United States of America v. Anderson, No. 3:2014cv01932 - Document 61 (N.D. Cal. 2014)
Court Description: ORDER GRANTING PETITIONER UNITED STATES OF AMERICA'S PETITION TO ENFORCE IRS SUMMONS by Judge Jon S. Tigar denying 44 Motion to Strike. (wsn, COURT STAFF) (Filed on 11/25/2014)
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United States of America v. Anderson Doc. 61 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 UNITED STATES OF AMERICA, Case No. 14-cv-01932-JST Petitioner, 8 v. 9 10 SIGURD ANDERSON, Respondent. Re: Dkt. Nos. 1, 17, 21, 33, 36, 44, 50 11 United States District Court Northern District of California ORDER GRANTING PETITIONER UNITED STATES OF AMERICA'S PETITION TO ENFORCE IRS SUMMONS 12 13 Before the Court is the United States’ Verified Petition to Enforce Internal Revenue 14 Service Summons (“the Petition”) against Respondent Sigurd Anderson. The Court will grant the 15 petition. 16 I. 17 BACKGROUND The Petition arises from an Internal Revenue Service (“IRS”) investigation being 18 prosecuted by Revenue Agent Sarah Ho (“Agent Ho”). ECF No. 1 at ¶ 4. The investigation 19 concerns Respondent’s tax liabilities and investment activities for the years of 2009 and 2010. Id. 20 On December 17, 2013, Agent Ho issued a summons for documents and testimony related to the 21 alleged tax liabilities. Id. at ¶ 5; ECF No. 1-2. Pursuant to the summons, IRS officials including 22 Agent Ho interviewed Respondent on January 14, 2014. Respondent refused to answer a majority 23 of the questions posed to him, and did not supply any of the requested documents, claiming 24 various grounds of privilege. Id. at 9-10. 25 Seeking a court order compelling Respondent’s cooperation with the summons, the IRS 26 filed the instant Petition on April 25, 2014. ECF No. 1. On May 23, 2014, this Court found that 27 the Government had established its prima facie case and ordered Respondent to show cause why 28 he should not be compelled to produce the requested documents and testimony. ECF No. 9. The Dockets.Justia.com 1 parties subsequently submitted briefing. ECF Nos. 1, 17, 21, 33, 36, 44, 50. The Government’s 2 briefing included a supplemental reply, which Respondent thereafter moved to strike, in part. ECF 3 Nos. 36, 44. 4 II. JURISDICTION AND LEGAL STANDARD The IRS has authority to examine books and witnesses pursuant to a summons under 26 5 6 U.S.C. § 7602(a). “If any person is summoned under the internal revenue laws to appear, to 7 testify, or to produce books, papers, records, or other data, the United States district court for the 8 district in which such person resides or is found shall have jurisdiction by appropriate process to 9 compel such attendance, testimony, or production of books, papers, records, or other data.” 26 10 U.S.C. § 7604. The specific legal procedure governing the court’s inquiry is well-established. See United United States District Court Northern District of California 11 12 States v. Powell, 379 U.S. 48 (1964); United States v. Clarke, 134 S. Ct. 2361 (2014). First, the 13 United States must outline its prima facie case. See Crystal v. United States, 172 F.3d 1141 (9th 14 Cir. 1999). To do so, the United States must show that “1) the investigation will be conducted for 15 a legitimate purpose 2) the material being sought is relevant to that purpose 3) the information 16 sought is not already in the IRS’s possession and 4) the IRS complied with all the administrative 17 steps required by the Internal Revenue Code.” Id. at 1143-1144. The statute is enforced in the 18 context of the Government’s legitimate interest in collecting taxation revenue; “[t]he burden is 19 minimal because the statute must be read broadly in order to ensure that the enforcement powers 20 of the IRS are not unduly restricted.” Id. at 1144 (internal quotation omitted). “The government’s 21 burden is a slight one, and may be satisfied by a declaration from the investigating agent that the 22 Powell requirements have been met.” United States v. Dynavac, Inc. 6 F.3d 11407, 1414 (9th Cir. 23 1993). 24 Once the Government has succeeded in carrying its initial burden, the burden shifts to the 25 Respondent. Crystal 172 F.3d at 1144. “[T]hose opposing enforcement of a summons . . . bear 26 the burden to disprove the actual existence of a valid civil tax determination or collection purpose 27 by the Service . . . this burden is a heavy one.” Id. at 1144 (internal quotation omitted). 