Viewtech Inc. v. U.S.

Decision Date07 June 2011
Docket NumberNo. 09–56808.,09–56808.
Citation2011 Daily Journal D.A.R. 12063,653 F.3d 1102,108 A.F.T.R.2d 2011
PartiesVIEWTECH, INC., a California corporation; Jung Kwak, an individual, Petitioners–Appellants,v.UNITED STATES of America; Commissioner of Internal Revenue Service, Respondents–Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

653 F.3d 1102
108 A.F.T.R.2d 2011-5683
2011 Daily Journal D.A.R. 12,063

VIEWTECH, INC., a California corporation; Jung Kwak, an individual, Petitioners–Appellants,
v.
UNITED STATES of America; Commissioner of Internal Revenue Service, Respondents–Appellees.

No. 09–56808.

United States Court of Appeals, Ninth Circuit.

Submitted June 7, 2011.*Filed Aug. 10, 2011.


[653 F.3d 1103]

David R. Clark, the Clark Law Firm, Meadow Vista, CA, for appellants Viewtech, Inc. and Jung Kwak.Gretchen M. Wolfinger, United States Department of Justice, Washington, DC, for appellee the United States of America.Appeal from the United States District Court for the Southern District of California, Irma E. Gonzalez, Chief District Judge, Presiding. D.C. No. 3:09–cv–01606–IEG–CAB.Before: D.W. NELSON and SANDRA S. IKUTA, Circuit Judges, and LAWRENCE L. PIERSOL, Senior District Judge.**
OPINION
IKUTA, Circuit Judge:

In connection with an assessment of a taxpayer for unpaid taxes, the IRS began searching for the taxpayer's assets and issued a summons to a bank for a related third party's account information. The taxpayer and third party argue that 26 U.S.C. § 7609 1 required the IRS to notify them, which would have enabled them to seek a court order quashing the summons. Applying Ip v. United States, 205 F.3d 1168 (9th Cir.2000), we conclude that under the circumstances of this case, no notice was necessary, and therefore we affirm the district court.

I

After the IRS assessed Jung Kwak for some $3 million in federal income taxes for the year ending December 31, 2007, the IRS's efforts to locate assets to satisfy this assessment led it to Viewtech, a California Subchapter S corporation,2 in which Kwak had extensive involvement. The government's investigation showed that Viewtech's finances were significantly intertwined with Kwak's. Kwak owned 100 percent of the shares of Viewtech in 2007, and 97 percent of its shares in 2008. Kwak received almost $14 million in income, interest, expenses, and wages from Viewtech in 2007, and some $1.7 million in 2008. In addition to these payments to Kwak, Viewtech directly paid more than a million dollars of Kwak's personal federal income tax for 2007 and 2008. The financial outlays were not wholly one-sided, however: twice in 2007 and twice again the following year, Kwak deposited significant sums of cash (a total of approximately $675,000) into Viewtech's Wells Fargo account. The next year, in addition to paying Kwak his regular salary, Viewtech transferred $180,000 from its own bank account into Kwak's personal bank account.

After determining that Viewtech maintained its bank account at Wells Fargo Bank, the IRS exercised its authority under § 7602(a) to issue a summons to the bank for records and testimony regarding Viewtech's account. On July 24, 2009, Kwak and Viewtech filed a motion to quash the summons. The government moved to dismiss the motion pursuant to Federal Rule of Civil Procedure 12(b)(1), arguing that § 7609 did not give Kwak or Viewtech standing to challenge the summons and that the district court accordingly lacked subject matter jurisdiction over the case. The district court agreed and dismissed the motion to quash, and Kwak and Viewtech timely appealed.

We review the district court's grant of a motion to dismiss under Rule 12(b)(1)

[653 F.3d 1104]

de novo, Ip, 205 F.3d at 1170, and review factual findings relevant to that determination for clear error. A–1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1243 (9th Cir.2000).
II

The IRS's statutory power to summons persons, information, and documents is set forth in two provisions, 26 U.S.C. § 7602 and § 7609. In connection with an investigation of an assessed taxpayer, the IRS may summons any person the IRS deems appropriate and may require that person to appear “at a time and place named in the summons and to produce such books, papers, records or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry.” § 7602(a)(2).

The IRS's efforts to collect on a tax assessment frequently lead it to third parties (i.e., individuals or businesses other than the assessed taxpayer), on suspicion that the taxpayer may be trying to conceal assets in the accounts, holdings, or property of the third party. See, e.g., Ip, 205 F.3d at 1170–71. After the IRS issues a summons to the bank for the third party's records, it must determine whether either the taxpayer or the third party account owner is entitled to notice of the summons. See § 7609(a); Ip, 205 F.3d at 1171. Section 7609 provides generally that if the IRS asks the person summoned (here, the third party's bank) for specified information relating to a person identified in the summons (in this example, the third party account owner), the IRS must give that third person notice of the summons.3 The issue of who gets notice is highly significant because only a person who is entitled to notice may bring a proceeding to quash such a summons. See § 7609(b)(2)(A).

Section 7609(c)(2) sets out...

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