USA v. Santoso

Filing 38

MEMORANDUM OPINION. Signed by Judge Paul W. Grimm on 8/14/2018. (aos, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
Southern Division
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UNITED STATES,
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Petitioner,
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v.

Case No.: PWG-17-3030
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SHARON SANTOSO,
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Respondent.
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MEMORANDUM OPINION
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

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Santoso argues that the exhibits are incomplete, unauthenticated, and inadmissible. Resp’t’s
Mot. to Strike 5–11. But, because the IRS does not offer them for the purpose of proving the
truth of their substantive content (which would require proper authentication and a showing that
they were otherwise admissible for that purpose), but, rather, as support for their good faith
belief that Santoso does have possession or control over documents that they seek and which she
claims she does not have and cannot obtain, they may be considered for this limited purpose, and
the motion to strike is denied, without prejudice to being renewed if the IRS offers the exhibits
for their substantive truth.
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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)).

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Revenue Agent Brimage’s Declaration is contained in the same docket filing as the Summons
that was sent to Ms. Santoso. See ECF No. 1-3. The summons begins on page 7 of this
document.
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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

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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
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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 possessed by the IRS
Revenue Agent Brimage swore in her declaration that the documents sought by the
summons are not in the possession of the IRS. Brimage Decl. ¶ 13. Santoso disputes this,
largely because when she filed FOIA requests, the IRS withheld around 3,000 documents.
Resp’t’s Opp’n and Mot. to Quash 26, ECF No. 19. Based upon this, she speculates that some of
those documents must have included copies of her records, and, in an extended exercise of
conjecture, that they also must include the very documents that it still seeks to obtain from her.
Id. More than conjecture and speculation is required before a respondent can rebut this element
of the government’s prima facie case. United States v. Ali, No. PWG-13-3398, 2014 WL
1660280, at *3 (D. Md. Apr. 24, 2014) (citing Alphin, 809 F.2d at 238); Xélan, Inc. v. United
States, 361 F. Supp. 2d 459, 466 (D. Md. 2005). Santoso has failed to offer “persuasive
competing evidence that the IRS does in fact have . . . [the documents it has summonsed]
already.” Xélan, 361 F. Supp. 2d at 466.
Compliance with IRS administrative steps.
Revenue Agent Brimage’s Declaration confirms that all of the administrative steps
required before a summons may be issued were complied with. Brimage Decl. ¶ 16. Santoso
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does not dispute this. Ordinarily, when the IRS has made out a prima facie showing that it is
entitled to enforcement of the summons, the court summarily will order its enforcement. But,
where the respondent has provided a factual basis to support an affirmative defense, then further
proceedings are required. Here, Santoso has raised the affirmative defense of non-possession.
Non-possession is a recognized affirmative defense to enforcement of an IRS documents
summons. United States v. Gippetti, 248 F. App’x 382, 386 (3d Cir. 2007 (citing United States
v. Rylander, 460 U.S. 752, 757 (1983)); United States v. Huckaby, 776 F. 2d at 568 & n.5 (5th
Cir. 1985) (citing U.S. v. Barth, 745 F.2d 184, 187 (2d. Cir. 1984)). But, to succeed in this
affirmative defense, she must put forward more than conclusory or self-serving claims of nonpossession, and must demonstrate not only that she does not possess the documents, but also that
she has taken reasonable steps to obtain them if they are within her control.3 See Larue v. United
States, No. 3:15-cv-00705-HZ, 2015 WL 9809798, at *3 (D. Or. Dec. 22, 2015).
On the record before me, I find that Santoso has provided some evidence that she does
not possess the documents the IRS wants, but it is not sufficient to support a ruling that she has
met her burden of proof, namely “relevant and reliable evidence that [s]he was not in possession
or control of the summonsed documents in order to sustain [her] affirmative defense to
enforcement of the summons.” Huckaby, 776 F.2d at 586 (emphasis added); see also Gippetti,
248 F. App’x at 386.

