacks any note that it was sworn before someone who is
authorized to administer an oath, it is not a sworn affidavit.
Furthermore, Groscost’s statement does not qualify as an unsworn declaration under
28 U.S.C. § 1746 because it lacks a specific date. In Pfeil, 757 F.2d at 859, addressing a
summary judgment motion, the Seventh Circuit cautioned that an affidavit should still be
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considered if it complied with 28 U.S.C. § 1746, which permits unsworn declarations if such
declarations are signed and dated. 4 In this case, lacking both a specific date and a notary
public’s certification, Groscost’s statement does not qualify as either a sworn affidavit or as an
unsworn declaration under 28 U.S.C. § 1746. Consequently, Groscost’s statement is stricken.
See, e.g., Davis v. Wells Fargo Bank, 685 F. Supp. 2d 838, 842 (N.D. Ill. 2010) (striking
unsigned, unsworn and undated declarations as inadmissible); Knights v. Williams, 2005 WL
1838427, No. 02-C-5017 (N.D. Ill. July 28, 2005, at *3 (striking document and noting that
“compliance with 28 U.S.C. § 1746 is mandatory and fundamental, not a ‘non-substantive’
requirement”) (quoting Pfeil, 757 F.2d at 859); Counts v. Kraton Polymers, U.S. L.L.C., 260 Fed.
Appx. 825, 829 (6th Cir. Ohio 2008) (affirming that the district court did not abuse its discretion
in striking the undated and unsworn declaration).

4

28 U.S.C. § 1746. provides as follows:

Whenever, under any law of the United States or under any rule, regulation, order,
or requirement made pursuant to law, any matter is required or permitted to be
supported, evidenced, established, or proved by the sworn declaration,
verification, certificate, statement, oath, or affidavit, in writing of the person
making the same (other than a deposition, or an oath of office, or an oath required
to be taken before a specified official other than a notary public), such matter
may, with like force and effect, be supported, evidenced, established, or proved
by the unsworn declaration, certificate, verification, or statement, in writing of
such person which is subscribed by him, as true under penalty of perjury, and
dated, in substantially the following form:
“(2) If executed within the United States, its territories, possessions, or
commonwealths: ‘I declare (or certify, verify, or state) under penalty of perjury
that the foregoing is true and correct. Executed on (date).
(Signature).’”

