Cooper v. Commissioner of Internal Revenue et al
MEMORANDUM AND ORDER - Petitioner Christopher D. Cooper's Motion to Quash IRS Summons (Filing No. 1 ) is denied, and this matter is dismissed with prejudice. The Clerk of the Court is directed to update the court's records in accordance wi th this Memorandum and Order. Specifically, the United States of America shall be substituted for all Defendants, and is the only Defendant. A separate judgment will be entered in accordance with this Memorandum and Order. Ordered by Senior Judge Richard G. Kopf. (Copy mailed to pro se party) (KLF)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
CHRISTOPHER D. COOPER,
President, e-Formulate Inc.,
UNITED STATES OF AMERICA,
This matter is before the court on the pro se Petitioner’s Motion to Quash IRS
Summons (Filing No. 1). For the reasons set forth below, the Motion will be denied.
The Internal Revenue Service (“IRS”) is conducting an investigation to
determine whether Petitioner Christopher D. Cooper, president of e-Formulate, Inc.,
is a “responsible person” for purposes of the Trust Fund Recovery Penalty in
connection with unpaid federal employment taxes owed by e-Formulate. Petitioner
seeks to quash an IRS Summons issued to Wells Fargo Bank, N.A., requiring Wells
Fargo to provide copies of e-Formulate’s bank records. Petitioner asks the court to
order the IRS to “cease and desist any and all actions” until his legal challenges to the
Summons are addressed, as well as compensation for his time and expenses in
responding to the IRS’s “frivolous” Summons. (Filing No. 1 at CM/ECF pp. 18-19.)
On behalf of Respondents1 IRS and Revenue Officer Colby Schwan, the United
Petitioner named four entities and individuals as Respondents in this matter.
As noted by Respondent, the proper party is the United States because the relief
sought by Petitioner—an order quashing the Internal Revenue Service Summons
served on Wells Fargo Bank, N.A.—is in fact relief sought against the United States.
States Attorney’s Office has filed an Opposition to Petitioner’s Motion to Quash IRS
Summons (Filing No. 7) and an Index of Evidentiary Material in support thereof
(Filing No. 6). The Petitioner has not responded to the Respondents’ Opposition.
Because the Petitioner has not offered any evidence opposing or contradicting
the following facts set forth in the Declaration (Filing No. 6-1) filed by Respondent
IRS Revenue Officer Schwan, I shall consider such facts undisputed:
IRS Revenue Officer Colby Schwan is in the process of investigating the
liability of Petitioner Christopher D. Cooper for Trust Fund Recovery Penalties
relating to unpaid federal employment taxes owed by e-Formulate, Inc., for the
following taxable periods: June 30, 2015; September 30, 2015; December 31, 2015;
and March 31, 2016.
In furtherance of this investigation, and in accordance with 26 U.S.C. §
7602, Schwan issued an IRS Summons to Wells Fargo Bank, N.A., on May 3, 2017.
The Summons directed Wells Fargo to produce for examination certain documents
and records concerning banking matters of e-Formulate, Inc., by June 1, 2017. (Filing
No. 6-1 at CM/ECF p. 4.)
Because Petitioner Christopher D. Cooper is the President of
e-Formulate, the IRS believes that e-Formulate’s banking records are highly relevant
See Abell v. Sothen, 214 F. App’x 743, 750 (10th Cir. 2007) (when acts complained
of consist of actions taken by defendants in their official capacity as agents of the
United States, the action is one against the United States); Atkinson v. O’Neill, 867
F.2d 589, 590 (10th Cir. 1989); DeLeeuw v. I.R.S., 681 F. Supp. 402, 403-04 (E.D.
Mich. 1987). Therefore, the court will refer to the proper party—the United
States—throughout this opinion and will direct the Clerk of the Court to update its
in determining whether or not Petitioner is a “responsible person” of that entity for
purposes of the Trust Fund Recovery Penalty.
