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Supreme Court Asked to Review IRS Summons Enforcement Case

SEP. 19, 2016

Dynamo Holdings Limited Partnership et al. v. United States et al.

DATED SEP. 19, 2016
DOCUMENT ATTRIBUTES
  • Case Name
    DYNAMO HOLDINGS LIMITED PARTNERSHIP, ET AL., Petitioners, v. UNITED STATES OF AMERICA, ET AL., Respondents.
  • Court
    United States Supreme Court
  • Docket
    No. 16-358
  • Authors
    Marod, Edward A.
    Aiello, Jack J.
    Press, Martin R.
  • Institutional Authors
    Gunster, Yoakley & Stewart PA
  • Cross-Reference
    Appealing United States v. Clarke, 816 F.3d 1310 (11th Cir.

    2016) 2016 TNT 52-15: Court Opinions.
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2016-19629
  • Tax Analysts Electronic Citation
    2016 TNT 189-14

Dynamo Holdings Limited Partnership et al. v. United States et al.

 

IN THE

 

SUPREME COURT OF THE UNITED STATES

 

 

On Petition For A Writ Of Certiorari

 

To The United States Court Of Appeals

 

For The Eleventh Circuit

 

 

PETITION FOR WRIT OF CERTIORARI

 

 

Edward A. Marod

 

Counsel of Record

 

Jack J. Aiello

 

Martin R. Press

 

Gunster, Yoakley &

 

Stewart, P.A.

 

777 S. Flagler Dr.

 

Suite 500 East

 

West Palm Beach, FL 33401

 

561-655-1980

 

emarod@gunster.com

 

 

QUESTIONS PRESENTED

 

 

In an earlier appearance of this case, this Court held for the first time, United States v. Clarke, 573 U.S. ___, 134 S. Ct. 2361 (2014), that an individual or entity that receives an IRS summons is entitled to a limited evidentiary hearing to obtain discovery to support the claim that the summons should be quashed where that party points to specific facts or circumstances plausibly raising an inference of bad faith. When this case began in 2011, the standard in the Eleventh Circuit was that an individual or entity was entitled to an evidentiary hearing based upon the mere allegation of improper purpose. Petitioners were found by the Eleventh Circuit to have satisfied that standard. On remand from Clarke, the district court denied Petitioners request to make amended submissions to meet the new standard, and the district court and Eleventh Circuit ruled that Petitioners' former submissions did not meet the new standard.

The first question presented is whether the court of appeals erred in sanctioning a ruling by the district court that Petitioners would not be permitted to make new or amended allegations or submit new materials in an effort to meet the newly-established standard for entitlement to a limited evidentiary hearing.

The second question presented is whether the court of appeals erred in ruling that the IRS summons may be enforced for an irrefutably improper purpose solely because there was an arguably proper purpose for the summons at the time of issuance.

 

PARTIES TO THE PROCEEDINGS

 

 

The Petitioners are Dynamo Holdings Limited Partnership; Robert Julien, as President of Beekman Vista, Inc.; and Robert Julien.

The Respondents are the United States of America; Michael Clarke, as Chief Financial Officer of Beekman Vista, Inc.; Michael Clarke, as Chief Financial Officer of Dynamo GP, Inc.; Rita Holloway, as trustee for the 2005 Christine Moog Family Delaware Dynasty Trust; and Marc Julien, as trustee for the 2005 Robert Julien Family Delaware Dynasty Trust.

 

CORPORATE DISCLOSURE STATEMENT

 

 

Dynamo Holdings Limited Partnership is a limited partnership whose general partner is Dynamo GP, Inc. No publicly held company holds 10% or more of the stock in Dynamo GP, Inc.

Beekman Vista, Inc. is a Delaware corporation whose shares are owned by Canada Square Management Ltd., an Ontario, Canada corporation. No publicly held company holds 10% or more of the stock in Canada Square.

                           TABLE OF CONTENTS

 

 

 QUESTIONS PRESENTED

 

 

 PARTIES TO THE PROCEEDINGS

 

 

 CORPORATE DISCLOSURE STATEMENT

 

 

 TABLE OF AUTHORITIES

 

 

 OPINIONS BELOW

 

 

 JURISDICTION

 

 

 STATUTORY PROVISIONS INVOLVED

 

 

 INTRODUCTION

 

 

 STATEMENT

 

 

 REASONS FOR GRANTING THE PETITION

 

 

      A. This Court Should Find It To Be An Abuse Of Discretion To

 

         Refuse To Permit Even A Single Amendment Of Responsive

 

         Submissions When The Applicable Legal Standard Has Changed

 

         After The Initial Responsive Submissions

 

 

      B. This Court Should Clarify Powell Or, Alternatively,

 

         Determine That An IRS Investigative Summons May Not Be

 

         Enforced For An Improper Purpose And That A Taxpayer's

 

         Submission Of Responsive Materials That Meets The

 

         Clarke Standard Entitles The Taxpayer To A Limited

 

         Evidentiary Hearing

 

 

      C. A Question Presented Is Recurring And Important, And Neither

 

         Question Is Mooted By The Absence Of A Stay

 

 

 CONCLUSION

 

 

 APPENDIX

 

 

 Court of Appeals Opinion (March 15, 2016)

 

 

 District Court Order Granting Petition to Enforce Internal Revenue

 

 Summons and Denying Motion for Summary Dismissal (April 17, 2012)

 

 

 Court of Appeals Opinion Reversing District Court (April 18, 2013)

 

 

 Supreme Court Opinion in United States v. Clarke (June 19,

 

 2014)

 

 

 Appellate Court Opinion on Remand from Supreme Court (July 25, 2014)

 

 

 District Court Order Denying Motion for Status Conference (November

 

 14, 2014)

 

 

 District Court Order on Remand (Clarke case) (February 18, 2015)

 

 

 Order Enforcing Summons (Julien case) (March 9, 2015)

 

 

 Appellate Court Order Denying Petition for Rehearing (June 21, 2016)

 

 

 Petition to Enforce Internal Revenue Service Summons (Clarke) (April

 

 28, 2011)

 

 

 Response of Michael Clarke to Petition to Enforce Internal Revenue

 

 Service Summons (July 18, 2011)

 

 

 Statutory Provisions

 

 

                          TABLE OF AUTHORITIES

 

 

 CASES

 

 

 Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 173 L. Ed.2d

 

 868 (2009)

 

 

 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955,

 

 167 L. Ed.2d 929 (2007)

 

 

 Bolich v. Rubel, 67 F.2d 894 (2d Cir. 1933)

 

 

 Church of Scientology of California v. United States, 506 U.S.

 

 9 (1992)

 

 

 Daniel v. Hancock County School District, 626 Fed. App'x 825

 

 (11th Cir. 2015)

 

 

 Dussouy v. Gulf Coast Investment Corporation, 660 F.2d 594 (5th

 

 Cir. 1981)

 

 

 Firestone v. Firestone, 76 F.3d 1205 (D.C. Cir. 1996)

 

 

 Foman v. Davis, 371 U.S. 178, 83 S. Ct. 227 (1962)

 

 

 In re: Bennett Funding Group, Inc., 203 B.R. 24 (Bankr.

