Court Dismisses Petition to Quash IRS Summons on Jurisdictional Grounds

With the date upon which Schoppe was supposed to appear fast approaching, Petitioner filed this petition to quash on June 25, 2013. (Doc. No. 1 at 1.) The IRS then moved to dismiss the Petition. (Doc. No. 3.) The Court held a hearing on the Petition and on the IRS's motion on October 28, 2013, and granted Petitioner's request to file a post-hearing brief. (See Doc. Nos. 16, 18)

Thus, both because it asserts that Schoppe was Petitioner's employee and because "[t]he summons was issued in aid of the collection of tax liabilities assessed against Trowbridge," the IRS contends that Petitioner was not entitled to notice and therefore cannot move to quash the Summons. (See Doc. No. 3 at 2.) The IRS relies principally upon Barmes v. United States, 199 F.3d 386 (7th Cir. 1999) and Viewtech, Inc. v. United States, 653 F.3d 1102 (9th Cir. 2011) in support of its position. Both cases pertain to the notice exception under § 7609(c)(2)(D)(i) -- the exception for collecting liabilities -- and both seem decidedly to foreclose Petitioner's suit.

In Barmes, the Seventh Circuit "beg[a]n with the fundamental premise that the United States cannot be sued unless by statute Congress has expressly and unequivocally waived the government's sovereign immunity." 199 F.3d at 388 (citing United States v. Dalm, 494 U.S. 596, 608 (1990)). The court explained that "[a]n action to quash an IRS summons is a suit against the United States." Id. Plaintiffs "argue[d] that § 7609 g[a]ve[ ] them the right to petition to quash the summons served on Community Bank." Id. But, the court noted that, while "[a]s a general rule, § 7609 requires the IRS to serve anyone whose financial records are sought in a third-party summons with a notice copy of the summons," "[o]ne of the exceptions to the general rule is that notice is not required when a third-party summons is 'issued in the aid of the collection of . . . an assessment made or judgment rendered against the person with respect to whose liability the summons is issued.'" Id. (quoting 29 U.S.C. § 7609(c)(2)(D)). The court stated matter-of-factly that "if notice is not mandated, neither is a petition to quash authorized." Id. (citing I.R.C. § 7609(b)(2)(A)). The key dispute, then, was over whether the party served "fits within the 'aid of the collection of an assessment' exception." Id. Rejecting Barmes's argument that the exception did not apply because collecting tax liability was not the IRS's only aim, the court held that "as long as the third-party summons is issued to aid in the collection of any assessed tax liability the notice exception applies." Id. at 390.²

The IRS also cites Viewtech, Inc. v. United States, 653 F.3d 1102 (9th Cir. 2011) in support of its motion. In relevant respects, that case is on all fours with this one. There, Jung Kwak was assessed $3 million in taxes; in order to collect those taxes, the IRS summonsed bank records from Wells Fargo pertaining to Viewtech, a company that Kwak owned. Id. at 1103. Viewtech and Kwak moved to quash the summons and the government moved to dismiss for lack of standing. Id. Because Kwak was the individual from whom the government was trying to collect taxes, the Ninth Circuit held that its "inquiry is straightforward as to Kwak. He is the assessed taxpayer, and therefore is disqualified from notice under § 7609(c)(2)(D)(i)." Id. at 1106. That appears to be true here, too.

Petitioner has shown the Court nothing that would suggest that the Summons issued to Schoppe was not, as the IRS claims it was, issued in aid of collection. As such, § 7609 dictates that Petitioner was not entitled to any notice, and Barmes and Viewtech make abundantly clear that, as a result, he was not authorized to bring this petition. Petitioner's arguments to the contrary, while wide-ranging, are unavailing.

Petitioners contests whether Schoppe was in fact his employee -- or, at least, whether the IRS had established as much -- but because the IRS can rely on the § 7609(c)(2)(D)(i) notice exception carved out for summonses issued in aid of collection, Schoppe's status as an employee is immaterial. (See Doc. No. 15 at 6.) Petitioner also focuses upon what he perceives to be a categorical failure to provide due process by the IRS. (See id. at 12; Doc. No. 18 at 18-19.) He argues that cases such as Matthews v. Eldridge guarantee him procedural due process and mandate that "some form of hearing is required before an individual is finally deprived of a property interest." 424 U.S. 319, 333 (1976). In the same vein, he cites Goldberg v. Kelly, 397 U.S. 254 (1970) for the proposition that "[t]he fundamental requisite of due process of law is the opportunity to be heard." Id. at 267 (citation omitted). Petitioner is undoubtedly right at the highest level of generality that he is entitled to due process before the government stakes claim to his property. If Petitioner would like to challenge the IRS's decision to levy taxes against him, or the Agency's means of collecting those taxes, this Court does not wish to stand in his way. But petitioning to quash a summons is simply not the proper procedure for doing so.

Petitioner asserts that the Administrative Procedures Act may grant him authority to bring this action. (See Doc. No. 18 at 20). The United States counters that it has not waived sovereign immunity to face such a suit. (Doc. No. 3 at 4.) The text of the APA itself forestalls Petitioner's argument. The Act expressly notes that it does not "confer[ ] authority to grant relief if any other statute that grants consent to suit expressly or impliedly forbids the relief which is sought." 5 U.S.C. § 702. Here, § 7609 does just that. At least one other court held the same in a substantially similar situation:

IT IS SO ORDERED.

SIGNED in Houston, Texas, on this the 12th day of November, 2013.

² The Fifth Circuit has at least once embraced the holding of Barmes. See Taylor v. United States, 292 F. App'x 383, 385 (5th Cir. 2008) ("Courts have held that an action to quash a summons issued by the IRS is a suit against the United States requiring a waiver of its sovereign immunity." (citing Barmes)); see also Tilley v. United States, CIV.A.3:03CV769-D, 2003 WL 21361566 (N.D. Tex. June 10, 2003) ("In light of Barmes, the court finds that the third-party summons issued to First Horizon was arguably designed to assist the IRS in the collection of the Petitioner's outstanding tax liability. As such, it is clear that the Petitioner may not be heard to complain about the IRS' failure to follow the prescriptions of Section 7609, because the same are inapplicable to the third-party summons issued in Petitioner's case."), on reconsideration, 3-03-CV-769-D, 2004 WL 1638080 (N.D. Tex. Feb. 24, 2004) report and recommendation adopted, CIV.A. 303CV0769-D, 2004 WL 764981 (N.D. Tex. Apr. 8, 2004) aff'd, 124 F. App'x 277 (5th Cir. 2005).