Larue v. United States
| Decision Date | 22 December 2015 |
| Docket Number | No. 3:15-cv-00705-HZ,3:15-cv-00705-HZ |
| Parties | CHERI LARUE and JACK LARUE, Petitioners, v. UNITED STATES OF AMERICA, Respondent. |
| Court | U.S. District Court — District of Oregon |
Ronald H. Hoevet
Hoevet, Boise & Olson, PC
1000 S.W. Broadway, Suite 1500
Portland, OR 97205
Attorney for Petitioners
Goud Pradyumna Maragani
US Department of Justice, Tax Division
Ben Franklin Station
P.O. Box 683
Washington, DC 20044-0683
Attorney for Respondent
On January 26, 2015, Respondent United States of America, Internal Revenue Service (IRS), issued a Formal Document Request (FDR) to Petitioners Cheri LaRue and Jack LaRue (collectively, "Petitioners"). The IRS seeks documents related to foreign trusts, entities, and accounts connected to the federal income tax liabilities of Petitioners for 1997 through 2009 and 2011 through 2013. On April 24, 2015, Petitioners filed a petition in this Court to quash the FDR. Now before the Court is the IRS's motion to deny the petition to quash. For the reasons that follow, the IRS's motion is granted.
On August 27, 2013; May 8, 2014; and September 11, 2014; IRS Revenue Agent Ivan Bahamonde issued Information Document Requests (IDRs) in connection with the examination of Petitioners' tax returns. Declaration of Agent Bahamonde (Bahamonde Decl.) ¶¶ 7, 12, 16; ECF 10-1. Petitioners declined his requests for an interview and production of documents. Id. at ¶ 11, 15, 16. On May 8, 2014, and October 30, 2014, Agent Bahamonde issued summonses to Petitioners and requested the same information contained in the IDRs. Id. at ¶¶ 13, 18. In response to the October 30, 2014 summonses, Petitioners appeared before IRS Revenue Agent Susan Murrell and asserted their Fifth Amendment privilege under the act of production doctrine. Id. at ¶ 20. The IRS did not enforce the summonses and, instead, issued the present FDR on January 26, 2015. Id. at ¶ 21.
According to Agent Bahamonde, the IRS has obtained information showing that Petitioners used Portcullis Trustnet Group to set up offshore trusts in order to avoid paying U.S. income tax. Id. at ¶ 4. The FDR seeks documents within the following categories of accountsover which Petitioners had signature or other authority or exercised control: foreign bank accounts; foreign credit, ATM, or charge accounts; foreign brokerage or securities accounts, in any name; foreign entities or structures; and foreign trusts. Id. at ¶ 24. The IRS is investigating: (1) the nature of the funds deposited into the offshore accounts; (2) whether income generated by the accounts was properly reported by Petitioners; (3) what happened to the funds when the offshore accounts were terminated; and (4) whether Petitioners filed the appropriate information returns related to interests in foreign bank accounts and entities during the tax periods at issue. Id. at ¶ 6.
Pursuant to 26 U.S.C. § 982(c)(1), the IRS is authorized to issue a FDR to any taxpayer to request foreign-based documentation. "Foreign-based documentation" means "any documentation which is outside the United States and which may be relevant or material to the tax treatment of the examined item." 26 U.S.C. § 982(d). "Congress enacted Section 982 as a pretrial discovery tool 'to discourage taxpayers from delaying or refusing disclosure of certain foreign-based information to the IRS.'" Matter of Int'l Mktg., Ltd. v. United States, No. C-90-1839-SAW, 1990 WL 138528, at *1 (N.D. Cal. Aug. 20, 1990) ().
A person who is mailed a FDR has the right to begin a proceeding to quash the FDR not later than ninety days from the day it was mailed. 26 U.S.C. § 982(c)(2)(A). If the taxpayer seeks to quash the FDR, the government, in the same proceeding, can seek to enforce the FDR. 26 U.S.C. § 982(c)(2)(A); Yujuico v. United States, 818 F. Supp. 285, 287 (N.D. Cal. 1993).
The standards for enforcement of a FDR are the same as applied to administrative summons under United States v. Powell, 379 U.S. 48 (1964). In order to enforce a FDR, and defeat a petition to quash, the IRS must show that: 1) the investigation is conducted for a legitimate purpose; 2) the inquiry may be relevant to that purpose; 3) the information requested is not already in the possession of the IRS; and 4) the administrative steps required by the Internal Revenue Code have been followed. Powell, 379 U.S. at 57-58. The IRS is required to establish a prima facie case that the Powell requirements have been met. United States v. Samuels, Kramer and Co., 712 F.2d 1342, 1345 (9th Cir. 1983). Declarations or affidavits by directors or agents generally satisfy the requirements set forth in Powell. See Lidas Inc. v. United States, 238 F.3d 1076, 1082 (9th Cir. 2001).
