Lewis v. United States

Decision Date09 April 2012
Docket NumberNo. MISC S-11-0039 WBS DAD PS,MISC S-11-0039 WBS DAD PS
PartiesL. ALBERT LEWIS, Petitioner, v. UNITED STATES OF AMERICA, et al., Respondents.
CourtU.S. District Court — Eastern District of California

Petitioner, L. Albert Lewis, seeks to quash an Internal Revenue Service ("IRS") summons pursuant to 26 U.S.C. § 7609(b)(2). The case has been referred to the undersigned pursuant to Local Rule 72-302(c)(10). Respondents have opposed the motion to quash by moving to dismiss it. Petitioner has filed opposition to the motion to dismiss and respondents have filed a reply.1


Respondent asserts that on January 6, 2003, the IRS assessed petitioner with unpaid federal income tax for the 1998 and 1999 tax years, and on November 13, 2003, filed aNotice of Federal Tax Lien against petitioner. (MTD (Doc. No. 3-1) at 2.2 ) Petitioner, an oral surgeon, was subsequently convicted of conspiracy to defraud the United States in a scheme promoted by Tower Executive Resources to inflate petitioner's medical expenses and hide his income in offshore accounts. (Id.) The IRS is now attempting to collect from petitioner income tax liability for the tax years 1998, 1999, 2001, 2002 and a civil frivolous filing penalty for the 2007 tax year. (Id.)

In the course of this process the IRS learned that petitioner had purchased a parcel of real property in Danville, California. Petitioner purchased the Danville property in 1992, and subsequently transferred the property to the Diablo Vista Trust in July of 2002. (Id.) After a series of transfers for no consideration to various related entities, the Veritas Institute obtained title to the property. (Id. at 2-3.) The Veritas Institute then sold the Danville property and purchased a parcel of real property in Verdi, Nevada. (Id. at 3.)

As part of his investigation into petitioner's individual income tax liabilities, IRS Revenue Agent Greg Yarbrough repeatedly requested information relating to the transactions outlined above from petitioner but petitioner refused to comply. (Id.) Therefore, on March 22, March 23 and March 24, 2011, Officer Yarbrough issued five summonses to four different parties seeking records concerning the real property transactions involving the Danville property, the Verdi property and the Veritas Institute. (Id.) Petitioner now seeks to quash these summonses.3 (Pet. (Doc. No. 1.))


A. Sovereign Immunity and Subject Matter Jurisdiction

Petitioner invokes the jurisdiction of this court under 26 U.S.C. § 7609(b). (Pet. (Doc. No. 1) at 3.) Respondent, however, asserts that this court lacks jurisdiction over petitioner's motion to quash under 26 U.S.C. § 7609. In this regard, respondent argues that because he was not named in the summonses and because the law provides that under these circumstances he was not entitled to receive notice of the summonses because they were issued to aid in the collection of an assessment made against petitioner. (MTD (Doc. No. 3-1) at 4-6.) According to respondent, because petitioner was not entitled to receive notice of the summonses he lacks standing to petition the court to quash those summonses. (Id. at 7-8.)

"The basic rule of federal sovereign immunity is that the United States cannot be sued at all without the consent of Congress." Block v. North Dakota ex rel. Bd. of Univ. & Sch. Lands, 461 U.S. 273, 287 (1983). Similarly, no federal agency can be sued unless Congress has explicitly revoked that agency's immunity. Gerritsen v. Consulado General de Mexico, 989 F.2d 340, 343 (9th Cir. 1993); City of Whittier v. U.S. Dep't of Justice, 598 F.2d 561, 562 (9th Cir. 1979). Put another way, no court has jurisdiction to award relief against the United States or a federal agency unless the requested relief is expressly and unequivocally authorized by federal statute. United States v. King, 395 U.S. 1, 4 (1969) (citing United States v. Sherwood, 312 U.S. 584, 586-87 (1941)). If conditions are attached to legislation that waives the sovereign immunity of the United States, the conditions must be strictly observed by the courts, and exceptions are not to be readily implied. Block, 461 U.S. at 287. See also Cato v. United States, 70 F.3d 1103, 1107 (9th Cir. 1995) ("The terms of the United States' consent to be sued in any court define that court's jurisdiction to entertain the suit.").