 

 N.D.N.Y. 1996)

 

 

 In re: Szadkowski, 198 B.R. 140 (Bankr. D. Md. 1996)

 

 

 Nero Trading, LLC v. U.S. Department of Treasury, IRS, 570 F.3d

 

 1244 (11th Cir. 2009)

 

 

 Pittston Company v. United States, 199 F.3d 694 (4th Cir. 1999)

 

 

 Sealy Power, Ltd. v. Commissioner, 46 F.3d 382 (5th Cir. 1995)

 

 

 Shane v. Bunzl Distribution USA, 200 Fed. App'x 397 (6th Cir.

 

 2006)

 

 

 Snyder v. Society Bank of Ann Arbor, Michigan, 181 B.R. 40

 

 (S.D. Texas 1994)

 

 

 Thomas v. Town of Davie, 847 F.2d 771 (11th Cir. 1988)

 

 

 Triplett v. Leflore County, 712 F.2d 444 (10th Cir. 1983)

 

 

 Turkmen v. Ashcroft, 2010 WL 22398965 (E.D.N.Y. 2010)

 

 

 U.S. v. Arthur Young & Co., 465 U.S. 805 (1984)

 

 

 United States v. Clarke, 517 Fed. App'x 689 (11th Cir. 2013)

 

 

 United States v. Clarke, 573 Fed. App'x 826 (11th Cir. 2014)

 

 

 United States v. Clarke, 573 U.S. ___, 134 S. Ct. 2361 (2014)

 

 

 United States v. Powell, 379 U.S. 48 (1964)

 

 

 United States v. Southeast First National Bank of Miami

 

 Springs, 655 F.2d 661 (5th Cir. 1981)

 

 

 United States v. Stuart, 489 U.S. 353, 109 S. Ct. 1183 (1989)

 

 

 Zugerese Trading, L.L.C. v. Internal Revenue Service, 579 F.

 

 Supp. 2d 781 (E.D. La. 2008)

 

 

                                STATUTES

 

 

 26 U.S.C. §§ 6221-6223

 

 

 26 U.S.C. § 6226(a)

 

 

 26 U.S.C. § 6501

 

 

 26 U.S.C. § 7402

 

 

 26 U.S.C. § 7602

 

 

 28 U.S.C. § 1254(1)

 

 

                                 RULES

 

 

 Tax Court Rule 1(b)

 

 

 Tax Court Rule 1(d)

 

 

 Tax Court Rule 70(a)

 

 

 Tax Court Rule 74(c)(B)

 

OPINIONS BELOW

 

 

The opinion of the court of appeals (App. 1) is published in the Federal Reporter at 816 F.3d 1310. The orders of the district court in both the Clarke consolidated cases and the Julien cases (App. 62-70) are not published in the Federal Reporter but are available respectively at 115 A.F.T.R.2d 2015-836 and 115 A.F.T.R.2d 2015-1053.

 

JURISDICTION

 

 

The judgment of the court of appeals was entered on March 15, 2016 (App. 1-17) and the Eleventh Circuit's Order denying the Petitioners' Motion for Rehearing was entered on June 21, 2016. App. 71. This petition was due on September 19, 2016 and was timely filed. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1).

 

STATUTORY PROVISIONS INVOLVED

 

 

Statutory provisions relied upon in Petitioners' argument are reprinted in the Appendix. App. 153-157.

 

INTRODUCTION

 

 

This matter is before this Court for a second time, in respect of a challenge to the issuance and enforcement of six IRS investigative summonses relating to two taxpayers. In the first case, this Court established a new, stricter standard to be applied to the submissions of the taxpayers to obtain a limited evidentiary hearing in support of their effort to oppose summons enforcement. The Eleventh Circuit had determined that the taxpayer's submissions to the district court satisfied the then-existing standard for entitlement to a limited evidentiary hearing at which the taxpayer could inquire of an IRS agent about the purpose for the issuance and enforcement of the summonses. This Court vacated the decision of the Eleventh Circuit, establishing the new standard for review of a taxpayer's submissions.

On remand through the Eleventh Circuit, the district court, without explanation, denied the Taxpayers'1 request to be permitted to amend their submissions in an effort to meet this Court's newly-announced standard. The Eleventh Circuit, determining that the district court had discretion on the issue, affirmed the district court's refusal to permit even a single amendment and also affirmed the district court's ultimate decision to enforce the summonses based upon the taxpayer's original, unsupplemented submissions.

Petitioners seek review by this Court on two bases. First, the refusal of the district court to permit supplementation, and the sanctioning of that decision by the Eleventh Circuit, offend traditional notions of fair play and justice by not permitting a litigant, after the rules have changed in the middle of a case, to respond in accordance with the new rules. That decision is such a departure from the accepted and usual course of judicial proceedings as to call for an exercise of this Court's supervisory power. Second, the Eleventh Circuit agreed with the district court that an IRS investigative summons may be enforced for an improper purpose -- a purpose that would otherwise constitute an abuse of process -- so long as a proper purpose existed at the time of the issuance of the summons. This Court has never squarely ruled on that issue. Based upon the public policy of the court's procedural rules and due process, that decision is also a departure from the accepted and usual course of judicial proceedings over which this Court should assert jurisdiction.

 

STATEMENT

 

 

1. The IRS conducted an examination of the tax returns of respondent Dynamo Holdings Limited Partnership ("DHLP") for the tax years 2005-2007. App. 76. Although the IRS normally has three years in which to examine and definitively fix a taxpayer's tax liability, see 26 U.S.C. § 6501, the IRS's examination of DHLP continued well into 2010, aided by DHLP's agreement to extend that limitations period twice so that the IRS's investigation of tax years 2005 and 2006 remained timely.

