U.S. v. Norwood, 04-2623.

• Decision Date: 26 August 2005
• Docket Number: No. 04-2623.,04-2623.
• Citation: 420 F.3d 888
• Parties: UNITED STATES of America, Appellee, v. Danny L. NORWOOD, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

420 F.3d 888

UNITED STATES of America, Appellee, v. Danny L. NORWOOD, Appellant.

No. 04-2623.

United States Court of Appeals, Eighth Circuit.

Submitted: March 18, 2005.

Filed: August 26, 2005.

COPYRIGHT MATERIAL OMITTED

Jon J. Jensen, argued, Grand Forks, ND, for appellant.

John A. Dudeck, Jr., argued, Dept. of Justice, Washington, DC (Frank P. Cihlar, on the brief), for appellee.

Before WOLLMAN, JOHN R. GIBSON, and COLLOTON, Circuit Judges.

COLLOTON, Circuit Judge.

Danny L. Norwood appeals from an order enforcing an Internal Revenue Service ("IRS") summons pursuant to 26 U.S.C. §§ 7602 and 7604. The district court¹ determined that the summons, which sought various financial records in connection with the IRS's investigation of Norwood's possible underreporting of income, was properly issued and did not violate Norwood's Fourth or Fifth Amendment rights. We affirm.

I.

On December 9, 2002, the IRS summoned Norwood in connection with an audit of his 1999 and 2000 federal income tax returns. In paragraphs 1, 3, 5, and a final unnumbered paragraph, the summons requested bank records for accounts over which Norwood had authority during 1999 and 2000, records reflecting his purchase or redemption of certificates of deposit during 1999 and 2000, documents relating to credit, debit, or charge card accounts that Norwood controlled from 1999 and 2000, and documents evincing Norwood's ownership interest in any foreign entities. (Appellant's App. at 39-40).

Norwood appeared before an IRS agent in response to the summons on January 8, 2003, but refused to produce the information requested by the summons. Norwood invoked his Fifth Amendment privilege against self-incrimination in response to the portions of the summons in question.

On January 13, 2003, the IRS announced the Offshore Voluntary Compliance Initiative ("OVCI"). The program was designed to bring taxpayers who had used offshore accounts to hide income into compliance with federal tax law while gathering information about the promoters of such offshore schemes. Taxpayers who voluntarily disclosed their use of offshore accounts prior to April 15, 2003, would be exempted from civil fraud and information return penalties, but would still be required to pay back taxes, interest, and certain accuracy and delinquency penalties. Rev. Proc.2003-11, 2003-1 C.B. 311, § 2.01. Taxpayers already under audit when OVCI began were ineligible for participation in the program. Id. § 4.01(1)(a).

On March 12, 2003, the government petitioned the district court for enforcement of its summons to Norwood and an order instructing him to execute a consent directive authorizing any financial institution at which Norwood had an account to release information relating to the account. The government's petition was accompanied by two affidavits, one from Revenue Agent Mark Ensrud and one from Revenue Agent Joseph West. Agent Ensrud declared that his investigation of Norwood's tax returns was prompted by information garnered through OVCI. He stated that the OVCI information revealed that Norwood had two MasterCard payment cards issued by Leadenhall Bank & Trust Company ("Leadenhall"), located in Nassau, The Bahamas. Ensrud disclosed the account numbers corresponding to the cards, and claimed that Norwood had "checked `no' in response to the question whether he had an interest in or a signature or other authority over a financial account in a foreign country" on his 1999 and 2000 federal income tax returns. Ensrud also declared that he had obtained receipts and information from a furniture company in Fargo, North Dakota, indicating that Norwood had used his Leadenhall cards there in 2000 to purchase furniture that was delivered to his home address.

Agent West's declaration described how the IRS obtained account information on the Leadenhall payment cards by means of a "John Doe" summons served on MasterCard International and American Express Travel Related Services Company. West described a "typical offshore scheme" and concluded that taxpayers having signature authority over offshore credit cards such as those issued by Leadenhall "may be evading the payment of federal taxes by concealing unreported taxable income or claiming improper deductions as a result of maintaining diverted funds in offshore accounts."