28 2 1 Established grounds for challenging the summons include demonstrating “failure to satisfy the 2 Powell requirements.” United States v. Jose, 131 F.3d 1325, 1328 (9th Cir. 1997) (en banc). 3 Abuse of process, such as bad faith use of the procedure to harass or pressure the taxpayer 4 regarding other disputes, is also recognized as grounds to invalidate the summons. Powell, 379 5 U.S. at 58. The Government also may not seek enforcement of a summons when it has already 6 decided to recommend the matter for prosecution. See United States v. LaSalle National Bank, 7 437 U.S. 298, 314 (1978). “[T]he dispositive question in each case is whether the Service is 8 pursuing the authorized purposes in good faith.” Crystal, 172 F.3d at 1144-1145 (internal 9 quotation omitted). 10 United States District Court Northern District of California 11 III. DISCUSSION This Court previously found that the Government had established a prima facie case under 12 Powell based upon its initial Petition and accompanying Declaration. ECF No. 9 at 1. The 13 Government has demonstrated through Agent Ho’s declarations and the supporting documents that 14 the investigation’s purpose is to seek Respondent’s records regarding tax liabilities and foreign 15 banking and investment activities. ECF No. 1 at ¶ 4. The declarations of Agent Ho and the 16 supporting documents establish that the material sought is indeed relevant to the investigation’s 17 purpose. ECF No. 1 at ¶ 5, 6, and 13. The declarations assert that the records presently sought are 18 not currently in the possession of the Government. ECF No. 1 at ¶ 7. Finally, the Government 19 asserts that it has complied with all administrative steps required, including proper notice and 20 summons. ECF No. 1 ¶ 8-12. 21 Because the Government has carried its initial burden and established a prima facie case, 22 the burden shifts to Respondent to rebut the Government’s assertions. Crystal, 172 F.3d at 1144. Challenges to the Government’s Powell Prima Facie Case 23 A. 24 Direct, factual challenges to one of the four prongs established under the Powell line of 25 cases are a well-recognized method for demonstrating that the Government is not justified in 26 requesting that the Court enforce its summons. Action Recycling at 1142-1145. “’The taxpayer 27 must allege specific facts and evidence to support his allegations’ of bad faith or improper 28 purpose.” Jose, 131 F.3d at 1328 (quoting Liberty Fin. Servs. v. United States, 778 F.2d 1390, 3 1 1392 (9th Cir.1985)). 2 Respondent argues that the Government’s use of the word “control” rather than “care” 3 renders its summons overly expansive and thus illegitimate, ECF No. 33 at 10-11, but cites no 4 authority for this proposition. The cases make clear that someone responding to an enforcement 5 subpoena must produce documents in her control as well as those in her possession. See United 6 States v. Vallance, 793 F.2d 1003, 1005 (9th Cir. 1986) (district court did not err in enforcing 7 subpoena where respondent failed to present evidence that documents were not in his control); 8 United States v. Bright, 596 F.3d 683, 692-95 (9th Cir. 2010) (noting that issues to be litigated in 9 enforcement subpoena included “privilege, possession and control”); United States v. Ellsworth, 460 F.2d 1246, 1248 (9th Cir. 1972) (ordering corporate secretary to produce documents in his 11 United States District Court Northern District of California 10 control); United States v. Rylander, 460 U.S. 752, 757 (1983) (“Thus while [Respondent] could 12 not attack the enforcement order on the ground that he lacked possession or control of the records 13 at the time the order was issued, he could defend the contempt charge on the ground that he was 14 then unable to comply because he lacked possession or control.”). Respondent fails to 15 demonstrate that the Government’s use of the word “control” exceeds the legitimate statutory 16 purpose. 