On August 11, 2010, as the extended limitations period drew to a close, the investigating IRS agent, Mary Fierfelder, signed a Final Partnership Administrative Adjustment ("FPAA") which set forth the IRS's position as to DHLP's tax liability for 2005-2007. Docket Entry 7-2, at 5.2 As the name suggests, an FPAA represents the IRS's "final" position as to the taxpayer's liability. See Sealy Power, Ltd. v. Commissioner, 46 F.3d 382, 385-86 (5th Cir. 1995) ("[T]he FPAA . . . serve[s] to notify affected taxpayers that the Commissioner has made a final administrative determination of their liability for particular tax years."); see also 26 U.S.C. §§ 6221-6223 (discussing partnership returns, and identifying the FPAA as marking the "completion" of administrative proceedings). Once the IRS issues an FPAA, the taxpayer can seek judicial review of the IRS's determination in Tax Court, and the matter then shifts from the administrative sphere to the courtroom. The IRS's own Summons Handbook makes clear that once a taxpayer's liability has been finally determined, "the examination has been concluded," and "[t]he Service should no longer be in the process of gathering the data to support a determination[.]" DE 20-7 (Ex. F) (Handbook § 25.5.4.4.8).3

When the IRS requested that DHLP agree to extend the limitations period for tax years 2005-2007 for a third time, DHLP declined. App. 151. Shortly thereafter, in September and October 2010 -- and despite having signed the FPAA and not having asked for additional information for some time -- Agent Fierfelder issued six investigative summonses pursuant to 26 U.S.C. § 7602 to persons connected with DHLP, including the respondents at the district court level. App. 75.4 Those summonses called for the production of documents and testimony regarding DHLP's 2005-2007 tax returns. Four of the summonses had return dates of October 25, 2010, and the other had a return date of December 3, 2010. Id.5 Those five respondents declined to comply with the summonses. App. 3-4. The sixth summoned person, Christine Moog, initially refused to comply with her summons, but ultimately complied and was interviewed in September 2011. App. 7.

On December 28, 2010, with three days remaining in the statutory limitations period, the IRS issued -- unaltered -- the FPAA signed by Agent Fierfelder in August 2010. App. 4.

2. On February 1, 2011, DHLP commenced a proceeding in the United States Tax Court challenging the FPAA. App. 122; see also 26 U.S.C. § 6226(a). The Tax Court imposes significant limitations on the scope of discovery available to both the taxpayer and the government. See Tax Court Rule 70(a) ("Discovery is not available under these Rules through depositions except to the limited extent provided in Rule 74."). In particular, the Tax Court treats nonconsensual depositions as "an extraordinary method of discovery." Tax Court Rule 74(c)(B).

3. On April 28, 2011, six months after the return date for most of the summonses, and almost three months after DHLP commenced its suit in Tax Court, the IRS instituted a proceeding in district court for enforcement of the summonses. App. 75; 26 U.S.C. § 7402 (authorizing district courts to hear summons enforcement proceedings). Under the case of United States v. Powell, 379 U.S. 48, 57-58 (1964), when a taxpayer objects to producing the summoned material, the government must make a preliminary 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 Code have been followed. As is typical, in this case, the IRS submitted a bare-bones declaration of its agent -- here, Agent Fierfelder -- briefly affirming the existence of the four required elements. App. 87. Taxpayers contended that, under Powell, enforcement should be denied and the summonses quashed because they had not been issued and were not being enforced for a proper investigative purpose. App. 112-120. Consistent with Eleventh Circuit precedent, Taxpayers requested an evidentiary hearing at which they could inquire into and make a record about the government's purpose in issuing and enforcing the summonses. App. 120. They also asked for pre-hearing discovery. Id.

Taxpayers offered several specific and substantial allegations suggesting that the IRS may have issued and sought enforcement of the summonses for improper reasons. They alleged that the summonses had been issued as retribution for DHLP's refusal to grant a third extension of the applicable statute of limitations. App. 117. Taxpayers also alleged that the IRS was abusing the district court's processes by enforcing the summonses for the purpose of circumventing the Tax Court restrictions on discovery. App. 118-119. Taxpayers did not rest on bare allegations but, rather, supported these allegations with the competent evidence available to them in the absence of an evidentiary hearing or discovery. For example, they submitted a declaration from respondent Michael Clarke, who confirmed that the summonses were issued "immediately" after DHLP refused to extend the limitations period. App. 151, ¶ 9. And they submitted a declaration from attorney Richard Sapinski, who represented Christine Moog when she appeared in compliance with her IRS summons, and who stated that Moog's interview by the IRS was conducted exclusively by the two attorneys representing the IRS in the Tax Court proceeding and that Agent Fierfelder did not even attend. DE 20-2, ¶¶ 11-13.

Taxpayers also submitted several filings from the Tax Court case supporting their contention that the IRS was using the summonses not to assist the IRS in the administrative process of determining DHLP's tax liability, but rather as an improper form of discovery for the Tax Court litigation. For instance, the IRS refused to consent to referral of the Tax Court proceeding to IRS Appeals (a process similar to mediation) on the ground that the case is not "fully factually developed," due to respondents' noncompliance with the summonses "issued during the exam of [DHLP]." DE 20-3. The IRS also opposed DHLP's motion for a protective order in Tax Court, in part because the respondents had declined to comply with the summonses. DE 20-4 (Ex. D) ¶ 8. And the IRS sought a continuance of the Tax Court case on the ground that the summonses remained outstanding. DE 20-6, ¶ 6.

Taxpayers further pointed to the IRS's own Summons Handbook, which, as noted, disapproves of the issuance of summonses once a final determination of tax liability has been made, DE 20-7, at 21 (see 25.5.4.4.8), and also directs its agents promptly to seek enforcement whenever a summons is disobeyed. DE 20-7, at 63 (see 25.5.10.4.1.1). Taxpayers argued that the IRS's conduct in failing to pursue the summonses before the FPAA was issued, and then attempting to enforce them as part of the discovery in the Tax Court case constituted a departure from the principles underlying the directions in the Handbook; that this departure was suggestive of the IRS's improper purpose in issuing the summonses; and that it presented clear evidence of the IRS's improper purpose in enforcing the summonses to evade the discovery rules of the Tax Court. DE 20, at 5-8.

4. The district court denied the motions to quash the summonses and ordered enforcement. App. 18. The court concluded that Taxpayers had made only a "naked assertion" that the summonses had been issued in retaliation for DHLP's refusal to extend the limitations period. Id. It further concluded that even if the IRS was retaliating against respondents, that had "no bearing" on whether the summonses should be enforced. Id. The district court also held, primarily on the basis of an out-of-circuit case, that as a matter of law, use of the summons process to circumvent limits on discovery in Tax Court would not constitute grounds for quashing a summons. Id.

5. The court of appeals reversed, in part, in a per curiam, unpublished decision. Applying the controlling Eleventh Circuit standard from Nero Trading, LLC v. U.S. Department of Treasury, IRS, 570 F.3d 1244, 1249 (11th Cir. 2009), the court concluded that Taxpayers should have a limited evidentiary hearing at which they can seek to discover evidence of the IRS's bad faith. App. 33. The court reached this conclusion after a "careful review of the record" revealed that Taxpayers had sufficiently alleged an improper purpose behind the issuance of the summonses. App. 31. On that basis, the court directed that Taxpayers should be afforded an opportunity to examine IRS officials concerning the IRS's reasons for issuing the summonses. App. 33-34. The court denied Taxpayers' request for pre-hearing discovery. App. 33. See United States v. Clarke (Clarke I), 517 Fed. App'x 689 (11th Cir. 2013).