In addition to meeting the Powell standard, the IRS must show that the FDR satisfies the procedural requirements of 26 U.S.C. § 982 (c)(1). Chris Marine USA, Inc. v. United States, 892 F. Supp. 1437, 1443 (M.D. Fla. 1995); Yujuico, 818 F. Supp. at 287. Section 982 requires that a FDR be mailed by registered or certified mail to the taxpayer at its last known address and set forth (1) the time and place for the production of the documentation; (2) a statement for the reason the documentation previously produced, if any, is not sufficient; (3) a description of the documentation being sought; and (4) the consequences to the taxpayer for failing to produce the documentation described in the FDR. 26 U.S.C. § 982(c).
Petitioners concede that the IRS has met its burden as to the Powell requirements and the administrative requirements of Section 982. Petitioners also do not dispute that the required records doctrine requires them to turn over records required to be kept and subject to inspectionunder the Bank Secrecy Act between January 26, 2010 and January 26, 2015. See In re M.H., 648 F.3d 1067, 1079 (9th Cir. 2011). Nevertheless, Petitioners ask this Court to quash the FDR for two reasons: (1) Petitioners are not in possession, custody, or control of the requested foreign-based documents; and (2) Petitioners invoke their Fifth Amendment privilege against self-incrimination under the act of production doctrine.
Alternatively, Petitioners argue that the case is not yet ripe and ask the Court to order Petitioners to appear before the IRS for the purpose of asserting these arguments. The Court finds no legal support for this alternative remedy. Petitioners acknowledge that the FDR, unlike an IRS summons, does not require Petitioners to appear before an IRS agent. Furthermore, this Court finds cases from districts throughout the country that rule on the enforceability of a FDR. See, e.g., Chris-Marine USA, Inc. v. United States, 892 F. Supp. 1437 (M.D. Fla. 1995); Spearbeck v. United States, 846 F. Supp. 47, 49 (W.D. Wash. 1993); Yujuico v. United States, 818 F. Supp. 285, 289 (N.D. Cal. 1993). Accordingly, the Court declines to send Petitioners to an IRS hearing and, instead, addresses the merits of the issues raised in this motion.
Petitioners submit the declaration of Jack LaRue, who states: "My wife and I are not in possession, custody, or control of any documents located outside the United States that are responsive to the Formal Document Request." Jack LaRue Decl. ¶ 3, ECF 16. He further declares that Petitioners "have not had an interest in any foreign bank account, foreign brokerage or security account, ownership of a foreign entity or structure, or a foreign trust in at least the last five years." Id. at ¶ 4.
"A person receiving an IRS summons is . . . entitled to contest it in an enforcement proceeding." United States v. Clarke, 134 S. Ct. 2361, 2367 (2014) (citing United States v. Bisceglia, 420 U.S. 141, 146 (1975)). The standards for enforcement of a summons and a FDR are the same. See, e.g., Yujuico, 818 F. Supp. at 287 (N.D. Cal. 1993). "In these proceedings, the taxpayer carries the burden of establishing affirmative defenses." United States v. Seetapun, 750 F.2d 601, 604 (7th Cir. 1984) (citing United States v. Kis, 658 F.2d 526, 542 (7th Cir. 1981)).
Lack of custody or control is a defense to enforcement of the FDR. United States v. Bright, 596 F.3d 683, 695 (9th Cir. 2010); see also United States v. Rylander, 460 U.S. 752, 757 (1983) (). "[T]he party resisting enforcement bears the burden of producing credible evidence that he does not possess or control the documents sought." United States v. Billie, 611 Fed. App'x. 608, 610 (11th Cir. 2015), quoting United States v. Huckaby, 776 F.2d 564, 567 (5th Cir. 1985).
The parties do not cite, and this Court does not find, controlling authority regarding what a taxpayer must show to meet his or her burden of demonstrating a lack of possession, custody, or control of the requested documents. However, the taxpayer's "responsibilities surely go further than a pro forma demand and cursory search for records," Seetapun, 750 F.2d at 605, or a "conclusory, self-serving affidavit, lacking detailed facts and any supporting evidence," FTC v. Publ'g Clearing House, Inc., 104 F.3d 1168, 1171 (9th Cir. 1997). Indeed, "if at this stage the taxpayer cannot refute the government's prima facie Powell showing or cannot factually support a proper affirmative defense, the district court should dispose of the proceeding on the papersbefore it and without an evidentiary hearing." Kis, 658 F.2d at 539 (citing Powell, 379 U.S. at 58).
Here, the IRS presents the declaration of Agent Bahamonde, who states that he determined, based on information obtained by the IRS, that Petitioners used Portcullis Trustnet Group to facilitate a scheme whereby Petitioners set up offshore trusts to improperly avoid U.S. income tax. Bahamonde Decl. ¶ 4....
To continue reading
Request your trial