On May 4, 2017, and in accordance with 26 U.S.C. § 7603(b), Schwan
served an attested copy of the IRS Summons described in paragraph (2), above, on
Wells Fargo Bank, N.A., by certified mail, as evidenced in the certificate of service
on the reverse side of the Summons. (Filing No. 6-1, at CM/ECF p. 5.)
On May 4, 2017, Schwan also served the notice required by section 26
U .S .C. § 7609(a) on Petitioner Christopher D. Cooper by certified mail, as evidenced
in the certificate of service of notice on the reverse side of the Summons. (Filing No.
6-1, at CM/ECF p. 5.)
The documents and records sought by the Summons are not already in
the possession of the Internal Revenue Service.
Schwan believes he has taken all administrative steps required by the
Internal Revenue Code for issuance of a summons.
As of the date the Summons was issued and served, and as of the day
Schwan signed his Declaration (Filing No. 6-1), no recommendation for criminal
prosecution of Petitioner Christopher D. Cooper has been made by the IRS to the
United States Department of Justice. In addition, no Department of Justice referral,
as described in 26 U.S.C. § 7602(d), is in effect with respect to Petitioner.
The IRS believes it is necessary to examine the documents and records
sought by the Summons in order to properly investigate the liability of Petitioner
Christopher D. Cooper for the Trust Fund Recovery Penalty in connection with the
taxable periods at issue.
Condensed and summarized, the Petitioner moves to quash the IRS Summons
because (1) the IRS does not have jurisdiction over Petitioner’s private financial
records; (2) the IRS does not have the authority to issue the Summons based on a
suspected—not proven—outstanding tax liability; and (3) the IRS cannot act under
the Internal Revenue Code and related administrative codes “which are NOT ‘positive
law’” because they are “not relevant to Petitioner, a citizen of Nebraska.” (Filing No.
1 at CM/ECF pp. 8, 11.)
Contrary to Petitioner’s first two arguments, the IRS clearly has jurisdiction and
authority to request the records at issue in this case. 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. That section authorizes
the issuance of a summons to any person or entity for documents that may be relevant
to a tax investigation. Id. This investigative authority does not depend on probable
cause to suspect a violation of the revenue laws, but may simply amount to a “fishing
expedition” by the IRS. United States v. Powell, 379 U.S. 48, 53-56 (1964); 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.”). Stated another way,
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.
Further, under Powell, a summons issued under 26 U.S.C. § 7602 is legitimate
when it is:
conducted pursuant to a legitimate purpose, . . . the inquiry [is] relevant
to the purpose, . . . the information sought is not already within the
Commissioner’s possession, and . . . the administrative steps required by
the Code have been followed—in particular, that the “Secretary or his
delegate,” after investigation, has determined the further examination to
be necessary and has notified the taxpayer in writing to that effect.
Id.; see also United States v. John G. Mutschler & Assocs., Inc., 734 F.2d 363, 367
(8th Cir. 1984) (holding that a summons should be enforced if the IRS is able to make
out a “prima facie case of good faith” adherence to the Powell factors).
In the event the IRS makes a prima facie showing of good faith, the burden
shifts. As set forth by the Eighth Circuit:
[T]he burden shifts to the party summoned to disprove one of these
elements or to demonstrate that judicial enforcement of the summons
would otherwise constitute an abuse of the court’s process. That burden
is a heavy one. The party must show either that the IRS is acting in bad
faith or that the IRS has abandoned any civil purpose in the
United States v. Claes, 747 F.2d 491, 494 (8th Cir. 1984).
To demonstrate that the IRS satisfied the Powell factors in this matter, the
United States filed the Declaration of Colby Schwan. (Filing No. 6-1.) In the
Declaration, Schwan states that he is the IRS Revenue Agent responsible for
“conducting an investigation into the liability of Christopher D. Cooper for Trust Fund
Recovery Penalties relating to unpaid federal employment taxes owed by e-Formulate,
Inc., for the following taxable periods: June 30, 2015; September 30, 2015; December
31, 2015; and March 31, 2016.” (Id. at CM/ECF p. 1.) Schwan also states that
“e-Formulate’s banking records are highly relevant in determining whether or not Mr.