6. The Government then filed a petition for writ of certiorari in this Court. This Court granted the petition. After argument on April 23, 2014, this Court vacated the Eleventh Circuit's decision and announced the new rule for evaluating allegations seeking discovery in a limited evidentiary hearing to oppose summons enforcement. This Court stated:

 

As part of the adversarial process concerning a summons's validity, the taxpayer is entitled to examine an IRS agent when he can point to specific facts or circumstances plausibly raising an inference of bad faith. Naked allegations of improper purpose are not enough: The taxpayer must offer some credible evidence supporting its charge. But circumstantial evidence can suffice to meet that burden; after all, direct evidence of another person's bad faith, at this threshold stage, will rarely if ever be available. And although bare assertion or conjecture is not enough, neither is a fleshed out case demanded: The taxpayer need only make a showing of facts that give rise to a plausible inference of improper motive.

 

App. 45; see United States v. Clarke (Clarke), 573 U.S. ___, ___, 134 S. Ct. 2361, 2367-68 (2014). This Court remanded the case to the Eleventh Circuit for further proceedings, including consideration of the existing allegations and evidence under the new standard and consideration of whether, as a matter of law, the defenses asserted by the Clarke summonees and DHLP were legally sufficient. Id. It is noteworthy that, while this Court in its consideration of the case did not decide whether sufficient facts or circumstances were alleged to give rise to a plausible inference of bad motive (under the new standard), the issue came up at oral argument. To the point, Chief Justice Roberts said:

 

They've got more -- you know, they've got more than just a bare allegation . . . first of all, it's the third request for an extension. They've got the summons immediately after they refuse to grant it. They've got a contention that this is to circumvent the Tax Court's limits. They support that by the fact that when Moog came for the deposition, you only had the Tax Court lawyers there, not . . . Fierfelder, who was running the investigation. That's more than a bare allegation.

 

Transcript of Oral Argument at pp. 19-20. United States v. Clarke, 134 S. Ct. 2361 (2014) (No. 13-301) (emphasis supplied).

While the Eleventh Circuit ultimately found that two of the defenses raised by Taxpayers were legally sufficient (App. 12-14) it did not do so until after it had remanded the case to the district court to examine the issues in the first instance. United States v. Clarke (Clarke II), 573 Fed. App'x 826 (11th Cir. 2014). In remanding, the Eleventh Circuit left to the district court the question of whether to take additional evidence or permit further argument. Id.

Upon remand to the district court, Taxpayers promptly sought permission from the district court to make additional allegations in view of the new standard and in view of additional information obtained since the initial answer. In its "Order on Remand," the district court, after declining -- without stating a reason -- the request to submit additional allegations and evidence, once again ordered that the summonses be enforced. App. 62-68. The district court ruled that neither the allegations that the IRS sought to enforce the summonses only to retaliate for the Clarke summonees' and DHLP's refusal to once again extend the limitations period nor the allegations that the IRS employed the summonses to circumvent the more stringent tax court discovery rules were sufficient defenses to the summonses, as a matter of law. Id. The district court also specifically rejected the argument that -- under the principles announced in U.S. v. Powell, 379 U.S. 48 (1964), the common law of abuse of process, as applied by other courts in analyzing the application of analogous Bankruptcy Rule 2004 -- summons enforcement should be barred once litigation involving the subjects upon which summons discovery was being sought is pending between the parties in court -- whether the Tax Court, the Court of Federal Claims, the district court, a bankruptcy court or any other court having jurisdiction. Id. The district court also ruled that the Taxpayers' existing submissions did not meet the new standard established by this Court to justify a limited evidentiary hearing. App. 68.

In the Julien case, nothing took place from the date that Julien answered until after the entry of the Order on Remand in the Clarke case.6 Ruling on the Julien summons enforcement proceeding for the first time, the district court declined any further submissions of allegations or evidence and enforced the summons, incorporating as its entire opinion the reasoning from the Order on Remand in the Clarke cases, without addressing any distinct argument made in the Julien case. App. 69-70. The Clarke summonees, DHLP, and Julien timely appealed the district court's respective rulings, and the Eleventh Circuit consolidated the two appeals.

In its Opinion in the consolidated appeal, as mentioned, the Eleventh Circuit disagreed with the district court's assessment of the legal sufficiency of Taxpayers' alleged defenses, ruling that the issuance of IRS summonses only to retaliate against a taxpayer or to circumvent tax court discovery "would be improper as a matter of law." App. 12-14. Still, the Eleventh Circuit, addressing the abuse of process issue, stated that the validity of a summons is tested at the time of issuance, which limits the ability of a taxpayer to rely upon this defense. App. 12. While that ruling would address Julien's assertion of circumvention of the tax court discovery rules as an improper defense, the Eleventh Circuit concurred with the district court's assessment of the other alleged improper purpose in the Julien case, the illegal second audit of Beekman, finding that it does not state a valid defense because a secondary use for requested information does not render the motive for issuing a summons improper. App. 11. The Eleventh Circuit agreed with the district court that Taxpayers' existing submissions did not satisfy the new standard, even though it had rejected the district court's finding as to the legal sufficiency of the defenses.

Taxpayers filed a motion for rehearing or rehearing en banc, seeking the Eleventh Circuit's further review of the sufficiency of Taxpayers' existing submissions and of their request to supplement their submissions in response to the new rule established by this Court in this matter, considering that the district court reviewed the existing submissions and declined additional submissions while laboring under the incorrect belief that Taxpayers' alleged IRS purposes were not improper as a matter of law. In other words, in the eyes of the district court, further submissions aimed at supporting those defenses would have been irrelevant to the district court, as would any submissions -- simply put, if the alleged defense is not a legal defense, no amount of supporting evidence was going to change that. The motion for rehearing was denied. App. 74. This Petition follows.

 

REASONS FOR GRANTING THE PETITION

 

 

Taxpayers have rights. The legal decisions of this Court on the rules of procedure governing our federal courts are designed not only to implement, but also to balance, the respective rights of taxpayers and the government. At the time the summonses at issue were served, Taxpayers could challenge their enforcement in the Eleventh Circuit upon a mere allegation of an improper purpose. The Taxpayers in this case successfully did so, concluded the Eleventh Circuit, reversing the district court's contrary determination. On review, this Court imposed a heightened standard, requiring taxpayers seeking a limited evidentiary hearing to "point to specific facts or circumstances plausibly raising an inference of bad faith," based upon at least circumstantial evidence. While establishing the new standard, importantly, this Court acknowledged the principle that the former Eleventh Circuit approach was deemed to protect: taxpayers have a right to be protected from abuse at the hands of the IRS.

At oral argument, Chief Justice Roberts observed that Taxpayers had already alleged more than just a bare allegation of improper purpose. Regardless, when the case was sent back, the district court, without any explanation, denied Taxpayers' request to re-allege their claim of improper purpose in an attempt to meet the newly-heightened standard for establishing their right to a limited evidentiary hearing. The district court then essentially entered the same order as it had approximately four years earlier, before the case's ascension to this Court.

