Peterson v. United States of America et al

Filing 17

MEMORANDUM AND ORDER - The clerk's office is directed to update the docket sheet to reflect that the United States of America is the only respondent. Respondent's Motion to Dismiss (filing no. 10 ), construed as a motion for summary ju dgment, is granted. Accordingly, the IRS may proceed with enforcement of the summonses previously issued to Union Bank, JP Morgan Chase, and A&A. Peterson's Petition (Filing No. 1 ) is denied and this matter is dismissed with prejudice. Ordered by Judge Joseph F. Bataillon. (Copy mailed/e-mailed to pro se party)(GJG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
JAY S. PETERSON,
Petitioner,
v.
UNITED STATES OF AMERICA,
Respondent.

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4:11CV3071

MEMORANDUM
AND ORDER

This matter is before the court on Jay S. Peterson’s (“Peterson”) “Petition to
Quash IRS Third Party Summons” (Filing No. 1), and Respondent’s1 Motion to
Dismiss (Filing No. 10). For the reasons stated below, the court grants Respondent’s
Motion to Dismiss.
BACKGROUND
Peterson filed a “Petition to Quash IRS Third Party Summons” (“Petition”) on
May 9, 2011. (Filing No. 1.) The Petition attacks the sufficiency of summonses
issued by Internal Revenue Agent Linda Haws to Union Bank & Trust Company
(“Union Bank”), JP Morgan Chase Bank (“JP Morgan Chase”), and A&A Drug
Company, Inc. (“A&A”). (Id. at CM/ECF pp. 2, 8, 14.) These summonses sought
information concerning Peterson’s income tax liabilities for 2007 through 2009.

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Peterson named the United States of America, the Internal Revenue Service,
and Revenue Agent Linda Haws as Respondents in this matter. However, relief
sought against the Internal Revenue Service and Revenue Agent Linda Haws is
actually relief sought against the United States of America. See DeLeeuw v. I.R.S.,
681 F. Supp. 402, 403-04 (E.D. Mich. 1987) (holding that Internal Revenue Service
and revenue agents were not proper parties in tax liability case challenging third-party
summons, and United States was the only proper party). The court will refer to the
United States as the proper party, and direct the clerk’s office to update the docket
sheet accordingly.

Peterson seeks to quash the summonses based on the following grounds: (1) the
Internal Revenue Service (“IRS”) failed to give Peterson timely notice of the
summonses as required by 26 U.S.C. § 7609(a)(1); (2) the IRS failed to notify
Peterson that contact with third parties would be made, and also failed to provide him
with a record of parties contacted as required by 26 U.S.C. 7602(c)(1) and (c)(2); (3)
the summonses were issued in violation of 26 U.S.C. § 7602(d) because a referral for
criminal prosecution to the Department of Justice was pending when the summonses
were issued; (4) the IRS issued summonses in multiple jurisdictions in an attempt to
thwart Peterson’s ability to defend against the summonses; (5) the IRS failed to meet
the good faith requirements of U.S. v. Powell, 379 U.S. 48 (1964); (6) the summonses
were issued in violation of Peterson’s federal and state privacy rights; and (7) the
summonses were issued in violation of Peterson’s Fourth Amendment rights. (Filing
No. 1 at CM/ECF pp. 2-4, 8-10, 14-16.)
Respondent filed a Motion to Dismiss Peterson’s Petition. (Filing No. 10). In
support of the Motion, Respondent filed a Brief, Declaration, and Reply Brief. (Filing
Nos. 11, 12, and 14.) In response to the Motion to Dismiss, Peterson filed a “Brief in
Opposition to Motion to Dismiss” and a Response. (Filing Nos. 13 and 16.) This
matter is fully submitted.
ANALYSIS
A.

IRS Information-Gathering Authority

In order to encourage effective tax investigations, “Congress has endowed the
IRS with expansive information-gathering authority. ” United States v. Arthur Young
& Co., 465 U.S. 805, 816 (1984). The primary tool for gathering information is the
authority of the IRS to issue administrative summonses pursuant to 26 U.S.C. § 7602.
Id. That section authorizes the issuance of a summons to any person or entity for
documents “that may be relevant” to a tax investigation. 26 U.S.C. § 7602(a)(1). This
investigative authority does not depend on probable cause to suspect a violation of the
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revenue laws but may simply amount to a “fishing expedition” by the IRS. United
States v. Giordano, 419 F.2d 564, 568 (8th Cir. 1969) (“Taxpayer in his brief
characterized the Government’s efforts as a ‘fishing expedition.’ If so, the Secretary
or his delegate has been specifically licensed to fish by § 7602.”). In other words, the
IRS may investigate on mere suspicion that the law is being violated or just because
it wants assurance that it is not. Powell, 379 U.S. at 57-58.
B.