After a hearing on an order to show cause on May 11, 2003, the district court issued a memorandum opinion and order on March 31, 2004, which it amended in an order issued August 16, 2004. The district court ruled that the IRS had made a prima facie case for enforcement of the summons, and that Norwood had not shown that the summons was issued for an improper purpose. The court also determined that the summons did not violate Norwood's Fourth or Fifth Amendment rights, and denied Norwood's request for discovery. The court ordered Norwood to comply with paragraphs 1, 3, 5, and the final paragraph of the summons. The court also ordered Norwood to execute a consent directive for the years 1999 and 2000.

II.

Norwood challenges two aspects of the district court's decision. First, he contends that the district court erred in enforcing the summons. He asserts this was error because the IRS had no legitimate purpose in seeking the information requested by the summons, enforcement of the summons would violate his Fifth Amendment right against self-incrimination, and the summons was unreasonably broad in violation of the Fourth Amendment. Second, he contends that the district court should have granted him discovery regarding the IRS's institutional posture in the investigation, that is, whether the IRS issued the summons for the purpose of developing criminal charges against Norwood.

A.

1.

The district court's finding that the IRS had a legitimate purpose for summoning Norwood is not clearly erroneous. See United States v. Kaiser, 397 F.3d 641, 643 (8th Cir.2005) (standard of review). Section 7602 of Title 26 authorizes the IRS to summon certain persons and data "[f]or the purpose of . . . determining the liability of any person for any internal revenue tax." Federal district courts have jurisdiction to enforce such a summons pursuant to 26 U.S.C. § 7604. Enforcement of a summons under § 7604 is appropriate where the record shows 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 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). The Commissioner may establish a prima facie case for enforcement of a summons by a "minimal showing of good faith compliance with summons requirements." United States v. Moon, 616 F.2d 1043, 1046 (8th Cir.1980). Such good faith can be demonstrated by the affidavit of an IRS agent. Id.

Here, Agent Ensrud's declaration stated that the materials requested in the summons were necessary to "properly investigate Mr. Norwood's federal tax liabilities for the 1999 and 2000 tax years," (Ensrud Decl. ¶ 15), and that the "IRS is seeking to determine the correctness" of Norwood's tax returns from those years. (Id. ¶ 3). The declaration also noted Norwood's maintenance of two Leadenhall-issued payment cards, (id. ¶¶ 5-6), and stated that "[n]o Department of Justice referral, as defined in Code Section 7602(d), is in effect to Mr. Norwood for the years under investigation." (Id. ¶ 16). Agent West's declaration asserted that taxpayers having signature authority over offshore credit cards such as those issued by Leadenhall "may be evading the payment of federal taxes by concealing unreported taxable income or claiming improper deductions as a result of maintaining diverted funds in offshore accounts." (Id. ¶ 4). In light of these affidavits, we agree with the district court that the government established a proper purpose for the summons under the Powell standard.

The taxpayer can rebut a prima facie case for enforcement under Powell by demonstrating that the Powell requirements have not been satisfied, or by showing that enforcement of the summons would represent an abuse of the court's enforcement powers. Moon, 616 F.2d at 1046. The burden of proof on the taxpayer necessary to overcome a prima facie showing of proper purpose is a heavy one, Kaiser, 397 F.3d at 643, because only "substantial countervailing policies" or express statutory prohibition should stand in the way of effective performance of "congressionally imposed responsibilities to enforce the tax Code." United States v. Euge, 444 U.S. 707, 711, 100 S.Ct. 874, 63 L.Ed.2d 141 (1980); accord Robert v. United States, 364 F.3d 988, 996 (8th Cir.2004). Norwood points to the IRS's policy of criminally prosecuting taxpayers who have used offshore accounts to conceal income, and suggests that the summons was issued in an attempt to gather information for a criminal prosecution. Such a purpose for issuing the summons, Norwood argues, would be an improper purpose under Powell.

In contending that the policy of the IRS is relevant in determining the propriety of the agency's purpose in issuing a summons, Norwood relies on United States v. LaSalle National Bank, 437 U.S. 298, 98 S.Ct. 2357, 57 L.Ed.2d 221 (1978). LaSalle announced a rule that bad faith under § 7602 was shown when the IRS's purpose in issuing a summons was solely to investigate criminal activity. Id. at 316, 98 S.Ct. 2357. Five years after LaSalle was decided, Congress amended § 7602 by adding two new provisions. The first amendment addressed the purposes for which a summons may be issued:

Purpose May Include Inquiry Into Offense. The purposes for which the Secretary may [issue a summons] include the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws.

Tax Equity and Fiscal Responsibility Act of 1982, Pub.L. No. 97-248, § 333, ...