Godwin v. United States

• Decision Date: 11 May 1983
• Docket Number: Misc. No. 83-4.
• Citation: 564 F. Supp. 1209
• Parties: Harold F. GODWIN, Petitioner, v. The UNITED STATES of America, Respondent.
• Court: U.S. District Court — District of Delaware

564 F. Supp. 1209

Harold F. GODWIN, Petitioner, v. The UNITED STATES of America, Respondent.

Misc. No. 83-4.

United States District Court, D. Delaware.

May 11, 1983.

Charles Gruver III, of Bayard, Brill & Handelman, P.A., Wilmington, Del., for petitioner.

Joseph J. Farnan, Jr., U.S. Atty., Peggy L. Ableman, Asst. U.S. Atty., Wilmington, Del., Glenn L. Archer, Jr., Asst. Atty. Gen., S. Martin Teel, Jr. and Robert L. Gordon, Attys., Tax Div., Dept. of Justice, Washington, D.C., for respondent.

OPINION

LATCHUM, Chief Judge.

This matter is before the Court upon the petition¹ of Harold F. Godwin ("taxpayer"), filed pursuant to 26 U.S.C. § 7609(b), to quash ten Internal Revenue Service ("IRS") summonses² and the cross motion of the United States ("respondent"), filed under 26 U.S.C. § 7609(h), for summary denial of petitioner's motion to quash three of the summonses and for summary enforcement of the seven other summonses.³

I. Background Facts

Between January 13, 1983 and February 1, 1983, Ronald J. Poplos, a special agent with the IRS, Criminal Investigation Division, issued ten summonses to obtain information for an investigation into the tax liabilities of the taxpayer. Four of the summonses were issued to two accountants,⁴ three were issued to financial institutions,⁵ and three were issued to the taxpayer trading as The Village Market, trading as Godwin's Silverbrook Arco, and as President of Godwin Enterprises, Inc.⁶

II. Respondent's Motion For Summary Denial Of Taxpayer's Petition To Quash The Three Summonses Issued To Him As Representative Of His Three Business Enterprises

As stated above, the taxpayer's petition to quash the summonses issued to him as the representative of his three solely owned businesses, viz., the Village Market, Godwin's Silverbrook Arco and Godwin Enterprises, Inc., is based on 26 U.S.C. § 7609(b).⁷ However, it is clear that the taxpayer lacks standing to quash these summonses. The provisions of Section 7609(b), permitting a taxpayer to begin a proceeding in an appropriate United States District Court to quash an IRS summons, applies only to a summons issued to a "third-party recordkeeper," as defined in Section 7609(a)(3), for records of the business transactions or affairs of a person other than the summoned party. 26 U.S.C. § 7609(a)(1)(A & B). The three summonses issued for records of the taxpayer's three solely owned businesses do not fall within the purview of Section 7609. They are not summonses directed to "third-party recordkeepers." Consequently, the taxpayer does not have standing to quash those three summonses under Section 7609 and the respondent's motion for summary denial of the taxpayer's petition to quash those three summonses will be granted.⁸

III. Summary Enforcement Of Third-Party Recordkeeper Summonses

This Court has jurisdiction over taxpayer's petitions to quash the seven summonses issued to the two accountants and the three financial institutions, all third-party recordkeepers, as defined in 26 U.S.C. § 7609(a)(3), by reason of the new procedure set forth in Section 7609(b), as amended by the Tax Equity and Fiscal Responsibility Act of 1982, Pub.L. No. 97-248, 96 Stat. 324 ("TEFRA").

Sections 7609 and 7602, as amended by TEFRA,⁹ brought important changes to the procedures for the enforcement of IRS summonses. Of especial importance to this case are two of these changes: first, TEFRA changed the type of proceeding in which enforcement of a third-party recordkeeper summons is litigated, and second, it replaced the vague solely-criminal purpose defense with a "bright line" test under which a summons may be issued for a criminal purpose as long as there was no "Department of Justice referral." However, these two changes did not alter the showing required by the government to establish a prima facie case for the enforcement of the summons and did not otherwise alter the general summary nature of summons enforcement proceedings.