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Santoso urges me to apply a “sliding scale” test in determining whether she has met her burden
of proof in claiming non-possession. Resp’t’s Opp’n and Mot. to Quash 12, 25–26 (citing
United States v. Billie, 611 Fed. App’x 608, 610 (11th Cir. 2015) (quoting Huckaby, 776 F. 2d at
567 (5th Cir. 1985); United States v. Malhas, No 15-3932, 2015 WL 6955496, at *4 (N.D. Ill.
Nov. 10, 2015). The IRS strongly disagrees that the sliding scale test is appropriate, arguing that
it improperly shifts the burden of proof of non-possession to the IRS, and is based on a
misreading of United States v. Billie. Pet.’s Opp. 15–16. Because neither the Fourth Circuit nor
any district court within it have employed the sliding scale to determine whether a respondent
has met his or her affirmative defense of non-possession, neither will I.
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While Santoso has attached a declaration swearing that she is not in possession of the
documents sought in the summons, Santoso Decl., ECF No. 19-1, at 65,4 the issue that prevents a
ruling on the filings and requires an evidentiary hearing is whether she has made more than “a
pro forma” effort to obtain records that she does not actually possess, or made more than a
cursory search for them. See Larue, 2015 WL 9809798, at *3 (citing Seetapun, 750 F.2d at 605;
FTC v. Publ’g Clearing House, Inc., 104 F.3d 1168, 1171 (9th Cir. 1997)). In this regard, it is
true that her attorney, Mr. Feldman, has gone to some effort to try to locate documents the IRS
wants from others who may have them. See, e.g., ECF No. 19-2 (containing a declaration from
Andrew Feldman as well as copies of FOIA requests, communications with the IRS updating the
status of the examination of Ms. Santoso, and various letters to foreign individuals and entities
requesting information regarding the IRS’s requests of Ms. Santoso). While the IRS seems
dismissive of these efforts, and has set forth its views of what Santoso would be required to do
before she has met her burden of showing that she does not have control over the documents that
it has summonsed, Pet.’s Resp. to Resp’t’s Request to Stay 2, ECF No. 33, it is far from clear to
me that there is authority that she must do that much.5 Indeed, the principal case cited by the

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Ms. Santoso filed a declaration as well as numerous exhibits supporting her Response and
Motion to Quash the Petition in ECF No. 19-1. Her declaration begins at page 65.
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In its filing regarding whether to stay these proceedings for a second time, the IRS stated that it
issued its summons more than three years ago, and Respondent’s own filings
demonstrate that she still has not conducted a diligent search, which should
include (without limitation):
(1) Contacting the foreign financial institutions from which she received millions
of dollars in wire transfers to determine whether she possessed a relevant legal
interest in the originating or other bank accounts. See Resp.’ Mot. Quash, ECF
No. 19 at *5 (admitting that “the wire transfers originated from entities located in
Singapore, Indonesia, or Hong Kong”);
(2) Ascertaining whether she received and retained an interest in any assets of her
mother’s estate and, as a consequence, retains possession and control of related
records. See Mot. to Quash, ECF No. 19-1 at *6 (December 6, 2017 letter from
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IRS in support of its position that Santoso must prove that she has taken “all reasonable steps” to
identify and obtain documents in her possession, custody or control—Larue v. United States—
plainly acknowledges
[t]he parties do not cite, and this Court does not find, controlling authority
regarding what a taxpayer must show to meet his or her burden of demonstrating a
lack of possession, custody, or control of the requested documents. However, the
taxpayer’s “responsibilities surely go further than a pro forma demand and
cursory search for records,” or a “conclusory, self-serving affidavit, lacking
detailed facts and any supporting evidence.”
Id at *3 (internal citations omitted). And the IRS itself concedes “[a]s recognized in Larue,
there is a relative dearth of ‘authority regarding what a taxpayer must show to meet his or burden
of demonstrating a lack of possession, custody, or control of the requested documents.” Pet.’s
Opp’n 13 n.9 (citing Larue, 2015 WL 9809798, at *3).