17 Respondent next argues that the Government has not shown that it does not already 18 possess the information requested by the subpoena. ECF No. 33 at 11. Respondent also claims 19 that that Government’s possession of certain documents demonstrates that the Government is 20 requesting duplicative documents. ECF No. 33 at 11-12. Respondent provides no evidence to 21 demonstrate that the Government’s requests actually overlap with the documents it has entered as 22 exhibits or already has in its possession. In light of this lack of evidence and the Government’s 23 broad discretion to request documents related to its legitimate purpose, Respondent has failed to 24 carry his burden of demonstrating the summons is not valid. Crystal, 172 F.3d at 1141. 25 B. Abuse of Process 26 Abuse of process is another well-established ground for challenging the good faith intent 27 of an IRS summons. Powell, 379 U.S. at 58. Enforcement of a summons effectively invokes the 28 process of the court, which may not be used for an improper purpose. United States v. Stuart 489 4 1 U.S. 353, 360 (1989). But “[n]aked allegations of improper purpose are not enough: The taxpayer 2 must offer some credible evidence supporting his charge.” United States v. Clarke, 134 S. Ct. at 3 2367. 4 Here, Respondent argues that the Government made overly broad requests, failed to 5 recognize that Respondent did, in fact, answer some of the questions asked of him after the 6 administrative summons, and that IRS counsel illegally attended the proceeding. ECF No. 33 at 7 12-14. An accusation of abuse of process necessarily implicates the use of a legal proceeding for a 8 purpose beyond what is recognized as legitimate. See Powell, 379 U.S. at 85 (“[A]buse of process 9 would take place if the summons had been used for an improper purpose. . . .” (emphasis added)).. Respondent fails to allege that the Government sought to enforce the summons out of any sort of 11 United States District Court Northern District of California 10 illicit objective or impermissible, collateral intent beyond the purposes of investigating 12 Respondent’s tax liabilities and foreign banking activities. 13 Respondent also states that the Government is unfairly conducting this investigation to 14 obtain forbidden discovery for a potential criminal case, ECF No. 33 at 14-15, essentially alleging 15 bad faith. Crystal, 172 F.3d at 1144 (“[G]athering evidence after having decided to make a 16 recommendation for prosecution would be an improper purpose. . . .”). Respondent fails to 17 provide specific facts or evidence to demonstrate that the Government is seeking to refer his case 18 for prosecution, instead stating only that “Anderson has proven facts . . . that the IRS is . . . 19 seeking [criminal] discovery. . . .” ECF No. 33 at 15. The Government has stated that it has not 20 referred the matter to the Justice Department. ECF No. 1 at 3. Without more, these allegations are 21 insufficient for Respondent to meet his burden in demonstrating an abuse of process. 22 C. Privilege 23 Respondent claims that the information sought by the IRS is protected by various grounds 24 of privilege. ECF No. 33 at 19-25. Specifically, Respondent claims that his Fifth Amendment 25 right against self-incrimination, spousal privilege, attorney-client privilege, and tax practitioner 26 privilege each bar the enforcement of the IRS summons. Id. 27 28 Respondent is correct that a taxpayer may invoke his Fifth Amendment rights in response to an IRS summons under certain circumstances. United States v. Drollinger, 80 F.3d 389, 392 5 1 (9th Cir.1996) (“A claim of Fifth Amendment privilege may be asserted if there are ‘substantial 2 hazards of self-incrimination that are real and appreciable. . . .”). When invoking the Fifth 3 Amendment, however, the party seeking protection must justify the invocation of the privilege. 4 Hoffman v. United States, 341 U.S. 479, 486 (1951). Mere “blanket assertion[s]” of Fifth 5 Amendment rights are insufficient. United States v. Brown, 918 F.2d 82, 84 (9th Cir.1990). The 6 process requires a question-by-question or document-by-document review. United States v. 7 Bodwell, 66 F.3d 1000, 1001 (9th Cir.1995). 8 Here, Respondent does not point to specific documents or questions and explain with specificity why any of the privileges he claims should apply. Instead, Respondent has claimed 10 that all documents in his possession sought by the IRS are privileged by the Fifth Amendment. 