Cooper is a responsible person of that entity for purposes of the Trust Fund Recovery
Penalty.” (Id. at CM/ECF p. 2.)
Further, Schwan states that “[i]t is necessary” to get this information from
Wells Fargo in order to properly investigate Petitioner’s tax liability, and he affirms
that he followed the necessary statutory and administrative procedures before issuing
the Summons. (Id.) In particular, Schwan served an attested copy of the Summons on
Walls Fargo by certified mail, and he also sent a copy of the Summons to Petitioner
via certified mail on the same day he sent the Summons to Wells Fargo. (Id. at
CM/ECF pp. 2, 4, 5.) Finally, Schwan declares that the “documents and records
sought by the Summons are not already in the possession of the Internal Revenue
Service. (Id. at CM/ECF p. 2.)
Petitioner does not contest the substance of Schwan’s Declaration or the
relevancy of the information being requested by the IRS, nor has he presented any
evidence that the Powell requirements have not been met. Instead, Petitioner asserts
that the Internal Revenue Code and related administrative codes are not “positive law”
and are “not relevant to Petitioner, a citizen of Nebraska.” (Filing No. 1 at CM/ECF
p. 11.) Such “tax protestor” arguments are without merit. Denison v. Commissioner,
751 F.2d 241, 242-43 (8th Cir. 1984) (per curiam) (“But we can no longer tolerate
abuse of the judicial review process by irresponsible taxpayers who press stale and
frivolous arguments, without hope of success on the merits, in order to delay or harass
the collection of public revenues or for other nonworthy purposes.” (internal quotation
and citation omitted)); Advanced Health Strategies, Inc. v. United States, No.
14-MC-51, 2014 WL 7883612, at *2 (D. Minn. Dec. 11, 2014), report and
recommendation adopted, No. 14-MC-51, 2015 WL 164122 (D. Minn. Jan. 13, 2015)
(finding no merit in petitioner’s argument that IRS summons was unenforceable
because Internal Revenue Code was not “positive law” and noting that petitioner
failed to present evidence that Powell requirements had not been met); see also Ryan
v. Bilby, 764 F.2d 1325, 1328 (9th Cir. 1985) (“Congress’s failure to enact a title into
positive law has only evidentiary significance and does not render the underlying
enactment invalid or unenforceable. Like it or not, the Internal Revenue Code is the
law . . . .” (internal citations omitted)); Hibben v. United States, No. 3:08-mc-25, 2009
WL 2633137, at *2-4 (E.D. Tenn. June 19, 2009) (dismissing argument that under the
Statutes at Large, the taxpayer did not fall into the class of persons subject to IRS
subpoenas), report and recommendation adopted, 2009 WL 2105985 (E.D. Tenn.
June 19, 2009).
In short, although the United States has met its burden under Powell, Petitioner
has not demonstrated that “the IRS is acting in bad faith or that the IRS has abandoned
any civil purpose in the investigation.” Claes, 747 F.2d at 494. The court therefore
finds that the Summons issued to Wells Fargo Bank, N.A., was properly issued
pursuant to 26 U.S.C. § 7602, in compliance with Powell, and is valid and
IT IS THEREFORE ORDERED that:
Petitioner Christopher D. Cooper’s Motion to Quash IRS Summons
(Filing No. 1) is denied, and this matter is dismissed with prejudice.
The Clerk of the Court is directed to update the court’s records in
accordance with this Memorandum and Order. Specifically, the United States of
America shall be substituted for all Defendants, and is the only Defendant.
A separate judgment will be entered in accordance with this
Memorandum and Order.
DATED this 31st day of July, 2017.
BY THE COURT:
s/ Richard G. Kopf
Senior United States District Judge
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