757 F.2d 1000 (9th Cir. 1985), 83-2577, Chen Chi Wang v. United States

Docket Nº:83-2577.
Citation:757 F.2d 1000
Party Name:CHEN CHI WANG and Wayne Chen, Petitioners-Appellants, v. UNITED STATES of America, Respondent-Appellee.
Case Date:April 09, 1985
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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757 F.2d 1000 (9th Cir. 1985)

CHEN CHI WANG and Wayne Chen, Petitioners-Appellants,


UNITED STATES of America, Respondent-Appellee.

No. 83-2577.

United States Court of Appeals, Ninth Circuit

April 9, 1985

Argued and Submitted Oct. 3, 1984.

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Martin A. Schainbaum, Kevin W. Finck, San Francisco, Cal., for petitioners-appellants.

Elaine F. Ferris, Libero Marinelli, Jr., Washington, D.C., for respondent-appellee.

Appeal from the United States District Court for the Northern District of California.

Before DUNIWAY, FERGUSON, and NELSON, Circuit Judges.

DUNIWAY, Circuit Judge:

Wang and Chen appeal from the district court order dismissing their petition to quash an Internal Revenue Service (IRS) summons issued to Whitfield Management Services. They argue (1) that Whitfield is a "third party recordkeeper" under 26 U.S.C. Sec. 7609 and the summons was improper because they were not given notice, and (2) that as a "target" of a third party subpoena, they are independently entitled to intervene under general law principles. In addition, (3) they challenge the district court's denial of a discovery request. We affirm on each point.

I. Background.

In November 1982, the IRS initiated a criminal tax investigation of petitioner

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Chen. On May 31, 1983, an IRS summons was issued to Whitfield Management Services, a financial service organization which has prepared Wang's tax returns, demanding the production of any and all records relating to payments by Wang to Chen. Wang filed a petition in the district court to quash the summons, arguing that the summons was unenforceable because the IRS failed to give Wang notice of its issuance as required by 26 U.S.C. Sec. 7609(a)(1). The government moved to dismiss the petition, arguing that Whitfield is not a third party recordkeeper under Sec. 7609(a)(3) and therefore Wang cannot bring a proceeding to quash the summons. The district court granted the government's motion to dismiss the petition for lack of subject matter jurisdiction under Sec. 7609(h)(1). Wang and Chen filed an ex parte application and motion seeking an order requiring the production of documents. The district court denied the discovery request.

II. Third Party Recordkeeper.

Under 26 U.S.C. Sec. 7602, the IRS has broad powers to summon information relevant to determining the liability of any taxpayer. The IRS may obtain such information from the taxpayer himself, or it may require production from "any person" holding records "relating to the business of the person liable for tax" or "any other person the Secretary or his delegate may deem proper." 26 U.S.C. Sec. 7602(a).

Under Secs. 7609(b)(2) and (h)(1), a district court has jurisdiction of a proceeding to quash a third-party summons when such an action is brought by a person entitled to notice of summons under Sec. 7609(a). A person identified in the description of the records contained in the summons is entitled to notice if the summons is served upon a third party recordkeeper as defined in Sec. 7609(a)(3). This subsection lists seven categories of third party recordkeepers including "any accountant." Sec. 7609(a)(3)(F).

The district court relied upon Treas.Reg. 301.7609-2(a)(1) (26 C.F.R.) to find that Whitfield is not a third party recordkeeper under Section 7609:

A person is an "accountant" under section 7609(a)(3)(F) for purposes of determining whether that person is a third-party recordkeeper if the person is registered, licensed, or certified under State law as an accountant.

Appellants argue that Whitfield falls into the category "any accountant" under Sec. 7609(a)(3)(F) when that term is properly construed and that the Treasury Regulation is an invalid limitation on the section.

Whitfield was licensed by the State of California as an Income Tax Return Preparer before the California licensing law expired in 1982. However, Whitfield is not registered with or licensed by the California State Board of Accountancy. According to Whitfield's president Allen, Whitfield provides accounting services which include "examining and verifying, but not auditing, books and records, summarizing and posting records, preparing profit and loss statements, and bank reconciliations." Allen does not state that he or any member of his firm is licensed as an accountant under California state law.

Treas.Reg. 301.7609-2(a)(1), adopted pursuant to the Secretary's general authority to "prescribe all needful rules and regulations," 26 U.S.C. Sec. 7805(a), deserves "less deference than a regulation issued under a specific grant of authority to define a statutory term or prescribe a method of executing a statutory provision." United States v. Vogel Fertilizer Co., 1981, 455 U.S. 16, 24, 102 S.Ct. 821, 827, 70 L.Ed.2d 792; quoting Rowan Cos. v. United States, 1981, 452 U.S. 247, 253, 101 S.Ct. 2288, 2292, 68 L.Ed.2d 814. A treasury regulation is ordinarily valid if found to "implement the Congressional mandate in some reasonable manner." Rowan Cos. at 252, 101 S.Ct. at 2292, quoting United States v. Correll, 1967, 389 U.S. 299, 307, 88 S.Ct. 445, 449, 19 L.Ed.2d 537. In determining whether the Treasury Regulation is reasonable, relevant considerations include "whether the regulation harmonizes with the plain language of the statute, its origin, and its purpose." Rowan Cos., supra, 452 U.S. at 253, 101 S.Ct. at 2292, quoting

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National Muffler Dealers Ass'n v. United States, 1979, 440 U.S. 472, 477, 99 S.Ct. 1304, 1307, 59 L.Ed.2d 519.

Appellants argue that Congress sought to use the generic meaning of the term "any accountant." They argue that the specific categories listed in Section 7609(a)(3), including "any accountant," must be applied in accordance with the Senate Finance Committee's understanding that "[f]or purposes of these rules, a third party recordkeeper is generally to be a person engaged in making or keeping the records involving transactions of other...

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