11 United States District Court Northern District of California 9 Such a blanket assertion of privilege cannot bar enforcement of the summons. See Brown, 918 12 F.2d at 84 (concluding that privilege claim was properly rejected where petitioner “did not attempt 13 . . . to make a document-by-document or question-by-question claim of privilege, though he could 14 have done so” but instead asserted “a blanket privilege”). 15 Respondent makes his other privilege assertions in similarly blanket manner. “It is 16 incumbent upon [the individual seeking evidentiary privilege] to make a particular assertion with 17 respect to each specific category of requested information to which he claimed the privilege 18 applied.” United States v. Abrahams, 905 F.2d 1276, 1283 (9th Cir. 1990) (overruled by United 19 States v. Jose on other grounds). For each category of privilege, the individual invoking the 20 privilege has the burden of establishing that the information sought satisfies the conditions 21 required by the privilege. United States v. Flores, 628 F.2d 521 (9th Cir.1980). Without some 22 demonstration of why specific documents should be privileged, the Court cannot deny 23 enforcement of the petition on the grounds of privilege. Respondent was asked by the Court in its 24 Order to Show Cause, ECF No. 9, to make some showing of why privilege should bar 25 enforcement of the petition, and Respondent has failed to do so. In light of this failure, 26 Respondent cannot rely on claims of privilege to justify a blanket refusal to produce documents or 27 provide testimony related to the investigation. 28 6 1 D. Other Challenges 2 Respondent argues that the Petition is moot because he has already responded to the 3 Government’s record requests and provided some testimony. ECF No. 33 at 5-8. But Respondent 4 has not provided the IRS with any of the requested documents, nor has he provided anything more 5 than blanket assertion of privilege at the proceeding. Because the IRS seeks to use the Petition to 6 compel the production of documents Respondent has thus far refused to produce, and obtain 7 testimony the Respondent has thus far refused to provide, the matter is not moot and is fit for 8 disposition. Respondent also argues that Petition is filed incorrectly and that the Court should construe 9 the process as, essentially, a standalone request for preliminary and permanent injunction. ECF 11 United States District Court Northern District of California 10 No. 33 at 8-9. The Court is not persuaded by this argument. The IRS petition enforcement process 12 is well-established and has been appropriately exercised by the Government in this case. The 13 Court likewise finds Respondent’s challenges under the Administrate Procedure Act inapposite, as 14 “[a]n IRS investigation . . . is not an adjudicative order subject to the requirements set forth in the 15 Administrative Procedures Act.” Kernan v. I.R.S., 2006 WL 2091668 at *4 (D. Ariz. 2006). Finally, Respondent has submitted a motion to strike, asking this Court to strike various 16 17 arguments he alleges that the Government raised for the first time in its Reply briefing. 18 Respondent uses this motion to raise numerous new substantive arguments of his own. The Court 19 notes that it has only considered those arguments that were properly raised by the parties during 20 the course of the briefing. Respondent’s motion to strike is denied. 21 IV. CONCLUSION For the foregoing reasons, the Court GRANTS the United States’ petition to enforce the 22 23 IRS summons. Respondent is ORDERED to appear before Revenue Agent Sarah Ho, or any other 24 proper officer or employee of the IRS, at such time and place as may be set by Revenue Agent Ho 25 or her designee, and produce the documents and give the testimony called for by the terms of the 26 /// 27 /// 28 /// 7 1 summons dated December 17, 2013, a copy of which is attached as an exhibit to the Declaration of 2 Sarah Ho dated April 25, 2014. 3 IT IS SO ORDERED. 4 Dated: November 24, 2014 5 6 7 ______________________________________ JON S. TIGAR United States District Judge 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8
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