U.S. v. O'Shea, Miscellaneous Action No. 5:09-mc-00043.

• Decision Date: 08 September 2009
• Docket Number: Miscellaneous Action No. 5:09-mc-00043.
• Citation: 662 F.Supp.2d 535
• Court: U.S. District Court — Southern District of West Virginia
• Parties: UNITED STATES, Petitioner, v. Gerard O'SHEA and Kathnell O'Shea, Respondents.

662 F.Supp.2d 535

UNITED STATES, Petitioner, v. Gerard O'SHEA and Kathnell O'Shea, Respondents.

Miscellaneous Action No. 5:09-mc-00043.

United States District Court, S.D. West Virginia, Beckley Division.

September 8, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Gary L. Call, U.S. Attorney's Office, Charleston, WV, for Petitioner.

Gerard O'Shea, Lewisburg, WV, pro se.

Kathnell O'Shea, Lewisburg, WV, pro se.

MEMORANDUM OPINION AND ORDER

THOMAS E. JOHNSTON, District Judge.

Before the Court are the United States' Petitions to Enforce Internal Revenue Service Administration Summons [Docket 1].¹ For the reasons set forth below, the Petitions are GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

This matter arises from an ongoing investigation by the Internal Revenue Service (IRS) into the tax liability of Gerard and Kathnell O'Shea. On October 2, 2008, IRS Revenue Officer Gregory Yurick served administrative summonses on the O'Sheas ordering them to appear before him to testify and produce documents and records regarding taxable income for the years 2002, 2003, and 2004. The documents and records sought by Officer Yurick pertained to two trusts, the G and K Trust and the Genesis Trust, allegedly administered by the O'Sheas.² The O'Sheas appeared before Officer Yurick at the designated time but refused to produce any documents or answer any questions. The O'Sheas cited their Fifth Amendment privilege against self-incrimination as the reason for their refusal to provide the requested information.

The Government filed the instant petitions on March 12, 2009, seeking to bring the O'Sheas before this Court to show cause why they should not be compelled to provide the information requested by the administrative summonses. The Court found that the allegations contained in the Government's petitions established a prima facie case that the summonses were issued in good faith and presumptively enforceable. (Docket 2.) The parties were directed to submit briefing to the Court and appear for a show cause hearing. Briefs were filed and the Court heard arguments from the parties on May 15, 2009. The matter is now ripe for the Court's consideration.

II. DISCUSSION

To obtain judicial enforcement of an IRS summons, the Government must first make a prima facie showing that the summons was issued in good faith. Conner v. United States, 434 F.3d 676, 680 (4th Cir.2006) (citing United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964)). The summons will be deemed to have been issued in good faith if "(1) the investigation is being conducted for a legitimate purpose; (2) the inquiry is relevant to that purpose; (3) the information sought is not already in the possession of the IRS; and (4) the administrative steps required by the Internal Revenue Code have been followed." Id. The Government's burden is not onerous; it may be satisfied by an affidavit from an IRS enforcement officer alleging that the four good faith elements have been satisfied. Id. Furthermore, the IRS possesses the "power of inquisition" to investigate possible unpaid tax liabilities, and its inquisitory powers need not be supported by probable cause that wrongdoing has occurred. Powell, 379 U.S. at 57, 85 S.Ct. 248; see also United States v. Bisceglia, 420 U.S. 141, 146, 95 S.Ct. 915, 43 L.Ed.2d 88 (1975) ("The purpose of the [summons] statutes is not to accuse, but to inquire."). If the Government meets its burden of demonstrating that the summons was issued in good faith, "it is entitled to an enforcement order unless the taxpayer can show that the IRS is attempting to abuse the court's process." Conner, 434 F.3d at 680 (quoting United States v. Stuart, 489 U.S. 353, 353, 109 S.Ct. 1183, 103 L.Ed.2d 388 (1989)).

In marked contrast to the burden placed on the Government, the taxpayer bears a heavy burden to prove an abuse of process. See Alphin v. United States, 809 F.2d 236, 238 (4th Cir.1987). The taxpayer can establish that an abuse of process has occurred by disproving one or more of the four good faith elements averred by the Government. United States v. McHenry, 552 F.Supp.2d 571, 574 (E.D.Va.2008). Notwithstanding the Government's good faith, a taxpayer also may successfully resist an IRS summons by raising and proving a valid affirmative defense. See Alphin, 809 F.2d at 238.