On review, taxpayers argued that they should have automatically been granted their requested opportunity to replead, as surely the Government would be permitted to do were the circumstances reversed.7 But the Eleventh Circuit refused to require the district court to permit new submissions in pursuit of the new standard established by this Court and effectively allowed that matter to rest solely in the discretion of the district court. In addition, the Eleventh Circuit, in a very brief analysis, agreed with the district court's view that the propriety of the summons may be measured only at the time of issuance, such that it does not matter whether the summons is later enforced only for an improper purpose. An abuse of the district court's process should not be permitted, whether it relates to attempted enforcement of a summons invalid when issued or the enforcement of a summons after all valid purposes for its issuance have expired leaving no reasonable basis to conclude that the summons is being used for anything other than an improper purpose.

This Court should grant the petition and accept jurisdiction because the decision of the Eleventh Circuit to permit the district court to proceed without allowing Taxpayers a single opportunity to satisfy the new standard and to refuse to consider the propriety of the government's purpose at the time of the actual enforcement of the summonses sanctions a major departure from the accepted and usual course of judicial proceedings to an extent that calls for the exercise of this Court's supervisory power.

A. This Court Should Find It To Be An Abuse Of Discretion To Refuse To Permit Even A Single Amendment Of Responsive Submissions When The Applicable Legal Standard Has Changed After The Initial Responsive Submissions

The first issue to be resolved is what the law is, or ought to be, with respect to amendments to pleadings and submissions when, as here, the applicable legal standard for review of those submissions has been changed by the Supreme Court during the case. Raising the issue is especially appropriate here where a previous panel of the Eleventh Circuit, in Clarke I, concluded that Taxpayers' submissions met the then-existing standard and that the district court erred in declining to hold a limited evidentiary hearing. (Clarke I)

1. Taxpayers briefed the issue to the Eleventh Circuit, calling to the court's attention the well-reasoned opinion in Turkmen v. Ashcroft, 2010 WL 22398965 (E.D.N.Y. 2010). In that case, the District Court for the Eastern District of New York discussed the rule of liberal pleading amendments and then particularly addressed the circumstance that existed there, where the standard for pleading a cause of action had changed based upon this Court's decisions in Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 173L. Ed. 2d 868 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). The decisive quote from that case bears repeating:

 

Defendants have failed to offer any persuasive reason why, having moved promptly after remand for leave to amend, Plaintiffs should not be permitted to conform their pleadings to the heightened standard only recently imposed by the Supreme Court. To deny Plaintiffs that opportunity would require them to defend the adequacy of a pleading drafted before that heightened standard was established, even while they assert they now have sufficient evidence and information to meet the heightened standard. The law, which encourages "liberal amendment in the interests of resolving cases on the merits," does not demand such a result.

 

Id. at 6 (internal citation omitted). That logic applies with equal force here. In a similar decision, the Fourth Circuit ruled that the district court was required to permit an amendment to a pleading when a decision of this Court, entered while the subject district court action was pending, arguably provided for a new cause of action under the circumstances of the case. See Pittston Company v. United States, 199 F.3d 694, 705 (4th Cir.1999). Taxpayers were unable to locate a case that disputed the logic of these cases or disputed the application of the rule favoring liberal pleading amendments to the situation where the applicable law changes after initial pleading.

2. Perhaps just as conclusive is the well-settled law about the permission of amendments to pleadings even where there is no intervening change to a governing standard. This Court's frequently cited Foman v. Davis case explains the standard:

 

Rule 15(a) declares that leave to amend "shall be freely given when justice so requires"; this mandate is to be heeded. If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits. In the absence of any apparent or declared reason -- such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc. -- the leave sought should, as the rules require, be "freely given." Of course, the grant or denial of the opportunity to amend is within the discretion of the District Court, but outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules.

 

See Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230 (1962) (internal citation omitted) (emphasis supplied).

From the standard explained in Foman, case law in the federal circuits has uniformly enforced the policy of liberal amendments and the requirement that the district court provide a valid justification -- if not obvious -- for refusing to permit even a single amendment. For example, the Eleventh Circuit has found it to be an abuse of discretion, except in limited circumstances such as futility, not to permit at least one amendment to the parties' principal pleading before dismissing their claim (or defense).8See Thomas v. Town of Davie, 847 F.2d 771, 773 (11th Cir. 1988) (unless there is a substantial reason to deny leave to amend, a district court abuses its discretion when it does not permit amendment); see also Daniel v. Hancock County School District, 626 Fed. App'x 825, 835 (11th Cir. 2015) ("We have noted that if a more carefully drafted complaint might state a claim, the district court must provide the plaintiff with at least one chance to amend the complaint before dismissing the case with prejudice"). Relying on Foman, the Fifth Circuit explained that "discretion" may be a misleading term because Rule 15(a) "severely restricts the judge's freedom . . . [evincing] a bias in favor of granting leave to amend." See Dussouy v. Gulf Coast Investment Corporation, 660 F.2d 594, 597-98 (5th Cir. 1981) ("unless there is a substantial reason to deny leave to amend, the discretion of the District Court is not broad enough to permit denial").

The part of this Court's Foman analysis that requires the court to express its reasons if it denies leave undergirds still other decisions of the circuit courts. Where, as here, the district court does not state a reason for denying leave and it is not apparent, a refusal to grant leave to amend is an abuse of discretion. See Shane v. Bunzl Distribution USA, 200 Fed. App'x 397, 406 (6th Cir. 2006) (where district court denied motion for leave to file an amended pleading without any "apparent or declared" explanation, the district court has abused its discretion; "[O]utright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules") (internal citation omitted); see also Triplett v. Leflore County, 712 F.2d 444, 446-47 (10th Cir. 1983) (the same); and Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir. 1996) (discussing Foman and concluding that "a proper exercise of discretion requires that the district court provide reasons" for the denial of a leave to amend). That is the rule even when there has been no intervening change in the law or rules applicable to pleading the issue involved in the case. Therefore, it follows that the rule should apply with even more force when there has been a change in the standards applicable to the issue.

Such a rule must exist under the circumstances to preserve fundamental fairness -- due process -- in the consideration of an issue that, while "summary in nature," is still adversarial. Nothing in the case law relating to summons enforcement has suspended the application of the Rules of Civil Procedure or the case law interpreting those rules. Thus, Taxpayers submit that the district court abused its discretion when it refused to permit Taxpayers to make new submissions pursuant to the new standard established by this Court. It was a request that would have involved little or no imposition on the court or the parties, could have been accomplished easily in a matter of days, and was necessary to properly balance the interests of the IRS and Taxpayers here. It is not a request that would have upset the policy of these summons proceedings to be "summary in nature," but would be merely the inclusion of additional information currently in possession of Taxpayers -- whether it comes from materials that were available at the outset of the case or materials that were obtained during the case -- to permit their full presentation in support of their defenses, instead of one that necessarily was designed to meet only the lower pre-existing standard.