Summary Judgment Standard

Because the court considers the declaration of Agent Haws in conjunction with
Respondent’s Motion to Dismiss, the court must treat Respondent’s Motion to
Dismiss as a motion for summary judgment under Federal Rule of Civil Procedure 56.
See Fed. R. Civ. P. 12(d). Summary judgment should be granted “if the movant
shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In order to withstand
a motion for summary judgment, nonmoving parties must substantiate their
allegations with “‘sufficient probative evidence [that] would permit a finding in [their]
favor on more than mere speculation, conjecture, or fantasy.’” Moody v. St. Charles
County, 23 F.3d 1410, 1412 (8th Cir. 1994) (quoting Gregory v. City of Rogers, 974
F.2d 1006, 1010 (8th Cir. 1992)). “A mere scintilla of evidence is insufficient to
avoid summary judgment.” Id. Essentially the test is “whether the evidence presents
a sufficient disagreement to require submission to a jury or whether it is so one-sided
that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 251-52 (1986).
C.

Discussion of Peterson’s Claims

The court will examine Peterson’s stated grounds for relief in turn. First,
Peterson argues the IRS failed to give him timely notice of the summonses as required
by 26 U.S.C. § 7609(a)(1). Section 7609(a)(1) requires the IRS to give notice of
summons “within 3 days of the day on which such service is made, but no later than
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the 23rd day before the day fixed in the summons as the day upon which such records
are to be examined.” 26 U.S.C. § 7609(a)(1). Further, “[s]uch notice shall be
sufficient if, on or before such third day, such notice is . . . mailed by certified or
registered mail to the last known address of such person.” 26 U.S.C. § 7609(a)(2).
Peterson makes the blanket assertion that he did not receive timely notice (see
Filing No. 1 at CM/ECF p. 2), but the undisputed evidence shows that Agent Haws
complied with § 7609(a)’s notice requirements. Agent Haws issued summonses to
Union Bank and JP Morgan Chase on April 19, 2011, and to A&A on April 21, 2011.
(Filing No. 12-1, Attach. 1, at CM/ECF p. 1; Filing No. 12-2, Attach. 2, at CM/ECF
p. 1; and Filing No. 12-3, Attach. 3, at CM/ECF p. 1.) On these same dates, Agent
Haws sent copies of the summonses to Peterson by certified mail. (Filing No. 12 at
CM/ECF p. 2.) Peterson’s signature appears on the certified mail receipts. (Filing
No. 12-4 , Attach. 4, at CM/ECF pp. 1-2.) Based on this undisputed evidence, the
court finds that Peterson received timely notice of the third-party summonses.
Accordingly, his first basis for quashing the summonses fails.
Peterson’s second basis for quashing the summonses is that the IRS failed to
notify him that contact with third parties would be made, and also failed to provide
him with a record of parties contacted as required by 26 U.S.C. 7602(c)(1) and (c)(2).
Section 7602(c)(1) states that IRS employees may not contact third parties regarding
a taxpayer’s tax liability “without providing reasonable notice in advance to the
taxpayer that contacts with persons other than the taxpayer may be made.” 26 U.S.C.
7602(c)(1). Section 7602(c)(2) requires that a taxpayer be periodically provided a
record of third parties contacted to determine the taxpayer’s tax liability. 26 U.S.C.
7602(c)(2).
The undisputed evidence shows that Agent Daws sent notices to Peterson on
March 8, 2011, and March 21, 2011, advising him that the IRS may contact third
parties. (Filing No. 12-5, Attach. 5; Filing No. 12-6, Attach. 6.) In addition, as set
forth above, it is undisputed that Agent Daws sent copies of the third-party
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summonses to Peterson on April 19, 2011, and April 21, 2011. (Filing No. 12 at
CM/ECF p. 2.) These facts show that Peterson received reasonable notice in advance
that the IRS intended to contact third parties, and that the IRS provided Peterson with
a record of its communication with these third parties. In light of these facts, the court
finds the IRS complied with the requirements set forth in 26 U.S.C. 7602(c)(1) and
(c)(2). Accordingly, Peterson’s second basis for quashing the summonses fails.
Peterson’s third basis for quashing the summonses is that they were issued in
violation of 26 U.S.C. § 7602(d) because a referral for criminal prosecution to the
Department of Justice was pending when th summonses were issued. Section 7602(d)
provides that no summons may be issued in relation to an IRS investigation “with
respect to any person if a Justice Department referral is in effect with respect to such
person.” 26 U.S.C. 7602(d)(1). Agent Haws’s declaration states that no referral for
criminal prosecution was made to the Department of Justice with respect to Peterson.
(Filing No. 12 at CM/ECF p. 3.) Peterson’s unsupported allegation based on
“information and belief” that a referral was pending is insufficient to establish an issue
of fact in this case. See Stoffels v. Hegarty, 276 F. App’x 814, 816 (10th Cir. 2008)
(holding that IRS agent’s declaration that no Justice Department referral was pending
was sufficient to establish that the summons was not impermissibly issued).
Accordingly, Peterson’s third basis for quashing the summonses fails.
Peterson’s fourth basis for quashing the summonses is that the IRS issued
summonses in multiple jurisdictions in an attempt to thwart Peterson’s ability to
defend against the summonses. Peterson’s argument is meritless. The summonses at
issue in this matter were all issued within the State of Nebraska. (See Filing No. 12-1,
Attach. 1, at CM/ECF p. 1; Filing No. 12-2, Attach. 2, at CM/ECF p. 1; and Filing No.
12-3, Attach. 3, at CM/ECF p. 1.) Regardless, even if the IRS has issued summonses
in multiple jurisdictions, “Congress has endowed the IRS with expansive
information-gathering authority. ” Arthur Young & Co., 465 U.S. at 816. Peterson
has not cited to any law, and the court is not aware of any law, forbidding the IRS