Section 331 of TEFRA, 96 Stat. at 620, amended 26 U.S.C. § 7609 to reverse the format of enforcement proceedings concerning third-party recordkeeper summonses. Prior to TEFRA, when the IRS summoned records of a taxpayer from a "third-party recordkeeper," such as a bank or securities broker, the affected taxpayer could stay the recordkeeper's compliance with the summons simply by notifying the recordkeeper in writing that the taxpayer did not wish the recordkeeper to comply with the summons. S.Rep. No. 494, 97th Cong., 2d Sess. 281, reprinted in 1982 U.S.Code Cong. & Ad.News, 781, 1027. The burden of initiating an action to enforce the summons was then cast upon the United States. Id. Because this placed an unnecessarily heavy burden upon the United States, and because most summonses of this type were enforced without a contest at the district court level, Congress concluded that the burden of seeking review of the summons should be shifted to the taxpayer seeking to stay compliance by requiring such taxpayer to file a petition to quash enforcement of the summons. S.Rep. No. 494, supra, at 282-283, reprinted in 1982 U.S.Code Cong. & Ad. News 781, 1027-29. For this reason, 26 U.S.C. § 7609 was modified to permit the affected taxpayer to file a petition to quash in the district court within twenty days after the IRS has given notice to him of the service of the summons upon the third-party recordkeeper. Thus, the posture of the instant suit is one of a petition to quash the summons brought by the taxpayer rather than an action to enforce the summons brought by the government. The statute expressly authorizes the United States to seek enforcement of the summons in the taxpayer's proceeding.¹⁰

The Senate Report expressly stated that this modification of the format of summons enforcement proceedings was not to affect the substantive law of summons enforcement, except as amended in Sections 332 and 333 of TEFRA. See S.Rep. 494, supra, at 283, reprinted in U.S.Code Cong. & Ad.News 781, 1029. It is therefore clear that, except for specific changes, the pre-amendment law concerning the nature of the summons, the government's burden, the summary nature of the proceedings, the concomitant general unavailability of discovery, and the strict standards for stay of the Court's final judgment pending appeal are to remain unchanged. Id. at 283, 285, reprinted in U.S.Code Cong. & Ad.News 781, 1029-31. For this reason, the new form of proceeding does not affect the substantive law to be applied. The proceeding remains summary in nature, and the summons remains akin to a grand jury subpoena. See United States v. Cortese, 614 F.2d 914, 920 (3d Cir.1980). Consequently, the summons power should continue to be liberally construed in light of the purposes it serves. See United States v. Euge, 444 U.S. 707, 714-16, 100 S.Ct. 874, 879-881, 63 L.Ed.2d 141 (1980).

The standards for enforcing an IRS summons under prior law are well established. To make a prima facie case for enforcement, the government need only show: (1) that the investigation will be conducted for a legitimate purpose, (2) that the data sought is relevant to that purpose, (3) that the data being sought is not already in the IRS's possession, and (4) that the administrative steps required by the Internal Revenue Code with respect to a summons have been followed. United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 254-255, 13 L.Ed.2d 112 (1964); see United States v. LaSalle Nat'l Bank, 437 U.S. 298, 313-14, 98 S.Ct. 2357, 2365-2366, 57 L.Ed.2d 221 (1978). "The requisite showing is generally made by the affidavit of the agent who issued the summons and who is seeking enforcement." United States v. Garden State Nat'l Bank, 607 F.2d 61, 68 (3d Cir. 1979) (citing United States v. McCarthy, 514 F.2d 368, 372 (3d Cir.1975)); accord United States v. Will, 671 F.2d 963, 966 (6th Cir. 1982). Indeed, "no more than an affidavit is necessary to make the prima facie case." United States v. Kis, 658 F.2d 526, 536 (7th Cir.1981), cert. denied sub nom. Salkin v. United States, 455 U.S. 1018, 102 S.Ct. 1712, 72 L.Ed.2d 135 (1982).

In support of its enforcement motion of the seven third-party recordkeeper summonses, the government filed a Declaration of Special Agent Ronald J. Poplos, the Treasury agent who issued the summonses and who is conducting the IRS tax investigation. (D.I. 5.) That declaration establishes all of the requisite standards, thereby presenting to the Court a prima facie case for enforcement of the seven summonses.¹¹ The burden therefore falls upon petitioners to disprove the existence of a valid purpose or to show that enforcement of the summonses would be an abuse of the Court's process or otherwise would be improper. E.g., United States v. Powell, 379 U.S. at 58; 85 S.Ct. at 255; United States v. LaSalle Nat'l Bank, 437 U.S. at 316, 98 S.Ct. at 2367.

The taxpayer's petitions to quash assert two grounds for vacating the third-party recordkeeper summonses: (1) the summonses are unreasonably broad because they seek information concerning tax years 1978 and 1982, while the years under investigation are limited to 1979 through 1981; and (2) all the summonses were issued for an improper, namely, solely criminal, purpose.

The Court finds no merit to the tax-payer's first ground. As established by paragraph 11 of Special Agent Poplos' declaration, information relating to 1978 and 1982 is relevant to the investigation, because the taxpayer's solely owned corporation was on a fiscal year rather than a calendar year. As a result, the financial information, which was necessary to determine the taxpayer's individual calendar year tax liabilities, may be found in earlier and later fiscal year records of his corporation. Additionally, the information is relevant based on indirect methods of ascertaining income, the tracing of assets that reflect income or expenditures in the years under investigation, and the issue of willfulness. The reasons stated certainly meet the minimal showing...