Court Refuses to Quash IRS Summons in Pension Plan Investigation

Petitioner Davis & Campbell, LLC ("Davis & Campbell") petitions to quash a third-party summons issued by the Internal Revenue Service ("IRS") to Continental Stock Transfer & Trust Company ("Continental"). For the following reasons, the petition is denied.

Davis & Campbell filed a petition to quash the summons on August 7, 2015. Dkt. 1. On November 19, 2015, the Government filed a motion to deny the petition, Dkt. 11, and a supporting memorandum, Dkt. 12 ("Govt. Br."), along with the Caporale declaration, Dkt. 13. On December 10, 2015, Davis & Campbell informed the Court that it would not submit a response to the Government's filings. Dkt. 16.

United States v. Powell, 379 U.S. 48 (1964) governs motions to quash an IRS summons. Under Powell, "the IRS must make a prima facie showing that: (1) the investigation will be conducted pursuant to a legitimate purpose, (2) the inquiry may be relevant to the purpose, (3) the information sought is not already within the Commissioner's possession, and (4) the administrative steps required by the [Internal Revenue] Code have been followed." Highland Capital Mgmt., L.P. v. United States, No. 14 Civ. 3852, 2015 WL 5692377, at *1 (2d Cir. Sept. 29, 2015) (summary order) (quoting Adamowicz v. United States, 531 F.3d 151, 156 (2d Cir. 2008)) (internal quotation marks and alterations omitted). "Once the IRS has established its prima facie case, the burden shifts to the taxpayer to disprove one of the four Powell criteria, or to demonstrate that judicial enforcement would be an abuse of the court's process." Id. (quoting Adamowicz, 531 F.3d at 156) (internal quotation marks omitted). "[A]n affidavit from the IRS is sufficient to establish the prima facie elements," Adamowicz, 531 F.3d at 156, but a petitioner's burden in disproving one of the Powell criteria is a "heavy" one, id. at 157.

B. Application

Davis & Campbell argues that the summons lacks a legitimate purpose, Pet. ¶ 14; seeks irrelevant information, id. ¶¶ 15-17; and is vague and overbroad, id. ¶ 18. It does not challenge the third and fourth Powell criteria.

This argument fails for several independent reasons. First, the Supreme Court in Powell expressly held that "the [IRS] Commissioner need not meet any standard of probable cause to obtain enforcement of his summons, either before or after the three-year statute of limitations on ordinary tax liabilities has expired." 379 U.S. at 57 (emphasis added). Second, the "legitimate purpose" test is simply "not concerned with whether any subsequent enforcement action is likely to be meritorious." Mollison v. United States, 481 F.3d 119, 123 (2d Cir. 2007). Third, the Government points to a recent Tax Court decision holding that "[t]he period of limitations . . . does not limit [the Commissioner of Internal Revenue's] broad authority to audit retirement plans and, if appropriate, to revoke retroactively a favorable determination letter." Christy & Swan Profit Sharing Plan v. C.I.R., 101 T.C.M. (CCH) 1279, at *3 (T.C. 2011) (cited at Govt. Br. 16).

Agent Caporale's declaration, summarized above, clearly sets forth facts sufficient for a prima facie showing of legitimate purpose. Davis & Campbell's attempt to disprove that element is, for each of the independent reasons discussed above, unavailing. Therefore, this Powell criterion is satisfied.

First, the suggestion that client confidentiality will be compromised by the IRS's access to Davis & Campbell's records at Continental is unpersuasive. "Generally, there is no legitimate expectation of privacy in the contents of checks, deposit slips or bank statements in a bank's possession." Najjar v. US. Dep't of Treasury, No. 102 Civ. 1807 (JDT), 2003 WL 21254772, at *2 (S.D. Ind. Apr. 11, 2003) (citing, inter alia, United States v. Miller, 425 U.S. 435, 442 (1976)). Bank records are not confidential communications, see id., at least not without substantially more of a showing than Davis & Campbell has offered.

Second, the bare statement that Smiley is "separate from" the Plan is inadequate to rebut the detailed declaration of Agent Caporale, which states, inter alia, that Smiley became the trustee of the Plan in 2008, see Caporale Decl. ¶ 9a; is a client of Davis & Campbell, id.; and is connected to another entity that is the sponsor of the Plan, id. The conclusory statement that Smiley is not relevant to the IRS investigation cannot prevent enforcement of the summons, for the IRS "cannot be certain that the documents are relevant or material until [it] sees them." United States v. Noall, 587 F.2d 123, 125 (2d Cir. 1978) (Friendly, J.).

Third, for substantially the same reasons, Davis & Campbell's statement that the "overwhelming majority" of the 26 specific transfers involving its IOLTA account are "unrelated" to the Plan does not undermine the IRS's prima facie showing. Agent Caporale amply demonstrates the relevance of the IOLTA account and its connection to an account or accounts at Continental. See Caporale Decl. ¶ 10. Davis & Campbell's say-so does not displace this showing.

Therefore, the Court finds the relevance criterion satisfied.

First, the summons is not vague. It clearly advises Continental what is to be produced and enables it to respond. See Adamowicz, 531 F.3d at 158. Nor is it overbroad. It seeks information relating to the accounts of Davis & Campbell and Smiley, who have been clearly connected to the IRS investigation, as well as information relating to 26 specific transfers the possible relevance of which has likewise been established. The "extreme circumstances" in which courts have disapproved summonses as overbroad are not presented here. Id. at 157.

SO ORDERED.

DATED: December 18, 2015