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from issuing summonses in multiple jurisdictions. Accordingly, Peterson’s fourth
basis for quashing the summonses fails.
Peterson’s fifth basis for quashing the summonses is that the IRS failed to meet
the good faith requirements set forth in U.S. v. Powell, 379 U.S. 48 (1964). Under
Powell, an IRS summons should not be quashed if (1) the IRS’s investigation is being
conducted for a legitimate purpose, (2) the information sought is relevant to that
purpose, (3) the information sought is not already within the IRS’s possession, and (4)
the administrative steps required by the Internal Revenue Code have been followed.
Powell, 379 U.S. at 57-58; Robert v. U.S., 364 F.3d 988, 996 (2004).
Peterson argues the summonses run afoul of the fourth Powell factor for the
reasons set forth in his first, second, third, and fourth causes of action (discussed
above). (Filing No. 1 at CM/ECF p. 3.) However, these stated grounds for relief fail
for the reasons already discussed.
Furthermore, Respondent affirmatively
demonstrated compliance with the Powell criteria. That is, Agent Haws’s declaration
explains that, in her capacity as a revenue agent, she was conducting an examination
of Peterson’s 2007 through 2009 federal income tax liabilities. The investigation was
necessary because Peterson had not voluntarily filed a federal income tax return since
2001. (Filing No. 12 at CM/ECF p. 1.) The summonses she issued on behalf of the
IRS sought relevant documents from Peterson’s employer and other financial
institutions that may show where Peterson earned his income. (Id. at CM/ECF p. 2.)
The books, records, papers, and other data sought by the summonses were not already
in the possession of the IRS. (Id. at CM/ECF p. 3.) Finally, as set forth above, the
IRS took the proper administrative steps when it issued the summonses. For these
reasons, Peterson’s fifth basis for quashing the summonses fails.
Peterson’s sixth basis for quashing the summonses is that they were issued in
violation of federal and state privacy rights. Peterson does not identify the “privacy”
laws upon which he seeks relief. Assuming Peterson’s argument implicates the Right
to Financial Privacy Act, the act specifically provides that “[n]othing in this chapter
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prohibits the disclosure of financial records in accordance with procedures authorized
by [the Internal Revenue Code].” 12 U.S.C. § 3413(c). In addition, the Court has
held that privacy concerns related to third party summonses are ameliorated by the
notice requirements of 26 U.S.C. § 7609. See Tiffany Fine Arts, Inc. v. U.S., 469 U.S.
310, 316 (1985) (“To deal with the problem of a third-party summons in a case in
which the IRS knows the identity of the taxpayer being investigated, Congress enacted
§§ 7609(a) and (b); these subsections require that the IRS give notice of the summons
to that taxpayer, and give the taxpayer the right to intervene in any proceeding with
respect to the enforcement of such summons.”) (internal quotations omitted). For
these reasons, Peterson’s sixth basis for quashing the summonses fails.
Peterson’s final basis for quashing the summonses is that they were issued in
violation of his Fourth Amendment rights. This argument also fails. “The summons
provision of Title 26 has repeatedly sustained constitutional attacks based on the First,
Fourth, and Fifth Amendments to the Constitution.” Spine v. U.S., 670 F.Supp. 217,
221 (S.D. Ohio 1987). Like the previous six, Peterson’s seventh basis for quashing
the summonses fails.
IT IS THEREFORE ORDERED that:
1.
The clerk’s office is directed to update the docket sheet to reflect that the
United States of America is the only respondent.
2.
Respondent’s Motion to Dismiss (filing no. 10), construed as a motion
for summary judgment, is granted. Accordingly, the IRS may proceed with
enforcement of the summonses previously issued to Union Bank, JP Morgan Chase,
and A&A.
3.
Peterson’s Petition (Filing No. 1) is denied and this matter is dismissed
with prejudice.

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4.
The court declines to exercise supplemental jurisdiction over Peterson’s
state-law privacy claims.
5.
A separate judgment will be entered in accordance with this
Memorandum and Order.
DATED this 23rd day of February, 2012.
BY THE COURT:

s/ Joseph F. Bataillon
United States District Judge

*This opinion may contain hyperlinks to other documents or Web sites. The
U.S. District Court for the District of Nebraska does not endorse, recommend,
approve, or guarantee any third parties or the services or products they provide on
their Web sites. Likewise, the court has no agreements with any of these third parties
or their Web sites. The court accepts no responsibility for the availability or
functionality of any hyperlink. Thus, the fact that a hyperlink ceases to work or
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