Summons Enforcement to Obtain Tax Information Goes Forward

II. BACKGROUND

The Petition arises from an IRS investigation into Respondent's individual tax liabilities for tax years 2008 to 2016, unemployment tax liabilities for 2009 to 2014 and 2016, and payroll tax liabilities for certain quarters during 2009 to 2014 and 2016 to 2018. Pet. ¶ 3 & Ex. A. The IRS “is informed and believes that said Respondent is in possession and control of records, paper and other data regarding income, assets and liabilities, and other matters” covered by the IRS inquiry and to which the IRS does not otherwise have access, possession, or control. Id. ¶ 5.

As part of its investigation, the IRS served a summons on Respondent on August 6, 2019, directing Respondent to appear before an IRS Revenue Officer on September 9, 2019 to give testimony and to produce specific documents and records. Id. ¶ 6 & Ex. A. In accordance with 26 U.S.C. § 7603, which requires service “by an attested copy delivered in hand to the person to whom it is directed, or left at his last and usual place of abode,” IRS Revenue Officer Joseph Meng personally handed an attested copy of the IRS summons to the Respondent. Id. ¶ 6. Respondent did not appear on September 9, 2019, or produce the requested testimony or records. Id. ¶ 8. By letter dated September 20, 2019, the IRS provided Respondent with another opportunity to comply by appearing for an appointment with Revenue Officer Meng on October 28, 2019, but Respondent again failed to appear. Id. ¶¶ 9-10 & Ex. B.

On February 5, 2020, the United States petitioned the Court to order Respondent to appear and show cause why he should not be compelled, under 26 U.S.C. § 7604(a), to give testimony and to produce the items sought by the IRS summons. ECF No. 1. The Court issued an order on February 11, 2020 directing Respondent to appear on April 10, 2020 to show cause why the IRS summons should not be enforced. ECF No. 5. The record shows that Respondent was served with the verified Petition and the order to show cause on February 18, 2020. ECF No. 6. Thereafter, at Respondent's request, the parties stipulated to extend the briefing schedule by 90 days. ECF No. 9. The Court granted the stipulation, and ordered Respondent to respond to the show cause order, as well as file any motion, by June 19, 2020, and continued the show cause hearing to July 10, 2020. ECF No. 10. Respondent did not serve any written response to the order to show cause and did not appear at the show cause hearing on July 10, 2020.¹

At the request of the undersigned, the United States provided a thorough proposed report and recommendation on July 16, 2020 (ECF No. 15), which the undersigned has reviewed and substantially adopts in this report.

III. ANALYSIS

The IRS is authorized under 26 U.S.C. § 7602(a) to issue a summons relevant or material to the investigation of a taxpayer's liability. “If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, records, or other data, the United States district court for the district in which such person resides or is found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, records, or other data.” 26 U.S.C. § 7604.

To enforce a summons, the government must first establish “good faith” by showing that the summons (1) is issued for a legitimate purpose; (2) seeks information relevant to that purpose; (3) seeks information that is not already in the IRS's possession; and (4) satisfies all of the administrative steps set forth in the Internal Revenue Code. 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.'” Crystal v. United States, 172 F.3d 1141, 1144 (9th Cir. 1999) (quoting United States v. Dynavac, Inc., 6 F.3d 1407, 1414 (9th Cir. 1993)). The Ninth Circuit has characterized the burden on the Government as “minimal,” explaining that “'the statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted.'” Id. (quoting Liberty Fin. Servs. v. United States, 778 F.2d 1390, 1392 (9th Cir. 1985)).

Once the Petitioner meets its initial burden, the burden shifts to the Respondent. Id. A taxpayer who elects to challenge the enforcement bears a “heavy” burden to show an abuse of process or lack of good faith on the part of the IRS. United States v. LaSalle Nat'l Bank, 437 U.S. 298, 316 (1978). “[E]nforcement of a summons is generally a summary proceeding to which a taxpayer has few defenses.'” Crystal, 172 F.3d at 1144 (quoting 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.'” Id. (quoting United States v. Jose, 131 F.3d 1325, 1328 (9th Cir. 1997)). Appropriate grounds for challenging a summons include failure to satisfy the Powell requirements or abuse of the court's process. Id.

Here, through the verification of the Petition by IRS Revenue Officer Joseph Meng, Petitioner has met its burden of showing that the requirements of Powell have been satisfied. See Crystal, 172 F.3d at 1144 (noting that it was undisputed that the special agent's declaration satisfied the Powell requirements and that the government therefore “established a prima facie case to enforce the summonses”); Dynavac, Inc., 6 F.3d at 1414 (stating that the government's burden “may be satisfied by a declaration from the investigating agent that the Powell requirements have been met”); United States v. Reyes, No. 17-CV-02415-LHK, 2017 WL 3085475, at *2 (N.D. Cal. July 20, 2017) (finding that the government “has met its burden of showing that the Powell elements have been satisfied, largely through the verification of the Petition by [the] Revenue Agent”).

First, the verified Petition shows that the IRS is conducting its investigation for the legitimate purposes of determining Respondent's individual tax liabilities for tax years 2008 to 2016, unemployment tax liabilities for 2009 to 2014 and 2016, and payroll tax liabilities for certain quarters during 2009 to 2014 and 2016 to 2018. Pet. ¶ 3 & Ex. A. Second, the summons asks Respondent to appear and bring certain records, paper and other data regarding income, assets and liabilities, and is relevant to ascertaining Respondent's assets and liabilities for the specified years. See id. Third, the verified Petition shows that the requested information is not already in the IRS's possession. Finally, all administrative steps required by the Internal Revenue Code for the issuance of the summons have been taken. Id. ¶¶ 6, 8-11. Each of the Powell elements has been met here.

Upon finding that the United States has satisfied its burden under Powell, the undersigned next considers whether Respondent can meet his “heavy” burden of showing an abuse of process or lack of good faith. Here, despite being afforded additional time, Respondent did not file any response to the order to show cause and did not appear at the show cause hearing held on July 10, 2020. The undersigned therefore concludes that Respondent has not met his burden of showing an abuse of process or lack of good faith on the part of the IRS.

IV. CONCLUSION

For the foregoing reasons, IT IS HEREBY RECOMMENDED that the United States' Petition to Enforce IRS Summons be GRANTED. The undersigned further recommends that Respondent Nicholas C. Rescino be ordered to comply with the IRS summons within 21 days of any adoption of this Report and Recommendation by the District Court, and to appear on that date before IRS Revenue Officer Joseph Meng to provide the testimony and records requested in the IRS summons. In light of the limitations created by the COVID-19 pandemic, Respondent's appearance shall be by telephone at (415) 837-6541, and Respondent shall submit the requested records to Revenue Officer Meng via e-fax at (866) 258-3756, or by any other electronic means of transmission to which Respondent and Revenue Officer Meng might agree, with a hard copy of the originals sent to Revenue Officer Meng's attention at 450 Golden Gate Avenue, 6th Floor, San Francisco, CA 94102.

Any party may object to these recommendations no later than fourteen days after being served with a copy of this report.

Dated: August 4, 2020

JOSEPH C. SPERO
Chief Magistrate Judge