The exclusive statute providing courts with authority to quash an IRS summons is 26 U.S.C. § 7609(b). "Section 7609(b)(2) constitutes the government's consent to waive sovereign immunity and subject itself to a legal challenge in court." Mollison v. U.S., 568 F.3d1973, 1075 (9th Cir. 2009). Section 7609(b)(2)(A) confers standing only upon those persons entitled to notice of the summons pursuant to § 7609. In this regard, 26 U.S.C. § 7609(c)(2)(D)(i) provides that the notice requirement and procedures to quash summons do not apply to any summons "issued in aid of the collection of an assessment made . . . against the person with respect to whose liability the summons is issued." Accordingly, "a third party should receive notice that the IRS has summonsed the third party's records unless the third party was the assessed taxpayer, a fiduciary or transferee of the taxpayer, or the assessed taxpayer had 'some legal interest or title in the object of the summons.'" Viewtech, Inc. v. U.S., 653 F.3d 1102, 1105 (9th Cir. 2011) (quoting Ip v. United States, 205 F.3d 1168, 1175 (9th Cir. 2000)). See also Remedios v. Wells Fargo Bank, No. Misc. S-050482-MCE-CMK, 2006 WL 1305282, at *1 (E.D. Cal. May 11, 2006) ("In other words, the taxpayer under investigation has no right to notice of a summons issued to collect a tax owed by that taxpayer.").

Here, the summonses seek information relating to petitioner's ownership or interest in the Danville property, the Verdi property or the Veritas Institute. (Yarbrough Decl. (Doc. No. 3-2) at 4.) Petitioner is the assessed taxpayer and therefore was not entitled to receive notice of these summonses. See Viewtech, 653 F.3d at 1106 ("He is the assessed taxpayer, and therefore is disqualified from notice under § 7609(c)(2)(D)(I)."); Cardinal Manao Sendatsu v. United States, Civil No. 11-00610 LEK-KSC, 2012 WL 628906, at *3 (D. Hawaii Feb. 9, 2012) ("As the assessed taxpayer, Dr. Carlson is disqualified from notice under § 7609(c)(2)(D)(I)."). Without the right to notice, petitioner has no standing to petition to quash the summonses in question and this court lacks subject matter jurisdiction.4 See Viewtech, 653 F.3d at 1104; Ip, 205 F.3d at 1170 n.3.II. Petition to Quash

Even if the court had subject matter jurisdiction, petitioner's petition to quash should still be denied because respondent has established a prima facie case for enforcement of the summonses and petitioner has failed to rebut respondent's prima facie case.

The IRS is permitted to determine a person's tax liability by examining the person's documents, taking the person's testimony, and issuing summonses. 26 U.S.C. § 7602(a) (authorizing the IRS to issue summonses for the purposes of "ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax . . . or collecting any such liability"). The powers granted to the IRS for determining tax liability are to be "liberally construed in recognition of the vital public purposes which they serve," and the restriction contained in 26 U.S.C. § 7605(b) against unnecessary examinations or investigations is "not to be read so broadly as to defeat them." De Masters v. Arend, 313 F.2d 79, 87 (9th Cir. 1963). See United States v. Arthur Young & Co., 465 U.S. 805, 814 (1984) (noting "Congress' express intention to allow the IRS to obtain items of even potential relevance to an ongoing investigation") (emphasis in original); Speck v. United States, 59 F.3d 106, 108 (9th Cir. 1995) (noting the Supreme Court's recognition in Arthur Young & Co. that Congress granted the IRS "expansive information-gathering authority").

A taxpayer identified in an IRS summons served on a third party recordkeeper may bring a proceeding to quash the summons, and the government, in turn, may seek to compel compliance with the summons.5 26 U.S.C. § 7609(b)(2)(A).

To defeat a petition to quash, . . . the government must establish that (1) the investigation will be conducted for a legitimate purpose; (2) the material being sought is relevant to that purpose; (3) the information sought is not already in the IRS's possession;and (4) the IRS complied with all the administrative steps required by the Internal Revenue Code. See United States v. Powell, 379 U.S. 48, 57-58 (1964). "The government's burden is a slight one, and may be satisfied by a declaration from the investigating agent that the Powell requirements have been met." United States v. Dynavac, Inc., 6 F.3d 1407, 1414 (9th Cir. 1993). The burden is minimal "because the statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted." Liberty Fin. Servs. v. United States, 778 F.2d 1390, 1392 (9th Cir. 1985) . . . .
Once the government has established the Powell elements, "'those opposing enforcement of a summons . . . bear the burden to disprove the actual existence of a valid civil tax determination or collection purpose by the Service . . . . Without a doubt, this burden is a heavy one.'" United States v. Jose, 131 F.3d 1325, 1328 (9th Cir. 1997) (en banc) (quoting LaSalle, 437 U.S. at 316). As we observed in Derr, "[e]nforcement of a summons is generally a summary proceeding to which a taxpayer has few defenses." United States v. Derr, 968 F.2d 943, 945 (9th Cir. 1992). "'The taxpayer must allege specific facts and evidence to support his allegations' of bad faith or improper purpose." Jose, 131 F.3d at 1328 (quoting Liberty, 778 F.2d at 1392).

Crystal v. United States, 172 F.3d 1141, 1143-44 (9th Cir. 1999) (parallel citations and...

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