Jewell v. United States of America
Filing
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ORDER by District Judge James H. Payne: denying 12 IRS's Motion for Summary Denial of Jewell's Petition to Quash and granting Jewell's Petition to Quash (cjt, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
SAM T. JEWELL,
Petitioner,
v.
UNITED STATES OF AMERICA,
Respondent.
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Case No. 12-CV-424-JHP
ORDER
Before the Court are Petitioner Sam T. Jewell’s (“Jewell”) Petition to Quash IRS ThirdParty Summons [Doc. No. 2]; the United States’ (“IRS”) Motion for Summary Denial of Jewell’s
Petition to Quash [Doc. No. 12]; Jewell’s Response to the IRS’s Motion for Summary Denial of
Jewell’s Petition to Quash [Doc. No. 14]; and the IRS’s Reply to Jewell’s Response [Doc. No.
15]. After consideration of the briefs, and for the reasons stated below, the IRS’s Motion for
Summary Denial of Jewell’s Petition to Quash is DENIED, and Jewell’s Petition to Quash IRS
Third-Party Summons is GRANTED.
BACKGROUND
A. Undisputed Factual Background
Petitioner is being investigated by the IRS for allegedly failing to pay employment taxes
for Legacy Convalescent Care Management, LLC (“Legacy”) for the first and second quarters of
2010. On October 2, 2012, the IRS issued summonses to Community Bank of the Arbuckles and
Sulphur Bank (collectively the “Banks”) seeking a variety of Lecacy’s banking records dated
January 1, 2010 through June 30, 2010. That same day, the IRS sent copies of the summonses by
certified mail, which were delivered to the Banks on October 4, 2012.
Both summonses
contained a production date of October 22, 2012. The IRS also sent Petitioner copies of the
summonses issued to the Banks, which Petitioner received on October 5, 2012.
B. Procedural Background
On October 11, 2012, Jewell filed a Petition to Quash IRS Third-Party Summons. [Doc.
No. 2]. Attached to Jewell’s Petition, were copies of summonses at issue [Id. at Ex. 1] and
copies of the mail notices evidencing Jewell’s receipt of the notices on October 5, 2012 [Id. at
Ex. 2]. On December 14, 2012, the IRS filed a Motion to Dismiss for failure to state a claim or,
in the alternative, for Summary Denial of Jewell’s Petition to Quash. [Doc. No. 12].
DISCUSSION
The I.R.S. is authorized, by statute, to examine any relevant documentation and summon
any person in possession of any relevant information or documentation when conducting a tax
investigation. See 26 U.S.C. § 7602(a). To achieve its goal, the I.R.S. may serve a summons
upon a third-party record keeper, such as a bank or other financial institution, in order to obtain
financial records or information regarding a person who is the subject of an investigation by the
I.R.S. See 26 U.S.C. § 7609(a).
To have a summons enforced, “the IRS must demonstrate that it issued the summons in
good faith....” Barquero v. United States, 18 F.3d 1311, 1316 (5th Cir.1994). A prima facie
showing of good faith can be made by demonstrating that “[1] the investigation will be
conducted pursuant to a legitimate purpose, [2] that the inquiry may be relevant to the purpose,
[3] that the information sought is not already within the [IRS'] possession, and [4] that the
administrative steps required by the [Internal Revenue] Code have been followed.” United States
v. Balanced Fin. Mgmt., Inc., 769 F.2d 1440, 1443 (10th Cir.1985) (quoting United States v.
Powell, 379 U.S. 48, 57–58 (1964)). This burden is “a slight one because the statute must be read
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broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted.” Id .
It is generally met “by affidavit of the agent who issued the summons and who is seeking
enforcement.” United States v. Garden State Nat. Bank, 607 F.2d 61, 68 (3d Cir.1979).
If the government meets this slight burden, “[t]he burden then shifts to the taxpayer[ ].”
Balanced Fin. Mgmt., 769 F.2d at 1444. With the taxpayer, however, “[t]he burden is a heavy
one.” Id. Specifically,
[t]he taxpayer must establish any defense or prove that enforcement would
constitute an abuse of the court's process. He must prove a lack of good faith, that
the government has abandoned in the institutional sense its pursuit of possible
civil penalties. The taxpayer must do more than just produce evidence that would
call into question the Government's prima facie case. The burden of proof in these
contested areas rests squarely on the taxpayer.