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Prejudice to Petitioner
Based on the current record, the evidence is insufficient to show that the IRS complied
with the notice requirements of 26 U.S.C. § 7609(a)(2). In instances where the IRS has failed to
provide the notice required by 26 U.S.C. § 7609(a)(2), courts will then examine whether the
petitioner suffered prejudice as a result of the failure to give notice. Where there was no harm to
the petitioner, courts have refused to quash the summons. See, e.g., Sylvestre v. United States,
978 F.2d 25, 27-28 (1st Cir. 1992) (district court did not abuse discretion in refusing to quash
summonses, since taxpayer had not been harmed by IRS’s failure to provide him with timely
notice), cert. denied, 507 U.S. 994 (1993); Cook v. United States, 104 F.3d 886, 890 (6th Cir.
1997) (“the district courts possess discretionary authority to excuse the Service’s technical notice
errors where the party in interest suffered no actual prejudice”); United States v. Texas Heart
Inst., 755 F.2d 469, 478 (5th Cir. 1985) (Texas Heart Inst.) (taxpayer had not demonstrated any
prejudice resulting from the IRS’s failure to follow the notice requirement, and consequently,
any alleged failure by the IRS was harmless).
In this case, Kalra was prejudiced by the IRS’s failure to provide him the notice as
required by 28 U.S.C. § 7609. See Texas Heart Inst., 755 F.2d at 478 (“We note that more often
than not, the taxpayer will be prejudiced by a failure to follow the requisite administrative
steps.”). The Government has not demonstrated that Kalra received the notice allegedly mailed
to him or that he did not get notice until BofA provided it to him. Since the IRS failed to provide
Kalra with the statutory notice, the twenty day clock did not begin ticking until he received the
notice from BofA. Furthermore, it is important to note that, as mentioned above, Government
has failed to file a reply brief responding to Kalra’s argument that he filed his petition as soon as
practical after he received notice from BofA.
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For these reasons, the Government’s Rule 12(b)(1) Motion is denied.
Rule 12(b)(6) Motion
Under a Fed. R. Civ. P. 12(b)(6) motion, a defendant seeks to dismiss the complaint for
failure to state a claim. Christensen v. County of Boone, 483 F.3d 454, 458 (7th Cir. 2007). As
with a Rule 12(b)(1) motion, the court accepts all well-pleaded factual allegations as true and
construes all reasonable inferences in the plaintiff’s favor. Tamayo v. Blagojevich, 526 F.3d
1074, 1081 (7th Cir. 2008) (internal quotations omitted). However, a complaint must allege
“enough facts to state a claim to relief that is plausible on its face” to survive a motion to
dismiss. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). For a claim to have facial
plausibility, a plaintiff must plead “factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Id.
Under the Internal Revenue Code, the IRS may issue administrative summons for “the
purpose of ascertaining the correctness of any return. . . . [or for] determining the liability of any
person for any internal revenue tax. . . .” 26 U.S.C. § 7602(a). The United States may seek to
compel compliance with a summons in response to an action to quash that summons. See
26 U.S.C § 7609(b)(2)(A).
To enforce a tax summons, the government must make a prima facie case that the
summons was issued in good faith. 2121 Arlington Heights Corp. v. IRS, 109 F.3d 1221, 1224
(7th Cir. 1997) (2121 Arlington Hts.) (citing United States v. Kis, 658 F.2d 526, 536 (7th Cir.
1981) (Kis)). To do so, the government must establish the following requirements imposed by
the Supreme Court in United States v. Powell, 379 U.S. 48, 57–58 (1964) (Powell): “the
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investigation underlying the summons has a legitimate purpose; the information sought may be
relevant to that purpose; the information is not already in the IRS’s hands; and the IRS has
followed the statutory steps for issuing a summons.” 2121 Arlington Hts., 109 F.3d at 1224.
These requirements “impose only a minimal burden” on the government. Miller v. United
States, 150 F.3d 770, 772 (7th Cir. 1998) (Miller). Once the government makes a prima facie
showing, the burden shifts to the petitioner to either “disprove one of the Powell factors, or to
show that the IRS issued the summons in bad faith.” Id. The petitioner “faces a ‘heavy burden’”
in refuting the government’s prime facie case. Id. (internal citation omitted).
The government ordinarily demonstrates its prima facie case through affidavits of the
agents involved in the investigation. 2121 Arlington Hts., 109 F.3d at 1224; see also Miller, 150
F.3d at 772. As discussed above, the purported affidavit by Groscost has been stricken as
facially defective, and therefore, the Government cannot rely on it to establish its prima facie
case.
Moreover, as mentioned above, the Groscost statement fails to show the purpose and
relevancy of the information sought, as required by Powell. The purported request by the ITA
pursuant to a treaty between the United States and India are only addressed in the Government’s
memorandum. (See Def.’s Mem. pp. 1-2.) As the Government has submitted no other
competent evidence to show the summons was issued in good faith, the Government has failed to
establish its prima facie case. See Miller, 150 F.3d at 772 (holding that the government did not
meet its minimal prima facie burden when it provided no affidavits for enforcement of the tax
summons).
Consequently, the Government’s Rule 12(b)(6) Motion must be denied.

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CONCLUSION
For the reasons set forth above, the Government’s Motion to Dismiss for Failure to State
a Claim and for Lack of Subject-Matter Jurisdiction [21] is denied.

Date:

April 23, 2013

______________________________
JOHN W. DARRAH
United States District Court Judge

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