Byers v. United States

Decision Date26 June 2020
Docket NumberNo. 19-1893,19-1893
Citation963 F.3d 548
Parties Andrea BYERS, Petitioner-Appellant, v. UNITED STATES of America, INTERNAL REVENUE SERVICE, Respondent-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

ARGUED: Daniel W. Weininger, ABRAHAM & ROSE, P.L.C., Farmington Hills, Michigan, for Appellant. Theodore Joshua Wu, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Daniel W. Weininger, ABRAHAM & ROSE, P.L.C., Farmington Hills, Michigan, for Appellant. Bruce R. Ellisen, John Schumann, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Before: MOORE, SUTTON, and GRIFFIN, Circuit Judges.

OPINION

KAREN NELSON MOORE, Circuit Judge.

Petitioner-Appellant Andrea Byers1 appeals the district court's order enforcing multiple IRS third-party summonses seeking her records and dismissing her petitions to quash these summonses. An IRS agent, seeking Byers's records in furtherance of an investigation into whether she is liable for internal revenue violations, served the summonses on four financial institutions. When Byers moved to quash these summonses, the government moved to dismiss Byers's petitions and to enforce the summonses, and the district court ruled in the government's favor in an oral decision. For the following reasons, we AFFIRM the decision of the district court.

I. BACKGROUND

On August 28, 2018, Andrea Byers received notice from JP Morgan Chase Bank ("Chase") that IRS Agent Joseph Conroy had requested information in connection with the IRS's investigation into her then-husband, Lex Byers. R. 8-3 (Response to Mot. to Dismiss, Ex. B) (Page ID #151). The notice stated that "[t]he requested information includes information that relates to you." Id.2 On October 5, Agent Conroy sent a letter to Byers informing her that she was under investigation for violating 26 U.S.C. §§ 6700 and/or 6701. R. 5-1 (Decl. of Joseph P. Conroy ("Conroy Decl.") ¶ 5) (Page ID #113). On the same day, Agent Conroy issued a document request to Byers, and requested an interview with her. Id. ¶ 6 (Page ID #113). Byers refused both requests. Id. On November 6, Byers received copies of IRS summonses that Agent Conroy had issued to Chase and Bank of America in connection with his investigation of her. R. 8-2 (Decl. of Andrea S. Byers ("Byers Decl.") ¶ 9) (Page ID #147). The summonses directed the banks to provide, for the years 2007 through 2018, "any and all documents in your possession or under your control related to ... Andrea Byers and any other corporation or name Andrea Byers used during the [specified] period[ ] ... including but not limited to: INC'S & LLC'S, ETCETERA, Inc. " and thirteen other entities. R. 1-2 (Pet. to Quash, Ex. A) (bold in original) (Page ID #15).

On November 15, Byers filed a petition to quash the summonses. R. 1 (Pet. to Quash at 1) (Page ID #1). Approximately one week later, Byers received copies of two additional IRS summonses, which Agent Conroy had issued to SunAmerica Trust Company and Pershing, LLC. R. 8-2 (Byers Decl. ¶ 10) (Page ID #147). On November 27, she filed a supplemental petition to quash these summonses. R. 3 (Supp. Pet. to Quash at 1) (Page ID #51). On December 6, Bank of America responded to the summons that Conroy served, but Conroy has not opened the envelope containing the bank's response due to Byers's pending petition to quash. R. 5-1 (Conroy Decl. ¶ 12) (Page ID #114). On March 5, 2019, the government moved the district court for dismissal of Byers's petitions and for enforcement of the four summonses. R. 5 (Mot. to Dismiss and to Enforce at 1) (Page ID #101). Accompanying the government's motion was a declaration by Agent Conroy providing background on the IRS's investigation of Byers. R. 5-1 (Conroy Decl. ¶¶ 1–15) (Page ID #112–15). On June 6, the district court held a hearing on the government's motion, granted it in an oral decision, R. 16 (Hr'g Tr. at 1, 32) (Page ID #238, 269), and entered judgment in favor of the government, thereby dismissing the case with prejudice. R. 11 (Judgment at 1) (Page ID #224). Byers timely appealed. R. 14 (Notice of Appeal at 1) (Page ID #236).

II. STANDARD OF REVIEW

"A district court's order enforcing an IRS summons will not be reversed unless clearly erroneous." United States v. Monumental Life Ins. Co. , 440 F.3d 729, 732 (6th Cir. 2006). Clear error exists if this court is "left with the definite and firm conviction that a mistake has been committed." Alexander v. Local 496, Laborers' Int'l Union of N. Am. , 177 F.3d 394, 402 (6th Cir. 1999). "Issues of statutory interpretation, however, are reviewed de novo." Monumental Life , 440 F.3d at 732.