The O'Sheas present two arguments in opposition to the Government's effort to enforce the summonses. First, the O'Sheas contend that an abuse of process has occurred. They focus on the fourth good faith element, arguing that the summonses did not comport with the relevant provisions of the Internal Revenue Code, and on the second element, claiming that the Government has not shown the relevance of the summonses to a legitimate tax collection purpose. Second, the O'Sheas attempt to invoke their Fifth Amendment right against self-incrimination as an affirmative defense to complying with the summonses. Each of these arguments will be addressed in turn.

A. Abuse of Process

The O'Sheas identify several purported legal errors with the Government's summonses. They first claim that they were improperly served with third-party summonses under 26 U.S.C. § 7609. Second, they argue that the IRS has failed to provide an adequate explanation for why "any such third-party documents (if they exist) would be in [the O'Sheas'] possession, or have any relation to [the O'Sheas], or have any relation to tax claims (if any exist) against them, or have any relation to any potential collection action." (Docket 5 at 7.) Accordingly, they claim that the information the IRS sought to obtain by the summonses was not within the scope of the IRS's authority to summon under 26 U.S.C. § 7602(a). Neither of these arguments sufficiently rebuts the Government's prima facie showing that the second and fourth good faith elements were satisfied.

Contrary to the O'Sheas' assertion, the summonses at issue were not third-party summonses. A third-party summons, by definition, is a summons issued to a person other than the taxpayer who is the target of the investigation. See 26 U.S.C. § 7609(a)(1); 26 C.F.R. § 301.7602-2(b)(2). The summonses issued to the O'Sheas were captioned "In the matter of Gerard O'Shea" and "In the mater of Kathnell O'Shea," respectively. (Docket 1-3.) Below the captions, each summons stated that it was "for the purpose of inquiring into any offense connected with the administration or enforcement of the internal revenue laws concerning the person identified above for the periods shown." (Id.) Thus, each summons was unambiguously directed to the target of the investigation rather than to a third party.

The O'Sheas highlight the certification portion of the summonses as evidence that they were improperly served with third-party summonses.³ The certification portion of the summonses state, in part: "This certificate is made to show compliance with [26 U.S.C. § ] 7609." (Docket 1-3.) Section 7609 obligates the IRS to notify a taxpayer targeted by an investigation that the IRS has issued a summons to a third-party seeking records or information relating to the taxpayer. 26 U.S.C. § 7609(a); see also United States v. Horton, 452 F.Supp. 472 (C.D.Cal.1978) ("The purpose of § 7609 ... is to facilitate a taxpayer's opportunity to raise defenses to a third party summons."). The inclusion of the certificate on the summons form does not, as the O'Sheas suggest, indicate that the form was intended for use only as a third-party summons. The certificate's purpose is to permit the investigating officer to certify that the notice requirements of § 7609 were satisfied. If the summons is issued to a subject taxpayer directly, as it was in this case, no notice is required by § 7609. 26 U.S.C. § 7609(c)(2). Accordingly, because the summonses were issued to the O'Sheas with regard to their individual tax liabilities, Officer Yurick checked the box stating "No notice is required" and signed the certificates. (Docket 1-3.) By doing so, Officer Yurick certified that § 7609 was not applicable because the summonses were not being issued to a third party.

The O'Sheas next claim that the IRS exceeded the scope of its authority under 26 U.S.C. § 7602(a) by requesting information and documents relating to the trusts. Section 7602(a) authorizes the IRS to obtain information and issue summonses

[f]or the purpose 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 the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability.

26 U.S.C. § 7602(a). The O'Sheas argue that the IRS is seeking information and documents relating to trust entities and has not adequately explained or alleged how such information relates to their tax liability as individuals. The O'Sheas would have this Court require too much of the IRS.

The IRS's "summons power should ... be liberally construed in light of the purposes it serves." Uhrig v. United States, 592 F.Supp. 349, 352 (D.Md. 1984) (quoting Godwin v. United States, 564 F.Supp. 1209, 1212 (D.Del.1983)). As stated above, the IRS's investigatory authority is inquisitory; the IRS need not demonstrate that it has probable cause to believe that a violation has occurred in order to seek information. The Court will not enforce a summons that appears to be a groundless fishing expedition through taxpayer's records, but the IRS need only convince the Court that it "has a `realistic expectation rather than an idle hope that something may be discovered.'" United States v. Richards, 631 F.2d 341, 345 (4th Cir.1980) (quoting United States v. Harrington, 388 F.2d 520, 524 (2d Cir.1968)). This standard generally will be satisfied where the summons pertains to "a legitimate investigation of an ascertainable target." Tiffany Fine Arts, Inc. v. United States, 469 U.S. 310, 320,...