3. An additional strong reason why the district court should have been required to permit additional submissions pursuant to the new Clarke standard is that the Eleventh Circuit, by its ruling, changed the decisional environment under which the district court was left to rule on both the sufficiency of taxpayers' present submissions and whether to permit additional submissions. The district court had ruled that the alleged improper purposes offered by Taxpayers were not valid defenses as a matter of law, but the Eleventh Circuit disagreed. App. 12-14. The district court was in error in its determination on the legal validity of the defenses. So when the district court considered Taxpayers' arguments in light of the new Clarke standard, the district court did so under the expressed belief that Taxpayers' alleged improper purposes were not improper at all. App. 11. Because of that, further submissions aimed at supporting those defenses would also have been irrelevant to the district court. The district court, based on its ruling about the invalidity of the defenses, had no reason or incentive to permit additional submissions to support what it had already found were not improper purposes by the IRS, notwithstanding the new Clarke standard. So the Eleventh Circuit's decision prevented our learning the answer to the obvious question: what would the district court's ruling about allowing Taxpayers to make new submissions have been had it been aware that the defenses raised by Taxpayers were valid as a matter of law?

4. The entire decision of the Eleventh Circuit on whether the district court erred in excluding new submissions is as follows:

 

Appellants argue that the district court's refusal to hear additional evidence in light of the new Clarke standard was an abuse of discretion. The instant case involves the right to examine an IRS agent in a summons enforcement proceeding, which, as the United States points out, is to be "summary in nature." United States v. Stuart, 489 U.S. 353, 369, 109S. Ct. 1183, 1193 (1989). The district court's decision not to hold a status conference or permit additional evidence is appropriate in light of the summary nature of a summons enforcement proceeding. Accordingly, we find no abuse of discretion.

 

App. 14. While Taxpayers do not contest that the law provides that summons enforcement proceedings are intended to be "summary in nature," that point is not germane to the issue of whether the circumstances are such as to require the permission of additional submissions. As the decision of this Court relied upon by the Eleventh Circuit shows, the "summary in nature" language means only that these proceedings are not intended to result in "protracted litigation without any meaningful results for the taxpayer." See Stuart, 109 S. Ct. at 1193. In that same case, this Court acknowledged that the IRS's good faith is still at issue. Other summary proceedings -- for example, summary judgment -- while aimed at preventing a full-blown but futile trial, do not restrict the application of the rules of civil procedure, limit pleadings, or limit submissions; in fact, courts are required to be liberal in permitting a party a fair opportunity to submit information that it has and to supplement submissions in pursuit of fairness. See United States v. Powell, 379 U.S. 48, 58, n. 18, 85 S. Ct. 248, 255 (1964) (Federal Rules of Civil Procedure apply to IRS summons proceedings).

5. The Eleventh Circuit's recognition of the "Catch-22" position that the taxpayer typically finds itself in with respect to availability of information about the IRS's true purpose strongly counsels in favor of allowing Taxpayers to submit to the court the materials that it already has to attempt to meet the newly-established standard. See United States v. Southeast First National Bank of Miami Springs, 655 F.2d 661, 667 (5th Cir. 1981) (in preserving some ability of the taxpayer to simply ask an IRS agent at the hearing questions relevant to the taxpayer's allegation of improper purpose, the Court used a well-known allusion to the book "Catch-22" when the Court stated that it would be unreasonable to require a taxpayer to show certain facts in order to obtain discovery that are only available through the discovery); see also Nero Trading v. United States, 570 F.3d 1244, 1250 (11th Cir. 2009) (stating again, "we will not saddle the taxpayer with this Catch 22"). This Court also recognized the taxpayer's quandary in attempting to prove bad faith when it ruled that circumstantial evidence would be sufficient to meet its burden because, "after all, direct evidence of another person's bad faith, at this threshold stage, will rarely, if ever, be available." United States v. Clarke, 573 U.S. ___, 134 S. Ct. 2361, 2367-68 (2014).

6. Taxpayers submit that the question of fairness in the ruling that this Court is being asked to make is also exemplified by the hypothetical where the "shoe is on the other foot." Both sides in the summons cases have a standard to meet to make out their respective claim or defense on the enforcement of the summons. As this Court acknowledged in Clarke, the Government's preliminary burden may be satisfied by a simple affidavit from the investigating agent of the matters set forth in Powell, supra. See Clarke, 134 S. Ct. at 2367. If the standard for the allegations to be contained in the Government's supporting affidavit were raised by a ruling of this Court, could the district court realistically refuse to allow the Government to submit a new affidavit in attempted compliance with that new standard? This Court cannot in honesty deny that such a harsh result would not be permitted. In the name of due process, the same should be true for the taxpayer. When the taxpayer's burden in defense of a summons is heightened -- as it was here -- the district court should not have discretion to deny the taxpayer at least one opportunity to reallege or resubmit materials in an effort to satisfy the new standard.

Based upon the foregoing logic, this Court should grant the petition to adopt or clarify the existing rule, or establish the rule, that where the applicable pleading standard changes during the case, and legally valid defenses (or claims) have been raised, the litigant must be permitted at least one opportunity to replead or resubmit in an effort to meet that new standard. From there, this Court should find that the district court abused its discretion in refusing to permit new submissions and should remand with instructions to permit new submissions and to then reconsider the enforcement of the summonses.

B. This Court Should Clarify Powell Or, Alternatively, Determine That An IRS Investigative Summons May Not Be Enforced For An Improper Purpose And That A Taxpayer's Submission Of Responsive Materials That Meets The Clarke Standard Entitles The Taxpayer To A Limited Evidentiary Hearing

1. The second issue is whether the IRS may enforce an administrative summons for an improper purpose. Both the district court and the Eleventh Circuit -- albeit briefly -- disagreed with the principle that improper enforcement of summonses is grounds to deny enforcement. Both courts ruled that the validity of a summons is tested only at the date of issuance and that events occurring after the date of issuance -- apparently, including events that render nugatory the summonses' only valid purposes -- do not affect enforceability. App. 16, 65. However, this Court has never held that summonses, authorized when issued, can later be enforced for an improper purpose. Indeed, the language in Powell is to the contrary. See Powell, supra, 379 U.S. at 58 ("It is the court's process which is invoked to enforce the administrative summons and a court may not permit its process to be abused").

Taxpayers submit that regardless of the validity of the real or feigned purpose for issuance of a summons initially, if that purpose is vitiated, it is an act of bad faith by the IRS to then seek to enforce the summons for an improper purpose. This Court's words in Powell support that conclusion. If the district courts charged with determining whether summonses are to be enforced are to prevent their processes from being abused, they should not countenance enforcement for an improper purpose, regardless of the intent with which the summonses were first issued. Even the IRS's own Handbook logically explains, "After the SND [FPAA here] is mailed, the Service should no longer be in the process of gathering the data to support a determination because the [FPAA] represents the Service's presumptively correct determination and indicates the examination has been concluded. If the Service issues a summons after mailing the [FPAA], this could be perceived as an effort to circumvent the Tax Court's discovery processes. . . ." (DE 20-7, p. 21, § 25.5.4.4.8).