Respondent’s counsel stating that Respondent’s sister “was left with the
responsibility of administering and managing [Respondent’s mother’s] estate after
her death.”);
(3) Taking additional steps to determine whether she owns stock in a foreign
company, such as Sampoerna Tobacco, after Respondent’s family conspicuously
avoided answering Respondent’s initial inquiry regarding such ownership.
Compare Resp.’ Mot. Quash, Ex. 1B, ECF No. 19-1 at *8 (December 6, 2017
letter from Respondent’s counsel to counsel for Respondent’s family, asking six
numbered questions, including whether family was “aware of the existence of any
records that show that Sharon Santoso owns foreign stock (e.g. Wismilak or
Samporena)?” with id. at *10 (January 2, 2018 response from Blank Rome
attorneys answering only five of Respondent’s numbered questions, and failing to
address or acknowledge the question concerning stock ownership); and
(4) Taking all other reasonable steps to (A) identify potential sources of
summonsed records; (B) obtain information from those sources (including, if
necessary, pursuing rights under local law); and (C) use newly discovered
information, if any, to identify additional sources of summonsed records.
Pet.’s Resp. to Resp’t’s Request to Stay 2. The IRS also requested that Ms. Santoso
provide an update on the steps she has taken to obtain the documents in question.
Because it is uncertain what is required, I have ordered the parties to brief whether or not
Ms. Santoso must update the IRS on the steps she has taken before the upcoming hearing.
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During the evidentiary hearing, Santoso will bear the burden of proving that she does not
have possession or control of the documents the IRS wants, and that her search for them, and
attempts to obtain them from third parties over whom she exercises the ability to exert control,
was reasonable. Further, unlike what she did when she was examined under oath by the IRS,
Santoso will not be able to assert her Fifth Amendment right against self-incrimination when she
testifies during the hearing without jeopardizing her ability to prove her affirmative defense. See
Huckaby, 776 F.2d at 567–68 (citing Rylander, 460 U.S. at 752); Rylander, 460 U.S. at 757–58
(1983) (“Since he declined to be cross-examined with respect to his assertions of nonpossession,
the District Court was entirely justified in concluding, as it did, that Rylander ‘failed to introduce
any evidence at the contempt trial.’ This was a time for testimony, and Rylander's ex
parte affidavit and uncross-examined testimony were properly disregarded by the District
Court.”) (internal citations omitted); United States v. Ali, 874 F.3d 825, 830 (4th Cir. 2017)
(holding that raising a Fifth Amendment privilege at the enforcement or contempt stage “does
not alter [the] outcome”; “Allowing Ali to invoke the Fifth Amendment to satisfy her burden of
production at the contempt stage—even if she previously asserted that right at the enforcement
stage—would still do exactly what Rylander said not to do: ‘convert the privilege from the shield
against compulsory self-incrimination which it was intended to be into a sword whereby a
claimant asserting the privilege would be freed from adducing proof in support of a burden
which would otherwise have been his.’”) (citing Rylander, 460 U.S. at 758; Huckaby, 776 F.2d
at 568–69 (holding that testifying on direct but refusing to testify on cross-examination was
insufficient to prove his non-possession affirmative defense).
Further, to assist counsel as they prepare for the hearing, I offer the following guidance.
The transcripts of Santoso’s examination under oath by the IRS demonstrate entirely too much

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bickering between counsel, speaking objections that inevitably coached Santoso before she
answered,6 and argument. None of that will be permitted during the hearing. The examination
of all witnesses at the hearing will be in strict compliance with Federal Rule of Evidence 611(c),
and leading questions will not be permitted except to the extent allowed by that rule. Further, no
speaking objections will be tolerated.

Objections will be brief, and will not contain any

information that may serve to coach the witness. While I am confident that counsel are quite
experienced, and know the difference between proper and improper objections, they might be
wise to read Discovery Guideline 6.b of this Court’s Local Rules, which I will use as the proper
benchmark during the hearing.
Following the hearing, I will permit limited, expedited, supplemental briefing on the
narrow issue of whether Santoso has met her burden of showing that she took reasonable steps to
comply with the summons and to locate and obtain the documents, including from third parties
over whom she has the ability to exercise control, and whether she has met her burden of proof
on her affirmative defense of non-possession. If I find that she has not, then I will enter an order
enforcing the summons, subject only to a proper assertion of privilege which, to date, has not
been addressed.
Dated: August 14, 2018

/S/
Paul W. Grimm
United States District Judge

jml

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I note that the most egregious examples of speaking objections came from Santoso’s former
counsel, not her present counsel, Mr. Feldman.
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