[ ... ]
In responding to the Government's showing, it is clear that a taxpayer must
factually oppose the Government's allegations by affidavit. Legal conclusions or
mere memoranda of law will not suffice. Allegations supporting a ‘bad faith’
defense are insufficient if conclusionary. If at this stage the taxpayer cannot refute
the government's prima facie Powell showing 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.
[ ... ]
It is only where material Government allegations are factually refuted by the
taxpayer, thus presenting a disputed factual issue, or where proper affirmative
defenses ... are factually supported by the taxpayer's affidavits, [that] the taxpayer
is entitled to an evidentiary hearing.
Id. at 1444–45 (quotation marks, citations, and lacuna omitted). If these requirements are not
met, then “an evidentiary hearing would be a waste of judicial time and resources.” Id. at 1445
(quotation marks and citation omitted).
As a part of its Motion for Summary Denial of Petition to Quash Summons, the IRS
submitted Revenue Officer Nicholas Walker’s declaration. [Doc. No. 13, Ex. 1]. The Court first
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considers this declaration in order to determine whether the IRS met it burden of demonstrating
the prima facie case to enforce the summonses. Because the Court concludes that the IRS cannot
meet this burden, there is no need for an additional evidentiary hearing.
As outlined above, the IRS has the burden of demonstrating that the IRS has completed
all of “the administrative steps required by the [Internal Revenue] Code.” Balanced Fin. Mgmt,
769 F.2d at 1443. Jewell’s primary contention is that the summonses should be quashed because
the IRS failed to provide the notice required by 26 U.S.C. § 7609(a)(1) (“Section 7609(a)(1)”),
which provides, in relevant part, the following:
If any summons to which this section applies requires the giving of testimony on
or relating to, the production of any portion of records made or kept on or relating
to, or the production of any computer software source code (as defined in
7612(d)(2)) with respect to, any person (other than the person summoned) who is
identified in the summons, then notice of the summons shall be given to any
person so identified within 3 days of the day on which such service is made, but
no later than the 23rd day before the day fixed in the summons as the day upon
which such records are to be examined.
(Emphasis added). The undisputed facts establish that Jewell did not receive notice of the
summonses issued to the Banks until October 5, 2012, only 18 days before the day for
examination of Legacy’s records. [Doc. No. 13, Ex. 1 at 4-5]. In fact, in his declaration,
Revenue Officer Nicholas Walker concedes that the IRS did not comply with the 23-day notice
requirement in Section 7609(a)(1), stating:
14. The Internal Revenue Code requires that taxpayers receive notice of the
issuance of a third party summons no later than 23 days before the day fixed in
the summons as the day upon which the records are to be examined, so Sam
Jewell received late notice of these summonses.
[Doc. No. 13, Ex. 1 at 5].
The IRS argues, however, that the failure to provide Jewell with the statutorily required
notice does not mandate that the summonses be quashed. Citing Cook v. United States, 104 F.3d
886 (6th Cir. 1997), the IRS contends that its failure to comply with the 23-day notice
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requirement constituted a “technical breach” absent a showing by Jewell that he suffered actual
prejudice as a result of the untimely notice. [Doc. No. 13 at 11]. This Court, however, is not
bound by the Cook court’s interpretation of Section 7609(a)(1), and, significantly, the parties did
not cite, nor could the Court locate, any on-point decisions originating in the United States Court
of Appeals for the Tenth Circuit addressing this issue or interpreting Section 7609(a)(1).
This Court finds that the plain language of Section 7609(a)(1) mandates that if the IRS
fails to provide a taxpayer with notice that the summons have been issued to a third party at least
23 days before the date specified on the summons for the production of records, then the
summons must be quashed upon the petition of the taxpayer. As such, the United States has
failed to meet its burden of demonstrating that the summonses were issued in good faith because
it did not comply with the clearly enumerated notice requirement contained in Section
7609(a)(1). Therefore, Jewell’s Petition to Quash IRS Third-Party Summons must be granted.
CONCLUSION
After consideration of the briefs, and for the reasons stated above, the IRS’s Motion to
Dismiss is DENIED and Jewell’s Petition to Quash IRS Third-Party Summons is GRANTED.
IT IS SO ORDERED this 7th day of March, 2013.
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