2. It is fundamental that the use of a court's process for a purpose other than its intended purpose is an abuse of process. Each court in our federal and state court systems is governed by rules aimed at according due process and fairly dispensing justice to all litigants. The Tax Court rules are, like other courts' rules, tailored to the due process needs and rights of litigants before that court. As those rules specify, "These Rules govern the practice and procedure in all cases and proceedings before the Court." See Tax Court Rule 1(b). The Rules also specify that they shall be construed to "secure the just, speedy, and inexpensive determination of every case." Tax Court Rule 1(d). No litigant -- perhaps, especially the Government -- should be permitted to so casually circumvent the rules governing the court to which a matter has been so consciously and thoughtfully delegated. Once the Dynamo case was filed in the Tax Court, the IRS having already is-sued its FPAA, the determination of the issues was solely for the Tax Court, applying its governing rules, to adjudicate. Simply put, the Tax Court was created to have the competence and jurisdiction to adjudicate matters delegated to it, does not need assistance in its discovery procedures from other trial courts, and should not suffer the inefficiencies in being delayed by or subject to proceedings conducted elsewhere simultaneously addressing components of the Tax Court's responsibilities.

This approach to regulation of the IRS's investigative power is also consistent with the approach courts have taken under the relatively analogous statutory scheme governing administrative discovery in the context of a bankruptcy. Specifically, under Bankruptcy Rule 2004, those involved in the administration of bankruptcy laws, such as trustees and other parties in interest, much as those involved in administering the tax laws are empowered under 26 U.S.C. § 7602, are empowered to conduct wide-ranging discovery as long as it is plausibly related to the bankruptcy. However, once litigation on the subject of the Rule 2004 discovery is commenced between the parties to the Rule 2004 discovery, that rule cannot be used to circumvent discovery restrictions of the court in which the litigation is pending. See In re: Bennett Funding Group, Inc., 203 B.R. 24, 27-28 (Bankr. N.D.N.Y. 1996); In re: Szadkowski, 198 B.R. 140, 141 (Bankr. D. Md. 1996). The reasoning underlying this "pending adversary rule" is that the court in which the litigation is pending invariably has rules governing the discovery in cases pending before it. Those rules are founded in the public policies relating to such proceedings and tend to be more restrictive than the rules governing Rule 2004 discovery, limiting parties to discovery relevant to the issues outlined in pleadings, which are themselves subject to limitations. Snyder v. Society Bank of Ann Arbor, Michigan, 181 B.R. 40 (S.D. Texas 1994), aff'd, 52 F.3d 1067,1995 WL 241797 (5th Cir. 1995) (denying Rule 2004 discovery on subject matter of state court litigation between parties). The decisions on this issue assume that the discovery rules pertaining to the court's handling of litigation are entitled to respect and that use of Rule 2004 to get discovery relevant to such litigation is inherently wrong.

Similarly, permitting the use of § 7602 discovery relevant to litigation pending between the Government and a taxpayer is inherently wrong. It is inherently unfair and disregards the system of rules carefully created for the only court that has jurisdiction over the dispute. Permitting this sort of one-sided discovery under the administrative procedure while court proceedings are pending on the same subject between the same parties fails to give due deference to the rules and procedures of the court in which the litigation is pending. To allow the IRS to get deposition-type discovery for the Tax Court case via totally one-sided administrative summonses after the commencement of the Tax Court case permits one party, the IRS, to obtain discovery that the rules of that court would not permit. It subverts the entire court system by use of administrative procedures totally unregulated by the court charged with determination of the controversy between the parties. When a court allows its process to be used for a purpose other than the purpose for which it is designed, the court allows its process to be abused. If the district court allows process designed to assist the IRS in examining tax returns to be used by the IRS after the returns have already been examined, solely for the purpose of evading the Tax Court's discovery rules, the Court allows its process to be abused.

3. Courts have plainly recognized that a summons under § 7602 is improper where abuse would result. Zugerese Trading, L.L.C. v. Internal Revenue Service, 579 F. Supp. 2d 781, 788-89 (E.D. La. 2008). Section 7602 is intended for use as an investigative and enforcement tool. U.S. v. Arthur Young & Co., 465 U.S. 805, 814 (1984). However, [t]he purpose of [ § 7602] is not to accuse, but to inquire." Id. at 816 (citation omitted). Indeed, the IRS's power under § 7602 "is not a power to procure or perpetuate evidence at all." Bolich v. Rubel, 67 F.2d 894, 895 (2d Cir. 1933). Instead, "it is strictly inquisitorial. . . ." Id. The rule approved by the Eleventh Circuit encourages the service of IRS summonses in a prophylactic way, without a present intention to pursue them, creating a potential discovery device that defeats the federal policies and protections underlying the Tax Court rules, or provides a façade under which enforcement can be sought solely for a purpose for which the summonses were never intended and, as in this case, the IRS's admitted purpose of supplementing discovery in a pending Tax Court case. Because of the risk that parties could use § 7602, like Rule 2004, to circumvent the otherwise-applicable rules of discovery, the use of § 7602 during other pending litigation amounts to improper use. As such, the use of § 7602 during pending litigation is inconsistent with due process and fair play and should be prohibited.

4. The present case is an ideal one for consideration of this issue. In this case, the IRS did not even issue the summonses until after the FPAA was completed and signed on August 11, 2010; the summonses were issued a few months later. DE 7-2, pp. 1-5. Although the IRS held the FPAA for a few months, despite its own self-imposed directions to promptly enforce disobeyed summonses, the IRS did not seek to enforce the summonses until after the FPAA was issued . . . unchanged. DE 7-2, p. 1; DE 1. In fact, the summons enforcement proceedings were not filed until four months after the FPAA was issued. DE 20, p. 3. When one of the six summoned individuals complied with the summons, she was interviewed by the IRS attorneys representing the Government in the Tax Court case, and the IRS agent who actually issued the summons did not attend. See DE 20-2. In addition, in the Tax Court case, the IRS refused to participate in standard court mediation on the grounds that the IRS was still awaiting the "discovery" sought through the summonses. DE 20-3. And the IRS both opposed a motion for protective order and sought a continuance in the Tax Court case on the basis of the outstanding summonses. DE 20-4; DE 20-6. Those facts alone cast suspicion on the IRS's purpose in seeking enforcement and are not explained away by any argument the IRS makes now or in the past. In fact, the IRS has never unqualifiedly asserted any reason for now enforcing the summonses other than its intention to use the information in the Tax Court case. At the oral argument in Clarke, the IRS's counsel admitted to this Court that the intended purpose of enforcing the summonses is to use the information in the Tax Court case.9 From the facts identified by Taxpayers, a plausible inference can be drawn that the sole purpose of the enforcement -- and possibly the issuance -- of these summonses has always been the evasion of the Tax Court discovery rules and not the "inquiry" that the summonses were designed for. That would be an improper use of the district court's process and would justify quashing the summonses. This Court should grant the petition to consider the propriety of the enforcement of IRS summonses where, as here, the only reasonable inference under the circumstances is that the IRS is not using the summonses for any statutorily authorized purpose.

