Doe v. US BY AND THROUGH DEPT. OF TREASURY, Misc. No. 90/998 to 90/1000.
| Decision Date | 23 May 1991 |
| Docket Number | Misc. No. 90/998 to 90/1000. |
| Parties | John DOE, John Doe I, John Doe II through John Doe VIII, Petitioners, v. UNITED STATES of America, Acting By and Through the DEPARTMENT OF TREASURY, INTERNAL REVENUE SERVICE, KNOXVILLE, TENNESSEE, Respondent. |
| Court | U.S. District Court — Eastern District of Tennessee |
Ralph E. Harwell, Harwell, Baumgartner & Willis, W. Thomas Dillard, Ritchie, Fels & Dillard, Knoxville, Tenn., and Goldstein, Goldstein & Hilley, San Antonio, Tex., for petitioners.
Jose Francisco DeLeon, U.S. Dept. of Justice, Tax Div., Washington, D.C., for respondent.
Hal D. Hardin, Nashville, Tenn., for amicus curiae Tennessee Bar Ass'n.
These three petitions ask this court to quash summonses issued by the Internal Revenue Service (IRS) to the law firms of Ritchie, Fels & Dillard, P.C. and Harwell, Baumgartner & Willis, P.A. (hereinafter "the law firms"). The petitioners are unnamed clients of the two law firms and the petitions are said to arise under 26 U.S.C. § 7609. The two law firms themselves have also intervened in these actions. Currently pending are the respondent's motions to dismiss for lack of subject matter jurisdiction, Rule 12(b)(1), Federal Rules of Civil Procedure. Because I agree that this court lacks subject matter jurisdiction in these cases, the motions to dismiss are granted.
For purposes of the pending motions, the factual allegations made in the petitioners' petitions will be considered in the light most favorable to the petitioners.
26 U.S.C. § 6050I(a) requires any person who is engaged in trade or business, and who, in the course of such trade or business, receives more than $10,000 in cash in one transaction, to make a tax return reporting the transaction. The return is required to be in such form as the Secretary prescribes (Form 8300), and is to contain the name, address, and tax identification number of the person from whom the cash was received; the amount received; the date and nature of the transaction; and such other information as the Secretary requires. Section 6050I(b); see generally, 26 C.F.R. 1.6050I-1, 1.6050I-1T (). In early 1990, the IRS issued summonses to the law firms requesting information pertaining to Forms 8300 which the law firms filed. These Forms 8300 record payments of more than $10,000 each to the law firms from clients who are identified as "John Does" on the forms. Essentially, the summonses seek to require the law firms to provide records and information which would disclose the identity of these clients who paid cash fees in excess of $10,000 each to the law firms.
The law firms allege that these clients have directed them not to disclose their identities to the IRS, based on the attorney/client privilege. Further, the law firms have refused to disclose the John Does' identities based upon the attorney/client privilege, the mandates of the Code of Professional Responsibility, the Advisory Ethics Opinion of the Supreme Court of Tennessee, and the prohibitions of Tennessee law. Further, the law firm of Ritchie, Fels & Dillard alleges that Revenue Agent Rhonda Winter advised the law firm that it is not the subject of any IRS investigation of the firm's tax liability or compliance with the IRS Code. Finally, the petitioners allege that this information is sought for the purposes of determining the identity of the John Doe clients.
The petitioners have petitioned the court to quash the summonses issued pursuant to 26 U.S.C. § 7609.
On the Government's motion to dismiss, the petition must be viewed in the light most favorable to the petitioner. The petition should not be dismissed if it can reasonably be conceived that petitioner can make a case on trial which would entitle him to some relief. Madison v. Purdy, 410 F.2d 99 (5th Cir.1969). The allegations of the petition should be taken as true for purposes of the determination of a motion to dismiss. Hughes v. Rowe, 449 U.S. 5, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980).
The petitioners base their allegations of subject matter jurisdiction on the following:
The Government disputes each of these bases for jurisdiction.