III. DISCUSSION

This case deals primarily with the IRS's power to summon information from a third party about a named taxpayer. Byers makes three arguments in support of her claim that the IRS overstepped the boundaries of its information-gathering authority. First, she argues that the IRS was required to establish a "reasonable basis" for its investigation of her before its summonses could be enforced, and that the IRS failed to do so. Second, she argues that the IRS did not make a prima-facie showing in support of enforcing its summonses. Third, she argues that she carried her burden of showing that the IRS abused the district court's process in seeking enforcement of the summonses. In view of the IRS's broad authority to collect information related to taxpayers' potential liabilities, each of Byers's arguments fails.

A. The IRS Authority to Issue Summonses

Our self-reporting system of taxation relies on honesty at the front end and investigation at the back end. "There is legal compulsion, to be sure, but basically the Government depends upon the good faith and integrity of each potential taxpayer to disclose honestly all information relevant to tax liability." United States v. Bisceglia , 420 U.S. 141, 145, 95 S.Ct. 915, 43 L.Ed.2d 88 (1975), partially superseded by statute on other grounds , Tax Reform Act of 1976, Pub. L. No. 94-455, § 1205, 90 Stat. 1520, 1699–1703 (1976). Mindful of the possibility that some citizens may be less-than-forthcoming with their financial records, Congress "endowed the IRS with expansive information-gathering authority" to monitor compliance with the internal revenue laws. United States v. Arthur Young & Co. , 465 U.S. 805, 816, 104 S.Ct. 1495, 79 L.Ed.2d 826 (1984). Section 7601 of the Internal Revenue Code permits the IRS to investigate "persons ... who may be liable to pay any internal revenue tax," and section 7602 gives it the authority "[t]o examine any books, papers, records, or other data which may be relevant or material to [an] inquiry" into whether an individual has violated the internal revenue laws. 26 U.S.C. §§ 7601(a), 7602(a)(1). "The purpose of the statutes is not to accuse, but to inquire." Bisceglia , 420 U.S. at 146, 95 S.Ct. 915.

The power granted in § 7602(a)(1) amounts, in practical terms, to the power to issue summonses to acquire tax-related information. What the IRS lacks is the power to compel compliance with these summonses, and for this it must turn to a federal district court. See 26 U.S.C. §§ 7402(b), 7604(a). To obtain judicial enforcement of a summons, the IRS must make a prima-facie showing "that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the [IRS] Commissioner's possession, and that the administrative steps required by the Code have been followed." United States v. Powell , 379 U.S. 48, 57–58, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964). As the Seventh Circuit has aptly noted, this prima-facie burden "isn't much of a hurdle." 2121 Arlington Heights Corp. v. I.R.S. , 109 F.3d 1221, 1224 (7th Cir. 1997). Most relevant for our purposes, it requires no explication of a factual basis for why the IRS has commenced an investigation in a particular case. See 13 Mertens Law of Fed. Income Tax'n § 47:121 ("Probable cause for the administrative inquiry is not required.").

The same standards apply when the IRS issues a summons not to the investigated taxpayer herself, but to a third party who may possess records related to the taxpayer. See Monumental Life , 440 F.3d at 730, 733. The only difference is that, in this scenario, the named taxpayer is entitled to notice that the summons has been issued, and has the right to intervene in the summons-enforcement proceeding. See 26 U.S.C. § 7609(a)(b). It is in this statutory context that Byers's appeal takes place.

B. The "Reasonable Basis" Requirement

The novel issue that we consider here is whether the IRS must demonstrate a "reasonable basis" for believing that a named taxpayer has violated or may violate the internal revenue laws before the district court may enforce a third-party summons seeking information about this taxpayer. Byers acknowledges that this "reasonable basis" language stems from a different provision, subsection (f), of the third-party summons statute, entitled "Additional requirement in the case of a John Doe summons." 26 U.S.C. § 7609(f). This provision states that in order for the IRS to serve a third-party summons "which does not identify the person with respect to whose liability the summons is issued," the government must demonstrate that "there is a reasonable basis for believing that such person or group or class of persons may fail or may have failed to comply with any provision of any internal revenue law." 26 U.S.C. § 7609(f)(2). In other words, when the government seeks information about an unnamed person from a third party, it must show the district court that it has some reason to believe that this unnamed person violated or may violate the law. The other provisions of § 7609 do not explicitly set forth any requirements that the government must satisfy in order to enforce a third-party summons relating to a named person, besides giving proper notice to this person.

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