C. A Question Presented Is Recurring And Important, And Neither Question Is Mooted By The Absence Of A Stay

The issue about whether the IRS may enforce an administrative summons for an improper purpose is one that can be expected to recur many times. Every time the IRS issues a subpoena at a time that it has a valid purpose, such as the support of its review of a taxpayer's return, and then issues its report (such as the FPAA here) before gathering the information pursuant to the summons, the issue of the propriety of thereafter enforcing the summons will arise. If that issue is not addressed, it will enable the IRS to utilize summonses in a way that violates the courts' process. While the Government can be expected to argue that any rule that prevents enforcement of a summons for an improper purpose may encourage taxpayers to object to a summons in the hope of delaying the proceeding beyond the purposeful life of the summons, that overlooks how easily such a concern may be remedied. As a part of a clear ruling that the IRS may not enforce a summons for an improper purpose, the courts may be directed that the filing by the IRS of a petition to enforce the summonses before the issuance of the SND or FPAA can toll the statute of limitations for the issuance of the IRS's report for which the summons was issued. Therefore, that argument is not a basis for permitting further abuses of process.

Neither of the issues raised should be regarded as having been mooted by the Eleventh Circuit's and this Court's denial of Taxpayers' request for a stay pending this proceeding. If this Court is otherwise disposed to take jurisdiction, this Court may, as it has in the past, order that some appropriate form of relief be granted. See, e.g., Church of Scientology of California v. United States, 506 U.S. 9, 14-15 (1992) (appeal of order requiring production of recording tapes claimed to be protected by the attorney-client privilege, even after a stay was denied, was not mooted by production of the tapes). This Court, observing that a court "can fashion some form of meaningful relief in circumstances such as these," concluded that honoring the taxpayer's "obvious possessory interest in their records," the Government could be ordered to return the records. Id. at 13. This Court concluded that the availability of such a possible remedy is sufficient to prevent the case from being moot. Id. This Court further addressed the possibility of an order being entered presently or, more likely, in the future requiring the Government to refrain from future use of the information. Id. at n. 6. In the present case, because a similar remedy could be fashioned, the issues presently raised are not mooted by the absence of a stay.

In Clarke, this Court established a new standard intended to balance the interest of the IRS in obtaining information against the taxpayer's right to due process and to be protected from improper governmental intrusions. On remand, Taxpayers never received an opportunity to challenge the propriety of the intrusion or to protect themselves from it on the new playfield created by the Clarke standard. That is especially unfair and a significant departure from the accepted and usual course of judicial proceedings in this case where, prior to review by this Court, Taxpayers had successfully met the previous standard and were -- temporarily, at least -- entitled to proceed with a limited evidentiary hearing. Under the circumstances, Taxpayers submit that this Court should accept jurisdiction of this matter to decide the issues raised.

 

CONCLUSION

 

 

The petition for a writ of certiorari should be granted.
Respectfully submitted.

 

 

Edward A. Marod

 

Counsel of Record

 

Jack J. Aiello

 

Martin R. Press

 

Gunster, Yoakley &

 

Stewart, P.A.

 

777 S. Flagler Dr.

 

Suite 500 East

 

West Palm Beach, FL 33401

 

561-655-1980

 

emarod@gunster.com

 

September 19, 2016

 

FOOTNOTES

 

 

1 For simplification and comprehension, the summonees and corporate taxpayers shall typically be collectively referred to as "Taxpayers."

2 Docket Entry ("DE") refers to the district court's docket in the lead case, United States v. Clarke, No. 11-mc-80456 (S.D. Fla.), unless otherwise noted. See DE 18 (designating Clarke as lead case). "Julien DE" shall refer to the district court's docket in the separate Julien case, United States v. Julien, No. 12-mc-80190.

3 The quoted passage of the Handbook discusses statutory notices of deficiency ("SND"), not FPAAs. But as the government has not disputed, an FPAA serves the same purpose for partnerships as the SND does for individuals. See Sealy Power, 46 F.3d at 385-86 (noting the functional equivalence of FPAAs and SNDs).

4 App. 75 is the petition in the lead case, 9:11-mc-80456. The other four petitions were similar and are each DE 1 in the other four consolidated cases.

5 The separate summons in the Julien matter in Case No. 9:12-mc-80190 was served later, in September, 2011. Julien DE 1-3. The corresponding IRS petition was not decided until 2015.

6 The separate Julien case, District Court Case No. 12-80190, relates to an audit of another entity, Beekman Vista, Inc., which had previously settled the dispute with the IRS. (Julien DE 16, p. 2).

7 The district court's decision had a "Hey, wait a minute!" feel to it. The standard had just been changed by this Court, and the due process imperative embodied in our pleading and defense rules seem to require at least one opportunity to replead or resubmit. When the issue was raised, the Government coldly responded that Taxpayers should have submitted all detail they had in opposition to the summonses right from the start, notwithstanding the then-existing standard for entitlement to a limited evidentiary hearing. DE 56 at 3-4. Interestingly, and as a matter of fairness, a review of the Government's affidavit in support of the enforcement of the summonses shows that the Government essentially did no more than what it had to do in order to comply with Powell and did not supply all the detail it had in pursuit of summons enforcement. DE 1-2.

8 While the district court here may have considered the request to be futile because the court believed the defenses legally insufficient, the Eleventh Circuit's subsequent ruling that the defenses were legally valid removes any argument of futility.

9 Initially, when questioned by this Court, counsel for the IRS, after vacillating, stated that the IRS wanted to enforce the summonses in order to find the "right answer," to "revise the FPAA" if the FPAA that was issued was wrong. See transcript of oral argument at pp. 10-11. United States v. Clarke, 134 S. Ct. 2361 (2014) (No. 13-301). Later, during counsel's rebuttal argument, counsel began by clarifying the "finality of the FPAA issue," explaining that what she meant by finding the "right answer" was really using the information in the Tax Court to determine the ultimate question pending in that court. Id. at 50-52.

 

END OF FOOTNOTES
DOCUMENT ATTRIBUTES
  • Case Name
    DYNAMO HOLDINGS LIMITED PARTNERSHIP, ET AL., Petitioners, v. UNITED STATES OF AMERICA, ET AL., Respondents.
  • Court
    United States Supreme Court
  • Docket
    No. 16-358
  • Authors
    Marod, Edward A.
    Aiello, Jack J.
    Press, Martin R.
  • Institutional Authors
    Gunster, Yoakley & Stewart PA
  • Cross-Reference
    Appealing United States v. Clarke, 816 F.3d 1310 (11th Cir.

    2016) 2016 TNT 52-15: Court Opinions.
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2016-19629
  • Tax Analysts Electronic Citation
    2016 TNT 189-14
Copy RID