Federal courts are not courts of general jurisdiction; they have only the power that is authorized by Article III of the Constitution and the statutes enacted by Congress. Bender v. Williamsport Area School District, 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986). The United States, as sovereign, may not be sued without its consent. United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953, 47 L.Ed.2d 114 (1976). No suit may be maintained against the sovereign unless the suit is brought in exact compliance with the terms of the statute under which the sovereign has consented to be sued. Soriano v. United States, 352 U.S. 270, 276, 77 S.Ct. 269, 273, 1 L.Ed.2d 306 (1957).
IRS summonses are not self-enforcing. Reisman v. Caplin, 375 U.S. 440, 445-46, 84 S.Ct. 508, 511-12, 11 L.Ed.2d 459 (1964). Instead, district courts are given the power to enforce such summonses upon a proper showing. See 26 U.S.C. §§ 7402(b), 7604. At an enforcement proceeding, "the witness may challenge the summons on any appropriate ground," including "the defenses that the material is sought for the improper purpose of obtaining evidence for use in a criminal prosecution, as well as that it is protected by the attorney-client privilege." Reisman, 375 U.S. at 449, 84 S.Ct. at 513. Generally, the opportunity to be heard in connection with an enforcement proceeding offers the witness or the taxpayer sufficient due process, and neither the summoned witness nor the taxpayer may act pre-emptively to enjoin a summons which the IRS has not sought to enforce. Id., at 450, 84 S.Ct. at 514. There are at least two statutory exceptions to this general rule, both of which the petitioners rely upon. The first is the "third-party recordkeeper summons" pursuant to 26 U.S.C. § 7609. The second is the "John Doe summons" pursuant to 26 U.S.C. § 7609(f).
As a general rule, neither a summoned party nor the taxpayer under investigation has any right to initiate an action to quash a summons or to prevent the summoned party from complying voluntarily. Reisman v. Caplin, 375 U.S. 440, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). Section 7609 of the Code creates limited exceptions to that rule with respect to summonses issued to statutorily enumerated "third-party recordkeepers" and the so-called "John Doe summonses". Section 7609 gives taxpayers certain notice of procedural rights in a case of third-party summonses. Section 7609(a) provides as follows:
The rights created by § 7609 extend to summonses issued pursuant to § 7602(a)(2), as are the summonses challenged here. Section 7609(b) provides that any person entitled to notice of the summons may bring an action to quash the summons in the appropriate district court, and § 7609(h) confers jurisdiction to hear that action upon the United States District Court for the district in which the summoned party resides or may be found. Section 7609(a)(3)(E) provides that among those considered to be a "third-party recordkeeper" is "any attorney."
This action is purportedly brought by the John Doe clients pursuant to § 7609(b)(2)(A), with the law firms intervening as the third-party recordkeepers. The IRS contends that the law firms are simply not third-party recordkeepers and therefore the court lacks jurisdiction under § 7609.
Petitioners point out that included among those considered to be "third-party recordkeepers" is "any attorney". 26 U.S.C. § 7609(a)(3)(E). However, it is simply not enough to be "any attorney" to fall within the protections of § 7609. Section 7609(a)(1)(B) indicates that the section only applies if "the summons requires the production of any portions of records made or kept of the business transactions or affairs of any person (other than the person summoned)." Congress' concern in passing § 7609 was that a taxpayer's business records in the hands of a caretaker not be produced to the IRS unless the taxpayer is given notice and an opportunity to challenge the production. In this case, the summonses served upon the law firms do not require the production of records made or kept of the business transactions or affairs of any person other than the law firms. An attorney served with a summons seeking records of his own transactions in connection with an investigation into his own tax or filing obligations is not a "third-party recordkeeper", even though the records may incidentally reveal information about some other individual. United States v. Berg, 636 F.2d 203, 206 (8th Cir.1980); United States v. Bass, 784 F.2d 1282, 1286 (5th Cir.1986...
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